First time dealing with PM companies

[Eddie Werner]

I am getting close to purchasing my first SFH to begin my buy and hold investment strategy. My financing is in place and I have spent many months learning about different rental areas and analyzing the most probable cash flow scenarios.

The next step for me is to hire a PM company. I want to focus on investing and I have a 8-5 job so being a landlord with my current schedule would not be ideal.

In talking with PM companies it seems the norm for my area (Pittsburgh) is 10%. However, a number of PM companies also charge a months rent to fill a vacant property. Since the properties that fit my criteria are all owner occupied they would be filling each one, thus charging the full first months rent. This seems extremely high to me and kills my cash flow projections. Is this normal in your area and if so do you negotiate around it?

[Joel Owens]

Eddie it all depends on how demanding your job is and what type of rental property you are buying.

Are you buying for cash flow,appreciation,or a mix??

Suspect areas can have more damage to the unit,turnover,non payers,and excessive management fees (sometimes 12%).

It's when you have to deal with problem tenants,evictions,repair issues,etc. that it can take up a bunch of your time.

The rate you mentioned for management is normal for my area.Investors only see how much PM's make and PM's see it mainly as a thankless job that pays very little.I can't speak for them but this is the consensus I constantly hear.

I looked at the model years and years ago and there is no money in it for a massive headache as a broker/agent.At least not what I classify as a needed return to justify it.

Make sure if you use a PM company that they do it full time so they will have systems,processes,and experience in place with contacts as well for repairs.

You do not have to use their repair people but it is good to have the network there if you want it.Also build in the PM cost when analyzing a rental and offer accordingly.HUGE MISTAKE is not including PM fee and say you will do it yourself.You try for a few months and then get into a nightmare and no longer want to do it.You hire cheapest PM as you did not figure into your numbers and then the problems start happening.

Make sure you include immediate capital repairs to get rent ready when buying and set your reserves as well for vacancy (still pay mortgage if not cash purchase)as well as unexpected items that go out.

You have to decide what your main investing goal is.People I know that are already wealthy will spend more to have a property in a nicer area with less cash flow but more appreciation long term and use it more for a tax shelter and refi down the road to buy more properties.

Others have it for more cash flow and some appreciation to hold long term and others who want to quit their job and eventually do RE full time are looking to take their small amount and get the biggest bang for the buck regardless of how big a headache it is.