Branch into property management or no?

Question

I have been managing my own properties for 5 years.  I've had good luck and do fairly extensive background checks and keep renters on a short leash.

I have wondered if I could generate some more cash flow by managing single family homes for people who either got into the business and realized the management part wasn't for them or bought a better house and couldn't sell their old one so they decided to rent.

For it to be even close to worth my time I would need 10% or the rents, which on a 500$ -600$ rental I think is reasonable.

My biggest issue is that I carefully chose my properties based on many things with class of potential renters being important.  I was looking for bang for the buck, but also be able to rent to decent people.  If I manage others properties things like location and condition are more out of my control.  I only manage two single family homes at this point.

What are some of your thoughts?

Rob K. · Answer

I manage my own properties, but I would have no interest in managing for others. For one thing, I don't want to have to answer to anyone. The other thing is that the money just isn't that good. You example gave rents of $500-$600. Even at $600 per month in rent, if you're getting $60 per month (10% is pretty high in my area), you would need a lot of properties to make any cash.

Even if you managed 100 properties, you would have a ton of headaches and you would only make $6,000 per month. Hardly seems worth it considering you will get so many phone calls from tenants that your phone might melt. You would also need some staff which would cut into your profits.

If you had 30 of your own properties @$600 per month, and you used the 50% rule, you would make $9,000 per month for 30% of the work. I would focus on buying more of your own. You can easily manage 30 of your own houses with a part time handyman and some ringers and no other staff.

Mark Updegraff · Answer

Kyle J.  Indeed!  That is the job of the Property Manager.  And they get paid to do it.

Managing expectations goes a long way.  I read aloud the lease to every tenant.  And I go one step further when it comes to repairs.  I explain "Reasonable time for Repairs"  - I explain our business hours (M-F, 9-5) and tell them that we have staff to fix problems during those hours.  I explain how to fill out a repair request sheet, which is protocol for getting repair work scheduled.  I explain WHEN to call after hours.  IE, an EMERGENCY.  In my experience, managing tenants, and managing expectations is not that hard as long as everyone is on the same page from the beginning.  We fix problems promptly, but that doesn't mean we need to field calls at 3AM for a loose door knob.

Best,
Mark

Joey B. · Answer

Yeah, when I work the numbers (as I've done in the past regarding this) it just doesn't seem worth it.  Just wanted others opinions before I scrap this idea for good.   On my two properties I currently own I pocket about 450$ between the two after mortgages, taxes, and insurance.

Thinking that I may need to manage 8-9 other peoples problems to make that money is kind of scary.   Not saying someone like Mark couldn't make it happen, but I guess at this point I go for the biggest bang for the buck regarding my time spent.

Gene Hacker · Answer

It sounds like you are only really thinking of the work in terms of dealing with the tenant.

You have responsibilities to both the tenant and the owner, some times ideas will not mesh and you will be the middleman...getting an earful from both sides.

Throw in the necessary communications and writing up reports for the owner/investor.  Its is more work than most people think.

Just search the archives here and you will find many posts of investors badmouthing property managers.  I think its usually a case of unreasonable expectations...but then again...that is likely what you will be dealing with.

I can see property management working in high end coastal areas where rent is 2k a month+.  Higher end areas tend to have higher end tenants.  But $500 a months tenants...you are going to work very hard for not a lot of pay.

Mark Updegraff · Answer

I agree with Rob K & Joel Owens in that PM is not a profit center like RE investing.  I can make oodles more money by actively investing versus managing, no argument there.  However, for the Buy & Hold investor 10% is 10% period.  IMO, PM is not that hard, especially when you have systems in place, and staff in place.  Will it make you oodles of money, probably not.  But it will save you 10% on your hold position, and once you have a system that works for your portfolio (and you have your broker's license) you have the option to manage other peoples property.  This business is all about networking.  Managing property is part of networking, it will produce it's own leads, and its own advantages separate from "managing"

Joel Owens · Answer

I do not do property management. I only transact deals and do my own investments.

You have to be wired to be that kind of personality that wants to do PM work.

The return is not anywhere even remotely close to what I get doing other activities. It's not even in the same universe. I will usually refer out to groups that only do PM work for my clients after purchase.

Kyle J. · Answer

Mark Updegraff I didn't say the PM company is actually going to be DOING the repairs, but who do you think the tenants are going to call everytime something goes wrong?  Certainly not the owner.  The person managing the property has to be prepared for those calls (which can come in at night, on weekends, etc), and to then coordinate/schedule the work to actually be done.

Mark Updegraff · Answer

Kyle J.   The PM co should not be doing the repairs.  As the PM, get rid of the bad tenants and get good ones.  Isn't that the name of the game?

If you don't like the client / house / tenants do not take them on as a client.  Screen for clients like you would screen for tenants.  If you like the client and they  have a house that needs work & has bad tenants, turn it around!  Just make sure you get PAID.  You may not want to manage every property, but that doesn't mean you shouldn't manage any...

just my 2 cents.

Kyle J. · Answer

I think it would be a lot of work.  Not saying you couldn't do it...just that you need to think it out all the way.

Are you employed now?  Managing two of your own properties is no problem even if you have a job.  In fact, it shouldn't be much work at all.  But managing a whole portfolio of other people's properties is likely going to be a full time job in itself.

I know with my own properties, I make them pretty much perfect and like-new before a tenant moves in.  I do this for several reasons, one of which is to reduce the calls for maintenance.

However, with other people's properties, you will not have much control over what kind of condition they're in, and even a couple properties in disrepair (or bad tenants) could cause a lot of work for you.  Just something to think about.

Mark Updegraff · Answer

First off, check you local laws.  In NYS you must be a licensed broker to accept rent on behalf of someone else.

As long as your legal, I think it is a good idea.  My PM skills have been acquired through the school of hard knocks, and I think I could offer a lot of value to people like those you described.  IMO you will need a team of people rather than fly solo.  The nature of PM is 24/7.  Though most of the time there are not a lot of odd hour stuff, it will happen.  Best to have systems in place and people responsible and able to be on call.  I'm building a team now, and it isn't easy.  As the business owner you are ultimately responsible.  The only way to be successful is to provide good service.  If you're up for it, I think it can be profitable.  But that means you need to deliver, even if your team leaves you up the creek.

Best,
Mark

Branch into property management or no?

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