Start a property management company which guarantees rent?

[Gabriel Harper]

Hey folks,

I'm a landlord with four properties, and have had bad experiences with property managers. I'm thinking of starting a property management company with "skin in the game". My idea is to sign multi-year leases with landlords on a master lease, paying them guaranteed rent each month. I would handle tenant selection and rent the property out to tenants. I'd cover any major damages to the property beyond usual wear and tear. I would also handle all the traditional aspects of property management and maintenance. The expectation on level of repairs' would be to keep it in the same condition at the time of signing lease. 

I know there are a few companies exploring this, but I wanted to get feedback from other landlords. Looking for feedback/thoughts!

[Nathan Gesner]

@Gabriel Harper I think it's a losing proposition unless you charge a significantly higher fee or pay the owner a significantly reduced monthly income.

Just off the top of my head, I suspect you would need around 25% of rent income to make it work. Yes, the Landlord is getting a guaranteed income, but it's also a guaranteed loss of 25% every month!

Let's say the market rent is $1,000 a a month. You pay the owner a guaranteed $800 a month and keep $200.

If the home sits vacant for one month, you've lost five months of income. Get a tenant in and start catching up, and then the refrigerator goes out. That's another $600 or three months of income. Tenant moves out and causes $1,500 in damages but you only had a $1,000 deposit, so that's another $500 in lost income.

You could do better through scale because most units get rented faster than a month, most homes don't need a new fridge, and most renters don't leave owing more than their deposit. The question is, are you able to make the numbers work and still make the guaranteed income high enough to attract investors? And what are you gaining from all this? Do you think it's going to build a business that creates greater success than can already be achieved with a traditional property management company? As a property manager that networks with thousands of others around the country, I don't think it's a viable business model because the cost to build/maintain it outweighs the benefit gained, for you and the Landlord.

By the way, the program @Brian LeBow uses is an insurance program, paid for by the Landlord. It's relatively inexpensive, primarily because the only Landlords that will ever buy it are the ones with higher-end properties that are unlikely to experience evictions, unpaid rent, or trashed homes. It's much different than what you're talking about.