Intro/Property Management Questions

[Michael Sellers]

Hello everyone, 

I've had a BP account for a while now but have never been active other than scrolling through forums. Short intro - I'm 23 and I finish my MBA in 7 days. My brief professional career so far has been in the tax industry, both at the individual and corporate levels. It's a useful skillset to have, but tax is not my passion at all - real estate is. One of my goals for 2021 is to purchase a small multi-family property - preferably 4 units - to house hack (live in 1 unit, rent the other 3 out). I have not settled on one location yet. I have been considering a few different cities in eastern MA, but the restrictive factor in a more expensive market when going for a 4-unit is obviously capital (at least for someone in my position), which means I will have to get creative. I would prefer not to use OPM on my first deal just for my own comfortability, but I'm thinking that it might be unavoidable given the market I'm in. I've been listening to the BP Real Estate Podcast for about 2 years now and have gone through 200+ of the episodes, so I'm past the point of needing to take action. My excuse to myself for the past two years was that I was still a student with a low income, but I realize that was fear talking, not something that could actually stop me from investing.

I just recently started a job working for a small RE investing and development company near Boston, MA. I'm excited to be a part of real-life investing instead of just listening to it in the car, even if I'm not the one personally investing in the deals yet. I'll be doing a range of things for the company: marketing and lead development, internal organization/optimization with CRM systems and other databases, construction management, and property management. I haven't worked there very long yet, but I have loved it so far.

Hopefully it's ok that I'm posting this in the new member intro forum, maybe I will need to repost in a better place, but my questions deal with the property management aspect of my new work. From everything that I have ever heard on BP or read in books, most investors plan for about 8-10% of monthly rent for property management. This company, however, pays its current property manager (the guy I will take over for in the coming months) only 3% to manage roughly 35 rental units. When I showed surprise and asked about it, the response was that 10% is way too high and that the going market rate was closer to 3-6%. Like I said, I have not worked here for very long, and I do not have any experience investing in real estate personally, so I didn't feel like challenging them, but it definitely didn't match up with what I thought the consensus was. I did some light research on Google, and everything I found confirmed what I had thought: 8-10% was the expected rate for a property management company. 

Other information that may or may not be useful in answering my questions:

- the units have all been full-gut rehabbed within the past 2-3 years

- each property has no more than 9 units, but most are between 3-6

- though there are currently about 35 active units, there are another roughly 35 units currently being rehabbed that will be added to the management portfolio once complete for a total of around 70 units I would be managing

- I would not be the one making physical repairs or fixing the toilets so to speak, as the company also has a property maintenance person that the property manager delegates most labor to; the manager's job is more to interact with the tenants and be the face of the company, as well as obviously tracking the properties' financials to make sure everything stays profitable

PM Questions

Is 3% really a reasonable rate to pay a property manager who is managing 35-70 rental units in a high-rent market? If not,

   1. how much should I be asking for, given that I have no experience and am in this job for the first-hand experience just as much, if not more, than the money?

   2. is it lower because I am an in-house individual rather than a 3rd-party PM company?

   3. is it lower because there are several properties with several units each rather than just a couple smaller properties?   

   4. if none of these, then why?

What are the biggest pain points that a good PM addresses? I know the usual don't take cash payments, make no exceptions so you don't get caught in discrimination issues, screen well, etc, but what are other things that most property managers just do poorly that I should watch out for?

Non-PM Questions

What are good metrics to help differentiate between potential investment locations, keeping in mind it will be owner-occupied for at least a year?

Does anyone know if BP is going to have a sale on Pro/Premium memberships this holiday season? I'm upgrading soon regardless because I want unlimited access to BPInsights, among other things, but I know from listening to the podcast that there have been promos in the past. I was hoping there would be one for Black Friday/Cyber Monday, but I only saw book sales.

I feel like there's too much here for a first post and I could talk RE and ask questions all day, so I'll wrap it up. Please don't feel obligated to respond to everything I brought up. If you can help with any piece of it, your advice is greatly appreciated. Also, if there are any investors in the Boston/eastern MA area who want to connect for any reason, feel free to reach out. I'm just getting started and would love to make some industry connections. Thanks for reading!

[Dan K.]

Welcome! You might want to put the post in the Boston area forum.

Here are some thoughts.

PM Questions:

I'm not entirely sure what you're asking here. Three percent is low, but is that what your employer is going to pay you? You are an in-house employee. The company needs to make money to pay for office space, insurance, unemployment insurance, benefits, your bosses, corporate registration fees, etc., etc.

8-12% is what investors expect to pay a third-party property management company to manage units. In addition, large investment groups that self-manage will charge investors approximately 8-12% for property management.

This about Realtor fees. Let's say you are selling a house -- the agent says there is a 5% fee on your $1m property -- that's a lot of money! The agent must be rich. Half goes to the buyer's agent and maybe another half or so goes to the agent's broker. So what looks like 50k in the agents pocket might be $12,500 or less -- of course they then have to pay taxes on that.

PM Tips: You really need to have all of your documentation is in order. If you take security deposits, know the MA security deposit laws like the back of your hand. Personally, I think cash payments are fine so long as you have a receipt -- but I've had one cash payment in over a decade. You really don't want tenants who only operate in cash. Other tips really depend on the type of properties / locations you are managing. Young professionals / recent college grads close to Boston are very different than lifelong renters.

Non PM Questions

There aren't a lot of 4-plexes around Boston. I have one in Cambridge (added the 4th unit) and I think only 2 or 3 4-unit buildings have sold in the last year in Cambridge. As for targeting specific areas, you might want to reach out to @Lien Vuong or another investor friendly agent.

For house hacking you're not going to use other people's money (besides a bank). The structure doesn't work. What would you offer to an investor? At that point you're going to need to pay rent to the investor which basically kills the entire concept of a house hack.

In a city like Boston, notwithstanding COVID, you can even house hack a condo. Buy the largest condo you can afford and fill the bedrooms with tenants. The city is full of fun, interesting people around your age that are looking for a bedroom and roommates because either (a) rents are too expensive and/or (b) they don't want to live alone.