All Forum Posts by: Shawn Walters

Thank you Joel!

Yes, when I posted that originally I had several properties under contract, and have since closed on several of them. I successfully rented one of them to a young guy who had great scores, invited me to his current apartment and makes decent money. I'm not too worried about him. Regarding commercial though, I decided not to venture into that yet after speaking to a friend who has commercial properties. Other friends who own SFH's as investments had good things to say about them - they must have been drunk :).

Anyway, I then listed the other houses for rent and dealt with people from all walks of life who love to lie about their situation and credit. I decided after two days of screening and showing the properties myself that I don't want to mess with it. So I contacted several PM's and had three in mind, but one of them only will take the "cream of the crop" listings in the great zip codes. Well that doesn't help me as I want someone to take them all, and especially want the ones that are an hour drive away from me.

So that left me with two options, the little guy and the big firm that does nothing but this. I must admit, I would probably trust the big firm to be able to screen people with certain criteria and evict people (if needed) like clockwork, where I think the little guy would be more of a gamble.

I guess you are right, if the big firm does more it's worth it to pay them a little more for the piece of mind. The little guy I'm sure will be great, and like the idea of saving money but am I not 100% sold that he will stick around for a year, or three. What concerns me as well about him is is he only has 2 listings for sale as a listing agent, and only manages 3 other homes...so how does he make enough money to make a living at this? I need to ask him more questions.

I'm kinda regretting investment properties right now honestly, but I'm sure once I turn everything over, and see them taking care of the rentals and tenants with the checks coming in each month, I will feel much better about it. I just have to decide who to hand them off to.

Well staying power is absolutely something I want. I want these rentals to still be bringing in rent in 20 years, and I can't do that if the property manager doesn't stick around or manage them well.

My rents are $1000 at the lowest and $2300 at the highest. I agree finding a tenant, showing the property and screening tenants even at a full month's rent is a very low wages. I value my time substantially more than what it would cost me to hire out after all the time it takes. I guess I should weigh that when considering a property manager too.

Ugh :)

Thanks all. I've got 5 properties in the area (two more out of state handled by another re agent) that I want managed. I think I am going to give the little guy a chance. I'd rather be somewhat involved and knowing I'm not giving them all my profits. And I actually already have a maintenance contractor who is great - my current tenants just call him directly when something needs to be fixed and he texts me if it's over a hundred bucks or so.

In that sense I don't really even need ongoing management as much as I do upfront tenant screening/property showing etc. That is a PITA!! But hiring a local realtor to do it would want 1/2 months rent at a minimum, and if I can get this guy to manage for an entire year for just another 1/2 month's rent it's worth it to me.

Thanks. A couple I know of use the big firm, some others I know of use only ones that deal with section 8 (I don't have any section8 properties) . The ones that use the big firm say they are good but they charge for everything and they think they have more "repairs" and expenses then they ever would have if managed themselves.

Its not actually 13%, it's 1/2 months lease fee up front, then 7% of gross rents (thats the lowest they would go), then $150/mo advertising fee while vacant, $85 quarterly inspection fees and 20% maintenance supervision fees. Tons of fees, but they equal about 13% when totaled.

The other guy just gets paid 1 full month's rent upon tenants moving in. That covers his services for 1 year, although I may work something out to split that into two payments - one at lease and one six months in so there is some leverage. Yes I wants hands off, but don't want to pay for it lol. I'm probably leaning towards option 1 just because I feel profits will be sucked up by option 2 and option 1 is a good compromise.

I've decided to hire a property manager to find tenants and also manage properties for me.

I've narrowed down to two, one is a local real estate agent who also does property management on the side. His references (other investors) had good things to say when I called them. Although he only manages 3 homes right now, as he says the others all sold them. The way he works (good and bad) is the money doesn't go through him at all. He just find tenants, screens them and then sends me the apps to decide upon. Once rented he becomes the front man for the tenant, all calls go through him. But he does not do any evictions and such himself, he said the owner still needs to be involved. The money is paid directly to me, and then I pay him his fee. Which is the equivalent to 8% gross rents.

The other is a very large property management firm who does everything from set up utilities in their name, to screening tenants to evicting tenants, to suing tenants in need be, to making repairs etc. However they charge more, and they even charge for supervising maintenance issues. The money goes through them and then they deduct their fees and any expenses they incurred and then I am paid. Their fee, once you account for all of them is around 13% of gross rents.

Thoughts on which to choose? And to answer - yes I've negotiated with them a million times, the big firm originally wanted the equivalent of 20%!

Thanks

Thanks guys. You guys are almost talking me out of this! hah

I cannot find 1%+ rental rates in any of my 3 markets that I know (most are .085%), with the exception of Chicago where property taxes are literally half of the yearly annualized rents, so no thanks to that; or in very low house prices - $80k and under.

Let me tell you what my goal is - mainly retirement/passive income. I'm 31 years old, have an extremely successful business that I run, however I am wise enough to know that my successful business now will not be this successful forever. So I am trying to invest my money in something now that will be a future investment, so that theoretically I could travel around and still be making $10-20k a month, basically retired. Bank accounts are way too low yield, especially now and I do not trust the stock market.

I do see a risk involved with values of SFH...what if things get worse and the values of my rentals plummet even more. But then again, my end game is rental income, so I don't really care, as when values are down rents should be up. But more scary for me is a "rental bubble" - what if the economy improves so much that people start buying homes and forgetting rentals, and with so many homes for rent right now, there will be a lot of supply should that happen. But I guess I could always sell at that point. I guess that's another reason for having lower rent priced homes $1100/mo and under as those rent prices will probably always have someone willing/needing to rent.

Moving onto other ideas - I'm not interested in buying an established business - way too much hands on and risk. I'm not sure about apartment complexes either due to all the management and day-to-day repair/maintenance costs.

But what about what Joel recommended - something like a triple net?

Here's a CVS bringing in 9.38 CAP rate (vs my 6.5 for SFH)
http://www.loopnet.com/Listing/17656413/3700-Kings-Lane-Nashville-TN/

But what the heck do you do if in 4 years (I think there are 4 years left on the lease) the tenant (CVS) decides to close up shop there??

Thank you Joel. You're probably right, I should also look elsewhere for opportunities.

Mark - If I've got 10 properties let's say totaling $15,000 a month in rent, a property manager will charge me around $1050 to manage those (7%).

After all fees are deducted I will walk away with a net income from all 10 of around $9100 before any tax savings or liabilities.

So, I'm not sure what you mean they will make more than me? Unless you mean cash on cash, which has no merit since they are providing a service not an investment.

Is it worth it for them to deal with the phone calls/finding tenants/etc etc for a grand a month? That's a different question, I'm not sure. It's definitely worth something. However, with my current full time other business I run, my opportunity cost is substantially higher than $1k/month, so it's worth it to pay them while I am still running another, much more profitable business...until/unless I can turn that one into passive as well.

Is that what you mean, or have I misunderstood what you're saying?

Thanks Joel.

Willing to invest about 1.2M cash currently. My 2-3 year plan is to hold about 3 Million in rental properties (aside from the two I already have). I did find an apartment building for sale that appears to have 10% cash return. Definitely looks appealing, but also intimidating. I would need to do a lot of due diligence on something like that.

I'm not willing to get into bad areas, it doesn't have to be ritzy, but I'd like to feel safe driving to the house or walking around at night there. And am too afraid to invest in markets I don't know as I could invest in terrible deals. I'm willing to invest the three areas I know and have lived, but am currently focusing on where I currently live.

Hey all,

I became an accidental landlord by moving around quite a bit. I own three homes in three different states, one is my current residence and the other two are my former primary residence's and am now renting them out. Have had good tenants for the most, but they are both on the upper end of the rent price ranges (2600 & 3500/mo).

I'm now getting into the rental property game for future passive income at lower house prices. I'll be hiring a property manager to manage them. I've put in several offers on homes - short sales, foreclosures and a few normal sellers. 90% of them so far have not come down to the price I am willing to pay, and the short sales I won't hear back on till who knows when. Most of them are priced $125-$250k.

I'll be paying cash. My "goal" is to get about a 6.5%+ return on my cash each year, which includes the following:

- rental rate at about .085%+ of purchase price (the 1% rule doesn't work here probably because prop taxes are so low...unless I bought $50k homes in the ghetto). I also take average rents for similar houses in that neighborhood, look at DOM and subtract about $50 to arrive at my rent price.
- 100/month for repairs and maintenance
- Equivalent to one month's rent for vacancy/turnover etc
- Insurance costs + 10%
- HOA costs + 10%
- Taxes + 10%
- Management fees of about 9% of gross rent (fee will decrease with more properties)

and after all expenses - (rent x 12 - expenses/ cash invested) my goal is about 6.5%.

So a couple questions:

1) Is a 6.5% return on my cash (all cash purchases) a fair number to shoot for? Too high, too low etc?

2) How important is curb appeal to price ratio? I'll give you an example - there are two homes in the same neighborhood that I like - one is $10,000 more but is much better looking on the outside. My cash flow numbers on them are about 6.58% on the "ugly house" and about 6.3% on the nicer looking house. Is it worth buying the nicer looking house at a lower yield for hopes of more steady rents/possible higher appreciation.? Or do I need to look at it just like a numbers game and purchase the homes that provide the best return?

Thanks!!