All Forum Posts by: Dave G.

First of all congrats on getting your first property. What an exciting time for you!

Lots of good replies on this thread and obviously there is no right or wrong answer. Many years ago I managed my own properties and experienced the ins and outs first hand. Now I have a professional career with demanding hours and must have a PM. Plus I travel a lot. But as an earlier post indicated, how do you manage your PM if you have not done it yourself? And don't believe that is a hands-off/no work situation either. You're either managing the property or managing the property manager. You must be sure to let them know you are paying attention by reviewing the leases, the monthly statements, asking questions about your properties, etc so they remember they have a customer they are accountable to.

All that being said, the two things I believe you must have great confidence in before you could do the management yourself would be 1) exceptional tenant screening & selection and 2) a reliable maint man that you could call upon nearly any time.

Lastly, I remember my first property and what a pain it was to deal with compared to my stock investments. I almost dumped it since it was all this extra work I had not experienced before. But know that after you get multiple properties and start getting some economies of scale, the aggravation shrinks relatively and the effort really starts to pay off. So hang in there and good luck with your decision. 

I have some properties that are free & clear. But the type of investor I am and my situation allows for leverage to be optional. If I were earlier in my investment horizon, I would be very leveraged to the extent that the numbers worked.

One dimension (there are many of course) of an unleveraged property I consider is the comparison of the net income they produce to the "yield" metric that a securities position would deliver if I instead used that cash to buy stocks in my brokerage account. 

Make sure you perform "care and feeding" of your network too. A few years ago I had a couple of property managers that were doing an awesome job with my properties. I gave them gift cards at year-end for Christmas and they were surprised and grateful. You can bet that I stood out as a client after that and they worked even harder for me. Unfortunately, both PMs moved on to other jobs, but they are still in real estate and are excellent connections for me to tap for key information and help. Had I not given them gifts, they probably would not even recognize my name now.

@Aaron Beavers welcome to the valley. I too am a relocated mid-westerner (from Chicago) but am a long-time resident of Phoenix now with 28 summers under my belt. 

My recommendation to you as a new AZ investor (and resident & employee) is to keep a close eye on market here particularly because of the extreme market cycles that this state has historically experienced. These cycles bring risk and opportunity. You want to be sure you are on the right side of transactions during highs & lows. I have been here through two full cycles, starting with the S&L crisis in the late 80s. My personal belief is we'll see something similar occur again, but more dampened. The AZREIA slide deck that Alan Langston goes through each month is an excellent comprehensive piece of intel to monitor our market.

@Daniel Lehrman

@Aaron Gaffney

@Evan Bell

@Account Closed

Guys - Introducing myself (sorry for highjacking this thread) since I'm on this forum and new to posting (not new to BP though). I am primarily a buy/hold investor with multiple properties in the East Valley. I also recently bought property in Verde Valley that I'm not sure what I'm ultimately going to do with it, but it's pretty interesting. I am a busy professional working long hours and travel. This limits my ability to get the AZREIA meetings and spend as much time as I'd like finding investment opportunities. In other words, I have more $$ than time. That being said, I would welcome discussion regarding strategy and opportunity. Regards, 

Dave

Here's my overarching answer to your questions - you can't tell by price alone what the service will be like. 

You have to meet with the PMs, interview them, gauge their intellect & communication skills and hear them describe how they will perform their services for you as the customer. Even after doing that, you can't be sure how they will really turn out. The "cheaper" PM may actually wind up costing you significantly more in the end due to poor tenant selection, excessive vacancies and maintenance costs, etc. 

Last year I fired my PM of ~6 years and could not decide between 2 new PMs that were soliciting service to me. So I "dual-sourced" and hired them both. I divided up my properties and gave 1/2 to one PM and the rest to the other. I let them both know I was doing this and they were competing for all of my business. By the end of the year the choice was clear and I moved all my properties to the winner.

@Katherine S.

I think it's a good idea to emphasize to him that if he doesn't clean up his act, you will share information regarding his late payment behavior with anyone calling for a reference. And I see no reason why you could not do that as long as you are sharing factual info.

Also, don't be too hard on yourself regarding the extended lease term. I think this is a wise move and do it as well to avoid marketing/tenant placement during our summer months in Phoenix. And since I pay a property manager a commission for every new or renewed lease, I have always gone longer (>12 months) versus shorter (<12 months) to minimize commission expense. Unfortunately, the extended lease term is working against you in this situation. 

Does your lease not have language that stipulates the tenant must pay all fees & expenses to-date to cure a delinquent condition? In my leases, this would be the late fee + any legal expenses or filing fees that have accrued. If your lease has this, then you could at least be passing these costs on to him and making it more painful for him to be late. 

It's very common to continue to market properties under contract for backup offers. I believe it is unwise to not do that. As a seller, you want to have interest publicly queued-up to add pressure to the prime buyer to perform and close.

Depends on the market you're looking at too. I invest in Phoenix and the AZ RE market is one that has extreme highs & lows with macroeconomic cycles. So there is a major appreciation element in my buy/hold strategy in AZ. 

Recommend ditching the tenant at first opportunity.

I had a tenant that paid late more often than not and I made a lot of money from late fees ($100 per infraction) the first 12 month lease. I allowed him to renew and wound up evicting him 8 months into the 2nd 12 month lease which cost me more than all the late fees combined that I collected from him. 

I own 5ea condos and my strategy is to be on the lower end of the price range for my property size/type. I am able to turn units with absolutely minimal vacancy and get the best quality (credit score/income/rental history) tenants. I'd rather have that then trying to get another $25-$50/month and it taking a month or more to find the the next tenant, which may not have the best credit and income numbers.  Nonetheless, I do raise rents and as numerous posters have indicated, the tenants do their research and they know if you're charging less than market. So to keep the good tenants (remember - they are your customers), raise the rent by less then the market increase (e.g. only raise $75 of the $100 market increase) and explain this to the tenant. They will appreciate the discount to market. If this is not enough though, I will often go to greater concessions to keep a good tenant. Turning units is expensive, both in maintenance and vacancy, even if only empty a week.

The only thing I hate more than vacancy is evictions!