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All Forum Posts by: Faisal Sami

Faisal Sami has started 5 posts and replied 75 times.

Post: Buy Low and Go Section 8 route

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Jared Weaver

I do this all the time. It is a winning strategy. Manage the tenants well but treating them well. They will damage the property less.

Post: Turnkey Real Estate Investing

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

Great discussion. I am enjoying reading the many comments.

@Steven Gesis,,, well laid out points, I think you have some valid arguments. HOWEVER just in general I can say that for the beginning newbie investor who is NOT going to learn the business, there is definite SIGNIFICANT downside risk with going with a property manager that most newbies simply do not take into account nor which is adequately disclosed at the beginning of the turnkey/property management relationship. 

For example 10% management fees are RARELY just 10%. Can I get a show of votes if you think this is true? 

For $1000 in rental income, I have personally had profit and loss statements for the end of the month that showed a net income of $430, $506, and even $285 --on a property that was free and clear, cash flowing and fully rented with two tenants. When I dove into the statement there were all kinds of junk fees buried in overinflated repairs, some of which never even happened, that were simply more margin for the property manager. This risk of additional junk fees and bogus repairs is never fully explained/disclosed to the newbie investor and usually never fully realized or understood until several months/years into the relationship. Not to mention simple neglect. How common is it to hear that the tenant has left messages for the property manager for months never to get a return call back. That the health department has been to the property and has been sending notices that have gone unanswered. I have experienced this personally.  I've seen a horror story or two right here on bigger pockets, let alone my own personal experiences.

For anyone considering hiring a property manager, consider at least the following:

1. Make sure that 10% is really just 10%. You MUST have the rents deposited into your account FIRST before ANY repairs or any expenses are paid. Preferably by the 5th or the latest the 10th of the month. If your proposed turnkey provider will NOT do this--->big red flag. Even worse are companies who will take 30 to 45 days to actually deposit monies into your account. Even bigger red flag. How are you going to challenge a profit and loss statement on a repair that happened 45 days ago without the benefit of a photo or the context in which the so called repair happened? Exactly. I have experienced this very same situation trying to reason with the property manager who would only call me while driving , and she would keep on saying she doesn't remember what the repair was. Who really decides that something needs repairing? And then who verifies that the repair ACTUALLY happened? Do they send you pictures of before and after? Perhaps a video which is just as easy with a smartphone?

2. Once the rent is in your account, ask that you get pictures of proposed repairs with estimates and cost breakdown. You need to know where your money is being spent. Don't buy the argument that you are too dumb to understand basic common sense repairs and that only "experts" can determine this. You may even need to visit the property once in a while for major repairs and get a feeling for what your money is being spent on. You need to watch every dollar going out the door like a hawk and make sure you are getting value for your repair and that it is actually happening. Side note: repairs are important. They keep your properties in shape and preventive maintenance will go a long way in the long run.

3. Ask the property manager to document his/her hours ACTUALLY ON YOUR PROPERTY and what they have actually done for the 10% of rents they have collected. You are paying them to provide a service and it is only fair to know what you are getting for your money. I've personally heard property managers brag about not going to properties for months.

4. Ask the property manager what the relationships with your tenants is like.( I doubt they will tell you exactly). Better yet, get to know your tenants. Make sure there is positive karma between you, the tenants and the property manager. Bad karma between your tenants and your property manager can mean MEGA losses for you. A harsh word from your manager can mean a hole in your wall, a leaky faucet suddenly getting worse, or an appliance suddenly going out. Tenants are people too and need to be treated with courtesy and respect. IF you can learn the art of dealing with tenants in a courteous and respectful manner this can be as valuable as doing repairs to your properties. My personal opinion and I could be wrong here, is that there is little incentive for property managers to preserve the human capital they have in their tenants. The more damage the tenants cause the more "work" that needs to be done and the potential for a new vacancy and a new commission,, cha ching!

 After I got to know my tenants and they got to know me, the various property managers I had were pretty much known as A-holes to the tenants. One charlatan I  had(I had 4) pretty much straight lied straight to my face that everything was going just fine when I had just talked to the tenants and learned that things were falling apart at the property.

______

Aside: How to work with tenants? 

Are your tenants your adversaries? 

Do you dread getting their calls? If so there is trouble ahead for your properties. 

I view the landlord-tenant relationship like the employer-employee relationship. You should count tenants as part of your assets like your properties and your employees. Your tenants go out into the world and do whatever to bring in money and pay you rent. Even if they are section 8 tenants, many of them still work hard and long hours and make very little because of minimum wage jobs. I want to make sure they have safe and maintained homes that allow them to do what they can that is meaningful and has purpose in their lives. That means I take their calls or my employees take them. I go above and beyond dealing with their complaints to the point where I want to make sure they are HAPPY about the relationship. Send them a card once in a while. Call them up to tell them you are ordering pizza for their kids. Send along a gift basked for on time rent for 12 months. Some simple human things and common courtesies in dealing with your tenants will go a VERY long way in maintaining your properties. This simple idea is really lost in the turnkey/property manager paradigm. Plus tenants really like to know they are dealing with the OWNER. It makes them feel important that they are talking with the decision maker. And when they do call, make decisions. Take action. If you have decided that damage to the property is tenant related communicate that clearly and send them an invoice and ask for payment. If they keep the property clean and well maintained reward them for that. Many of your lower income tenants are used to being treated like dirt by society so what a pleasant surprise when the landlord takes a SLIGHT interest in their life and shows a little courtesy and respect. Don't become their friends but speak to them with decency and it will go a VERY long way.

_______

Try asking your property manager to do the above 4 things. You will have very few takers. At least in my experience. I am open to hearing otherwise.

Not ALL property managers are bad. In fact even if we assume that 80% are absolutely fantastic, there is a 1 in 5 chance that you will wind up with a charlatan in the bottom 20% who could tank your entire real estate investment and leave you with a bad taste that this whole real estate thing just isn't for you. And losses could be significant beyond your initial investment.

@Alex Craig,, Great points and information in your posts. BUT,,,you pay someone $125/hour to replace a furnace? I think this illustrates my point pretty much. From a property managers standpoint there is really little downside risk in paying someone that sky high of a rate because its all coming from the owner's pocket and can be chalked up to "business expenses" on a profit and loss statement. The manager gets a flat 10% of the upside of all the rents and probably a 15% commission on that $125/hour rate. And therefore from a managers perspective a cost is a cost is a cost regardless of the type of property. But heck, I would never pay someone $125/hour to put in a furnace. How about flat fees and volume discounts? Not to mention, my rehabbers do all kinds of handy man work for me as an owner because they know where their bread and butter come from. Things you can only get if you are in the game as an owner and a practitioner of real estate investing.

@Account Closed,,,how do you take into account bogus property manager repairs/fees that can go as high as 30 to 40% and maybe even more? No investment can stand that sort of headwind consistently over time. I think you said it best, not me: the proverbial Unicorn....;) I believe in hiring w-2 employees to do this work and running your real estate business like a real company. There is really no other way around it. That means spending some time in training and mentoring and getting your employees to follow your systems. You will spend more in the beginning but in the long run it will pay off very nicely. I wouldn't rely on realtors to do property management. They are in the business of selling real estate for a commission and most realtors know very little about actually managing properties for a profit. Maintenance people are for maintenance, not managing properties.

Anyway, for me I have been through the turn key merry go round years ago and I have learned a lot from the experience. Don't get me wrong there were good moments. Probably the best thing the turn key experience did for me was to actually get me in the game. Otherwise for years I was a spectator in the stands and not on the field. It was only after experiencing a few tackles and getting pummeled that I realized that I am actually gonna have to run with the ball myself if I want to put some points on the board.

As a final thought as a way to evaluate property managers, I would really be interested to see profit and loss statements from actual properties that show consistent profits over at least a 3 year time span. Names, addresses and contact information redacted of course. If they can't show they have had properties under management for at least 3 years, red flag. A property manager that is willing and able to show that I think bears looking into.

I know I have taken a decent whack at property managers but I don't really have an axe to grind with them if there is no abuse and they are doing there job and not charging junk fees and bogus repairs. Unfortunately I have not had the pleasure of working with a single one like that and that is all I can talk about. 

The reader who is reading this should only take away that this is ONE real estate investors experience and that you must do your own due diligence as experience is one of our greatest teachers and that there is nothing like failing your way to success !

All the best !

Faisal

Post: financing rentals

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

Find a market with reasonable price to rental ratios. Buy your first property all cash. You will make mistakes. Learn from them. Make it work. Soon you will have the capital to buy your second property. Rinse and repeat. Requires discipline and focus, but tried and true method that works over time and market cycles.

Post: The numbers are wrong! But I'm still buying

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Thai Tang

Negative cashflow is like kryptonite. I would run away from any deal that required negative cashflow for any period of time. You would probably need to double if not triple your projected negative cashflow as there will ALWAYS be unforeseen circumstances.

Bad things always happen in real estate, and those risks need to be managed very carefully.

Make time your ally by holding positive cash flowing real estate

Post: Investors taking on a mentoring role

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

You have the right idea. Find a real estate investor who is successful and making money. Learn what business they are in whether it be buy and hold long term rentals, flipping properties, or wholesaling. Learn what they are doing and model what they do. This is probably the best way to learn the real estate game. And you can have tremendous fun doing it this way as well.

Post: Cleveland (Northeastern Ohio) Meetup?

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

Can't make this week but would love to attend some time

Post: Turnkey Real Estate Investing

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Dexter Wallace,,, one other suggestion: spend time on the ground with actual real estate investors who own and manage their own properties to get a sense of what the business is really like. Too few beginning investors actually do this. I've spent thousands on books,tapes,webcasts and podcasts and still do to improve my knowledge and understanding. But NOTHING will substitute for on the ground experience. I know real estate investors that don't know the first thing about how to run a podcast or that ever bought a real estate course, but they are financially free and totally independent because of their actual on the ground experience in doing the business.

Post: Turn Key Markets

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Jami Morton,, Cleveland is a great market. I have invested in Cleveland for years with great buys and great cashflows. I started with a turnkey company and after I was left high and dry, I learned the business myself and manage my properties from a distance with a team on the ground. It's a tremendous amount of fun doing this for yourself. Don't think you have to have a turnkey company do it for you. You can start with one property perhaps with a turnkey company, get to know the business and gradually take the reins so you can do it for yourself on your next properties

Post: Turnkey Real Estate Investing

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Jay Hinrichs,,,,impressive !

Post: Turnkey Real Estate Investing

Faisal SamiPosted
  • Investor
  • South Barrington, IL
  • Posts 102
  • Votes 57

@Jay Hinrichs,, there is gold in section 8 properties/tenants. I can see exactly why a turn key company/property manager won't do section 8: because it requires a lot of time and effort to screen the tenants, bring the property up to code to pass inspection, and then HOPE you get a rental offer that you can live with. This requires a lot of analysis and work. Much easier to pick up another junker slap some carpet and paint on and sell to an out of town investor. Not all turn key companies do this and this is not a blanket statement against all of them. But we see stuff all the time that just makes us shake our heads. 

I like simple, guaranteed government income streams. Then all I have to do is figure out how to control my losses. And that CAN be done.

Enjoying the back and forth. 

My main purpose here is to learn what other people are doing and whats working. ;)