All Forum Posts by: Jon Alke

@Mike McKinzie

Now you are making me jealous! 

I do envision having more of your approach when I am retired than continuing with my current role.  And I'd never claim I am better as am amateur property manager than an experienced pro.  But, with current demand allowing less than 1% vacancy, currently happy tenants (with low turnover), and my staff doing most of the heavy lifting the increased marginal cost of the PM seems to be too expensive.

This all started as me pointing out to the OP that he had options beyond 100% passive investment in real estate - he has certainly heard some good points on both sides!

You can ask for a seller's schedule E from their tax return, which should list ALL expenses associated with the property.  No guarantee that people don't fudge the numbers, but since the expenses decrease their tax burden if they are getting creative they would be overstating expenses, not under.  If they won't provide that you can ask for copies of recent utility bills.  Also, insurers could generally give you a reasonable quote based on size, age, location of property.  If a seller won't give you any actual tax info are alternate verification of expenses I would take it as a red flag.

For a new investor I would want to be very comfortable with knowing my units would be in demand.  My first property was close to a new medical school in an area with a relative lack of housing, so I knew students would drive plenty of demand.  If you are brand new to Louisville demand may be hard to gauge accurately.  But, as a new transplant to the area you know what you are looking for as a prospective tenant or buyer.  You could use how desirable you would find a unit as a benchmark for how tenants would view the property.

Depends on the rest of the deal.  In my market it is standard for the landlord to pay water/sewer/garbage.  Plenty of deals cashflow despite this.  Many around here would tell you to figure about 10% of additional expenses from your gross revenue, although your current rates and what other utilities you have to cover obviously make situations variable.  If you are worried about it some recent bills should be easy for the current owner to provide as part of your due diligence.  If covering water isn't typical for your market and the units are in demand you could consider switching this to tenant pay and improve the property's performance. 

@Mike McKinzie

I agree with you about keeping your emotions out of you business decisions.  I'm not sure where you got the impression that I don't.  Bringing love for someone's children in as a comparison seems pretty extreme.  You "care" about the return on your investments as I do.  If you didn't, why fire 6 property managers in 10 years to make your returns better?  Expecting a property manager who loses $70 if my revenue falls by $1000 to "care" as much a I "care" about losing the other $930 is not realistic.

I wouldn't lump property management into an assumed expense along with taxes, insurance etc.  Property management is a choice.  Many here do it themselves.  I was using the most affordable and most reputable company in my medium sized town.  I was paying 7% to the PM, and $35/hr for contractors.  I pay under $20 for wages/taxes for my maintenance man, and the office staff's wages/taxes amount to less than 3% of my gross receipts.  Choosing that savings at the expense of my time supervising the staff is purely an economic one, emotions play no part in it.  You fired 6 PMs for the same reasons I hired employees to help me become my own, a better return.

@Marco Santarelli

Thanks Marco!  BP never fails to teach me something, I hope down the road I can be as helpful to newbies as some of the vets around here have been to me.

@Kyle Scholnick

I'm late to the game on this thread, I missed it until tonight.  I have to say I've learned more about TK over the past hour than I knew total beforehand.

I don't have specific advice on TK for you.  But, I am also a physician who got into real estate as passive diversification play.  It has evolved into something very different for me.  My first year (2013, not long ago) I bought a fourplex that caters to medical students since I knew I could relate to the renter population and a 16 plex in a completely different part of town that I hired a PM company to manage.  I had been wanting to get involved in real estate for many years, and that pent-up interest and some initial success led me to expand pretty quickly (4 additional buildings, 134 additional units since that first wave). 

I have no specific complaints about my PM company, but I would echo what @Jay Hinrichs has said in that they are potentially a drain on your return. While I don't suspect intentional errors, every so often I have to send an email asking for "clarification" on what happened to the security deposit for x, is that a repeat charge for the new carpet in unit y, etc. These errors would be corrected when I pointed them out, but if I wasn't going over my statements with a fine tooth comb, my CoC returns would certainly be lower.

The point I would take home from this is - nobody will care about your investment return more than you will.  Even a great PM will not be as invested in your portfolio as you are.  You have shown on this thread that you expect full, accurate information about what goes into these TK investments, and rightfully so.  But if you buy a portfolio of 5 (or 10, or 20) TKs are you going to be satisfied trying to evaluate the performance of  a PM 4 states away?  If you vacancy spikes temporarily are you going to be losing sleep wondering if the marketing, turnovers, etc are being done to your expectations?  Passive investing sounds great, and you may find a great TK company, but will you truly be able to be "hands off" if you have a substantial stake at risk?  For me, the answer to that question was no as my portfolio grew larger.

I was able to become more active in managing my own portfolio (without cutting back on my clinical time) by hiring a great team.  I have a full time maintenance man and an office staff.  They are far more affordable than a PM company and phoned in contractors, and I can count on them to manage the properties to my expectations.   If there is a problem a quick phone call or face to face meeting takes care of it all.  I'm far more comfortable dealing with my own employees than I would be with a TK company that introduces the possibility of conflicting priorities.  Something to consider. 

Good luck with growing your portfolio!

@Julie Macd

It is a very different market from Seattle. You can certainly find cash-flowing deals, with or without a property management company. Strong demand, if you take care of your units you will run very close to zero functional vacancy. I don't expect much appreciation, if any, going in. I count on cash flow, principal buydown, and modest NOI growth to generate my return. Since I buy and hold and am new to the game I can't tell you much about exiting deals on the backend yet.

Long time lurker first time poster.  I first invested in real estate in 2013 after many years of interest.  I had moved from a northern California market that appeared very difficult to break into to a more affordable market in Central Washington (Yakima).  In the past 2 years I've acquired 154 units spread over 6 complexes ranging from fourplexes to a 90 unit complex.  I've used BiggerPockets to answer many questions along the way, thank you to all of the outstanding posters whose wisdom has helped me out along the way!