All Forum Posts by: Nathan Biller

Would you mind providing a few more details about what exactly your client is looking for? There are a few places that might make sense outside of the usual meetups or RPOA events, but I'm hesitant to throw out friends' contact info without knowing if it might be a match for them. Otherwise, I'm an investor in GR and happy to talk. Your client could also just show up at the RPOA conference happening in a few weeks and there will be hundreds of investors there.

I think your math is generally correct; when I look at my numbers for properties in GR I'm around 14.4% for PM expenses, 5% vacancy, and average around 10% for repair/CapEx. I'd try to land on what kind of property do you want to buy and who you want to manage your properties because that will determine the management costs as well as give you someone local who can give you a better idea of what market rent should be. A great property with a poor manager is worse than an average property with an excellent manager in my opinion :) You're correct that the "1.2% Rule" is better than the "1% Rule", however finding that will require you to switch from generalized percentages to a specific analysis on a specific property because many of your expenses will scale right up with your rent: a PM's fee is almost always a fixed percentage (although some do offer a fixed fee) and taxes, vacancy, and insurance also usually increase as the rent does and if your Pro-forma uses all percents then you'll likely overlook a real deal because you'll be overestimating your expenses on a steal of a property. Good luck! What made you decide to choose West Michigan as the place to invest? I spent 8 months in Palo Alto, so I know that Silicon Valley is NOT the place to find cash-flowing properties, but I'm curious how you decided where the best place was.

@Christopher Smith Thanks for letting me know I'm not alone! This has recently gotten more complicated as I've added partnerships and am now dealing with K1s which necessitate accurate balance sheets. This past year my CPA's charge for my taxes was much higher than usual because my financial statements had be reconstructed. I wonder if it would, on net, be cheaper to pay for perfect books and then have lower tax prep costs.

@Bill Hampton I actually have a Stessa account and that seems like an amazing option IF I managed the property myself. But because all of my expenses hit my PMs accounts before they allocated to me there's nothing for them to automatically import from a bank account. Unless I'm missing some of the core features? It would be awesome if Rent Manager allowed me as an owner to go in and layer in my PITI, so that I could have a complete set of books (I e-mailed them to ask about a potential solution they'd recommend).

@Patricia Steiner I don't currently have my PM pay my mortgage, but I have friends who do and they've all had positive experiences with it. What you're saying makes sense: they're acting as the CEO of my portfolio and I need to act as the CFO. But your warning doesn't answer my question about the best way to ensure I have complete and accurate books. I feel like I'm doing a poor job as my own "CFO" what with using an enterprise-level accounting system like Rent Manager and then exporting it to Excel to add in a few additional transactions. I used to work for a Fortune 1000 in corporate finance, and am used to closing the books each month. I know my current method is NOT best-in-class. I'm really eager to learn best practices though :)

Thank you to all three of you for your ideas! They're greatly appreciated!

16-units sounds a bit like "no-man's-land": too small to be able to support a full-time PM and too big to do by yourself. But if you add in those other 8 doors you might be approaching the point where that portfolio might be able to support a junior full-time individual. All depends on what types of properties you have and what the rents are, but I know in my market somewhere around the 20 unit level begins to make sense for a full-time person.

I know many investors won't buy anything less than 50 or 60 unit multi-family properties because those are the levels needed to support a full-time PM.

If the PMs you contacted are going to have a dedicated part-time or full-time individual for your property then I'd expect them to charge 5% plus the labor expenses of that person. I doubt they'd do this for a 16-unit though, so I'd expect to see something between 5-10% management fees per month.

Personally I'd look more towards highering someone yourself because then you can base their compensation on performance. Some low base salary if you're performance metrics are just adequate with a really nice ramp-up as your cash flow improves. Aligning incentives are important, and I think many property management agreements do a poor job of this! I also really like @Gino Barbaro's idea of a resident manager. Although I'd be less interested in sharing financial performance with a tenant than I would be with an employee or third-party PM.

First, I'm not a lawyer, so I'm not offering legal advice only explaining how I made my decision! While I'm sure there will be lots of people that disagree with me, I just invest in my own name. I read all the books that suggest one LLC per property. Warren Buffett says that you should never ask a barber if you need a haircut, and I noticed that most of the authors of those books had either esquire or J.D. after their names!

Having one LLC per property is likely the best way to minimize your legal liability. However, that comes at a trade-off of hassle and money. So, as with most things in life, the "right" answer is "it depends". How much do you value limiting legal liability compared to your time? In Michigan, it costs $50 to file for an LLC and then $25/year. In California, I think that's $70 upfront and then $800/year/LLC (again, you'd need to consult a licensed, practicing attorney in CA to confirm what I just googled about California). Then, in order to make sure your corporate veil can't be pierced you'd need to maintain independent bank accounts for each LLC and sign different management agreements for each LLC you manage with your PMs. Any co-mingling of funds would allow a good lawyer to break through all your hard work :( I found out that when I wanted to refinance the bank wouldn't allow me to do it when my LLC owned the property, so I had to quit-claim the property to myself, sign the refinancing docs, and then quitclaim it back to the LLC all while paying filing fees each time. Plus there's also the potential risk that a bank *could* call your loan because most mortgages these days have a "due on transfer" clause. The bankers I've spoken with say that in practice this rarely happens, but they *legally could* if they wanted. So for me, the additional hassle wasn't worth the benefits. You might decide that you like an LLC but not enough to have one for every single property. I'm curious to learn what you decide to do, and I'm looking forward to reading what others recommend too :)

@Matt McKinney Any chance you'd be willing to PM me with your bookkeeper's contact info assuming you're still using the same person?

Thanks for your consideration!

@Nick Rutkowski I think your explanation is super helpful to somebody coming into the industry; thanks for simplifying it as much as possible :)

I was watching Brad Inman's interview of Redfin CEO Glenn Kelman and he was talking about how he has been trying to save buyer's money for years but gave up because most buyer's believe they're getting an agent for "free". However, it has been my experience that the buyer is the one who is actually paying the entire commission since the buyer is the only person that typically brings money to the table.

I've looked at FSBOs before where the owners says something like "I'm going to list with an agent in two weeks for $200k, but if you buy it before then I'll let you have it for $188k." The current big NAR lawsuit could decouple the current setup where the seller is technically paying for the buyer's agent which *could* have the effect of buyers choosing to go unrepresented. Redfin already offers a Redfin Direct program where a buyer chooses not to have representation and thus the seller saves money and the net offer is better for the seller.

I totally agree with @Jim Goebel on aligning incentives. Commissions are ALWAYS negotiable. I also agree with @Lynn McGeein that a business model that figures out how to deliver this for less will do well in the future. Zillow might start giving it brokerage services at some point as they move into insurance and mortgage. They could write it off as a loss leader and still come out way ahead!
 

I have a handful of properties which are all managed by the same property manager. They use Rent Manager, and I'm able to log in and view all the standard reports as well as a complete general ledger detail. However, I pay the mortgage (principal and interest) as well as property taxes and insurance myself. My low-tech solution has been Excel, and I typically wait until tax time to compile complete financial statements. I'm curious what other investors do? Does your PM pay all the bills to provide complete financial statements? Should I be looking at QuickBooks or another solution? Seems redundant to duplicate all the accounting in another system, but I would really prefer to have a complete set of books each month.

Or if you have properties that are more dispersed and use multiple Property Managers where do you consolidate everything?

Thanks for any feedback you might be willing to offer!

Thank you so much @Phil Christian. Just sent them a message, and I greatly appreciate your recommendation!

I'm helping a friend determine whether to sell or hire a property manager for a 22 unit property located in the Winnetka/Canoga Park area of LA. It has been managed by the matriarch of the family for years, but health issues are now requiring a change.

I own a portfolio of SFHs and know the value of hiring a good property manager! I also know that the best way to vet a PM is by getting another owner's recommendation. Any owners out there with a similar-sized property that have been impressed with their management company?

Thanks so much for any feedback!