All Forum Posts by: Steve Donovan

Property Management – Hire It Out or Do It Yourself?

One of the first questions every aspiring buy and hold investor will need to answer for themselves is, “do I hire a property manager, or should I manage myself?" As with most questions of this variety, there are arguments both ways.

Benefits to managing yourself:

• The knowledge gained from being intimately involved in your rentals. You will learn a ton (good and bad) when dealing directly with your tenants. This can help you later as you build your empire. You’ll be a better owner for having gone through this experience if you have the temperament and the time for it
• Cost – It’s obviously cheaper if you manage your own properties. You aren’t paying a management company and can keep all the net rents for yourself. You’ll need to be diligent to make sure your rents are at the market rates as your leases come due. Many self-managing owners end up being far short of the market because they don’t keep pace each year, or they don’t want to run the risk of the tenant leaving due to increasing rents. This is oftentimes an unfounded fear; many times the tenants grumble about the increase but end up paying. Keep your rents at market rates!
• Better quality tenants (?) – If you choose the tenants, they could possibly be higher quality than if a management company does the selection. You will likely have a better relationship with the tenants if it's you that they are calling with problems and it's you that fixes any issues. Be certain you are complying with all federal, state and local laws in selecting and dealing with tenants. You can find these rules and regulations through a local landlord association or REIA. Be vigilant in your compliance; mistakes can be very expensive!

Benefits to hiring property management:

• Compliance with laws in tenant selection and relations - Property management companies are well versed in the laws of tenant selection. If five tenants apply for your unit; how do you select one without opening yourself to a bias complaint? Property managers know how to select from the group. They have access to screening tools such as background checks, criminal histories, credit reports, etc. They also know how to manage the tenants during the time in the unit and will effectively document any deductions from security deposits prior to returning them to the former tenant.
• Keeping rents at market rates – Property management companies have their fingers on the pulse of your market and will make sure your rents are at appropriate levels when they send out renewal notices. They make a percentage of the rent charged, so are incented to keep rents at the highest possible level.
• Less hassles can lead to more units - The hassle of dealing with tenants, collecting rents and the repairs and maintenance required can be an issue when deciding whether to acquire additional properties. If you feel bogged down with the effort of management, it may be time to hire this out so you can spend more time in finding the next great investment property. Don’t let the burden of managing your properties keep your portfolio small!
• Geographic Diversity – This, to me is the biggest reason to have your investments managed by professionals. Once you make the decision to outsource this part of the business, you are free to invest outside of your local area. If you manage yourself, the properties need to be in your area. What if your area doesn’t offer great cashflows or appreciation opportunities? If you work with management companies, you are free to invest in areas with the best returns.

Whether you choose to self-manage or hire this out, I encourage everyone to build the cost of property management into your calculations. If you manage yourself, you’ll make additional money compared to your calculations that can offset some of the hassles. If you ever decide you want to offload this responsibility to a professional firm, you have the money baked into your analysis, so your returns won’t fall below your projections.

I hope this is helpful; all the best to you in your investing future!

Hello @Justin Dziedzic...Advance congrats on pulling the trigger on your first investment property!  I agree with Joseph above; turnkey is the most hands-off and safest approach so long as you do your diligence.  I've stated the following many times in these forums, but it's worth repeating:  

Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route, it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property, and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.  And remember that the property manager is the one that keeps the promises made by the turnkey provider - rent values, maintenance to maintain value, etc.

All the best to on your investment journey!

Hello @Spencer Herrick  This business, like many others, always seems to lead us to think we missed the best opportunity ("if only I'd have bought something x months ago when the interest rates were lower").  I personally think that today is better than 6 months from now and would urge you to get involved now.  If you are thinking interest rates will be lower in the future, get a loan with a without an early payoff penalty or with a shorter balloon period.  You can refinance later at lower rates.  All the best to you in your investing future!

Sounds like a great investment @Cooper Watson  Congrats, and all the best in your investing future!

Greetings @Account Closed!  These forums provide a wealth of information and sources of ongoing support. Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route, it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property, and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to on your investment journey!

Hello @Rob McCollum. A good turnkey provider can take the guesswork out of investing from a distance. While their pricing is much closer to retail than a BRRR project overall cost MIGHT be, the uncertainty of an investment is removed. A good turnkey provider should have already completed the rehab, eliminating the opportunity for nasty surprises that often arise during a BRRR project. The property should be rented, eliminating the risk of income uncertainty and the property should be professionally managed, reducing the headaches brought on by self managing or trying to find a good property manager. The management portion is oftentimes overlooked, but is really the key to a successful investment. You can (and should) have the property inspected before purchase to make you aware of shoddy workmanship or work that should have been done, but wasn't. You will have an appraisal done if you are financing the property to make you aware if the property is higher priced than other similar properties. But there is nothing in the purchase process that helps you with the management piece of the puzzle. The key to successful rental investments is the quality of the tenants and how the property is managed month to month and year to year. A good property manager can help mitigate the downside of a bad investment and a bad property manager can cause the best property in the city to lose money. Spend time carefully vetting the property management piece of your investment. All the best in your investing future!

Hello @Calvin Cheong!  Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering into a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to you as you begin your investment journey!

hello@Jeffrey Sou.  There are many cities and regions of the country where strong cashflows are still possible through quality properties in spite of the current interest rates.  Be very careful when comparing one city to another, one property manager to another or one property to another.  Run all of the numbers through YOUR analysis tool and don't be swayed by someone else's proforma.  Everyone accounts for expenses and incomes differently and there are some widely different scenarios for appreciation, inflation rates, etc.  All the best in your investing future!

hello @Jennifer ShenMany new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering into a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to you as you begin your investment journey!

Hello @Peter Morgan  As others have suggested, you can make far more in a syndication or a turnkey.  There are still many 8-10% cash on cash turnkey deals in the Midwest if you do some research.  In addition to the cashflow, you have advantage of potential appreciation and the principal paydown provided by your tenants.  All the best in your investing future!