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Owning and managing Real Estate
Old 11-24-2014, 08:58 AM   #1
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Owning and managing Real Estate

I own my own house free and clear, worth about $200k. It is a townhouse in a good community, and my kids are 6 going to private school in same town, and I work in same town. I am divorced with 50% custody of my twin boys. I am residential parent in divorce (kids are tied to my school district).

I see an opportunity (and I have always wanted to own and manage real estate) to rent in my area (there are not a lot of rental options in this school district). This area is an equal amount of trailer parks, section 8 housing and $400,000 houses combined into one district. Not many apartments, and my condo is one of few with a pool. The HOA allows rentals. There are smaller SFH in area as well, most of the rentals are section 8 though (3 section 8 apartments, one "normal" apartment community based on my research).


I was considering downsizing my $200k townhouse (it is a lot of space I do not need the 50% of time I am alone) into an $80k rental and a $120k place for me to live.

I would be moving to a different section of same complex- smaller units with less space.

How does one find a property management company? I'd prefer to have a middle man take on repairs, and would appreciate insight from those here which manage rentals.

In last 3 years I have spoke to 5 divorced mothers which had issues staying in this school district after living in the $400k house, getting a divorce, and not being able to rent. I know there is a niche here...
I also work with several new hires at my company, and none of them could find $800/mo rentals in area, so they had to rent further away.

My goal is to capitalize on that niche, and trying to form a business plan and rental business around that niche.

If you can share your opinions, please do so. Thank you.
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Old 11-24-2014, 09:16 AM   #2
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If you are going to hire a property management company, there are many horror stories out there. Make sure you know how to do it first, so you can know what the PM company is doing.

Odds are, the PM is a failed Realtor, and has no investment property of their own. Even the big box PM companies use independent Realtors to manage their property. I have never seen a large PM company with employees.
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Old 11-24-2014, 10:23 AM   #3
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Since you are living in the same area, why not do it yourself and save the approx 10% fees that PM would charge? No reason you can't deal with it when repair is required. Talk to some realtors, they always have some repair guys they use and most are happy to share the repair person, as it looks good for them to give referrals. Small stuff you can do yourself, bigger jobs may need pro help.

You can do it, it may be a bit scary at first, but view it as a learning opportunity and chance to make yourself more knowledgeable. Just avoid getting emotionally caught up, it is a business and it will require some time investment.

Your plan can work, it does seem you have a lacking middle ground in your area. either low-end or high-end without much in the middle. Assuming the numbers work out, it can be a good financial decision. However, there is no free lunch and you should approach it as a part-time job. I have had rental properties in past, but now I am content with broad market investments and no hassles for all the rental small stuff that constantly needs attention.
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Old 11-24-2014, 01:47 PM   #4
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I'm not a real estate guy, but the ones I've talked to have few good stories about making money while using a management company.

I've heard of a few people that use a management company to maintain a portfolio of properties that they've built up a large amount of equity in over the years, but I get the impression that it is hard to make much starting out in real estate if you have to pay a management company.
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Old 11-24-2014, 01:59 PM   #5
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I can't imagine doing rentals without being some level of a DIY kind of person. Most management companies I've heard of do only that--management. Expect them to call an electrician to change a lightbulb and a locksmith to tighten the screws to your doorknob. You will pay for the repair and the managers time at the highest possible rates.

Might make sense if you had an apartment building or large number of units to arrange for a manager/handyman but not just a manager or management company.
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Old 11-24-2014, 02:35 PM   #6
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I currently have 6 single family rentals. The trouble with condos is that you have the extra HOA fee. Same thing with property management. Both will cut into your net profit. All I'm saying is take a hard look at your numbers.
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Old 11-24-2014, 03:39 PM   #7
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If you are going to hire a property management company, there are many horror stories out there. Make sure you know how to do it first, so you can know what the PM company is doing.
I inherited property, and didn't want to deal with it. We used two different property management companies, and both were abysmal. I finally took it back to manage myself, and I could write a book about my experiences. The property is the least of your worries, the endless list of excuses your poor tenant will burden you with on why they can't pay is frankly enough to make me physically ill.

It is NOT passive income. I wouldn't recommend it to my worst enemy. My parents loved it, I don't - I already have a full time job. Dealing with idiots will wear a person down.
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Old 11-24-2014, 05:11 PM   #8
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When everything's going right, landlording is the easiest money in the world and you wonder why everyone isn't doing it. I think we had about three months that were like that.
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It is NOT passive income. I wouldn't recommend it to my worst enemy. My parents loved it, I don't - I already have a full time job. Dealing with idiots will wear a person down.
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Old 11-24-2014, 05:42 PM   #9
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I forgot to mention that there's no guarantee that you'll experience a lot of maintenance issues. My properties are well maintained, and we can go several months between repairs. A thorough pre-purchase inspection goes a long ways.
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Old 11-24-2014, 06:35 PM   #10
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I just had tenants of seven years move out and did a top to bottom makeover, except for appliances that were replaced a couple of years ago. I did all the work myself and it was worth it. Rented without any problem with increased rent...hopefully for another seven years.


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Old 11-24-2014, 07:00 PM   #11
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I currently have 6 single family rentals. The trouble with condos is that you have the extra HOA fee. Same thing with property management. Both will cut into your net profit. All I'm saying is take a hard look at your numbers.
I have 11 rental properties - all of them in HOA's.

Yes, a part of the HOA fee is extra management but the majority goes toward stuff you'd pay anyway like outside maintenance, insurance, garbage, water/sewer, snow removal and lawn care. I like being in an HOA as it makes it easy to analyze the investment return since a majority of my variable costs are contained in that monthly number.

Screen your tenants well. In 5 years of doing this I've had 1 late payment total. He paid the extra $50 on the 7th. It doesn't have to be that difficult.

Go to biggerpockets.com and start reading all of the guides on real estate investing.
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Old 11-24-2014, 07:26 PM   #12
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I inherited property, and didn't want to deal with it. We used two different property management companies, and both were abysmal. I finally took it back to manage myself, and I could write a book about my experiences. The property is the least of your worries, the endless list of excuses your poor tenant will burden you with on why they can't pay is frankly enough to make me physically ill.

It is NOT passive income. I wouldn't recommend it to my worst enemy. My parents loved it, I don't - I already have a full time job. Dealing with idiots will wear a person down.
Sumday,
I assume that your problems in dealing with tenants were after you dumped the property management companies. I am new to this but understood that this is one of the things that you are outsourcing when you go the PM route.

Could you comment on why you PM companies were abysmal?

Thanks
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Old 11-24-2014, 07:51 PM   #13
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I've had three rentals, first one we managed and were able to cover the mortgage plus a little. I did repairs my self so little maintenance costs. We sold it after about 2 years and I would say it was my education property.

Then we rented a home we lived in when we got orders for Germany. Had that for about 15 years with a management company, the local realtor, and I was happy with his performance. Sole for about two times the purchase price.

Finally about 7 years ago we bought a home in Reno, and have it managed by a company. We pay 10% for management and over 7 years only about 30 total days empty, no rent.

So I found rental agency for both from a local realtor.
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Old 11-24-2014, 07:55 PM   #14
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Could you comment on why you PM companies were abysmal?
I realize this response was not mine to take, but I am taking it anyway.

A PM makes the most money, when you make the least. It is a reverse incentive. Are there great PMs out there, sure. But if they do not know how to screen tenants, or know what to look for, you are screwed. Most have never owned an investment property.

I had a PM do some placement for me in my early days. A well known one here in MN. They placed two tenants, neither one stayed the entire lease. The replacement tenants left also.

Here are some thoughts regarding PM companies...

And some additional downside....

Since then I do it all myself. I have had bad tenants, but if you stick to a 625 credit score or better, 3.5x the rent or better, and skip any one who ever had an eviction, ever, you will be better off.

In a single family home, use a higher score. Most of my tenants have a 720+ score, and $80K in household income.

I have 24 renters, 20 in an HOA. And a full time job. I spend maybe 1 hour a month handling calls, and ~10 hours a month with maintenance.
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Old 11-24-2014, 09:20 PM   #15
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Could you comment on why you PM companies were abysmal?
My initial beef was with collections. The occupant would give their excuse of the day, and that's what I'd get on a piece of paper with my monthly "draw". We were left with pursuing it, and believe me, if you don't pursue it, they just won't pay.

This same company also did a screening for us, which turned into an unbelievable lawsuit. The guy was an anti-government-prepper-gold-standard-kook and sued me for possession of the house because he said it wasn't probated properly. His goal was to get a free house. He represented himself, and it cost me a small fortune in legal fees. It was dismissed, with prejudice, and it still took me 6 months to get him and his trolls we didn't know about removed. Not sure how they could have screened for such a ridiculous scenario, but I had to have someone to blame.

This company closed up shop one day with NO notice. I found out from a tenant who showed up to pay his rent and the doors were locked.
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Old 11-24-2014, 10:01 PM   #16
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Not sure how they could have screened for such a ridiculous scenario, but I had to have someone to blame.
This is where credit scores come into play. Odds are, this person cheated many other creditors and had a low credit score. Credit score is a terrific indicator of personal behavior.

It really is that easy.

I screen tenants every day for our 120 unit complex and created the criteria that turned a violent neighborhood with over 540 police calls a year to less than 10% of that. And the calls are much less serious.

You could not get a pizza delivered, or a cab to come out. There were shootings and multi-car police incidents on a regular basis. The police rented an apartment in the complex so that could be right on-site.

With the changes, it is now a solid place to live.
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Old 11-25-2014, 08:24 AM   #17
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I own my own house free and clear, worth about $200k. It is a townhouse in a good community, and my kids are 6 going to private school in same town, and I work in same town. I am divorced with 50% custody of my twin boys. I am residential parent in divorce (kids are tied to my school district).

...
I was considering downsizing my $200k townhouse (it is a lot of space I do not need the 50% of time I am alone) into an $80k rental and a $120k place for me to live.
....
What about the 50% of the time you are not alone?
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Old 11-25-2014, 09:34 AM   #18
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Since then I do it all myself. I have had bad tenants, but if you stick to a 625 credit score or better, 3.5x the rent or better, and skip any one who ever had an eviction, ever, you will be better off.
I only require 3x rent but I do tell them that if I see any late/missing utility, credit card or loan payments on their credit in the past 2 years it will mean no approval. Having strict criteria up front really does get most people to weed themselves out before even applying.
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