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Rental property management companies?
Old 08-14-2008, 06:12 PM   #1
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Rental property management companies?

Hi Guys,

I'm looking to buy rental property in a few years and started to do my research.

I am a busy professional that flies a lot so taking care of my rental properties will be pretty tough - how many of you have experience with those management companies? do they really hurt ur bottom line? are they even worth it?

I'm in socal and thinks the market will bottom out in 2010 and beyond.

thanks!

JW
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Old 08-14-2008, 06:46 PM   #2
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Originally Posted by dorikin_86 View Post
Hi Guys,

I'm looking to buy rental property in a few years and started to do my research.

I am a busy professional that flies a lot so taking care of my rental properties will be pretty tough - how many of you have experience with those management companies? do they really hurt ur bottom line? are they even worth it?

I'm in socal and thinks the market will bottom out in 2010 and beyond.

thanks!

JW
Haven't been able to figure out how to make money using a management company. Their primary interest is to make money for themselves and cover their rears. That means they hire (in companies i've spoken with) inhouse repair people at really healthy rates, which are passed on to the owner. Repairs have to $ift through the layer$ of management, so they are not done quickly (read, unhappy tenants). The management company is going to be scrupulous about fairness in renting to anyone with a decent credit score, which is a good thing that can result in a tenant group that brings down your property value.

If you are able to make your profit solely through property appreciation it might work - i aspire to having a monthly income from our rentals.
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Old 08-14-2008, 07:05 PM   #3
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Nearly any time you pay someone else to do something for you, it'll end up costing you more. Especially when that something is something you could do yourself.
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Old 08-14-2008, 07:27 PM   #4
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We have a rental in another state, so we have a property management company handle everything for us. They've been great about minor repairs (minimal gouging and very quick response) but were terrible about supervising a larger project (outside contractor was slow beyond belief to finish the work). They charge us 8% of the rent. I interviewed several companies in the area before choosing them.

The only reason we have this rental is because we wanted to keep the house but had to move for work. I wouldn't otherwise have an out of state property, and probably wouldn't have gotten into the rental business on purpose. So far it's been two years (we are in the process of our first tenant turnover) and things are ok. Even if we were local I'd probably keep them on just because I don't want to be an on-call landlord. I'd handle outside contractors myself, though, or even better, really get everything in great shape maintenance-wise before renting it out.
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Old 08-14-2008, 10:08 PM   #5
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Hi there - we have had rentals for about 6 or 7 years now and currently have 3 SFHs that we manage ourselves (all within 20 mins of our home) and 8 condos that is managed by someone else and 4 condos that we just recently took over the management but hired an on-site person to handle the day to day. Here's a summary of our experiences:

1) Property Management Companies CAN NOT manage the way you can. People told us that time and time again, but we did a lot of research, background checks, site visits, interviews, etc., but at the end, had to fire two licensed property management companies because they were totally incapable of staying on-top of my properties (ie., paying a second repair person to come in to fix the same thing another repair guy fixed a week ago) and/or they charge you for every staple (seriously!) or other silly little thing they 'use' to manage properties!

2) If you travel a lot but can do some management on your own, then it could work --- use a home warranty company to do on-going repair of appliances, HVACs, plumbing, etc, but be sure to be there to handle the expensive expenses like replacing carpet or fixing a broken sewer line to make sure you get the best estimate and/or verify if you even need to do it.

3) Start small and make sure you go thru a full year with your investment before taking on any more. We got very lucky with all of our SFHs (had same tenants for 4 or 5 years now) so we got cocky and bought 12 more and thought we can get someone else to manage it like we managed ours....NOT the same!

If you want to be a landlord, you'll have to get your hands dirty to make money. If you just want RE investments that are on auto pilot, take a look TICs or REITs....I don't know much about them, but they would have been a good option for us instead of all the headaches we just went thru.

ANOTHER option, however, is the hybrid....we fired our 2nd PM and decided to manage one of our buildings (4 condos) ourselves. Because we are very busy and are 500 miles away from the property, we decided to hire an 'agent' to represent us (basically, she shows the units to rent, but I handle the background check; she answers maintenance calls, but I give instructions on which vendors to get quotes from, etc. and make the decisions). I carry all the liability in this instance since I am really the "PM" but just hired an agent to be my legs and arms to implement what I decide....nice thing is that I have control, manage things the way I want, but not spend as much time on day to day stuff. So far, this model seems to work...she was able to get a vacant unit rented in 5 days and ask for more rent than any of the PMs ever did! Soon, we'll be selling this (1031) and doing the same thing for our other units, I think! Wish us luck!
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Old 08-15-2008, 01:15 AM   #6
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MUCHO thanks for the inputs - I'm a total NOOB at this as you can see.

I probably won't have time to handle all this stuff while I travel....probably will need to rely on my future wife to do this stuff then.

Sounds like renting really is a headache...I might just buy one place and see.

Do you guys recommend a total rental property (apt..condos) or a nice town house in a nice neighbourhood?
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Old 08-15-2008, 08:50 AM   #7
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Originally Posted by dorikin_86 View Post
MUCHO thanks for the inputs - I'm a total NOOB at this as you can see.

I probably won't have time to handle all this stuff while I travel....probably will need to rely on my future wife to do this stuff then.

Sounds like renting really is a headache...I might just buy one place and see.

Do you guys recommend a total rental property (apt..condos) or a nice town house in a nice neighbourhood?
We've only done places where we own the land - older single family homes, triplex conversion, old multi-units, duplex court, largest number is a 1972 16 unit. There are and were economies of scale - the single family homes didn't generate enough cash return to make them much fun to own, and times when they were vacant stung - really missed the monthly income offsetting the large outgo to bring them back up to snuff. Haven't sold any of the multis to telll whether they will sell well, and single family homes currently offer a nifty get-out-of-tax-free option that multis don't (live in it for 2 out of 5 years as a rental, only owe tax on the depreciated amount), so if you think tax laws will remain the same and you want to live in the place you've rented or will rent that's a potential large advantage.
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Old 08-15-2008, 09:20 AM   #8
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I probably won't have time to handle all this stuff while I travel....probably will need to rely on my future wife to do this stuff then.
While this has nothing to do with money. . .how does your future wife feel about this? I ask because I know it's been a significant strain my parent's marriage that my dad likes to acquire real estate but doesn't like to do any of the management himself. (They're finally in the process of divesting some units, and I foresee a lot of reduced resentment and increased marital accord.)

Just something to think about.
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Old 08-15-2008, 09:37 AM   #9
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single family homes currently offer a nifty get-out-of-tax-free option that multis don't (live in it for 2 out of 5 years as a rental, only owe tax on the depreciated amount)
I thought that this applied to 1-4 unit dwellings. Anything that has 5 or more units is then considered commercial and would not apply. I could be wrong, but does anyone know more definitively?
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Old 08-15-2008, 10:21 AM   #10
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I thought that this applied to 1-4 unit dwellings. Anything that has 5 or more units is then considered commercial and would not apply. I could be wrong, but does anyone know more definitively?
I think you are correct, but don't know if the savings applies to only the portion used for 2 out of 5 as a primary residence (as i would suspect), or to the continuously rented out portion as well. IOW, on a tri-plex, can you shelter the entire profit minus depreciated amount by living in one unit for 2 years or just 1/3 of the profit minus depreciated amount? Good question.
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Old 08-15-2008, 10:55 AM   #11
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MUCHO thanks for the inputs - I'm a total NOOB at this as you can see.
I probably won't have time to handle all this stuff while I travel....probably will need to rely on my future wife to do this stuff then.
Sounds like renting really is a headache...I might just buy one place and see.
Do you guys recommend a total rental property (apt..condos) or a nice town house in a nice neighbourhood?
Dorikin, maybe you want to do some more research before collecting opinions from the board:
(1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions) and
(2) Landlording by Leigh Robinson (7th edition or later).

Well written, covers the pitfalls as well as the benefits, and gives you enough information to decide if you really think it's a good idea to "just buy one place and see".

I also recommend you watch an old 1980s movie called "Pacific Heights"...
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Old 08-15-2008, 05:00 PM   #12
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Me and some partners have 3 condos in Florida. We rent 2 through rental agencies - 1 has minimum 2 day rental, the other is 1 or 2 week minimum. The agencies work well for short term rentals. We handle renting the 3rd condo on our own on 1 year leases. We did use a broker to find new renters after the first renter moved out.

The rental agencies do hurt the bottom line, but they seem almost necessary for long distance landlords with little personal time to manage the rentals themselves.
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Old 08-15-2008, 06:08 PM   #13
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ANOTHER option, however, is the hybrid....we fired our 2nd PM and decided to manage one of our buildings (4 condos) ourselves. Because we are very busy and are 500 miles away from the property, we decided to hire an 'agent' to represent us (basically, she shows the units to rent, but I handle the background check; she answers maintenance calls, but I give instructions on which vendors to get quotes from, etc. and make the decisions). I carry all the liability in this instance since I am really the "PM" but just hired an agent to be my legs and arms to implement what I decide....nice thing is that I have control, manage things the way I want, but not spend as much time on day to day stuff. So far, this model seems to work...she was able to get a vacant unit rented in 5 days and ask for more rent than any of the PMs ever did! Soon, we'll be selling this (1031) and doing the same thing for our other units, I think! Wish us luck!
Interesting. How did you find this agent? Do you pay her on an hourly basis, or some kind of %?

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Originally Posted by dorikin_86 View Post
Hi Guys,

I'm looking to buy rental property in a few years and started to do my research.

I am a busy professional that flies a lot so taking care of my rental properties will be pretty tough - how many of you have experience with those management companies? do they really hurt ur bottom line? are they even worth it?
We went on "temporary" assignment about 2 years ago, and at that time decided to rent out our townhouse while we were gone. We had to use a property mngmt co. since we were so far away. We haven't moved back home yet so we continue to rent the property. We aren't making any money on it. Just looking at it as a way to cover the mortgage for now.

Dealing with the property management company has been very frustrating for me. We are but one SFH of their "many" properties. Repairs are done without anyone calling us, and we just see the amount deducted from our statement at the end of the month. It took them 6 months to fill the property after the first renter moved out, despite us hounding them. The sewer company changed their policy and will not allow renters to pay the sewer bill - owner's have to. This took effect last December. Our mngmt company has not yet figured out how to bill the renter for the sewer bill. We have been paying it since last December. Actually, the property mngmt company has been paying it (from our funds), but many, many times they are late paying it. We have complained and complained and complained. The really, really bad part of it is there is only one other company in town that does property management and their reputation is even worse.

I thoroughly investigated this company prior to hiring them, and they had a good reputation. I had a real estate lawyer look over the mngmt agreement. Still, we had no way of knowing the issues I noted above.

Good luck with your decision. Just make sure you go in with your eyes wide open.
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Old 08-15-2008, 07:20 PM   #14
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Me and some partners have 3 condos in Florida. We rent 2 through rental agencies - 1 has minimum 2 day rental, the other is 1 or 2 week minimum. The agencies work well for short term rentals.
I've wondered how a long-distance landlord can tell whether the rental agency is forwarding all the rental income, especially for short-term rentals.

After all, how is the owner going to be able to tell when the agency pockets the cash and claims the place was vacant?
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Old 08-16-2008, 03:13 AM   #15
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I've wondered how a long-distance landlord can tell whether the rental agency is forwarding all the rental income, especially for short-term rentals.

After all, how is the owner going to be able to tell when the agency pockets the cash and claims the place was vacant?
We have been stung by this. It was easy to tell that the agency didnt send the right amount of money - because they didnt send any for a couple of months. This is a development where all owners use the same agency. To my knowledge, none of the owners were paid. Legal action was threatened and the agency paid the owners. The agency claimed some sort of accounting snafu.

My partners review the monthly rentals to see if they are consistent with previous years, but there is no really good way to check if they're pocketing the cash. My retired partners now spend more time in Florida and they stop in frequently to check on the rentals.
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Old 08-16-2008, 09:05 AM   #16
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I bought a number of rental properties at a young age. Single family homes are tough to cashflow. It's more a buy and hold for 7-10 years type deal and hope the value of the home has gone up a bit and inflation has increased rent (depending on the local market).

You have to ask yourself, what your goal is? Trying to make a few extra bucks at the end of the month or just investing the long term with enough money to cover shortages if the home is vacant for a few months in the year.

Rental management companies will take you for your money but when you are out of state, there isn't much of a choice. People say buy in state, but when you are in CA, it's a bit tougher to cashflow, leaving you little choice.

The one good thing about the rental property is that you can write of the depreciation so it helps with any negative cashflow. (You do have to deduct that once/if you sell the home)
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Old 08-16-2008, 09:07 AM   #17
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JW, forgot to add that since you are in socal like me, do you have your own home? I would buy a home for yourself first.

If you do have your own home, buying a property local to your area (then you can manage it yourself) may not be a bad idea in a year or two if you can cashflow. Just don't buy it with hope that you'll gain 50% in 2 years like a lot of people did the past few years.
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Old 08-17-2008, 12:18 AM   #18
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Thanks guys for the inputs!

Nords: I will definitely go read more books but I did watch Pacific heights....I tell myself that's just a movie...=)

Not sure what my future wife thinks...but I hope she understands that it'll benefit us both greatly if everything goes to plan - earning pay checks just isn't enough to give me the type of life I want for my kids. I get your point though...I'd have to consult with my future wife and make sure we're on the same page.....it seems to me that couples argue about money-related issues the most....rich or not.

I do own my townhouse right now so no mortgage - perfect size for what I need so I'm looking for other properties to gain in the long (5 years +) run and not really looking for extra monthly income (although that would be nice...). Just like many have said...SOCAL is kinda hard to be in the positive cash flow...unless you have a NICE chunk of downpayment which will take me a little bit to do....

How much % do you guys put down on rental properties? I was thinking about 10-15% down.....
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Old 08-17-2008, 06:28 AM   #19
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How much % do you guys put down on rental properties? I was thinking about 10-15% down.....
We had a unique situation where we had to find something fast to satisfy a 1031 exchange. We put 50% down on each of 2 condos and bought the 3rd with no mortgage so that we used all proceeds from our previous sale. Our goal was more to shelter our previous gain and gain equity than managing cash flows from the rentals. It may be tough to get a positive cash flow with 10-15% down.
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Old 08-18-2008, 01:01 PM   #20
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"Landlording by Leigh Robinson". Seriously good book. After reading that, I didn't want to become a landlord.
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