Landlording

How many properties can a real estate investor self-manage?

January 28, 2020 By Erion Shehaj Leave a Comment

Most investors who ask this question are looking for a “Rule of Thumb” type of answer. For instance: Up to X number of properties you can manage yourself, any more and you need professional property management. But, that’s too simplistic an answer.

In my experience, I’ve seen individual investors manage 15-20 rental properties on their own with ease as well as investors who lost their mind after managing two problematic rentals.

There are too many factors at play to give a one size fits all answer. But if I had to reduce it down to the essential, the answer depends on four major factors.

Where does the investor fit in the Convenience – Savings continuum?

Picture a continuum where on the far left you have maximum convenience and on the far right you have cost savings. Where do you fit within that continuum? Are you the type of investor that wants or needs to be completely hands-off? Perhaps you have a demanding profession that doesn’t allow the bandwidth to deal with a rental property. Or simply, you are looking for an investment that’s as passive as possible. If this is you, the answer has been already answered for you. The maximum number of properties you can self-manage is zero. The best option in your case is find and vet a good property management company and let them handle the day to day. You will pay them a fee in return for the convenience but since convenience is paramount, the fee is worth it. On the other hand, if you are able and willing to handle a reasonable amount of requests from tenants, you could self-manage a number of properties and improve your cashflow by not having to pay a property management fee.

Does the investor have the temperament to manage Tenant relationships?

Property management is really a misnomer. In fact, managing the property (repairs etc) is the easy part of managing an investment property. The critical (and hard) part is managing the Tenant relationship over the long term. The next thing you have to think about as you consider this question of self-management is: Do you have the right temperament to manage Tenant relationships? In my experience, I have had investors who are masters at this and I’ve had investors that just aren’t suited for the job. In the latter case, they tend to antagonize the Tenants and set the relationship on the war path from the very beginning. If you belong to this group, your best option is to hire a professional property management company and create some distance between you and your Tenants.

What is the age and level of maintenance of your properties?

Now we move from factors that deal with the investor and their personality to the property and its quality. You could have a willingness to do the job and the right temperament for it. But if your properties are older with lots of deferred maintenance they will have chronic problems with the main mechanical systems. Obviously, this can be very time consuming and irritating for the investor and it is equally irritating for the Tenants. In turn, they don’t stay as long as they otherwise would causing more turnover and more headaches for the investor. It’s a cascading effect. The older and less maintained your properties, the fewer you can manage on your own.

What is the quality of your Tenants?

The last (but certainly not least) factor to take into account is the quality of your Tenants. Do you have conscientious Tenants that take good care of the property and handle little things on their own? Or are your Tenants high maintenance and expect you to be at the property fixing every thing no matter how minor? The elephant in the room then is your process for finding and screening Tenants. If that process is dialed in, either through a relationship with a good agent or because you’re naturally good at it individually, it will save you a lot of headache and will allow you to manage more properties on your own.

Bonus: What’s the quality of your management systems and vendor network

Let me give you another bonus factor to consider: the quality of your systems and vendor network. How good are your self-management systems? Do you have a written down process for move-ins and move-outs, maintenance schedules, rent collection and Tenant communications? What about your network of vendors to handle your plumbing, HVAC, sheetrock and paint, electrical? Do you have trusted vendors for each of those fields that you can deploy at a moments notice that will do a good job for a fair price without much supervision? The answer to those questions will determine how many properties you can manage on your own.

Should you use a property management company for your rentals?

April 26, 2018 By Erion Shehaj Leave a Comment

Should you manage your investment properties yourself or hire a professional property management company? It’s one of the stickiest decisions real estate investors face.

While there is not a one-size-fits-all answer there are a few advantages and disadvantages of each method.

If you decide to go the self-management route, the biggest and most obvious advantage is that you can save money on management fees each month. You can also save money by avoiding price markups that most property management companies put on the repairs they supervise. Finally, you can establish a personal relationship with your Tenants that, with proper boundaries, can help you retain your Tenants longer.

On the other hand, self-management does present some challenges. You will need to handle your own rent collection, keep accurate accounting and coordinate repairs on short notice. Plus you will need to handle move-ins and move-outs. This requires you to be organized and can be quite time-consuming.

Also, property management companies get preferred access and pricing from vendors due to economies of scale that’s not usually available to individual investors. Finally, while having a personal relationship with your Tenant can be positive, it can also lead to negative outcomes if the investor is not skilled in people management. For instance, the Tenant could take advantage of the investor’s kindness and flexibility to fall behind on their obligations without consequences. Or the lack of people skills can cause the investor to push away a great Tenant and cause an unnecessary turnover that wouldn’t have happened if a professional were managing the property.

There are a few questions you should consider as you make your decision:

How much time can you realistically dedicate to the management of your properties given your current schedule? Given the amount of time spent vs money saved, is that good enough compensation for your time?
Will you be able to set aside time each month to keep accurate accounting and make sure all rents are collected and up to date?
Do you have access to a team of reliable and affordable vendors for HVAC, roofing, plumbing, electrical, flooring, painting and handyman type repairs?
Are you able to promptly respond to tenant repair requests given your work schedule?
Are you able to perform property inspections at least annually (or semi-annually)?
How would you rate your people skills – the ability to be fair but firm, friendly but with the right boundaries in place?
Do you want to spend your time performing property management duties – what is your time worth?
Should it come to that, do you have a go-to attorney to handle your evictions or do you have the time to handle it yourself?

If the answer to the overwhelming majority of those questions is yes, then you should probably self-manage. If not, you would be best served by working with a professional property management company that understands and caters to your investment.

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If you are looking for an investor-friendly property management company for your Greater Houston rentals, we got you covered: Get in touch at http://signaturehoustonpm.com

How to keep great Tenants without squeezing your margins

August 31, 2016 By Erion Shehaj 3 Comments

A little less than a year ago we got the hardest part right.

Like leasing Sherlock Holmes-es we pored over lease applications, ran countless credit checks, background checks, prior eviction checks, cross reference checks, written and verbal rental and employment verifications and found a great Tenant.

Over the course of the year, our predictions came true. The Tenants paid rent on time, took care of the property like it was their own and even went over an above to improve it without costing you a dime.

Captain Obvious shares benefits of lease renewals

Now the lease is nearing it’s end and it’s time to discuss renewal. We would love them to stay for another year and re-up each year going forward till the end of time. The reasons are obvious – If they renew:

Zero vacancy for another year – This means the amount you had budgeted for vacancies in your cashflow analysis flows straight to your bottom line and who doesn’t like a “healthier” bottom line.
Zero make ready for another year – No matter how great Tenants are, when they decide to move out there will be some make ready costs. Locks need to be rekeyed, carpets shampooed, paint touched up, landscaping trimmed, utilities turned on in the meantime etc. If they renew, no make ready is required so another WIN for us.
Zero leasing commission for the year – When existing Tenants renew, we prepare the lease renewal paperwork free of charge – another perk we offer to our clients to thank them for their repeat business. So if they renew, there’s no leasing or renewal commission you need to pay for another year and guess where the budgeted amount for lease commission flows straight down to? Yessir – Bottom Line.

So now that we’ve established that we definitely want them to stay and renew the important question becomes: At what rental rate? Over the lease term several factors have come into play. If the property is in an appreciating market, county authorities probably gave you a higher property tax bill as a present for your birthday. Ditto from the insurance agent. Plus, over the year the market rate for rents in the area has probably risen. So you want to make sure that your profit margin doesn’t shrink by leaving the rent the same while your expenses go up. And at the same time, you don’t want to leave money on the table and significantly underprice your property.

But on the flip side, the great Tenants will probably not like to see their rent increased. And if requested in a careless manner, they can be left feeling like they’re being punished with higher rent.

Tips professionals use to secure lease renewals and rent increases

In order to avoid losing great tenants and/or facing shrinking margins and leaving money on the table we have a process we follow to secure more lease renewals and rent increases. I’d like to share with you some tips that you can use to do the same with your properties.

Tip 1: Run a market analysis for lease on the neighborhood – If your tenant is more knowledgeable than you are about market conditions, you’ve already lost the argument. An updated market analysis for lease will give you the backup to support your arguments. In addition, it will give you a clearer picture of what the current market rate is for your property and the competition you face. Bottom line: You need to know your numbers because they represent the alternatives your great Tenants have to jump ship.
Tip 2: In an appreciating market, offer a rent increase that’s below full market rent– Think of your offer to renew as a marketing offer and consider the question: Why should the Tenant renew their lease with you? No, your good looks don’t count. Give them a reason, a benefit they wouldn’t get if they moved out and leased another place. Here’s what we normally do: Dear Tenant – After performing a market analysis, the market rent for the property has risen to X. You have been a great Tenant and we appreciate the care you have shown the property. Therefore, we’re prepared to offer you a lease renewal at X-$25-$50. This way it’s a win-win. The Tenants still get below market rent and you get your rent increase and renewal. If they were to move out, they’d likely have to pay market rent and move which we all know is so much fun (not).
Tip 3: Discuss the lease renewal in person or over the phone – Negotiations over email are a recipe for disaster. I think it’s pretty safe to assume that anything written in an email is read to the recipient by an angry antagonistic old man. If you are trying to persuade and influence, do it in person or over the phone where the tone of your voice can convey where you’re coming from.
Tip 4: Make it much more expensive to go month to month – Texas leases have a provision in them that allows the lease to auto-renew on a month to month basis unless either of the parties gives 30 days notice. In your offer to renew, the price offered for a one year or 6 month extension should be much more attractive than the month to month price. Typically, we do $100-200 more to go month to month.
Tip 5: Be a pragmatist but not an appeaser – Lease renewal negotiations aren’t an ego contest. If after reviewing the market analysis, days on market to get a property leased have increased, you may be better off renewing at the same rate. The alternative is to renew at a higher rate but missing out on rent through vacancy which lead to a lower net rent than if you’d just left the rent unchanged. So be a pragmatist and look at the situation through the lens of reason. But don’t be an appeaser and fold just to avoid confrontation. It’s a delicate balance but it can be done.