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Don’t Forget Property Management in Your Deal Analysis

Property Management has been a really important consideration of ours, as we started this journey. When I started to read and listen to podcasts and talk to other folks about what they had done in real estate, it was pretty common that I would hear somebody talk about, for example, “I make $1,000 a month on this place.” And then once you began to dig what you realized was gross rent was $1,000 a month, and then they had debt service, and then they had repairs, and then they had insurance, and then they had other things, and it goes on and on and on and on. So the actual cash flow wasn’t anywhere near $1,000 in fact, sometimes it wasn’t even a positive number. 

But one of the things that I’ve read quite a bit about, and that we include in all of our analysis for every deal, is the cost for professional property management, and even for those folks who decide not to move forward with professional property management, the idea is that you’ve gotten into this as an investor, so if you’re going to spend time to self manage properties, make sure you’re paying yourself to do that. Make sure that there’s enough money in the deal to pay yourself to do that. 

Early on, we made a decision that we didn’t want to self manage properties at this point in time. So, we are only moving forward with deals that are still good, even after we’re paying a professional property management company to manage the property for us and our philosophy might change at some point in time down the road once we have a volume of properties, and we’re paying an amount, where we could bring those services in house, and grow the appropriate staff in the way that we’d want to do it in order to manage our properties, but for right now, as we stay focused on scaling our portfolio and aggressive growth, we wanted to spend our time on deal flow and analyzing deals and making inroads with the kinds of relationships that we thought would help that, as opposed to getting into the day to day of property management. 

I think there are probably pros and cons of both approaches. Going this path certainly doesn’t allow us to get into the weeds in the nuances of maintaining an individual property. But, and my hope is that it will allow us to spend our time doing the things that we need to do to continue to grow, because this is not just a hobby. This is what we’re doing full time moving forward to grow a really big portfolio of assets that take care of us and our family and our investors and so on and so forth. 

So, I do know a number of folks who get into this, and do self manage and, you know, very often I hear as long as you know you don’t have a nightmare story with a property, it’s really lucrative. There’s a lot of money in it, because I know, in our case we’re giving up a pretty significant portion. I mean I think standard fare for residential places is about 10% and with volume, the folks that we’re working with have already agreed to drop down to 8 and 6% at some point in time and we know what that looks like. But that’s what we’re prepared to do and that’s okay. But at the end of the day you’re really giving up a lot of dollars. So, for us it was a question of why. Why are we doing this? What’s our strategy? What’s our approach? And I’m okay giving up that money today in order to spend the time and money on the other things we’re trying to do again growth focused and then make a decision, down the road about what we want to do to bring this in house, if and when that is something that we ever even decide to do. 

But when you’re analyzing deals, just make sure that the property management fees are part of it. You know, it seems so simple but just because your gross rent is whatever the number is doesn’t mean you’re cash flowing at that number. There are so many other things that you have to take care of, obviously. And I think property management is a really critical piece to that – again whether you’re going to do it yourself. You should pay yourself. If you’re going to have a professional company do it for you, you’re obviously going to pay them so make sure there’s enough money in the deal to get that done. And we’ve made the decision to move forward with a professional property management company, a really highly rated group around our neck of the woods. A number of investors who I have met and talked with rated them very highly and have used them for years, and they seem to do a great job. 

So, yeah, that’s where we are today. I hope everybody’s having an awesome day. Take care. 

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