4 ms·

You're definitely not managing the property in this scenario; part of the operating expense is hiring professional managers. REITs and other institutional inves

You're definitely not managing the property in this scenario; part of the operating expense is hiring professional managers. REITs and other institutional investors own and operate properties like this from a distance all the time. EDIT: I should mention that I own several smaller properties in another state that are managed and I spend maybe an hour a month on them. I'd spend more on larger properties like this, but it's hardly a full-time job.

endtime 16y ago
> part of the operating expense is hiring professional managers. I don't think smackfu meant to imply you'd be replacing lightbulbs yourself. But if you have employees who provide a service, and if they screw up it can affect your future income (and you therefore need to do some degree of management, minimal though it may be), well, that sounds a lot more like a job than retirement to me. It might not be 40+ hours a week in an office, you might not be writing code, but that doesn't make it retirement.
- davidu 16y ago
  Most property management companies are actually just managing the contractors who fix the sprinklers... those people aren't on your payroll. Usually property managers just take a fixed % of all the rental revenue.
  - endtime 16y ago
    I understand that, though I agree that my comment didn't make it clear. But you have to manage the property managers, no?
    - davidu 16y ago
      Not if they are even halfway decent. That's the entire point. An hour a month should suffice.
skorgu 16y ago
Would you consider expanding on some of the nuts and bolts of hiring and managing those professional managers? I can't name anyone who's had a good experience with a management company on either side of the transaction but of course that's likely confirmation bias. A 'day in the life' of what kind of issues you run into with those properties would be fascinating (to me anyway).
- joelhaus 16y ago
  I joined a firm that owned and operated a portfolio of around 1,400 mixed-use units after college. The firm was small and so I was able to get involved in almost every aspect of the business. In addition, I'm currently getting a M.S. in Real Estate. I suspect our firm had better success because we had skin in the game. Personally, I would have difficulty handing over those responsibilities to someone without a long term financial stake. Conversations about real estate investment are so localized and situation specific, it's difficult to make generalizations, but I'll try making a few anyway: 1) Motives - consider carefully when drawing up a contract what financial incentives are being created for your manager. Our top priority was always filling vacancies, but as an owner, your sign-off should be always be required before a new tenant is approved[1]. 2) Kickbacks - if you expect your manager to handle hiring of contractors, he will be offered money to award the contract. You will also need contractors more often than you think. When a tenant moves out, you'll either renovate or at the very least, re-paint their apartment... depending on the local rental market, this can be the difference between a one month and a six month vacancy. The smaller the property, the more important it is to get apartments rented quickly. 3) Repairs - if something can go wrong, it usually will go wrong. Appliances, doors and other fixtures will break, capital improvements will get pushed ahead in your schedule and tenants will misbehave, sometimes even breaking the law and requiring the police to get involved. When you see a property with a high cap rate, expect more of these issues[2]. 4) Emergencies - if you don't live very close by, you should have someone on staff that does or, even better, have someone on payroll that lives on-site. This is only the tip of the iceberg, feel free to get ask any questions. [1] Personally, I would also want to deposit all rent checks myself and sign off before any invoices were paid. [2] Another "high cap rate" problem you'll be faced with is landlord-tenant court. These properties tend to just have more 'problem' tenants. P.S. Some last thoughts for investors: a) *You make your money when you buy.* Putting all your eggs in the appreciation basket is risky; if the cashflows are there, many of the above issues won't be keeping you up at night. b) *If your strategy is to hold for less than five years, your management time just increased 10x.* Commercial real estate loans generally have a balloon payment after 5, 7 or 10 years. You'll need to roll your loan over at this point and any equity built up above the lenders required loan to value (c. 65% these days) can be extracted. Don't put yourself or your investors in a position where you are forced to sell at a loss. Credibility in this field is hard to gain, but easy to lose. [Revised for clarity]

endtime 16y ago

> part of the operating expense is hiring professional managers. I don't think smackfu meant to imply you'd be replacing lightbulbs yourself. But if you have employees who provide a service, and if they screw up it can affect your future income (and you therefore need to do some degree of management, minimal though it may be), well, that sounds a lot more like a job than retirement to me. It might not be 40+ hours a week in an office, you might not be writing code, but that doesn't make it retirement.

davidu 16y ago
Most property management companies are actually just managing the contractors who fix the sprinklers... those people aren't on your payroll. Usually property managers just take a fixed % of all the rental revenue.
- endtime 16y ago
  I understand that, though I agree that my comment didn't make it clear. But you have to manage the property managers, no?
  - davidu 16y ago
    Not if they are even halfway decent. That's the entire point. An hour a month should suffice.

skorgu 16y ago

Would you consider expanding on some of the nuts and bolts of hiring and managing those professional managers? I can't name anyone who's had a good experience with a management company on either side of the transaction but of course that's likely confirmation bias. A 'day in the life' of what kind of issues you run into with those properties would be fascinating (to me anyway).

joelhaus 16y ago
I joined a firm that owned and operated a portfolio of around 1,400 mixed-use units after college. The firm was small and so I was able to get involved in almost every aspect of the business. In addition, I'm currently getting a M.S. in Real Estate. I suspect our firm had better success because we had skin in the game. Personally, I would have difficulty handing over those responsibilities to someone without a long term financial stake. Conversations about real estate investment are so localized and situation specific, it's difficult to make generalizations, but I'll try making a few anyway: 1) Motives - consider carefully when drawing up a contract what financial incentives are being created for your manager. Our top priority was always filling vacancies, but as an owner, your sign-off should be always be required before a new tenant is approved[1]. 2) Kickbacks - if you expect your manager to handle hiring of contractors, he will be offered money to award the contract. You will also need contractors more often than you think. When a tenant moves out, you'll either renovate or at the very least, re-paint their apartment... depending on the local rental market, this can be the difference between a one month and a six month vacancy. The smaller the property, the more important it is to get apartments rented quickly. 3) Repairs - if something can go wrong, it usually will go wrong. Appliances, doors and other fixtures will break, capital improvements will get pushed ahead in your schedule and tenants will misbehave, sometimes even breaking the law and requiring the police to get involved. When you see a property with a high cap rate, expect more of these issues[2]. 4) Emergencies - if you don't live very close by, you should have someone on staff that does or, even better, have someone on payroll that lives on-site. This is only the tip of the iceberg, feel free to get ask any questions. [1] Personally, I would also want to deposit all rent checks myself and sign off before any invoices were paid. [2] Another "high cap rate" problem you'll be faced with is landlord-tenant court. These properties tend to just have more 'problem' tenants. P.S. Some last thoughts for investors: a) *You make your money when you buy.* Putting all your eggs in the appreciation basket is risky; if the cashflows are there, many of the above issues won't be keeping you up at night. b) *If your strategy is to hold for less than five years, your management time just increased 10x.* Commercial real estate loans generally have a balloon payment after 5, 7 or 10 years. You'll need to roll your loan over at this point and any equity built up above the lenders required loan to value (c. 65% these days) can be extracted. Don't put yourself or your investors in a position where you are forced to sell at a loss. Credibility in this field is hard to gain, but easy to lose. [Revised for clarity]