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My Rental Property Strategy and Property Management

rental property strategy

There are many so called RE investors that pretend to cash flow, and they are not calculating any of the soft expenses.  Management, Vacancy and Maintenance are the big three.  Maintenance being a thing you can put off, and see profit, but it is in actuality deferred maintenance.   I allocate 10% of rents towards maintenance in my budgets, 5% for vacancy, and 7% for management.   And I expect ~15% ROI if I make the purchase.

Most of my time in regards to the rentals is spent on turning apartments.  Bringing them back to as close to 100% as possible.  Sometimes it takes only a couple of hours, sometimes a bit more.  I turn many in a day, and often have zero vacancy between tenants.  But it is a bit hectic with a full time job.  If it is much more than a few hours, I have a damage deposit.  I can paint with the best of them, and can fix most anything any handyman can.

When a renter is in, I would guess it averages well less than one hour per month, per tenant.  A property manager who charges $80 on a $1,000 a month rental would not put in any more time.  I have seen contracts with some of the big property managers that say monthly fee includes 4 hours per year of on premise time, other than the initial move-in/move-out standard items – which are also additional charges.

With better tenants, property management is easy.  The tenants know what to do, and what to expect.  It is easy to get good tenants, you have to know how to price right, market effectively, and know what a good tenant looks like on paper.  You can always increase demand by lowering price.

I also manage the premise for a condominium complex which I own most of my properties.  It is a paid position, and I screen all of the tenants, and approve or reject, so I see a lot.  Landlords that have horror stories are landlords that hire inexperienced property managers, or went into a business they knew nothing about.  I have had horror stories too, but I am a fast learner.

In the past few years, my NW has gone up considerably.  I have purchased a property each year since 2008, six in total.  The one in 2013 was a flip that cost ~80 hours, and came in with a $53K profit after three months, split with a partner.  Each building that I kept for a rental required at least ~$100K in down payment and initial set up.  Each time I bought a new building, my cash position was about the same as the year before.  Over the year it had built up to where it was.  With the flip, and no additional cash outlay for new purchases (yet), I have seen a dramatic increase in my capital available.  I like the art of the deal, it’s in my blood.

This major increase in capital has happened over the past several months, especially after the sale in January 2014, so that I can finally see that FI and Retirement is in my grasp.  But because it is fairly recent, it’s still a bit hard to believe it is there.  Having a real job and doing a deal on the side is easier, especially if I need another mortgage.  Even a retirement house needs lots of cash, or solid proof of income to get a mortgage.  A W2 is an easy proof.

This post was probably more about rental property strategy, than retirement, but it does expand on some of my hesitation about pulling the plug for a one way trip into financial independence and retirement.

What is your strategy for Financial Independence or retirement?  Do you plan on any rental income to help out your plan?

Kim’s Comments: Wow, Eric is much better at house flipping and finding partners than me! We fully expect rental income to pay for many of our expenses at least until age 59.5.

Eric is a landlord that owns 24 rentals.  He also manages a property for another investor, so he has 25 renters to track.  In addition to the renters, which many people would already consider to be a full-time job, he also has a real full-time job, as a data architect at a major bank.  In his spare time, he also runs a small mowing business and plows snow with his Ford F350 Diesel. 

 Other than that, he just loafs around the house and blogs…

 Eric says the secret to minimizing the work in his rentals is attracting and recognizing great tenants.  Read his blog to find out more athttp://nononsenselandlord.com/

 He has a lot of tips about managing property and financial independence.

Image: Freedigitalphotos.net/Miles

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

18 comments

  1. Thanks Kim! You have one of the best financial journey blogs out on the web!

  2. Wow that’s pretty impressive you bought one property a year since 2008. I bought my first house a year and a half ago and I’m having my first experience as a landlord as we rent out a studio apartment in our basement. I definitely would like to plow some of my income into rentals in the future and continue to increase my cash flow. For now I am focusing on increasing my online income.

    • I will be writing about each one as I have time. My very first property didn’t work out too well, but I have been involved in real estate in one for or another since 1982. Having enough backup capital is a priority. If things do not work out, you can always re-group, if you have enough capital. Investors get into trouble when they do not have enough money to fix properties, or do not have enough to evict a person.

      http://nononsenselandlord.com/my-first-property/

  3. We own two rental properties and we don’t use a property manager. At this point, I’m glad I haven’t hired one. One family has been in one of our rentals for almost five years, and the other family has been there for 3.5 years. We have had few problems and they are both excellent tenants. We do earn income on both properties but I pay it back into their respective mortgages. I have a certain pay-off date in mind for both properties and prepaying will make that happen. They should both be paid off in about 12 years from now, right before my oldest goes to college. We’ll be 46.

  4. First I’d like to be able to buy a property to live in, before thinking about rentals!

    It seems so easy for those who succeed but then others struggle with bad tenants, repairs, etc …

    • Perhaps a duplex, or a 4-plex would work for you? It’s a great way to have constant oversight of your rental, and make sure all is well. It also helps pay off the mortgage, like living for around 25% (or less) of what a house would cost. Instant passive income and many tax advantages. I will posting about each property I purchased over the past several years, and the analysis that went with it. I have already posted a few.

      In the mean time, remember, many of the world’s richest people achieved their wealth via real estate. Bad renters are mostly the fault of bad screening. There will always be an expense with a turnover, if nothing else due to wear and tear. You want to avoid missed rents, and the legal expenses of a bad tenant.

      Marketing your new vacancy is easy. If you cannot rent, lower your price, or increase your marketing. It’s just economics 101. I have quite a few marketing tips in my post on “Effective Online Rental Ads” which I have posted at http://nononsenselandlord.com/effective-online-rental-ads/

      PS. I follow your blog too, and you have a lot of great advice!

  5. Great advice, I feel I will not use a property manager when I dive into rental real estate, unless I buy something out of state. Management companies will always look for ways to cut corners with service. Good luck with all those properties.

    • Even with a proerty out of state, all a PM will do is field phone calls, and make phone calls. You can do that from the beach in Tahiti! A PM doesn’t generally stop by the property, they just send their team out, and you get billed for it.

  6. 24 rentals is SO impressive. That’s a full-time job! It looks like you are on top of your strategy and you know what you’re doing, and I guess you’re getting more than enough experience in it. I am a landlord only to my brother, who rents out our basement suite. It’s a great arrangement since he’s away from home a few months a year to work, and he still pays rent. When he is here, he’s very respectful.

    • I started out slow, and ‘digested’ each property before I bought the next one. When I was a section 8 landlord, I was unsure how anyone could handle many properties. With great tenants, life is easy.

      Whenever I hear a horror story from a landlord, I always wonder if a background check was completed, or what the credit score was. Most often, a bad tenant can be avoided easily.

  7. Good tenants are gold, I am generally freezing the rents when I get one, and renting just below market so I can get a wider choice of tenants.

    • Good choices!

      BTW, if any one went to my blog and received a malware notice, all is well now.

      I deleted and re-installed my WP site this AM, but if I would have had WordFence, it would have been easier. I have it now. I have only been blogging for a month now, I back dated a few entries to make it look like a longer period (lol). Luckily I had a backup.

      In any case, I should have had something like WordFence already, but I would never had thought my small site would ever be a target. I guess I should take that as a compliment.

  8. You guys have amazing blogs and experiences to share…keep it coming please, loads to learn 🙂
    By the way, I just got my first property last year, so a long way to go, but it feels good to have one…Having 24 is unimaginable 😀

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