To invest out-of-state or to not invest out-of-state? That is the question. You mean I might have to trust someone else to take care of my property?
Have you lost your mind?
Yes, I have lost my mind. Welcome to the idea of professional property management.
Property managers don’t have good reputations (and rightfully so in most cases). I get it. I actually don’t argue the reputation because the majority of property managers I’ve dealt with have been horrible. However, you need to realize there are good managers out there who can completely change your investing experience. With good ones in place, you can invest anywhere! Talk about broadening your experiences and your portfolio.
Long Distance Investing
I love investing outside of my local area (I have to since I live in Los Angeles). Not only do I get the highest returns but I have so many options for diversifying and having a really cool portfolio of properties that investing really can be a blast. I am completely comfortable not being able to check on my property and quite frankly I prefer it for several reasons I won’t go into here. However, I know not everyone is like me and in fact most probably aren’t. However, if you are like me and are okay relinquishing control to a manager, here is my rundown of property management and managers for you based on my experience with them.
Favorite Quote about Property Management:
“I’d Rather Have an Average Property with an Excellent Property Manager
than an Excellent Property with an Average Property Manager.”
I heard this from a seller I work with and he was absolutely dead-on when he said this. In my experience with rental properties, every major problem I have had I can attribute in some way to my property manager.
This house is one of my properties in Atlanta. The house is amazing, great layout, great rent, cheap purchase price, but just in the first six months I owned it, it went through two evictions with the second resulting in $2400 worth of repairs. Two evictions back-to-back? How does that even happen? It happens when my managers move in any fool who applies to rent the property, that’s how. Their income requirements were way too low for starters. Oh and the second guy was a felon under investigation by local police. Man, I love when that happens. The $2400 was asinine in itself because I know most of those “repairs” weren’t even necessary.
I was in California when all of this happened. I wasn’t local to the property to be able to run in and stop the insanity, so what could I do in this situation? Easy. Fire the property manager and get a new one. Problem solved. Yes, I lost a nice chunk of money in that pile of chaos, and maybe even a little sanity, but the property is great now and I haven’t had a single late payment from the new tenant. Plus, the property cash flows so well that it won’t take long to recoup the lost cash and move on. One of the perks to investing out of your local area is the potential for significantly higher returns which can help offset any “oops” that may happen. Also worth noting is that the problems I just mentioned with that house could have just as easily happened if the property was local to me in Los Angeles. The only difference is whether I was able to drive by the house to see the mess in person or not. Did I need to go by the property during any of that? Nope. What would that have done other than just stress me out more than I already was? Nothing.
I tell this story not to convince anyone that investing out of your local area is what you should do, or to scare you away from having a rental property at all, but rather to emphasize the property management side of your investment should you choose to go the route of long distance investing.
Let’s get to it. What do you need to understand about property managers and their role? You need to understand how important they are in the success of your investment and you need to know what qualities to look for in a manager. Once you know these, you need to know what questions to ask while you are shopping for a manager. I’ll address these in order.
Potential Consequences of a Bad Property Manager
The property manager is in control of your property on a day-to-day basis. He places the tenants and keeps an eye on them while they live there, he makes sure repairs are taken care of and the house stays in working order, and most importantly he stays in communication with you about the property. If your manager doesn’t know what he is doing, or isn’t overly concerned with how he is doing it, here are some negatives that can result: