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Discuss Latest PIMD Blog Post: 5 Reasons Why You Should Not Self-Manage Your Rental Properties

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  • Discuss Latest PIMD Blog Post: 5 Reasons Why You Should Not Self-Manage Your Rental Properties

    It’s no secret that I think that real estate is a great way to create passive income, build my net worth, and achieve financial freedom.    What other investment lets you use leverage and put down a fraction of the value of the assets? It’s no wonder that so many of us on the FIRE […]

    The post 5 Reasons Why You Should Not Self-Manage Your Rental Properties appeared first on Passive Income M.D..



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  • #2
    One thing he doesn't mention is if you self manage you are also limiting your scale. One person or couple can only manage a limited number of doors and in a limited area. In addition to my local area I invest in a city that's 2 hours away from my home. I couldn't do that if I manage myself. Plus I couldn't own as many doors as I do and manage myself.

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    • #3
      Additionally, your property manager should be the expert in negotiating the laws related to rentals. I still self manage a few but these are low maintenance tenants I've had for a while and will transition to the property manager at some point. Rentals in our area can be in high demand and I've literally gotten over 100 responses for some vacancies. I'd say more than half have "therapy" dogs. I realize there's a flood of mental illness now but 50% of the population? And despite having nice properties geared to attracting good tenants you never really know. It's nice to have a property manager sort out the wheat from the chaff. When you get a problem tenant, and you will at some point, it's priceless to have a property manager to deal with them. I just went through my first eviction and was fortunate to have a property manager to handle it. The tenant looked good on paper, college grad, stable job for a couple of years, credit score over 700. Stopped paying rent and they were able to get her out in 40 days. Left about $2k in damages but the property manager handled all the repairs and have a new tenant moving in pretty quickly. I think the key to using a property manager is to realize they are not all the same, you need to find a good one. The one I use provides their personal cell with the option to call them anytime has a responsive staff and generously shares their knowledge. It's not a simple set it and forget it. To be successful you still need to understand the dynamics of the markets you invest in.

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      • #4
        Our goal is to grow into apartments which would be managed, while growing our SFH BRRRR portfolio in our city, which we self manage.

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        • #5
          Originally posted by pit.alumni View Post
          Additionally, your property manager should be the expert in negotiating the laws related to rentals. I still self manage a few but these are low maintenance tenants I've had for a while and will transition to the property manager at some point. Rentals in our area can be in high demand and I've literally gotten over 100 responses for some vacancies. I'd say more than half have "therapy" dogs. I realize there's a flood of mental illness now but 50% of the population? And despite having nice properties geared to attracting good tenants you never really know. It's nice to have a property manager sort out the wheat from the chaff. When you get a problem tenant, and you will at some point, it's priceless to have a property manager to deal with them. I just went through my first eviction and was fortunate to have a property manager to handle it. The tenant looked good on paper, college grad, stable job for a couple of years, credit score over 700. Stopped paying rent and they were able to get her out in 40 days. Left about $2k in damages but the property manager handled all the repairs and have a new tenant moving in pretty quickly. I think the key to using a property manager is to realize they are not all the same, you need to find a good one. The one I use provides their personal cell with the option to call them anytime has a responsive staff and generously shares their knowledge. It's not a simple set it and forget it. To be successful you still need to understand the dynamics of the markets you invest in.
          Did you send her to collection? I recommend it if you haven't. It may take some time but you'll likely collect when she discovers her credit is in the sink until she pays it off.

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          • #6
            On the other hand, you are paying a property manager 10% of your revenue stream to do nothing most of the time. And usually the owner has to get involved in the decisions sooner or later if it is serious. Finally, in general I disagree that they save you money. My wife and I are small scale with two properties, and it has occasionally been annoying to have to address tenant/property issues, but not enough to throw away that much cash flow.

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            • #7
              We currently own multiple properties, and we have professional management for the majority of our properties. We do self manage a small handful of higher end residential properties so that my spouse can qualify for REPS (real estate professional status). The REPS unlocks the ability to apply RE deductions from all RE activities to other non-RE sources of income. The tenants in our self-managed properties are professional class people, and although one tenant is a bit entitled, the rest have been pretty fantastic tenants.

              The last year for 100% bonus depreciation is 2022. We will likely use the REPS status one last year in 2022 for the tax benefits. We will then transition all of our properties to professional management and plan to give up REPS in 2023. The real estate portfolio will generate continued high monthly cash flow in retirement, with the remaining depreciation to shelter at least the real estate related income even after giving up REPS.

              The real estate assets have been one pillar of the wealth building we have done over the years. The outsize net worth is a result of success with taxable, tax deferred, real estate, and income source diversification/starting a business. Despite the financial security we have achieved, we never shied away from putting in the necessary work in any sphere, whether in medicine or in other areas of life. RE investing does involve some extra work, but we strategized on how to make that extra work both modest effort and very high yield, a strategy has proven successful.

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              • #8
                Originally posted by White.Beard.Doc View Post
                We currently own multiple properties, and we have professional management for the majority of our properties. We do self manage a small handful of higher end residential properties so that my spouse can qualify for REPS (real estate professional status). The REPS unlocks the ability to apply RE deductions from all RE activities to other non-RE sources of income. The tenants in our self-managed properties are professional class people, and although one tenant is a bit entitled, the rest have been pretty fantastic tenants.

                The last year for 100% bonus depreciation is 2022. We will likely use the REPS status one last year in 2022 for the tax benefits. We will then transition all of our properties to professional management and plan to give up REPS in 2023. The real estate portfolio will generate continued high monthly cash flow in retirement, with the remaining depreciation to shelter at least the real estate related income even after giving up REPS.

                The real estate assets have been one pillar of the wealth building we have done over the years. The outsize net worth is a result of success with taxable, tax deferred, real estate, and income source diversification/starting a business. Despite the financial security we have achieved, we never shied away from putting in the necessary work in any sphere, whether in medicine or in other areas of life. RE investing does involve some extra work, but we strategized on how to make that extra work both modest effort and very high yield, a strategy has proven successful.
                WBD, you are killing it! I have enjoyed learning bits here and there about your journey to financial independence and success. I can't remember, do you have children? All of the things you've managed to do are inspiring, but I just feel like I'm treading water with the stage of life I'm in having 4 grade school kids. If I suggested my wife try to get REPS status, she'd probably laugh at me. The only real estate exposure we've managed to do so far are a few real estate syndications and REITs. Very passive stuff.

                Comment


                • #9
                  Originally posted by dennis View Post

                  Did you send her to collection? I recommend it if you haven't. It may take some time but you'll likely collect when she discovers her credit is in the sink until she pays it off.
                  Yes. The plan is to send her to collections but I’m doubtful if I’ll ever see anything. Even with the damage and unpaid rent I’m still profitable for the year on that property.


                  Comment


                  • #10
                    Originally posted by Larry Ragman View Post
                    On the other hand, you are paying a property manager 10% of your revenue stream to do nothing most of the time. And usually the owner has to get involved in the decisions sooner or later if it is serious. Finally, in general I disagree that they save you money. My wife and I are small scale with two properties, and it has occasionally been annoying to have to address tenant/property issues, but not enough to throw away that much cash flow.
                    My scale is several times more than that. So every month there’s one or two maintenance calls and usually at least one turn over a year. I still self manage two who are low maintenance professionals. I would never say they save you money. But I think it’s easier to raise rents, fill vacancies quicker, and not worry about some of the legal stuff you may not be an expert in. For me, they get paid to handle the part of the gig I don’t enjoy. I enjoy the acquisition and renovations to maximize cash flow then watching my bank account grow each month. I don’t enjoy dealing with tenants day in and day out. Prior to Covid I did a lot of international travel, some where we were off the grid for several days. I’d let my property manager know to handle time sensitive repairs without approval. I can see where with just a couple of properties and the right tenants a manager may not provide you value.

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