I’ll say it right out. It makes me nervous when investors come from out of town and want to invest in small multifamily properties like triplexes, fourplexes or even a little larger units with the intent of hiring a management company.
I cringe and almost feel like declining helping them, because I don’t want them to get into a situation that most out of town investors get into with hiring management companies.
However it is possible to do this thing, but… First let me get into the common issues I’ve seen over and over for many years and I’ll follow up with some possible alternatives.
The common problems you’ll notice come across is that the management companies have a different goal then you do and a different way to manage properties. Small multifamily properties are fickle beasts. They can and often are very lucrative, providing a very good return on the investment, even when you add in the friendly fire, but who will it be lucrative for: you or the management company?
They are especially good investments if they are taken care of, well managed and held onto for a number of years. A stabilized property is the golden goose, but the goose needs to be fed, kept groomed and happy. If it is, it will provide a steady monthly supply of golden eggs. Left to fend for itself those eggs will be clumps of coal weighing down your portfolio and reaping havoc on your nervous system, literally.
A management company will never or rarely and I truly want to emphasis the word rarely care about the property, the long term viability, customer base and care of the property as much as you will. Further more, it is difficult and costly to turn a property around once it has a bad mix of customers, especially if a once nice property in a nice neighborhood has become not such a nice property in a no longer nice neighborhood: a reputation is easy to get and hard to shake off.
Management companies do not match their schedules with the needs of the prospective tenants. I lease out my own properties so I know how it is. One of the most common comments I hear, and I do ask, is that a management company has not returned a call or they are not available after 5 pm to show a property or on a weekend. Just think about the most common potential client for this type of property. They will have varied schedules and most will work common hours, hampering their ability to see a property between 9-5. That is unless you want unemployed or those self-employed persons who have a hard time making enough steady income.
Not only that, when you call you have to go through a maze of ‘select number ‘this’ for ‘this’ then another number and another number here’, only to end up in a voice mail box that will be mostly likely full and you can’t even leave a message. Sounds excessive, unlikey? This is the norm.
One of the alternatives is to manage the property yourself. I’m not saying it’s the best solution for everyone, but it is a good one if the property is stable and meets a number of criteria that will make this easier. If it does, then the end result is a truly smooth process.
Some of the requirements are a stable property, one that is repaired with a good customers – tenants: an agent or someone that can help you lease the units – someone qualified and responsive: and a base of people to call when items need to be done.
If a property is stable then issues and repairs will be rare. If you have good customers they will also take care of the property and simply make the whole adventure more pleasant.
I have properties that I check up on once a month and that is it. The tenants send in checks and I have people on call whom I call if an A/C needs to be serviced or a property readied for another tenant.
Many of our clients live in other states and do the same thing. They just have someone locally who can lease the property for them. That is important, though and the agent will need to be vetted carefully.
Another solution and maybe the most viable one is to find a smaller company where you have one person assigned to you and that one person handles it all. That way you have one point of contact and one person to hold accountable as opposed to a moloh where you’re passed down from department to department and no one really is responsible: that’s where the failure is. If each person can blame someone else or hold anther person or department responsible than no one does anything right and you get stuck in what is really an epitome of inefficiency and bureaucracy.
I want to be wary of this process and make sure you know what your in for. it’s lucrative, but not easy when you hand it off to someone else who really does not have the same goals as you do.