If you’re like most investors, you want to create extra income.
Whether that was to pay off some bills or to build a savings to set a retirement in place for yourself because maybe your job isn’t going to give you the retirement plan you want.
Or maybe a reason you want to buy rental properties is to replace your income so that you can leave your job.
There are lots of reasons why people lean into buying rental properties because everyone’s different. And the outcome is for the purpose of that individual person.
There are a lot of benefits with rental properties, such as tax advantages.
Another big reason is for legacy. We want to be able to pass down to our children: something that we didn’t have or something to give them a good start or maybe just to help them a little bit with some income.
But did you buy rental properties to manage them or did you buy rental properties to create cash flow off them?
If we are trying to buy rental properties and manage them, this can be a big headache. When it comes to managing rental properties, cash flow is what we want. This is why we buy rentals – the cash flow.
We don’t buy rental properties to create another job for ourselves. And this is where I lean into management because sometimes we think, “oh, I’ll self-manage it” without understanding the outcome or all that goes into managing properties.
So, to be truly focused on cash flow, we need to take a step back and let management take over.
Don’t let cash flow take over your life.
Sometimes we think too small and we count pennies and we lose focus on the overall goal. Yes, management charges a fee but it is well worth that fee.
If you’re running your numbers and you think about this fee as lost revenue, you’re really looking at it wrong. Because, for what management charges – 8, 10, 12 percent of gross rents, we’re only talking about $50 a month; sometimes it’s $70, sometimes it can be $100 but this goes back to when we run our numbers.
The fee helps you enjoy your life and it allows you to stay focused on finding more rentals and focused on really what you’re trying to do with a rental portfolio, which is manage it and not each property as you build.
When should we self-manage our rental properties?
I get this question a lot as the president of the Madison County Real Estate Investors Association and my answer is, if you’re just starting out and you bought a little single-family residence, then sure, try it out.
See what it’s like to manage. You’ll find the tenant, you’ll need to do the tenant’s screening, collect rents, deal with all the phone calls. Then you can see if that’s what you want to do.
Most cases, you won’t have time for it or you just won’t like it if you do.
If you’re holding several rentals, don’t do it. Put management in place because the next thing you’re going to find out is you’re running around chasing tenants, trying to collect rents.
Sometimes you have to self-manage when you bought the property wrong or got a bad loan on it and it can’t cash flow with property management in place.
In that scenario, you would have to come back to self-management, but this goes back to running your numbers to make sure that you can afford property management when you’re looking at the deal to buy it.
What are the benefits of having a management company?
This could be a 50-page book by itself. There are so many reasons that you should have management in place. Let’s just start off with the first one: safety. Safety for yourself and safety for the tenants.
Management companies have to follow state laws. Sometimes, as a landlord you may not know those laws and so you might be violating your tenant’s rights. You might be doing things that aren’t safe or not legal and therefore you could get in trouble for that.
The other reasons are finding tenants and screening them. Do you have the time for that? Probably not.
Management is also there to deal with all the calls from tenants as your portfolio builds. You’ll be surprised at the phone calls. They call for all kinds of reasons such as a leaky faucet or toilet’s clogged, or their door won’t shut all the way. Management handles all that.
Collecting rents or even chasing rents down when someone is late – these are all cases of what management can do. There’s the eviction process and dealing with that, even if you have to go to court to get them out. Other jobs include scheduling repair work and putting together monthly reports for the rentals for accounting and bookkeeping.
It’s like having a partner who does all the work that you don’t want to do. These are just some of the benefits of a management company and, as you can tell, it’s well worth having them in place versus self-management.
How do management companies work?
Most management companies in our area work where you bring them the property and they step in and take over. They’ll collect your rents for you and deposit them or write you a check to your bank account. They will give you a profit and loss statement on your rental properties each month, so you know what’s going on.
They charge anywhere from 8 to 12 percent on collected rents, which means their goal is to collect as much rent as possible each month and to help you increase rents so that they can make more on their service fees.
Now, why can real estate investing be easy?
Well, when we look at real estate, yes, it comes with risk. And yes, it can be hard, but in most cases when real estate starts to become easier is when we have the right team to help you run and manage your rental and your investment business.
Management companies are key to making real estate investing easy for yourself when it comes to rentals so that you don’t have to deal with it any of the headaches.
Check out our vendor list at www.MadisonCountyREIA.com for management companies who are helping investors in this area.
You can also come to one of our meetings and meet some of our vendors, including property management companies. Get to know them to see how they could benefit and how they could be part of your team.
If you’d like to come out to one of our meetings, visit www.JoinOurNextMeeting.com for information.
(Zack Childress is president of the Madison County Real Estate Investors Association.)