Last month, I pocketed $7,461.43 from my rental properties — after expenses — and spent 5.5 hours looking after these investments. That’s $1,356 per hour.
That story is below.
But before we dive into those details, I’d like to highlight one event that made last month special.
Nope, it’s not the income.
Nope, it’s not the weather.
It’s the fact that last month, I fired a sucky property manager. I hired another property manager to replace him.
I coordinated all of this from 2,000 miles away.
And it was much, much easier than I’d imagined.
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Buckle up.
In this article, I’ll unleash everything I know about hiring and firing property managers. If you’re a rental property investor, I hope you’ll bookmark this as an in-depth reference on managing your managers.
We’ll start in a second.
But first — here’s a backstage peek at last month’s numbers.
Every month, I divulge the income and expenses within my rental business so you can see its actual cash flow.
My hope is that this gives you a realistic, hype-free understanding of the type of cash flow that a person might encounter with a rental property portfolio like mine.
I also document the time that Will and I spend managing these properties, so you can get an idea of how passive this enterprise is.
Here we go:
*Note: Management fees, when applicable, are ‘taken from the top’. The revenue you’re reading below is the after-fee remainder. If you’re a new reader, check out the FAQ HQ for full details.
March Revenue: $11,321.82
Will and I own 7 rental units. Here’s how this income breaks down:
Unit 1, Triplex: $2,750
Unit 2, Triplex: $1,490
Unit 3, Triplex: $1,295
House #2: $850.50
House #3: $1,273
House #4: $1,500
House #5: $2,163.30
Ridiculously Tiny Interest From Bank: $0.02
Total: $11,321.82
“Heeeyy, House #5 pulled in more than usual!”
Yep. Remember how I didn’t collect any House #5 payments in the past two months? (Ahem — that’s one of the reasons I fired the property manager.) We caught up on past due amounts in March, including late fees.
Next, let’s chat expenses.
**Note: As I repeat in every monthly update, this report is a snapshot of current activity. Annual costs like CPA fees, etc., and irregular expenses like renovations, get reported the month in which they’re debited. If you’re new to these updates, read the FAQ HQ.
Mortgage: $3,524.03 — This is PITI for multiple properties.
Utilities: $291.36 — Two months’ worth of water bills, both of which we paid in March.
Lawn Care: $30
Ordering New Checks: $15
Total Expenses: $3,860.39
Cash Flow: $7,461.43
Last month, Will and I earned $7,461 (net) from our rental properties, with 5.5 hours of work.
Sweet! This is the highest on record since I started writing these monthly reports.
We can attribute this to two factors —
(1) We collected on past-due rent payments, and
(2) Our expenses are around $600 less than normal, since the lenders deposited our monthly mortgage check for House #3 at the start of April. You’ll see higher-than-usual expenses next month.
How did we spend our time?
Here are Will’s activities:
- 30 min — Reviewing the lease and other documents for new Unit #2 tenants
- 10 min — Onboarding phone call with new Unit #2 tenants
- 5 min — Opening lease on Cozy.co (affiliate link)
- 120 min — Opening a new business bank account so we can stop paying those stupid monthly fees!! Wahoo!!
- 90 min — Meeting with departing Unit #2 tenant (including move-out inspection) and incoming tenant (including move-in inspection).
Will’s Total: 4.25 hours
Here are my activities:
- 10 min — Talked to Will about decision to fire House #5 property manager. Emailed other manager to coordinate a phone meeting.
- 30 min — Phone call with House #2 manager, in which I asked her to also represent House #5.
- 5 min — Sent 30-day termination notice to House #5 manager, letting them know I’ll be moving on.
- 15 min — Miscellaneous emails to my preferred manager, sending documents like the property deed, current lease, owner disclosure, and walk-through report.
My Total: 1 hour
(Combined) Total Time: 5.5 hours.
The single most interesting piece of data (for me) that’s come from writing these monthly reports is the time-tracking. Frankly, I’m surprised March’s time commitment was so short. After all, we handled two projects —
- We handled a turnover
- I fired and replaced one of my property managers
The turnover was routine and, therefore, quick.
But replacing a property manger isn’t routine. I’ve never fired a PM.
And I’m happy to say it was faster and easier than I expected.
How to Fire a Property Manager
Here’s a bit of backstory:
I use property managers for my Class C properties only. We manage the Class A properties ourselves. (I discuss this here.)
I hired the property manager (PM) for House #2 based on a recommendation from a friend/landlord. After extensively checking her out, I chose this PM for several reasons:
- She specializes in the neighborhood where that property is located. This means she has a solid grasp of issues, benefits, prices, etc., specific to that location.
- She was highly recommended by someone who holds several properties in that same neighborhood.
- She conducts herself professionally. She answers emails and phone calls ASAP. She uses proper grammar and complete sentences. Her listings are well-written. She appears attentive-to-detail.
- She speaks highly of her team. When you hire a PM, the “face” of the company is typically not the person carrying out day-to-day functions. It’s important to be confident not just in the ringleader, but also in the team she hires.
Notice that I didn’t mention price. My goal is to hire the best, not the cheapest.
Sure, there might be property managers who charge 8 percent instead of 10 percent … and I don’t care. Not in the least. Knowing that a skilled, attentive professional is nurturing my expensive asset is worth the extra few percent.
I’ve been her client for 3 years, and I think she’s EXCELLENT.
But when I needed to hire a PM for House #5, I decided to try someone new. I had two reasons:
- This property is in a different neighborhood, and I wanted a PM with specific zip code expertise.
- I reasoned that if I hired two managers, I could compare-and-contrast my experience, and then choose the best.
I asked several area investors for recommendations, but oddly, most of them dodged the question.
So instead, I Googled “national association of residential property managers,” looked at the list of volunteers who serve on the executive board of the local chapter, and chose the highest-ranking one who specializes in the neighborhood where House #5 is located. I screened and interviewed him, and he appeared impressive.
My reasoning? If a PM is motivated enough to volunteer for a leadership role in an industry professional group, he probably takes his business seriously. Or so I thought.
Unfortunately, in my case, that logic didn’t pan out.
I first had an inkling of trouble when the PM took terrible photos of the vacant unit for the listing.
Let’s be clear: I have realistic expectations. I know a PM isn’t a professional photographer. But there were basic deficiencies in these photos. Here — I’ll show you. Here are the images they posted on the rental listing:
Yes, they published this blurry bathroom photo. Seriously. I’m not joking. This is ‘advertising’ material. Can you believe this?
Why wouldn’t you take 5 seconds to open that other window blind? I mean, seriously?
Well, I hope those images didn’t ruin your afternoon.
Here are the images I took of the same property, in the same week:
SAME bathroom. See the difference?
Hey, as long as we’re looking at bathroom photos …
Okay, last bathroom photo. I posted this on Instagram.
See the benefit of opening the window blinds?
They only featured ONE photo of the kitchen. My photo batch included 8 kitchen images.
___________________
I have zero photography training. My photos pale in comparison to what a real photographer could create. But geez, at least I tried.
After I saw the PM’s terrible images, I drove to the property, snapped better photos and asked the PM to update the listing. I let a few days tick by, since websites need time to crawl for updates. And when I double-checked the listing, I noticed they were still using the old pictures. Grrr.
So … yeah. Attention to detail isn’t their thing.
But fine, I’ll play ball. After the PM signed the House #5 tenant, I let them continue running the show. Maybe advertising is their weak spot, I figured, but perhaps their tenant management practices are strong.
Um … nope.
Remember the November 2015 income report, when I mentioned that the refrigerator broke in House #5? Remember how I mentioned that we asked the tenant to measure the opening where the fridge stands (30 inches), and then we ordered the appliance and arranged for delivery?
Yeah … that’s the property manager’s job. Not ours.
Remember the January and February 2016 income reports, when I still hadn’t collected the December rent payment from House #5, despite the fact that the PM collected funds from the tenant?
Yeah … they should be faster at sending payments. Or at least communicate better.
I never had any idea when to expect payment. When I emailed them to ask, they didn’t reply. Several times.
They haven’t done anything wrong, as far as I know. They haven’t misplaced funds; I’ve received everything I’m owed. They’re legit and above-board. They just don’t display the professionalism and attention-to-detail that I prefer. I get the sense that they’re doing the bare minimum.
I’m glad I hired two PM’s, so I could compare their performance. One PM is excellent; the other is mediocre.
But I’ll admit: I procrastinated on firing the mediocre PM because it felt scary. There were several times I came close to firing him, but I thought: “just one more month.”
That was silly. In hindsight, I should have realized that my excellent PM is a powerful ally.
She reviewed my PM agreement and confirmed my understanding: I’m free to leave the mediocre PM with a 30-day notice. After I gave that notice, she handled the next steps.
Long story short, she took care of everything.
I didn’t have to do anything, other than send a two-sentence email saying, “Hi there, this is my 30-day notice to terminate our relationship; I’ve CC’ed the property manager who will be replacing you. Please coordinate with her directly.”
Easy as pie.
(Is pie easy?)
How to Hire a Property Manager
After dealing with this, I’ve thought a lot about how I find, screen, hire (and fire!) property managers.
While no approach is fool-proof, there are ‘best practices’ that you can take to recruit awesome PM’s to your team.
Here are 10 lessons for anyone curious about how to hire a property manager.
#1: Ask for recommendations.
This is hands-down the #1 way to find a good PM. Of course, in order to get recommendations, you’ll need to meet other landlords. Here’s how to meet them:
- Search the name of your city/state, followed by “apartment owners association” or “landlord association.” (If you search “property owners association” you’ll most likely get HOA-related results.) Check to see if they host networking meetings.
- Search the name of your city/state, followed by “real estate investors association,” “REIA,” “RE investors club,” or “REI.” In most metro areas, this will point you towards local investor meet-ups. The meetings will be a mishmash of flippers, wholesalers, etc., so check their website to see if they have a sub-group of buy-and-hold investors.
- Check Meetup.com to find local real estate investing or rental property investing meet-ups.
- Ask your own landlord — or your friends’ landlords — if they’re aware of local networking groups. I stumbled across one of my favorite investor meet-ups as the result of knowing-someone-who-knows-someone.
#2: Look at neighborhood listings.
This is what I should have done to find the original House #5 manager.
Search online as though you’re a prospective tenant. Look only at the neighborhood where your rental property is located.
Take a look at the listings. Make note of which listings are well-written, updated, and professional. You’re not judging the property itself; you’re only looking at the quality of the written listing.
Every listing has the manager’s contact information. If you see a PM with several well-crafted listings, contact them and introduce yourself.
#3: Check professional groups.
When I couldn’t find recommendations for a PM in the specific neighborhood where House #5 is located, I decided to search the National Association of Residential Property Managers to see who’s active. Despite my anecdotal experience, I still believe this is a sound tactic.
Alternately, you could try the Institute of Real Estate Management >> Find a Professional. Beware, their website sucks.
Okay. Once you identify a few property management candidates ….
#4: Make sure they’re licensed.
Duh.
Look up their license to make sure it’s in good standing. Here’s how to do this:
When you talk to the PM, ask for their full name and license number. After the call, search the name of your state + “real estate commission” + the phrase “license lookup,” “license search” or “license verification.”
In Georgia, for example, you’d find a page that looks like this. Once you input the relevant data, you should see their name and license number appear in the site’s search results.
You may need to click again on that license number to open a detailed report, which will show whether or not they’ve faced disciplinary actions.
#5: Tour their listings.
** This tip is critical!! **
If they’re hosting an “open house” in which potential tenants can tour the property, show up!
Remember, you’re not there to judge the merits of the property with regard to layout, size or features. It doesn’t matter if the property has granite vs. laminate countertops, stainless vs. white appliances, or two-bedrooms vs. four-bedrooms. That’s outside of the management’s control.
You’re there to observe:
(1) If the property is clean and well-maintained;
(2) If the PM opened the curtains/blinds and turned on lights before the showing;
(3) How they interact with potential tenants;
(4) Whether or not they have copies of the application on-hand for the showings;
(5) How well they know basic property facts, like the pet policy and estimated utilities;
(6) How they ‘sell’ the less-desirable features of the property. “The kitchen is very European!” = that’s a nice way to say the kitchen is small, but cute. You want a PM who says something like this rather than, “Meh, the kitchen is cramped. Oh well, you get what you pay for.”
Don’t use false pretenses when you arrive at the open house. Let the PM know that you’re a local landlord interested in their services. Any good PM will recognize that you’re a potential client and will be happy to take the time to talk to you.
______________
After you tour their listings in-person, set up an appointment to talk on the phone. During that call, ask them ….
#6: Ask how many units they represent, and where these are located. Ideally you want a PM who specializes in the same neighborhood or zip code where your property is located.
#7: Ask if they own any rentals themselves. This isn’t a deal-breaker, but a “yes” answer helps. (There are some investors who argue that it’s better if a PM doesn’t own rentals, so they won’t compete with yours. I disagree. Properties are unique; if a tenant likes yours, they’ll choose yours. I’d prefer to hire a PM who has walked in my shoes.)
#8: Ask for a sample of the type of monthly report they send. This report will detail income, fees, and expenses. You want to make sure it’s clear and easy-to-read.
#9: Ask about their process for handling maintenance requests and late payments. The process itself (assuming it’s reasonable) is less important than the confidence and fluency with which they describe it. You want someone who’s nailed their system.
#10: Ask if they perform any routine inspections (other than the move-in/move-out inspection). My PM handles a routine walk-through around three months after a new tenant moves into the property. If they spot any red flags, like extra residents or pets who aren’t on the lease, they can nip this in the bud at the beginning.
Other things to review:
- The termination clause within the agreement that you sign with the PM. Make sure you understand the process and deadlines.
- Who gets what fee. Do they keep 100% of the late fees that they collect? 50 percent?
- The ‘lease renewal fee.’ How much do they charge for re-signing the same tenant for another year?
- Maintenance up-charges. Do they add an extra fee to maintenance and repair calls?
- Dispossessory and eviction charges. Do they charge an extra fee (outside of filing costs) to handle evictions?
- Lease terms. Are they willing to sign a tenant to a two-year lease (thus reducing your lease renewal costs)?
- Check their businesses’ Yelp and Facebook reviews.
I know this sounds daunting.
But here’s the good news: If you pick the right property manager, you’ll only need to do this once.
That’s what passive income is all about: Handle the hard work once, so you can enjoy rewards for years to come.
One final thought: Make your hiring decision based on professionalism and skill, rather than price. My excellent PM is more expensive than my mediocre one, but I’d gladly take the trade-off for the talent that she brings to the team.
Okay. That’s all for now.
I’m going to retreat to my “content creation cave” to hammer out this real estate investing online training course, which I’ve tentatively named “Your First Rental Property.” (Creative name, huh?)
If you’re interested in getting updates about the course, join the Real Estate VIP List. You’ll be the first to hear about course developments and progress.
I’m trying to create the course that I would have wanted when I started investing in real estate. The course that would have saved me from the many mistakes I made along the way.
I hope that this course can be a game-changer for you, in the same way that (slowly) gaining confidence and skill as a rental property investor over the years has been a game-changer in my life.
Thanks so much. I appreciate you for joining me on this adventure!
– Paula
P.S. Here’s the VIP List signup link, if you want special access to real estate investment course announcements and updates.
(This is an epic 3,000-word article that covers a lot of material. Grab the PDF to keep these tips on-hand.)
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Thanks for the tips. Very informative. Looking forward to the next one.
I do agree with Alex. Outstanding resource, thank you very much for sharing!
That’s great! I am planning to take your ‘manage A rentals yourself’ advice and fire my property manager some day.
You do some of the stuff remotely but it sounds like you met the tenant in person and did measurements in person? Didn’t you move out of town or are you make frequent trips back to your properties?
Hi Brian,
The tenant took the measurements (with regard to the refrigerator) and texted us the dimensions. We also have a local contractor who we can dispatch to any property if we need measurements, info, etc.
The only thing that we did in-person was the move-out/move-in walkthrough for the turnover. So — we did just one thing in-person in the 10 months since we’ve become out-of-state landlords. Everything else we handled remotely.
(We could easily have avoided the only in-person activity if we hired a PM for that unit. We might do that in the future, but for now, we’re comfortable managing that unit remotely.)
Great post, thank you! With a family/kids, full time job, side work, and 12 rentals, I’ve been considering hiring a PM for the class C four plex we recently purchased as it’s just too much management. This post was very timely, thank you!
As if the blurry bathroom picture isn’t bad enough, they took the picture with the toilet seat up! 🙂
Haha!! I was hoping somebody would catch that!! 🙂
This post was super timely as I’m also considering hiring a PM for my properties. Well, the plus side is that as a real estate broker/team lead among other things, the PM I’d likely hire would be the one on my team… I’ll be the main one training him so I’m thinking of giving him mine to manage to get him off the ground. Thoughts? I can think of a few pros/cons to doing this.
I always flirt with this idea, but to me my rentals need so little management that I’d rather just keep the money. I have 3 total (the last 2 acquired within the past 12 months), but the most I do every month is calculate utilities and send my tenants an email with what they owe (yes utilities are in my name but their rent is not all inclusive), and then pick up rent… Maybe an hour or two at most every month? For $400 that would have gone to a PM? That’s a pretty good ROI on my time. Of course things happen but for a normal month that’s pretty good..
Hi Tiffany,
You know, I think that as long as your rentals need next-to-zero management (meaning you have good tenants who pay on time, etc.), it makes a lot of sense to manage your properties yourself.
Certainly, I believe that when you’re buying a property, you should run the analysis as though you’re outsourcing the management. This gives you the freedom to hire a PM if you choose.
But just because you can hire a manager doesn’t necessarily mean that you should. And from the way that you’ve described your situation, it sounds like that $400 per month is much better off in your pocket. 🙂
Hi Tiffany,
In addition to what Paula mentioned below, another aspect to consider is what are your hourly earning otherwise. Say if you are making $ 1,000 per hour, managing your property to save $400 by spending 2 hours (Hourly wages – 400/2 = $ 200) will not make sense but if your hourly earning is around or less than $ 200, it make sense not to hire a manager.
I always attach an hourly value to my time and use it for taking all type of decisions. E.g. A direct flight is costing me $ 1000 and takes 10 hours to reach the destination. An indirect flight is costing me $ 800 but takes 20 hours to reach the destination. So in a way, by spending 10 hours I am saving $ 200 which is equivalent to an hourly rate of $ 20 (200/10 = 20). If I attach more value to my hour (than $20), I will not take the cheaper flight.
the only qualifier on this calculation is that you can often actually work remotely while you are waiting time between flights. So you can often recoup the value of the time lost.
My addition to your list is to be sure you find a dedicated property manager, not someone who sells real estate and manages property.
Thanks for the tips. I don’t think rental properties are for me but I love reading your story. I laugh at the 0.02 interest you’ve got.
Also l, it’s a nice “salary” for a 5.5h work. Congrats.
Great post! Congrats on the cash flow!
Great post, I love the ‘interview’ questions for the PM. For the first time, I have a PM managing a property situated 2 hours away. They always answer my calls, but their pro-active communication is lacking. In a small town, I had little options. It’s working for now, but I’m not married to them.
I’m just about to start looking for property #2, and plan to hire a PM with this one too. It’s also out of town, but not the same town. Bigger town = better PM options, or at least I hope it does. Your guide is perfect timing my next rental!
Thank you Liz! Good luck with property #2! 🙂
Have you thought about hiring a photographer? You would only need this once, unless you do a big remodel, and hiring a photography student or a freelancer on Craigslist shouldn’t be more than $100. I have a great set of wide angle high quality pics for both rental and Airbnb properties and it has made a huge difference.
Definitely!! I think that’s a wise investment. We had a professional photographer take pictures of 2 out of the 3 units within the triplex, and WOW — their photo quality was excellent.
Very informative post. I’m starting to actively educate myself about my area and I’m getting the feeling that hiring a property manager from the get go would be a good move for me. Thanks for the great info and looking forward to the course!
Oh my goodness, those photos were awful! How can any PM (or anyone) think that’s acceptable to use as marketing photo? Some people can take a bad photo, but nearly everyone can understand TOO blurry. I’ve also started using MeetUp to meet other real estate investors and PMs. Good call.
I love these income reports, especially from property. I’m building up my portfolio to build a nice 20% payment to start my first income property. However your margins are pretty awesome! Go $7,461.43!
I know, right?!? I can’t imagine thinking that the blurry photo is okay to post in a listing!!
Thank you for the compliment, Wallet Squirrel. I’m glad you’re loving these reports! 🙂
Any chance you could do a blog or podcast on “Tiny Houses” as rentals?
– people are putting them in their back yard for extra rental income
– do you need a building permit because technically they are an RV?
– how much to build? What do I need to find out from my town?
etc…..
As someone who manages all my own properties, I can say that most PMs are not worth .02. They make the most money, when you make the least. They think it’s like a real estate sale, get the commission and move on.
If they had some skin in the game, they would be much better. I have had a PM tell me how great a new tenant was, and the tenant turned out to be crap. I used a PM to fill a 4-plex when I just started, 2 of the 3 tenants did not fulfill the lease to the end.
As you say, ‘Most PMs are not worth’ – That’s why I think Paula is so rigorous while shortlisting the PM for her properties 🙂
Great job Paula! Cant wait for the course and yes, we are on the VIP list. Thank you for sharing your experiences!!
Paula, Great post as usual!
I know you are a lover of words, your former PM was “shiftless” rather than lazy. (Email if you want that parsed out.)
On hiring a new PM…
I know standards are regional but for my area you glossed right passed the most important part of your number five!! When a PM does an open house for a rental property in your area… WHAT?!?! That alone would put the PM in the top 10% in my area! Most PM and management companies in California don’t even accompany prospective tenants to the property anymore—unless it is onsite management.
While I agree with your number two, well written posts, I think your I-write-for-a-living might be showing.
Finally, I would add that going through your agreement with the PM or PM company should we emphasized. Every PM contract I have read is Heavily balanced in favor of the PM, usually extremely so.
One item in particular that I always get changed is paying for tenant turn-over prior to the end of the lease. The contract should align the PM’s interest with the owner’s interest. Most contracts are set up to pay the PM with every turn-over. So if the tenants don’t stay for their full lease the PM doubles their fees and the owner gets screwed. I always get a “guaranteed” tenant clause. They screened the tenant and recommended them. If the tenant doesn’t last the full lease—I don’t pay for the replacement tenant. That aligns interests, we BOTH want good tenants that will stay put.
Oh, one last thing. I loved good PMs! I highly recommend going that way eventually. But always manage for a year or two on your own first. You really don’t understand what the PM is doing otherwise. Nor do you have a real understanding of the “standards” you expect for your PM. You will need to manage your managers, it helps to have been there first.
Very good advice for evaluating a property manager. Fining a company you can trust to manage and maintain your investment property is tricky. I use a similar set of criteria (along with a lengthy interview questionnaire) to screen my PM – it’s worth the extra effort!
Hi Paula, how is Cozy working out for you? Tenant payment by check is a small, but still a pain point I have. I’d like to offer an online payment method instead of having to worry about checks. The problem will be convincing them to USE it.
We haven’t had any problems in getting tenants to use it, but that could be a reflection of our tenant profile in the properties that we self-manage. They tend to be tech-savvy types. Cozy wouldn’t be a great fit if you had a lot of unbanked tenants, but for people who live on autopay it has been very successful. It’s just way easier to set up your rent to autodraft every month, rather than worry about remembering to write a check.
On Cozy is the initial application free as an initial screening? Did you always use Cozy and did you use all of the features?
We used a free online rental application and then Transunion for background/credit checks which all very similar to Cozy the tenant paid.
I’m also curious about the lease that it draws up, did you originally set this up with your Atlanta properties?
Any details are appreciated.
Hey, this is Will-
The Cozy application fee is charged directly to the applicant, but it is free to the landlord. It’s a reasonable fee.
From Cozy.co:
The application itself is free to the prospective tenant. In fact, Cozy.co is free in every way that I have found for the landlord- I really like the platform and interface.
Cozy doesn’t provide lease documents, however. We just use a standard Georgia Association of Realtors lease.
Hi Steven,
We used to use Transunion’s MySmartMove to process applications, including credit + background checks. I wasn’t a huge fan of this system (personally) because the user interface wasn’t very intuitive, and I noticed the “conversion rate” (prospects who asked for an application vs. prospects who actually submitted a completed application) wasn’t very high.
When I started using Cozy (affiliate link), I noticed that the “conversion rate” increased. Granted, this isn’t a scientific experiment — there are other variables at play, like the year — but I suspect that the easier user interface may play a role.
The cost for both a credit + background check is $35, and the tenant (applicant) pays Cozy directly. It’s free for landlords.
For a very long time, we collected paper checks from renters, but I never liked that system (for obvious reasons). I occasionally asked renters to set up a direct ACH transfer into our bank account, but again, that request often fell through due to complexity. One of my favorite things about Cozy is that it allows tenants to set up automatic/recurring payments, which are then transferred to your bank account — and that’s free.
I don’t recommend using a Cozy lease. Their leases are not legally binding. Instead, purchase a lease for your state through Nolo’s Landlord Forms, or through some comparable legal site.
Of course, you could get one drafted by an attorney, but that would be expensive. You could purchase a state-specific form and then have a local attorney review it, if you’d like to have a lower-cost second opinion.
Hope that helps!
Slightly on the real estate topic- my husband is renovating his craptastic bachelor bad so we can hopefully use it as a rental (we live in a different home) and earn positive income. Most of his extra cash flow is going towards renovations. He is $20,000 in debt in student loans, and I want to start picking up extra at work to pay them off (I’m a nurse and make double time when I pick up a shift, meaning $52/hr). Should I put that extra cash towards the rental home or towards the debt? I’d love to get the debt paid off this year, but I would also love to invest (we want to buy more properties after this one is up and running). Thanks!
@Stephanie — Ask yourself these questions:
#1: If your extra cash goes towards the debt:
— How long would it take you to finish the repayments?
— How much money (from today, until you’re finished with repayments) will you spend on interest?
— How long would it take you to THEN renovate the rental property?
— How much rental income would you miss out on, as compared with putting that money towards the renovations first?
What number is larger:
— The missed/lost rental income from delaying the renovations, — or —
— The interest on the loan?
Here’s another way to look at the situation (and double-check your answer):
#2: If your extra cash goes towards the rental renovations:
— How soon would the house be available for rent?
— What would the net rental income be?
— If you applied that net rental income to the student loans, when you would finish paying off those loans?
— How much money (from today until you’re finished with repayments) would you spend on interest?
— How much EXTRA would you earn by pocketing the net rental income the moment those interest payments are done?
Which number is higher:
— The additional income from net rental income? — or —
— The interest payments on the loans (now through the repayment date)?
This will show you the answer. 🙂
(Of course, there are emotional factors that you could also consider. But these questions will reveal the math behind the decision.) 🙂
Paula,
Love your blog. What does it take to become a property manager? My situation is that I would like to get into rental real estate, but I will only pay with cash (I’ve got a little Dave Ramsey in me too). While I’m saving that cash, I might like to manage a few properties. I feel like it would give me some good insight into the business and I’d make some extra cash. What would be a good way to start?
@Joe — You need a license to manage other people’s properties. (You can manage your own properties w/out a license). Every state has different requirements for obtaining a management license, all of which is governed by the state’s Real Estate Commission.
My recommendation: Google the name of your state + “Real Estate Commission.” This website will most likely have a tab for “approved Real Estate Schools.” Look through this page to find a school in your area, and contact them to find out the requirements for getting a management license.
The good news is that many schools allow you to take courses online, which means you can self-pace your study within your space time (evenings/weekends). That’s how I obtained my agent’s license.
(One caveat: SOME states don’t require a license if you’re a full-time employee of a rental property owner. But it doesn’t sound like you’re interested in this full-time, so that’s a moot point.)
If licensure is beyond what you want to do, I’d recommend learning more by hanging out with rental investor networking groups (either in-person, online or both) and reading as many articles and books as you can get your hands on. (You’ll see how many different perspectives and approaches there are! No two people hold the same philosophy and approach to rental investing.) You won’t make extra cash, but the exposure to the rental investor community will be valuable.
Alternately, if spare cash is your primary goal and you’re a decent writer, you could look for freelance writing gigs in the real estate niche. The benefit to this approach is that you’re essentially getting paid to research the topic. 🙂 JournalismJobs.com is a good place to start.
Good luck!
Paula,
Thank you so much for your thorough reply. I did find the Property Investors Association in my area and I think I’ll lurk at their next meeting. Their speaker, from the intro, really seems to be a “get rich quick” schemer kind of a guy. So I’ll approach with caution. But thanks again!
Whew! I’m glad that firing your PM was easier than you thought it would be. I always dread when I have to end contract with a client or contractor. But it generally always seems worse than it ends up being.
Hi Paula,
Since you own several properties, how do you own them? Through an LLC or some other entities or directly under your & your husband’s names?
How do you handle liability? Specifically, what will protect you if one of your tenants sue you and come after all your properties? Have you already blog about these topics? I would very much be interested in these topics.
Thank you.
These are important questions and it’d be very helpful to get some expert advice. Another question is should you get the General/Professional liability insurance if you manage a property by yourself and getting sued as the manager of the property (bad management decision or something) even if it is an LLC? A friend of mine set a very complex structures with serial LLCs and land trusts in a number of stats as his real estate asset protection strategy. It just seems to cumbersome and not worth it, for a beginner at lest.
Hey Paula,
Coincidentally, I just recently fired one of my property managers too. May was my first month completely being unassociated with that PM and it was a reason for huge celebration! Haha, im serious too. So glad that relationship is done.
Its a necessary evil and im sure ill be going through plenty more PMs in the future. Just part of the game you know!?
Hi Paula / Will,
I hadn’t look at your site for quite a while and it’s completely revamped!!!
I like the new look.
I’m really happy to see that you’re investing in real estate as compared to putting your money into a 401k or similar. That is a way of ending up with way too little to live on by the time you retire.
Your plan is MUCH better.
However, there are even better opportunities for you in real estate investing. I have been a licensed realtor in Texas since 2006. I have figured out the business and become a broker and graduated from residential brokerage to commercial brokerage and I’ve developed specific niches that I like a lot.
I’ve watched my clients and the ones that have done the best are the ones that have invested in raw land. By the time they want to sell, three, four or five years later…. they’ve made massive profits, far more than the price appreciation on any rental home would have done. There are, of course, a lot of things you need to know on how to buy the right piece of commercial land. But, that’s where a guy like me comes in!! 🙂
The problem with land though is that, even though it’s one of the greatest investments around (the best investment on earth is earth – Louis Glickman), is that it has no income while you’re holding it. So, I had to come up with an alternative for my clients that absolutely need income thrown off while they are holding a real estate investment.
So, my recommendation for these investors is: invest in Self-Storage. We’ve even developed a specific website for it – http://www.TheSelfStorageProfessionals.com.
Why is self-storage so good?:
– you don’t have to deal with the three T’s – Tenants, Toilets & Trash
– if a tenant moves out there’s not much to fix up.. no carpets to replace, not repainting to be done
– if a new tenant moves in there’s no remodeling required like with a strip center tenant, simply sweep the space (if that’s even required) and let them move in
– you tend to have 100’s of tenants vs a few. So, if one moves out it’s no big vacancy, the vacancy % hardly budges
With the advances in technology it’s now incredibly easy to manage these business from a distance. I personally own a Boat & RV Storage business that I purchase in January of this year. We have 44 spaces that we lease out and then we have additional outdoor parking spaces that we also lease out. Roughly 57 tenants in total right now although we are planning on adding a few more buildings to increase our tenant count up to about 75.
There is no on-site employee. We installed an electronic access gate, high-definition security cameras that I can watch from my phone and an incredible client management system called SiteLink. I’ve NEVER had so much fun handling a business. It’s been super easy. With my real-estate assistant we get together once a month to mail out the invoices. This month we sent out the rental increases after some fix-ups we did on the property over the last few months… increases ranged from 25% to 50%!!!!!
But…. back to land. It is an incredible investment specifically because it has no income. Income creates a cap on value. Without income who’s to say what the value is? That is exactly why commercial land can sometimes double or triple in value in incredibly short periods of time. That is simply not possible with an income property as a landlord is not able to simply double or triple the rent they want, the tenants would simply move out.
So… anyway, I wanted to get in touch to suggest a direction that you might not have thought of.
Let me know what you think. Tks.
Regards,
Lance.
832-483 8655.
amazing results! great work.
Hi Paula, I’ve been a long time lurker on your blog and really enjoy it! I was wondering if you could pass along your property manager you use in Atlanta? I’ve been searching and not finding anyone I’m super excited about and decided to just ask. Thanks!
Hi Courtney! I just sent you an email (at the email address tied to this comment). Thanks for being a long-time reader! 🙂
Great article and terrific blog, thanks so much for sharing your experiences and guidance. I have a question- how to go about the logistics of finding good tenants, doing their background check and credit check, drafting the rental agreement and getting payment monthly? Is there a good property management software that you would recommend for these logistics?
Paula — I too am a long time lurker and lover of your blog, who would love to contact your PM for a few rental properties in ATL. Would you mind sharing with me as well? Thanks!
First time commenting on your blog, and love it.
A few inquiries:
1) Paula, do you have any protections incase you get sued? Say a light fixture falls down on someones head or a pipe leaking caused tenant to slip and fall?
I don’t see “liability insurance” on your property expense report.
Are you going to keep cruising along thinking you won’t get sued then you get sued and stand to potentially lose all you built? Because of your tenants got injured in one of your rental properties, and now suing millions of dollars in damages?
2) I LOVE your stance on frugality. LIVE life to the fullest you can afford and don’t feel bad about it as long as you have an emergency fund and aren’t going into debt for it. It’s a miserable life to scrimp and scrounge, using mental bandwith to save pennies while the dollars slip away.
3) Speaking of #2, Many people who book travel spend dozens of hours hunting for that rock bottom rate on accomidations, those travel steals do exist but they aren’t worth spending days to get. Do you do this when booking travel?
Always go off referrals. I have 5 properties in Atlanta, 4 in Birmingham, and 1 in Indianapolis. Part of the problem with a non referral is you are going to a big broker home and getting the jokers who can’t sell homes managing your rental. Not a good situation.