Houses and condos are stupid cheap most everywhere. However, even if you pay in cash, once you take into account taxes, insurance, routine maintenance, vacancies, the paltry interest your capital would have been generating in a safe investment, and, in some cases, homeowner’s fees, the majority of the rental income would still be taken up by expenses, and that’s not including extra-ordinary maintenance or problem renters.
So when you add in rental property management company fees it would seem to push the deal into a marginal proposition, whereas if you were to go it alone without a management company it would seem more doable.
How much time would I have to put in a month if I were to in theory manage my own properties? Let’s say I was unemployed and wished to remain feeling like I was unemployed. Assuming I had the capital to invest, how many houses and/or condos would I be able to manage myself without it seeming more like a full time job than a part time job or investment? Note that I have no current plans to try this mainly due to the chance for a catastrophe (for example, rental market crashes, or houses fall apart and insurance won’t pay, or renters trash the place for $10s of Ks of damage, or I get sued for megabux by a renter) but I was wondering how much time self-management entails per property.
Also assume that all but the most basic maintenance would be done by repairmen, (which would of course cut into the bottom line and would still require time for coordination but would be faster than trying to figure out everything myself and running around buying supplies.)
The thing to remember is that the time required to manage them is going to vary dramatically from tenant to tenant and property to property and even the phase of rental you’re in. I don`t say that in order to make the point that nobody could give you a meaningful average - I hate when people say that. But rather just pointing out that there’s an element of luck and a lot of variation in how much time your properties consume from month to month.
I own and manage 4 rentals. And for example, I’ve had a woman in one of my properties for 2 years and have heard from her about 4 times in that entire time. Twice her furnace stopped working because she couldn’t afford heating oil and she needed help restarting it. Once her rent was ‘lost’ (for real or to buy time, I don’t know) and I had to call to ask about it, and she sent me a ‘new’ check. The other time was to tell me she had some payroll problem and was paying $50 short, and promptly made up the $50 2 weeks later. She’s an amazing tenant.
On the other hand, I spent the first 5 months of this year trying to get a couple out of another property. It took countless hours and frustration and days off my real job to attend hearings. They used every trick in the book to delay the constable forcibly evicting them. When they were finally out, getting the place cleaned and repaired was a huge hassle even though I have a good ‘team’ of people on call for any forseeable repair/cleanup, because they were just so disgusting.
So I won’t try to give you an actual answer, maybe someone who is a little more serious than I am with my 4 properties and try to be quantitative. But if there’s one lesson from my post, definitely do not assume all your tenants will bug you on average twice a year for 30 minutes.
And I own the company that I consider my full time job, so for me taking days off work to manage my properties annoys/hurts only myself and my company. Imagine having multiple tenants who by sheer bad luck are doing everything they can to prolong the eviction process as much as possible at the same time. If your full time job is a traditional job, managing a bunch of rental properties could quickly become untenable as your employer quickly gets sick of putting up with it.
I’ll echo what Fuzzy Dunlop said, since I’m a landlord on about the same scale. But even given the uncertainty inherent in the business, if you’re looking for a round number, I’d say… ten. That’s assuming that you’re renting in an okay location, there’s a good rental market, the units are in decent condition, and you do a thorough job of vetting your tenants. After all, there are two sides to the rental business: dealing with the properties, and dealing with the tenants… which means that if you can keep tenant issues to a minimum, then all you’re left with are building issues. And if you don’t have many building issues, then your time is basically your own.
My husband and I used to own two houses on one lot that we rented out.
I would advise a person today to just beat themselves over the head with a hammer for months on end rather than manage rental properties.
Really, it would be much easier on you. Cheaper, too.
When we were first married, we rented, and we were NICE renters. Didn’t tear the place up, didn’t make unreasonable demands, and actually cleaned up after ourselves when we moved out.
I guess we were the last of our kind. EVERY SINGLE RENTER we had, we checked their references, we did credit reports, we called prior landlords. The people would come to our home, sit at our kitchen table, listen to all of our concerns, and they would seem like nice, decent, hardworking folks.
Then the alien pod people from space would take over their minds and their bodies. They would develop a sense of entitlement, thinking WE had more money than sense, and that it was no big deal to be late with the payments or forget about rent entirely. And the destruction of our property was obscene.
Our kids were drafted as slave labor to help shovel out the houses, fix busted stuff, chop down waist high weeds, and paint. To this day, neither grown child would ever seriously consider property management again.
It depends on you. I knew someone years ago who had over twenty rentals, some being multi-unit, and still had a full time job as well. It didn’t kill him, but sometimes seeing him you’d wonder if it was going to do so.
As of Q1 2011, the Composite Case-Shiller Index was 128.29 (cite), which is not only above historical averages, it’s higher than it’s ever been since 1890 except for the period from 2003 to now, the largest housing bubble in American history. In some markets (Las Vegas, Detroit, Cleveland), it’s well below historical averages.
I mention this because if your plan is to buy housing “cheap” and rent it out to cover your costs, then make your profit in appreciation, you may want to reconsider.
I wasn’t considering making my profit in appreciation. I’m assuming it will appreciate at inflation (minus capital-level repairs.) The fact that housing is supposedly not extremely cheap is something to think about, but when you can buy a condo for the teens(!) it does make you think twice about not investing in real estate.
Thanks for your input everyone. At least it seems like if I were to do this, which I won’t cause I’m lazy and fiscally cautious, that as long as I didn’t have more than the average number of problem tenants that I would be able to supplement my income fairly well without feeling overworked.
The tax advantages of owning rental property is the only reward! While real property appreciates, rentals are considered a business and the property value is depreciated–if you have someone doing your taxes who knows what he or she is doing. Your mortgage payments are considered to be expenses, along with repairs, taxes, upkeep.
Make sure you keep detailed, accurate records. And find a tax professional who regularly deals with rental ownership.
When you SELL the property is when you get killed!
~VOW
only the interest component, not the principal component
only maintenance type stuff, not improvement type stuff
Yep. And there are ways to diversify your investment without taking the tax hit (e.g., contribute it to a partnership that owns lots of property in exchange for an interest in the partnership).
Former property owner and landlord here who managed rental units. Let’s just say I’d never do it again. The amount of effort will vary by tenant. You can do your very best job at screening potential tenants, but you can still end up with some high maintenance renters. I have a ton of stories of lost evenings or weekends spent fixing a problem or just doing routine maintenance for the rental property. And I hated to see messages on my answering machine because they may be from a tenant. I’m not even counting the occasions when you have to demand rent when it’s late, or to start eviction proceedings. Don’t forget the cleaning work when a tenant moves out. You may think that you’ll be fine because you know some good repairmen. So did I. Unfortunately, they typically don’t show up when they’re supposed to.
One of the happiest days of my life was when I unloaded the rental property. There’s nothing wrong with rental property, and the current depressed prices make it tempting to get back in. If I do, I’ll hand over the day-to-day operations to professional management, and just be a passive investor in the property. It’ll increase the operating expenses, but I can avoid tenant headaches and keep my sanity.