Recently I had a phone call with an investor who lived on the East Coast but he was investing in the Midwest. He was telling me how he owns a couple of properties in the Midwest and he’s managing those properties himself. I spoke with him and asked him how he was managing his rentals from far away because he was interested in buying more rental properties from Martel Family Realty. There were a couple of things I told him about why you shouldn’t manage your rental properties if you’re out-of-state. When you’re an out-of-state investor you should definitely get a property management company to manage your rentals.
The first reason for this is that managing your own rental properties is not a scalable business model. You want your real estate investment company and your real estate rental property portfolio to be a business, and you want to treat it like a business, so you want it to be scalable. When you’re managing rental properties from out-of-state and you have two to three rental properties, that’s fine, but what’s going to happen when you have 20 or 30 rental properties? Are you still going to be able to manage those properties from out-of-state? Absolutely not. It’s going to be hard to manage even two to three rental properties from out-of-state. So you want your business model to be very scalable and always think of the big picture. What if I 10x what I currently have, will I still be able to manage them? Managing your own rental properties from out-of-state is just not a scalable model.
You’re Now An Employee
The other thing about managing your own rental properties is that it’s a job, it takes a lot of your time, and it hinders you from on things that actually generate revenue and build up your business. Instead, they’re just time wasting tasks which somebody else can handle for you for a very small fee. Normally these property management companies take 8% to 10% of the gross rental income as their fee every month.
Therefore, on a $1000 rental property you pay a $100 a month for a property management company to collect the rent, manage the tenants, maintain the relationship with the tenants, handle maintenance requests, handle evictions, etc. So that 8% to 10% fee is nothing, because it allows you to then focus on growing your business. Instead of just managing those two to three rental properties that you currently have. You can actually go out and raise more money or build more cash, which would allow you to buy more rental properties and create more passive income for yourself.
For example, let’s say you have a couple of rental properties and you’re making an extra couple of hundred bucks a month because you’re managing these properties yourself. But think about what happens when you have an eviction in one unit, a maintenance request in another unit, and something else happens in a third unit? First of all, the eviction is going to be a very lengthy process and you may have to go over to your rental property to sit in court for a whole day. You also have to find a lawyer and pay them for their time.
We had a rental property where we actually had to evict the tenant — there’s only been one case where we had to evict the tenant — and the property management company handled everything. It was just 20 minutes of my time picking up the phone to get an update on what was happening. They were able to manage everything from finding the lawyer to appearing at court. Only for that little 10% fee that they’re making. Imagine all that time that you would spend evicting tenants or managing maintenance calls. You could instead use that time to grow your business instead of just managing it.
It all goes back to the philosophy of working on your business, not in your business. So put people in the right place to manage certain aspects of your business and focus on growing your business. Picture yourself being at the top of your company, with all these different layers below you managing certain aspects. So that clears your plate to go ahead and generate new business. Buy more rental properties. Or make your system and process better.