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Nice post:

what do you mean your property manager does not charge and has bigger ideas ?

Are you doing an equity share with them in lui of management fee's?

I think the biggest thing to realize in PM  is that its a for profit business. and no property manager can make a living and give the client that special attention and to them and their property for 7 to 10% of collected rent per month.

Its a huge responsibilty for the PM for very little pay. Unless you have thousands of units. If your managing say 50 to 100 units your grossing maybe 4 to 7k a month. Who can live off of that unless you did 100% of the work yourself.

This is why PM must charge for placement, must up charge for maintance, and some do to an extreme others do not, but again how much effort can one company put into your property making this kind of money.

Well most of the time you cannot get insurance for vandalism, and if you do have it its really expensive. there are 2 schools of thought here, one of my clients up in Indy, use's multiple leasing agents, when one of his houses come's on the market you will see 5 or 6 signs in the yard.  Why you ask?  Because tenants will call sign number 1. if they get no asnwer they call the next then the next until they get a live person. Tenant does not care who the leasing agent is. so you have multiple leasing agents competing against each other to bring in the  tenant as soon as possible.

The reality is if your properties are in the type of neighborhood that you have to go to the methods the KC turn key operater has mentioned here. Then there is more to securing the house's. Most of us could learn alot by checking out what the Detroit guys that buy in these areas do to their homes. Here are few tips:  They:

1. Metal kick proof door and door frame front and back.

2. basement windows and some first level replaced with glass blocks, "these will not pass Hud" for the ingress egress issues but they will keep vandals and burglers out.

3. Paint copper pipes grey. So when a snatcher is in looking to rip out the copper in the middle of the night and has a little flashlight they look like galvalized pipes.

4. Heating Airconditiong and all appliances are left out of the house until the day the tenant moves in.

5. And of course virtually anywhere in the US these days you need to cage your condenser units. The first person to come up with a lo jack gps tracking device for airconditioner units is going to make more money than any real estate investor. If you got the idea how to do it We will market and sell it.

However this is great feedback for the AU investor to understand what they are facing. Just because you go the US and personally check things out  and do your due diligence. Thats just the start of the process the rest of it is in the running of the property, and having to manage your managers.

Obvioulsly when you visit in person and your checking out that 15k house thats going to give you a 25% yield you will probably come to the conclusion that you would not want to own in that neighborhood, or its a dead and dying area. Not to mention the Ghetto

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So to be fair to the audiance in your experince rental properteis will have 50 dollar s a month in maintance and could be as high as 200 plus depending on the tenant lest you get a bad one. would you say that is accurate.

I liked columbus on the ground made oh 12 loans 8 went bad 6 sold for loses.

Genreally I do not like Ohio period. the auto industry has moved south.

At least in the price range these turn key guys are operating.

Maybe some higher end. however never lower end you will be better off going to vegas at least you will have a good meal and room and Show. and if you gamble a little you could maybe some how come out on top

Looks like you Aussie's are starting to catch on to the US market. I thought it would happen one day.

Lots of profitering its a major industry here in the states.

1% rule is pure folly once you leave the 100k price range. Very few rentals at 2 to 3k. those renters will do owner contract purchases or will rent much nicer homes than what your buying.

JLH

there is another thread with regard to TRR, like a lot of home buying services here in the states, they subbed out management when they first started only to have a lot of problems which most people have in the states with 3rd party managers and I think from what they wrote they have brought management in house now. So it becomes a profit center for them and a necessity as I am sure they will do better doing it themselves then subbing it out.

No doubt property management is the weak link in buying US rentals

Mike and Bron,

And to the general audiance:

Even with that amount of due diligence which is just normal for the industry or should be normal anyone doing less is really not someone you would want to let handle your properties, you will still have experince's like your client that just posted has had, Evictions trashed units, stolen condenser units etc.

Its a fact happens to us happens to everyone in this bizz. I think the important message is that these types of investments carry a certain amount of risk for the investor operator. And for investors to think that they are going to buy a property and have no bad experinces over the course of ownership is just wishful thinking and they are beleiving what they want to beleive or a sale pitch.

At the end of the day you can do everything right like your doing, and a tenant can still not pay and or destroy a home and bottom line the buyer is responsible for all these cost's. Your company after the property has settled is not financially responsible to make any mortgage payments on behalf of your buyer, do any repairs at your cost etc etc. Which is how it is with 99% of the investments out there.

What I see happening is people invest in these properties with un realistic expectations of you or any other property finding company and a lot of the expectations are created from the marketing companies themselves they do not go into any kind of detail on the down side of owning only the positive , And the expense side of running the property is understated by a lot. So when the normal things happen in owning rentals in the US. Tenants don't pay tenants trash units things get stolen, houses sit vacant for a few months etc etc. It comes as some big shock to the investor because they have not been fully informed up front of these issues. If you did have full disclosure up front you would not sell as many houses as you do people would be more cautious and look at other methods or investments all together. I see it time and again with those who sell property to out of area clients their profroma's for the running of the property are just that proforma's not based on actual running expenses and are constantly and routinely puffed to make the return look better than it really will be.

Then what happens is and I am not sure about the Aussies but a lot of US buyers for sure usually do not have enough reserve capital to buy any kind of rentals and they end up loosing the properties, I know I foreclosed on over 150 of non owner occuppied loans I had made from 06 to 09. and am now the proud owner of most of those. Since most of the Aussies are paying cash this is not as prevelant as with US investors which have lost millions of rentals over the last few years. But I have seen Aussies just letting their properties go for tax's as they bought in such garden spots as Buffalo or some other rust belt town because the properties were cheap and rents inflated but you could never consistantly collect rent to many houses renters just bounce around.

For this reason if you ask anyone in the business its darn hard to get a loan on a rental you need a lot of liquidity and reserves before a bank will make a loan. Ergo the opportunity that is out there for all of us who are fishing in this same pond. It caused the market to crash, and once people got upside down then the stratigic defaults took over and it just feed on itself, not to mention over building in the first place in certain markets NV AZ FL central CA, and GA to an extent.

Like I said in my last post what has happened to your client is not an aberration and its not the Norm but it happens to a fair % of rental properties nationwide. I just had one here in Oregon where I live that was completly trashed after 4 years. Had to take the house down to the studs because of odor issues, 30k rehab at cost.

Any management company is going to have a vacancy factor of something like 5 to 10% is normal. 0 vacancy may happen for a month or so, but lease's come up people move. So with a portfolio like yours your going to be turning at least 1 to 2 properties a month, that will need light work to full rehabs just like when you bought them at the foreclosure sales or auctions or where ever you source your properties. So your clients within 24 to 36 months if they want to bring the house back to the condition you sold it to them in. will be faced with 2k minimum to 10k rehabs and if you get that bad one like your client posted it could be more.

So what that does is takes an investment that everyone in the industry touts as a 18% gross 12% net and you deduct the true running cost and your nowhere near those numbers. and for those unfortuante ones that get a bummer it will be negativly geared substantially,  Again not every property will experince this. 

To the Audience why do all of these properties need 5 to 20k in rehab?   And these are homeowners that have lived there generally less than 10 years, just think what tenants do.
So I do not think its prudent or logical for people to invest in these properties and think that the running costs are going to be 50 a month or nothing as some folks claim.

Bottom line anyone with any experince in this bizz will take 50% of gross rent and use that as the running cost number then figure Net return. If you do better thats great. However greatly mitigates the down side and if you have surplus cash left over thats a good thing, Its a bad thing to think your running costs are going to be 25% and your having to continually feed the property.

For anyone who cares here is how we set up our properties.

Day 1 settlement   depending on property age 2k to 3k is set aside in reserve fund.

Monthly on top of tax's insurance we put 200 a month away for maintenance and vacancy factor, now if you have no debt on the property vacancy factor is not as big an issue, however I would still put this amount away for safety factor.

So over the course of a 5 year hold we have put 2 to 3k away added to it to the tune of 2400 a year. So thats 14k to 15k per property plus hard costs tax's and insurance.

Now we of course do not charge a leasing fee or management fee to the project. Our goal is to spend 5k to 7k in true operational expense for the rental side leaving 7 to 8k left in the reserve account to do another rehab to sell the property RETAIL>

There is no way that your going to buy one of these rentals and not do a retail rehab 5 years down the line and expect to sell them and get capital growth. You will need New carpets the latest paint colors coutner tops, appliances at a minimum.

So just think about it, you buy a US rental put little to nothing away for reserves pay out of pocket running costs (which you will) and then when you want to retail it you will spend at least as much as the rehab when you first bought it.

Another issue I think is important and pretty good advice is not to over do it on the rehab first time for a tenant. Your just going to have to redo it again. On older homes in our portfolio we spend the money on the important parts Mechanics roof plumbing electrical HVac, We will usually replace all of these items if they are 15 to 20 years old regardless if they will pass a home inspection or not, because again when you go retail this house in 5 years the Major componanats are only 5 years old you spend 5k on cosmetics and you will beat your competition who bought a rental and did mainly cosmetic work that makes it look great to you sitting in your living room somewhere in the world but is not necessary to get a good tenant.

The secret to running rentals is minimizing your maintenenace calls, and you do not get many for cosmestics like paint colors etc. it will all be H Vac plumbing and electrical and roof leaks. so we have learned through trial and error and 30 years experince this is what a company should do that is in the business of running rentals, No need to put a 3k paint job on the outside if the current one just needs touch up house in most instance's will rent fine, Just lower your rent price by 25 bucks and it will rent right away, Thats the other main comment I have do not over price your rental rate, try to under cut market you will have your pick of clients and rent it much faster 25 a month to renter is a big deal. If you sit vacant for 2 or 3 months waiting for that person to pay 900 when you could have gotten 875 right out of the gate. How many months does it take at 25 a month to get to 900 or 1800 in lost revenue as your property just sat there.

Mcivor.

unfortuantly this happens to many investors US or Foreign. Property management is the biggest problem. Any one can buy these properties rehab them then flip them its a big business here in the states obviously.

And not everyone has these experinces but I would say far more do that will not come public with it because of the embarrassement of feeling that you have been had. And if you bought 4 properties you have probably invested a sizeable sum 200k or more. this to a lot of investor's could be a life changing event.

And for this sole reason we started http://www.truewholesalehouses.com its by far the safest way for an absentee landlord to purchase rentals when they are not avaliable to personally manage them. At the end of the day the management company has no liablity to your property and neither does the company that sold it to you. YOu are on your own.

so it really does not matter what any company quotes you on returns if your houses get trashed and vacant what kind of return is that. Remember a huge amount of these foreclosures comes from Landlords that have given up.

And like any big city you have to be very Careful in Atlanta where you buy, Atlanta is a huge place takes 2 hours to get from one side of the metroplex to the other. And there are good pockets and bad pockets.  However nothing will keep you from be abused by poor to non exsistant property management.

Any way if you want to e mail me I will get you a referral to my partners there in Atlanta we usually do not take on clients outside of our portfolio, however we can at least try to help you corral what you have stabalize them and then maybe take on management as long as they are in areas we work in we would do this first step as a courtesy to you.

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