Dear Patty - Passing On Properties
Thursday, June 12, 2014
I’m just starting out in the property management business, so my inventory is low. I speak with a great deal of owners needing property management, but I’m just not quite sure if I should take every property that comes my way. How do I decide which properties to add to my portfolio?
--Take ‘em or leave ‘em?
Dear Take ‘em or Leave ‘em,
Thank you for your question. You’re ultimately free to choose which properties you manage, of course, but a number of factors should be considered prior to accepting a property for management. These include:
Location. How far is the property from your home/office? Gas isn’t cheap, and you never know how many showings it’ll take before you secure a tenant. Costs of fuel/tolls can eat away at any profit you’d make from leasing and management fees, so it’s typically best to set some geographical boundaries and manage properties nearby. With tenants in place you might need to visit the property frequently for both emergencies and routine maintenance, and you’re best able to effectively manage properties nearby.
Condition. Is the property rent-ready? Will it be soon? Unless you have an agreement with the owner that pays you for your oversight, it’s best not to take on “projects.” If a property isn’t in rent-ready condition, you might want to pass on it.
Price point. How much will the place rent for? It’s a good practice to set a minimum rent price for the properties you manage. Take some time to calculate what you’ll need to bring in on a per-property basis based on your overhead and recurring monthly expenses. Once you’ve done so, you’ll have a mindset that accepting and managing a property yielding less than that price point will require you to acquire another one well above it in order to average things out. That could lead you to take in a higher-priced property in a distant location or one in a lesser condition in order to make up the difference.
Owners. What kind of financial shape are the owners in? It’s funny, but in this business we usually know a great deal more about our tenants’ finances than our owner/clients, and that’s not always a good thing. Do your diligence in checking court records to ensure there are no liens against properties you’re considering for management, and also verify that there are no foreclosure proceedings in process. Check with any homeowners’ association that might govern the neighborhood, and be sure that dues for the property are current.
“Can I manage this kind of property?” All properties aren’t the same, and they can’t all be managed in the same manner. Are you familiar with properties that have acreage? If not, you might want to pass. Are you comfortable dealing with townhomes and condos and the many rules you must keep abreast of while managing them? If not, you might want to refer those properties elsewhere. How’s your general “around the house” knowledge? If it’s anywhere between fair and pitiful, you might want to pass on these properties until you’ve had a bit more time in the business.
These are just a few hints for starters. Property management gives one a great deal of freedom and offers a wealth of learning opportunities both planned and unplanned, but one of the business’ bigger mistakes lies in taking on properties you later wish you had passed on. You can always resign from managing them, to be sure, but I’ve always found the best way to get out of a bad situation is to never get into it in the first place!
"Patty the Property Manager” appears courtesy of the ORRA Property Management Subcommittee. Readers are invited to submit property management related questions to Patty by sending an e-mail to firstname.lastname@example.org.
The ORRA Property Management Subcommittee provides this property-management advice column as a service to ORRA members. The column is intended to provide a general understanding, not as a substitute for individual legal consultation. The column should not be relied upon in specific situations without consulting a real estate attorney.