By Norm Spivey, Author of Collect Rent, Don’t Pay It!: A Beginner’s Guide to Rental Property Investing
It’s hard to put a price tag on personal time and happiness. With 17 rental units at 10 different properties in two states, my spouse and I are about at the threshold we can manage while juggling a career and getting two teenage sons through high school and into college.
We self-manage 11 of the units and hire a property manager for the 6 out-of-state units. I know there are folks who may be able to handle 20 or more properties while working a day job. I am not ashamed to admit I can’t! At points in my life, I’ve gotten work-life balance out of whack by focusing too much on earning a buck rather than what is truly important. At this stage, I’m not looking to repeat my mistakes!
But what if the real estate bug bites us, opportunity knocks and it’s a great time to add a half dozen or so additional units to our portfolio? While I would be perfectly content to quit my day job and manage real estate full time, that would introduce a lot of risk in our personal finance while trying to put two kids through college and make that final savings push for retirement. Someone to share the burden of labor for this so called “passive income” real estate business!
For the past ten years, we’ve had a very positive experience partnering with a property manager who manages our units located 900 miles away. The key is staying in constant communication and watching maintenance dollars very carefully. Question anything that isn’t clear and understand enough about repairs to know if someone is trying to pull wool over your eyes. Fortunately, our property manager selects good vendors who charge fairly. Even if everyone is on the up and up, the additional maintenance and management costs when not doing it yourself may make the math untenable for a particular property at some point.
While a property manager may be a no brainer for out of state properties, how would we feel having someone to manage a property for us that is right down the street? In our business dealings, we’ve always tried take emotion out of the equation and look at the numbers. The math can still work on a local property while using a property manager. Case in point, our top performing duplex that we self-manage here locally nets only about $200 more per month than our top performer out of state. This is despite higher property taxes and of course a 9% monthly management fee at the out of state property. $200 profit may seem like a lot to give up every month, but what is personal time worth? At the end of the day, hiring a property manager to enable growth is the price of doing business and of success.
It all goes back to a fundamental step when beginning the rental property investing journey. Set goals and develop a plan. It’s not intuitive, but certainly advisable to determine how big to grow a real estate portfolio before purchasing that first duplex! This will ultimately drive how many units to self-manage and how many to turn over to a property manager. In 2007, when we set about making our initial journey into real estate, I recall estimating a dozen units would be about right to realize our financial goals. I never thought we would own 17 rental units spread across 10 properties in two states! Our portfolio grew faster than we intended, and we could have certainly managed the growth more efficiently.
Growing a real estate investment portfolio may require some big decisions including quitting a day job or establishing a good relationship with a property manager. Rentals can still be profitable when using a property manager, there is just more math to consider. Condition of the property, current rents and of course capabilities of the property manager all must be factored into the calculus…but it can be done. Managing growth is a common (and good) problem to have in the rental business!
About the Author
Norm Spivey hails from middle Tennessee and was commissioned through ROTC in the United States Army in 1995. He began his career leading a platoon in the 82d Airborne Division and finished at the Missile Defense Agency with numerous operational assignments in between. Norm possesses expansive leadership experience at the direct, organizational, and strategic levels. By his side on this remarkable journey is his wife and two children. After retiring from service, Norm began his second career in the defense industry. He and his wife also own a successful small business, investing in rental properties. When not working or writing, Norm enjoys spending time with family and all things outdoors. Check out his Amazon author page for great books on rental property investing and personal finance!