This is a post from John Delia, a young developer and landlord from East Hills, NY now residing in Columbus, OH. He studies City and Regional Planning at The Ohio State University. Having started his own investment firm at age 21, he now writes and talks about building passive income through real estate and living life on purpose at Life Liberty n Property. You can follow him on Twitter @JSDELIA
Real estate is an important asset in your portfolio regardless of the market cycles. Property ownership can be an income producing business while protecting and preserving capital. Successful real estate investments can help you secure a better tomorrow. Like many other businesses properties allow you to be more passive. Here are three things to consider when hiring a property manager.
Decide from day one, To be or not to be an invisible landlord.
We all have our own management styles. Some of us want total control while others can be more hands off. Each person is allowed to exercise their own right to choose. In real estate investing you have the choice of what role you will play as a property owner. This specifically applies to the day to day operations and management of the property. What most successful real estate investors have recognized is that the cash flow produced from property doesn’t require a ton of management.
Most investors are buying because of the cash flow and income potential. You get to purchase an operating system rather than having to consistently sell a widget or provide a service. The service you are providing is rental property. Some people become a property owner by situations such as death in the family. Those looking to enter through the lens of strategic investor and business owner must be diligent in their actions towards acquisition and ownership.
As an investor you should decide to be or not to be an invisible landlord from day one. Once the decision is made, the next step is to include an expense fee or percentage to compensate the outsourced service.
Just as management is a critical part of the real estate process so are the financials. Prior to investing in real estate you should really make sure the numbers work across various scenarios.. A pro forma is typically used to analyze a real estate investment transaction. The prosoma will include all the “hard” and “soft” cost of the transaction.
Some hard (brick and mortar) cost include visible improvements such as concrete, electrical, carpentry, roofing, and landscaping. Some soft cost include: taxes, insurance, permits, architecture and engineering fees.
Another way of looking at a pro forma is simply calling it a financial model. This model is forecasting and projecting financial numbers which influence the transaction. Typical components of the pro forma include: the purchase price, property taxes, vacancy rates, property management service fees, landscaping and snow removal, reserves, mortgage payment and insurance.
This phase shouldn’t be overlooked nor neglected. If the process seems complex or difficult, consult your accountant or tax preparer.
References and Sample Work
For new and even some intermediate investors, there is a lot you don’t know or understand. With anything you don’t get in life, you should ask questions! Not being proactive is no excuse. When considering a new property manager you should have a list of questions to interview the candidate whom will not be in charge of management and protecting your investment. This person or company will be considered CEO of your real estate and make all the major decisions post purchasing the property. You’ll want to ensure that their professional licenses, official paperwork, and insurance is in order and current.
With construction contractors we typically ask for current or previous clients references. We also usually want to see samples of work completed such as before and after photos. This should be no different with property management companies. It’s important to consider how the communication with residents about maintenance problems are handled. Hopefully quickly, professionally and efficiently. Be sure the property manager – resident relationship is one that is positive. No one wants a negative experience with management or to hate their landlord.
Ask for samples of advertising and marketing used to attract residents to your property. What strategies does the company use to ensure rental occupancy? It’s important to know that the property management company is proactive on maintaining a pipeline of new qualified prospective residents.
Owning cash flow real estate gives you freedom. When you hire a property manager you get to reclaim your time. Three things to consider when hiring a property manager include Decide from day one, To be or not to be an invisible landlord. Make sure you properly understand the financials. Finally, request professional references and sample of previous work.