Author Topic: Is Property Management a viable first step towards RE Investing?  (Read 11520 times)

StreetCat

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Here's my situation and inputs are appreciated:
  • Currently employed.  savings+investmentgrowth = 70k/year.  Current livingexpenses = 25k/year, and assuming FIREd healthcareexpenses = 15k/year, I need to work for 6 more years before FIREing on 4% SWR.
  • I have never owned a home and don't know much about ownership.  I would like to have some rental properties for passive income and to diversify my investments and possibly FIRE a bit earlier - I do have some money to get started.
  • I have read/heard a lot of inspiring posts/podcasts by arebelspy and other smart people on this board, and also at biggerpockets, affordanything, etc.  But, I have been unable to take the first step.  I think it's my personality, that inspirations and motivations don't work well with me, and I am also an analysis-paralysis kind of a guy.
  • I work better when I can slowly dip my toes in the water, and gradually learn the ropes of the business.  Otherwise I'm afraid I will never be able to jump into real estate investing.
Considering the above, I am thinking of:
  • Taking a gap year off from my well paying IT job in 2017 - I may have to find another job after the year if things don't work out, because my employer will probably not agree to a lengthy time off.
  • Somehow (so far no idea how) become a property manager for other properties/condos, etc., and learn some skills of the trade, and possibly get paid 20-30k/year so I won't have to dip into my stache during this time.
  • If I like the type of work, and if I get enough skills, possibly purchase some of my own rental properties and possibly manage them as well.

Does this sound like a viable plan?  Has anyone done anything like this?  How easy/difficult is it to get a job as a property manager?  Does it take any specialized education?  Or anything else I should consider?

TIA.

Jim2001

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #1 on: April 16, 2016, 04:38:42 PM »
Streetcat,

  Think of it from the property owner's point of view.  They likely have tens of thousands, if not hundreds of thousands of dollars tied up in the investment and may be depending on it to keep food on their table.  Treat it like a job interview and be prepared to answer why they should pay you to manage their investment.

Some of the things I would consider are:
  • What are the responsibilities and duties of a property manager?
  • Is a real estate agent's license a requirement in my state?
  • Who will do the repairs?
  • Research the state laws are regarding approving tenants and processing evictions.
  • Who will write the contracts.
You may be able to find a real estate office that is managing a number of units for investors and get a job assisting with the existing work load.  That way you would be plugging into a working model.

mr_orange

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #2 on: April 16, 2016, 04:44:11 PM »
Property management is a lot different than learning to viably invest in real estate projects.  Property management is a very hard business and it really doesn't work well without 100 or so doors under management. 

If you're having a hard time getting started I would suggest visiting with your local REIA folks and finding some more experienced investors you can work with and add value for.  From there you can co-invest in deals with them, learn how things work, and go out on your own once you get more comfortable with the process. 

SwordGuy

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #3 on: April 16, 2016, 04:52:48 PM »
I would suggest you check out Habitat for Humanity and learn about property repairs in your spare time.   

Take some relevant classes at your local community college continuing education department, or at Lowes/Home Depot, etc.

Join the local Real Estate Investment Association.    Drive a couple of hours to the meeting if you have to - it's very likely to be worth it.
Get to meet some people and ask them about their investments, tradesman recommendations, even if they need some help renovating so you can learn "on the job".

Read some books.   There's a thread on the site that lists a bunch.  I really recommend Gallinelli's book.

You can do all of this in your spare time.

It worked for us!

cchrissyy

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #4 on: April 16, 2016, 05:22:16 PM »
ok, so, you have a good job and are pretty close to FIRE, and you think passive rental income and diversifying your assets with real estate sounds good.  I'm with you so far.

but then, you are talking about switching jobs, to something that pays much less and you may not like, in the interest of learning about how to invest in rentals.

except, owning real estate, especially as a passive income source is NOT AT ALL like becoming a full time property manager.  And if it was, then I'd question why a person close to FIRE wants anything to do with an investment that looks and feels just like a job.

also, any time you pull away from the higher-paying job in service of learning rental management skills, the $$$ opportunity cost just piles up, meaning you need your future rentals to bring in whatever they would have anyway plus somehow pay you back for all this "tuition" you paid for in foregone earnings.

Lots of people own a rental house or 2 or 3 and it is not that hard or time consuming. You don't need a job/internship/training period to figure it out.  You *should* read up on your own time, talk to folks, get educated, learn what to look for in a property purchase, learn if this is even the right path for you. In your free time. And what you should buy, if you ever do buy anything, should definitely NOT be a new job. It should be a passive or nearly-passive income-producing investment that does not suck up your free time either before or after FIRE.

PadAdventure

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #5 on: April 16, 2016, 06:50:06 PM »
I donít know if itís been mentioned, but in most states you need a real estate license to do property management (if you donít own the property), which means unless you also have a brokerís license, you need to be under a broker, who will skim off the top.

Start with a rental.  NO ONE will manage like you will.  Property managers will look out for number one, place the first qualifying tenant, etc to get PAID.  If you have property management, keep them honest, follow up, certify their choices.

Know before you go.

StreetCat

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #6 on: April 17, 2016, 06:37:58 PM »
Thanks for all of your valuable opinions.  I will try to pursue some of the suggestions provided.

zinethstache

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #7 on: April 22, 2016, 05:37:06 PM »
I am wondering if you meant you wanted to work for a property management company to learn the ropes?

We own three multi-unit properties. We use a PM. They have at least 8 employees and have about 400 doors that they manage (they use doors because like us, we own three units but have 8 doors - or 8 rentable units.

Years ago my SIL worked for an owner in SC who had enough properties to manage them via a PM company. She learned alot doing that job - AND, I notice that many years later she has ZERO interest in owning a rental even though we have had success with ours, that should tell you something:)

I say if you have the $$ and are stuck in analysis paralysis, you should rethink this and keep your job but hire a PM and learn the ropes that way.

We have done the maintenance on the units up until this year. Now for this year we are letting all work be handled by the PM because our first couple of years in FIRE we want to travel. This will allow us to monitor their work while we are still close to the properties. If the work is not to par, or is problematic and/or too expensive, we can take action. It will also give us a realistic idea of the cost per hour for various services.

Good luck!

I really think you need to move past your paralysis and dive in. Though not for everyone, you will not know until you try it.

StreetCat

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #8 on: May 01, 2016, 04:28:21 PM »
I am wondering if you meant you wanted to work for a property management company to learn the ropes?
Yes, that was one of the things I had in mind.

I really think you need to move past your paralysis and dive in. Though not for everyone, you will not know until you try it.
Thanks for your perspective, and agree with your point.  The problem I have though - is that it seems like a big chunk of money to experiment with.  I am kind of comfortable investing in the stock market, and sometimes when I try new things, I test the waters with a small amount (1-2 thousand $s).  If there was some way to test the waters with real estate and not risk 20k+ in a transaction, that would help with my analysis-paralysis.  But so far I haven't found a way to do that :-(

zephyr911

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #9 on: May 02, 2016, 12:51:43 PM »
I think you may be overplaying the risk in your mind if your idea of mitigation is to quit your stable, high-paying job before you start.

Most of us started this while doing other stuff full-time, and there are big advantages - you are your own backer, you have that paycheck if things go south, and your employment is also the basis for your credit, which can reduce your cost of capital. The less it costs you to borrow, the more easily you can recover from mistakes.

I started out by renting out rooms in my own house. I don't know if I'd recommend it... too easy to get personal, too much drama comes home, etc, but it did get me through some hard times. Later on, I started out my serious efforts in the business by getting a real estate license, which didn't teach me much about investing or management but still helped with understanding a lot of the legalities, definitely made shopping easier, and has helped me connect to a ton of great service providers (also important). Plus, commission, free continuing education, etc. Again, not necessarily the path for everyone, but helpful for me.

Overall, I know it can be intimidating - just keep reading and keep talking to current investors until you find your comfort zone.

Fred2004

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #10 on: May 02, 2016, 02:14:16 PM »
Property management is a lot different than learning to viably invest in real estate projects.  Property management is a very hard business and it really doesn't work well without 100 or so doors under management. 

If you're having a hard time getting started I would suggest visiting with your local REIA folks and finding some more experienced investors you can work with and add value for.  From there you can co-invest in deals with them, learn how things work, and go out on your own once you get more comfortable with the process.

What he said.

I have a property that is managed by the Property Manager.

A) it is in another state
B) I didn't want to do all the contract stuff (Lease)
C) keeping tenants can be a pain (Background checks)
D) all the maintenance
E) Handles rent payment (haven't had to evict anyone yet...but I imagine that's a nightmare)

My PM takes care of A-E and takes 10% which is fair IMO.  E is probably the one situation I really wouldn't want to handle on my own.  That and living in CA when the property is in FL...

So, when I take into consideration my PM has been doing this for 20 yrs and probably has 100 houses managed, I'm sure it's good money...but I'm sure there are huge headaches as well.

K-ice

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #11 on: May 02, 2016, 05:02:10 PM »
I kind of like your idea but most people do not do it that way.

At first I thought you were maybe looking to be an on-site caretaker. This should save you on rent. I am not sure of the qualifications but the few I know are not that handy with anything but the cell phone.

Place adds, book showings, call maintenance people.... some are not even that available as they have another job.

Another option is perhaps starting with a condo that you can rent out. In that case the HOA takes care of most of the maintenance and you have less to worry about. I think the earning potential is sometimes less on a condo than a single family home (SFH) but the stress should be less too.

I got my feet wet with a 3-plex that we lived in. I was honestly lucky that my SO is handy. SO was also exposed to the landlord life by their family. 

Before my SO I had considered a 2 bdm condo with a roommate but never jumped in. Went to a few viewings, wish I had bought because the market did go up a lot before we finally got the 3-plex.

Can you shadow anyone with a place and help out? But in a good rental there is not really that much work to do.

I have done paint, tile, & flooring myself. I can't think of anything my SO hasn't done except for the gas line & upgrade main electrical. Everything else has been done or can be self taught with you-tube. This of course takes time. 

I think I would start with a turn key condo if I had to start from scratch myself. Keep your job. Put as little down as possible, be sure it is cash flow positive & has a good reserve fund. Don't get a PM, place the adds and show the place yourself. Then set up for direct deposit or something almost automatic for the rent. Hopefully, you will have very little to do other than collect rents.





Jon Bon

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #12 on: May 03, 2016, 05:59:03 PM »
I feel like this is an easy one.

Buy a multifamily! Duplex or triplex. Sounds like you have read up on how to value and bid on a property. It would be easy to buy one live in one unit and rent out the other.

It's an easy way to get your feet wet, and get experience in a low risk scenario. Lots of guys on these boards have built their fireplan on rentals that just throw large amounts of cash at them every month. Just as long as you don't mind swinging a hammer or fixing a clogged sink every so often!

StreetCat

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #13 on: May 05, 2016, 05:40:38 PM »
I think you may be overplaying the risk in your mind if your idea of mitigation is to quit your stable, high-paying job before you start.
I agree with that now, after reading the perspectives of you and other mustachians in this thread.  Amazing that I can post an almost random question on this forum and get useful responses.

Can you shadow anyone with a place and help out?
Yup, this is something I have been trying to do.  A few months ago I was in discussion with someone I know - but it didn't work out because they were more interested in having me as a passive investor and not so much in letting me be part of the operations.  I will continue to pursue this route though.

I feel like this is an easy one.
LOL!! I totally agree with you Jon Bon.  Everybody finds it easy to do something or the other.  It's just that in my case RE investing isn't one of them.

But, thanks for all the inputs folks.  This is a really great forum with great people.  While I can't expect magic solutions to my problems, you have all certainly helped me in sorting out some questions I had.

smoghat

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #14 on: May 06, 2016, 06:28:37 AM »
If you can find someone who will pay you to do it then by all means do it. We had a property manager for a property for years and years.

The down sides. You have a job? I assume you are a plumber or electrician? From my point of view if you aren't able to do the basics of both (at least tear a toile apart and deal with a leaking water pipe in the basement, making the repair last a week until we can get a real plumber to come in at the non emergency rate), you aren't worth my time. If not, I assume you never ever travel or if you do-and it better be less than two weeks a year-you have a backup to take your place at your cost. You can of course drop wverything and deal with an emergency even if it's during your work day, right? Expect one a week in an apartment building big enough to employ you.

My building manager wound up investing in property himself so yes it is a good start, but I'm not sure how easy it is to get into the field anymore. Maybe you can find a place where you can manage a large apartment building in exchange for rent or part rent? It helps to be in a network of Eastern Europeans. Big thumbs up if you are Russian or Roumanian. They have a lot of these positions and thus access to these positions within cities.

Or you could get a brokers license and go to work in a property management firm but that's like being a relationship manager for a Wall Street bank in order to FIRE, which to me at least is a ticket to paying other people to do what you should do yourself.

Cyaphas

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #15 on: May 07, 2016, 11:08:09 PM »
Throw yourself up on craigslist as a laborer on your days off. It will be very educational and not very boring for someone like you. If you're good at it you may find a decent general contractor to learn some ropes from. That's just the construction/repair side or RE management. You may find you don't like doing that. But, you will have contacts to find the right people to do these things for you.

The other option would be to do something similar on the Management side of things. Get your Real Estate Agent License and check out your local Real Estate offices to find out which have management divisions. These contacts have been AWESOME for me. They have lists of dependable contractors that they use and you learn a lot about how and why you should do things as a manager. Also, with the Agent title and an office backing you, you're less likely to get screwed over by contractors that may work for you.

zephyr911

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #16 on: May 10, 2016, 07:59:52 AM »
I feel like this is an easy one.

Buy a multifamily! Duplex or triplex. Sounds like you have read up on how to value and bid on a property. It would be easy to buy one live in one unit and rent out the other.

It's an easy way to get your feet wet, and get experience in a low risk scenario. Lots of guys on these boards have built their fireplan on rentals that just throw large amounts of cash at them every month. Just as long as you don't mind swinging a hammer or fixing a clogged sink every so often!
I have been giving some casual advice to a friend who wants to do this. Around here, the rent from one side of a duplex will pretty much pay PITI, leaving you with just the utilities and maintenance.

clarkfan1979

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #17 on: May 10, 2016, 03:33:07 PM »
Buy a duplex and live in one side. You will get valuable property management experience. To be a profitable property manager you need to build relationships over many years.

Bicycle_B

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Re: Is Property Management a viable first step towards RE Investing?
« Reply #18 on: May 11, 2016, 04:00:55 PM »
Don't quit your job.

If you're analysis/paralysis, that path leads you into waters that are too deep.

You're probably already decided after reading the previous comments, but in case you're still thinking - do the cheap experiments without quitting your day job!!

My sister used to think of quitting her job.  Every few years for a decade and a half, she'd explore a new option.  After a while she finally realized she'd already found the job that best matches her skills/tendencies. 

If you're a meticulous thinker, starting a new side gig will keep you busy until you're just about at FIRE.  Time will fly if you like the new stuff.  If you don't, you're much better off still being the nice (or so-so) job until FIRE.  Don't throw away your life jacket yet.