October 10, 2013 by Dymphna 2 Comments

Property Management Keeps Passive Income Passive

Property_Management_Dummies1Do you know what one of the best feelings is when you first get into real estate investing?

It’s not when you’ve finally bought your first rental property, although that’s a great feeling, no question about it.

But I’m talking about what comes along after that…

Maybe you’ve put quite a bit of time and effort in giving the place a good scrub and repaired what was needed. Then you put a rental notice out there, met with several possible tenants, did a background check on the top two or three and then signed the best one to a twelve month lease.

Then you collected the rent and deposit from your first tenant…

And when that first rental cheque clears and the money goes into your bank account, that’s when it hits you…

The turning point in your life…

It’s that first rental payment that you get from your very first property that I’m talking about. What a wonderful feeling! You feel the rush and excitement from your hard work paying off and paying you every week thereafter.

It truly is a turning point in your life. You can finally say to yourself:

“Congratulations, you’ve done it! You’re now a real estate investor.” It’s a moment in your life that is worthy of celebration.

Funny thing, though. Getting that first cheque of “passive” income sure took a lot of work, didn’t it?

Next thing you know, you’re on your way to buying another rental property, a fourplex perhaps, and then another property after that. Your life is suddenly much more complicated that it was only a few months ago…

Besides the time you’re spending getting each property ready for renting, including repairs, landscaping, interviewing tenants and all the rest, you’re still working at your regular job…

Something’s got to give.

All of a sudden, there’s not enough time in the day, night or the weekend to handle it all. If you think this won’t be a problem for you, just keep building your portfolio and it will. Even if all your properties are in the same town, managing your portfolio becomes a fulltime job in itself.

But if they’re in different areas, it quickly becomes impossible!

Trust me on this…or just ask any investor with multiple properties.


Leverage your time with a Property Manager

One of the topics I cover in my Boot Camps, Seminars and especially my Courses is time management. While you’re building your portfolio, you find that your time becomes quite valuable…

In fact, your time becomes more valuable with every property you buy! At the same time, there’s just not enough of you to do everything that needs to get done. That’s when you realize that you need to hire a property manager.

Depending on the property, it might even make sense to hire a property manager for each property if they are not located in the same area. If you think hiring a property manager will cut into your positive cash flow on each property, you’re right; it will.

But that is only in the short term. In the long term, you will build your portfolio bigger and faster if you have someone managing your properties for you. You will also save yourself a stack of trouble and stress along the way.

That’s because a good property manager will handle most of the little things like repairing an appliance, collecting rent, and all the other small affairs that keep a rental property ticking over.

This gives you the time and freedom to focus on acquiring more positive cash flowing properties. That is the best use of your time! Besides that, studies have shown that landlords who use property managers have lower tenant default rates and fewer problems in general with their property portfolios.

With most firms, you can choose from different levels of services for property management. The short cut answer is to maximize the use of the property manager. Again, it saves you time and effort.

Commission rates will vary from state to state, but the national average is just over 7 per cent but will be a bit higher as you add more services.

Get the best one you can find!

The next question is how do you find good one? Like finding a good, cash flowing property, finding a property manager worth his salt takes a little due diligence on your part.

Your first step is to find out whom other property owners in the area are using, and just as important, who they’re not using. Attend a local real estate association meeting or talk to local property owners if you can.

Don’t rely solely on the reputation of property management firm, especially if they’re a larger one. You want to talk to the specific manager you would be hiring, if possible. Ask him or her what the biggest challenges are for the area and how he or she handles them.

Also, ask for recent references from other clients that are local to the area. Call those references and ask them about the service, response time, and things like that before you make your decision.

Let the prospective property management company and manager know that you have spoken with their clients. This tells the property management firm that they are on the “client-referral hook” to provide you excellent service. If they let you down, they let their other clients down, too.

Now, some will say that you can, in fact, successfully manage all your properties in your portfolio if you plan it right, schedule your time and are good with repairs and all the rest. Maybe a few can, but you shouldn’t plan on doing that for very long. As I say, the best use of your time is adding to your portfolio.

Besides that fairly obvious fact, think about this: If you don’t hire a property manager to do most of the “dirty work” for you, then is your “passive” income, really passive?