Buying, selling and operating apartments in Portland

Should I Self-Manage? – Questions | 14 August 2018

I own apartments and get asked if this is something I should do.  Instead, I think it’s better if you review what a property manager does and then determine if this is something you want to do.

Plusses:

  • Cost savings – Each situation is unique, but for a market-rate property, you’re probably looking at saving 8% of gross income (13% for LIH due to compliance paperwork).
  • Consistency – You’ll be there from the time you buy it until you sell it.  That is, no rotation of staff.
  • Control – Since you’ll be more involved, you can watch expenses like maintenance closer.  This assumes you’ll have a property management program that can track account receivable and payable with some degree of precision.

Minuses:

  • Changing rules – Portland is gaining a discomfiting expertise in creating new rules.  PMs, as part of their job, keep updated on all of this in addition to existing fair housing laws.  As a landlord, if you go to court (e.g. a FED), you may not even get one mistake and tenants are usually allowed a lot more latitude.
  • Marketing – Half of the tenant’s interest is still from drive-bys.  Is someone onsite to greet them?  Having a show of presence also serves as a check on bad behaviors by tenants and keeps your property attractive to tenants.  Can you do ongoing rent surveys to make sure you’re at a competitive price?
  • Recruiting tenants.  A PM will have more advertising than a CraigsList ad, including WEBsites, signage, print magazines.  They should also have a system to track applicants for feedback to you.
  • Liability shield – Having a state-licensed operator as the first contact makes it safer for you and reduces your liability exposure.
  • Handling Emergencies.  Tenants can call at any time for even minor annoyances.  With a tightening market, your response affects perceptions
  • Handling CapEx – Usually contracted out, but doing things in a timely manner works in the long run.  Waiting on moisture invasion issues only makes them more expensive
  • Handling maintenance – Once you get >50 units, you probably need staff to handle this.  The tendency of owner-operators is usually to delay maintenance.
  • Turnover – Can you do this in a timely manner?  With a tightening market, downtime may mean lost opportunity.
  • Accounting – While interfaces like AppFolio are making this easier, someone needs to do data entry and bill-paying.  In addition, a good accounting system can serve as a forensic device to find out where you not making money.  IF YOU CANNOT MEASURE INCOME & EXPENSES – YOU CAN’T MANAGE THEM.

I’m not discounting 3rd party management, however, for most owners, the 10%+/- cost is probably worth it.  However, you shouldn’t abdicate all of your responsibility in managing.  If your main concern is the size of your monthly check, you are probably missing income.

This means you need to understand where your rent money is going.  Sitting with your manager and setting goals (i.e. what are the 3 things we’re going to do this month to increase NOI), gives them guidance, help you understand what issues are with your property and defines what stops you from making more money.  The value of your apartment (whether you hold or sell) is directly related to your NOI.

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