The ABCs Of Property Management

Note from Paula: Every Friday I review a book — see here for a complete list.

I’ve spent this week zinging across town searching for my next real estate investment.

So naturally, when I settled in the evenings with a book, I decided to read The ABC’s of Property Management by Ken McElroy, which is part of the Rich Dad’s Advisors publishing series.

“A lot of crazy stuff happens in property management,” McElroy writes, “stuff you’ll never learn how to deal with in a classroom.” Yeah, I’ll say.

The first half of the book reads like a “What to Expect” primer on real estate investing. The second half of the book turns into a treatise on why you should hire a property manager — and details how to pick a good one.

Size Doesn’t Matter
Don’t assume that the principles of managing a single-family home are different than the principles of managing a 200-unit apartment building. Good management is good management, McElroy says, whether it’s small-scale or large-scale. The only difference between a small investment and a large one is that if you screw up on the large one, your losses will be greater.

Maintenance and repairs are the most time-consuming part of the job, he says. You’ll get standard maintenance calls, and you’ll need to respond immediately in order to provide good customer service. That much is obvious.

But there will also be some tenants who complain excessively, and you’ll need to make controversial judgment calls about which requests are reasonable and which are not. And then, of course, you’ll get the occasional tenant who creates the issue, then complains about it.

Turnover is the second-largest time consumer: you need to advertise and show the property, which means driving there for each appointment. You’ll need to schedule a walk-through to inspect the property at move-out, bill the tenant for damages (which will result in some discord), and fix the damage (including standard wear-and-tear, like new paint or carpet).

You’ll need to work quickly, since ideally you’ll have a standard 24 hour gap between one tenant’s move-out and the next tenant’s move-in.

Notice to Bomb
One investor hired a pest-spray service to do routine maintenance — a “bug bomb” — on his apartment building.

The investor then hung a sign on the entrance door that said “Notice to Bomb.” Needless to say, he got quite a few calls that day!

McElroy tells this story to illustrate a point: be careful about your wording.

Timing is Everything
McElroy makes a few points I disagree with. He claims that you should spread out your vacancies throughout the year so that you have more stability. If you own 12 units, for example, you should have one lease expire per month. That way you only have to deal with one turnover per month.

I disagree. I believe you should look at the housing trends in your area to see which months hold the highest rental demand. In Midtown, Atlanta, for example, demand peaks in the summer, particularly June-July. Almost no one moves in December or January, during the holiday season.

In the college town of Boulder, Colo., on the other hand, demand peaks in August, before the start of the school year, with a smaller peak in December-January, before the start of the spring semester. The supply is oversaturated every May, when student renters on a one-year lease compete for summer subletters.

Should You Read This Book?
I found the first half much more valuable than the second half. The first half explains what you should expect; the latter half tells you how to hire it out.

The author, McElroy, runs a property management company, so he’s in the business of crafting arguments about about why you should outsource the management to a professional.

That’s all fine and good, but remember: at the end of the day, no one has more “skin in the game” than you do. If you’re willing to invest the time into running your own properties — and if you enjoy doing it — you don’t need to outsource this task. (And if your Realtor insists that you should, remember: they often earn commissions for referrals.)

If you don’t have the time or desire to manage your real estate investment, hire a property manager. But don’t assume that outsourcing this task is the blanket, default better choice.

This Book Is For You If: You want to learn the basics of owning rental properties, and/or you want to learn how to hire a great manager.

This Book is NOT For You If: You’re an experienced rental property owner. This book is aimed at beginners.

Read more about The ABC’s of Property Management by Ken McElroy.

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I’d Like to Thank the Academy …

  • The Carnival of Wealth calls me “Mademoiselle Pant.” That’s right: a Nepalese living in the U.S. is addressed with a French honorific. Welcome to a global society. (Reminds me of the time I celebrated St. Patrick’s Day in Costa Rica with a group of Canadians.)
  • Thanks to the Carnival of Personal Finance for applauding my post.
  • Thanks to the Festival of Frugality for featuring me.

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