Only two out of ten of the nation’s 8.7 million single family rental properties are managed by professionals; individual owner/ investors take care of most of the rest. Last year only about a third of single family rentals, 35 percent, made a profit on their rental income. Some 2.3 million lost money for their owners.
Is there a relationship?
As more and more real estate investors abandon flipping for a buy and hold strategy, they are discovering that becoming your own landlord may end costing them much more than management fees. Some 18 percent of owners spend 25 percent or more of their time managing their rental property and 20 percent spend 20 percent or more of their rental income on maintenance, according to a major study last fall by the Census Bureau.
Many investors have the time and expertise to manage their properties, but millions, especially newcomers, assume land lording will be easy, only to learn otherwise. One out of four single family tenants stays less than a year. One in four is delinquent on their rent at least once every two years. Twelve percent of individual owners must visit their property once or more a week.
“When I bought my first property and placed my first tenant…I was a complete disaster! No point in beating around the bush right! As a real estate investor, I learned just enough to be dangerous and I certainly was,” wrote investor Chris Clothier of Memphis Invest on the Bigger Pockets blog.
“Things may go along fine for a while and then they discover asbestos in the basement or they have to evict someone and have no idea about local laws and regulations. Or they give the tenant permission to paint a room and he kicks over a can of paint. Who’s going to pay for new carpeting? Not the tenant, who can’t afford it,” said Kirk McGary, CEO of Real Property Management, the nation’s largest property management company and one of the few that has embraced the single family market.
Single family rentals have transformed McGary’s business, which now boasts 200-plus franchises and is growing quickly. Yet he admits the single family business is not easy. “In one apartment building you might have 500 tenants, one owner and one location. With single family, you have 500 owners and 500 locations for the same number of tenants.” McGary’s franchises get more than 10.000 calls from tenants a day.
Unlike Real Property Management, most traditional property management companies, which are structured to serve the multifamily market, aren’t interested. The demand is being met largely by small, local businesses and even some real estate brokerages, notably several RE/MAX and Coldwell Banker franchises, are getting into the management business to serve their investor clients. However, these are found primarily in the foreclosure hotspots? California, Phoenix, Las Vegas, Florida, Illinois, Ohio, Michigan. Elsewhere, investor/owners have more limited choices.
The real estate investment boom has also created a growing business for rental web sites as well. At least one national website, Chicago-based RentalHomesPlus, has dedicated itself to serving the single family rental market. Jon Pastor, CEO of Rent Jungle, which lists over 700,000 rentals from 12,371 web sites, confirms that the number of single family rentals is very large and growing? up 15 percent in the last 18 months.
With 6.8 million single family rentals managed by owners and the number growing every day, the property management problem is creating challenges for investors and opportunities for entrepreneurs.
Great article. Property management fees are much lower than most people realize, generally falling between 8-15% of monthly rent—which amounts to $100-$200/month on most properties. Cheap, for expert handling of every aspect of rental property management.
The problem with hiring a professional management company is that most owners do not have enough cash flow to afford it. Although 10-15% of monthly rent seems small, this is not the only expense. You still have to pay for repairs, evictions, re-renting, advertising, etc. As you say in the article, most management companies are not interested or qualified to manage single family homes. That’s why it’s left to the owners.
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Unless you have the knowledge and expertise of efficiently managing your properties, I believe running of rental investments should be left to seasoned property managers. It is more cost effective.
For efficiently managing the properties, I think we must hire a seasoned property manager. It is more cost effective.