My wife and I owned rental property in Pasadena, California, since the eighties. The properties were located in an area that was within walking distance of our home. We could regularly inspect the property to see if our tenants watered the grass, cut the weeds around the flowers and the orange trees, and kept up with other maintenance.
Years later we felt empowered to take on a bigger challenge: to further expand into rental property real estate. We took various seminars like: Rich Dad, Poor Dad and Carleton Sheet’s How to Purchase Real Estate www.carletonsheets.com home study course. The important thing these courses emphasized was to do the research and to purchase property within a 25-mile radius of your home.
We got cocky. We were so successful in managing our property in California; we felt we could do it anywhere. So we bought in Pennsylvania where I grew up. Big mistake. Not exactly within 25 miles. Why should you purchase property close to where you live?
Step 1 and every other step depends on this step: Getting a property manager to act on your behalf. Without us being local to continually supervise we encountered the following problems. How do you know that the property manager is truly acting in your best interest? How can you verify the property management’s performance from so far away? We learned the following hard lessons:
No one cares about your property as much as you. Unkempt lawns resulted in hundreds of dollars in fines.
No one will watch the property and tenants’ care of it as well as you.
Tenants need an escalation point. Tenants felt that they had no one to escalate their problems to because we were out of town. They were frustrated with managements follow up and began to hold their rental payment until maintenance issues were corrected.
Property Management incentives and payouts must align with your goals. They required the first month’s rent. This did not encourage good renter selection, and with high turnovers they always got paid, but we lost out.
Lack of good management led to higher evictions and vacancy rates, therefore, higher costs and less income for us.
Inspecting what we expected was a challenge. Cost of travel from out of state was expensive (not to mention time away from our jobs) for us to conduct regular, unannounced checks on the manager, tenants and our property.
Maintenance costs eroded profit. Contractors were hired who charged premium, and/or the work was inadequate many times requiring re-work.
We moved to Pennsylvania two years ago, fired the property manager and decided to manage the properties ourselves. Now, we oversee all renovation projects, are very selective in choosing tenants and contractors, and audit income and expenses routinely.
The advice we give to new rental investors is find property within 25-mile radius, or great property managers, and run the profit/expense numbers, and regularly inspect what you expect, otherwise change.