Month: September 2021

Should You Use a Property Manager?

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The key to financial freedom is passive income or cash flow so that you don’t have to work, right? Well, managing rental real estate isn’t truly passive, so a hiring a property manager to do that work on your behalf is enticing. But are the benefits worth the cost?

We have 12 rental properties, and 5 of those are self-managed. While I’ve mentioned the benefits of a property manager, I wanted to run through the reasons we don’t have a property manager on all of our properties. It comes down to time management and cash flow.

THE DETAILS ON SELF-MANAGED HOUSES

The very first property we bought was in Kentucky, while we lived in Virginia, so we needed a manager on that one. But then we bought two houses in Virginia. They were right next door to each other, and I worked about 10 minutes away. Without kids, I had the time and flexibilities to manage them. Plus, both houses had active leases on them when we took possession. Without having the immediate need and learning curve of finding a new tenant, it was easy to manage the rent collection and any minor issues that came up on the houses. A property manager would have cost us $105 each month on each of these houses. Even now that we don’t live near them, the houses are newer and we know they don’t have any major issues, and the tenants keep renewing their lease, so it’s [relatively] easy to manage from afar. There are some maintenance hiccups – like the flooring debacle – but mostly I just collect the rent electronically. One house is routinely late on the rent, so I have to manage that property more than the norm, but it’s all via electronic communication and doesn’t require me to be on site.

Our third purchase in Virginia was of a vacant 2 bedroom house. Still, no kids meant that I could manage listing and showing the property to prospective tenants. This was the first time that we had to figure out the tenant search process, but we were able to show it to a couple and have it rented the first weekend it was listed. Again, the house requires very little attention, and I just collect rent. Even when the house had to be turned over, the tenant leaving put us in contact with a friend of their family’s, and that’s been who’s living there for several years.

Our last two that are self-managed are the two that we have with a partner. I handle the rent collection and paperwork. When we have an issue, we’re more likely to call a handyman than do the work ourselves anymore, but again, phone calls and emails aren’t that difficult. We just had a handyman go out to look at two broken doors and to replace a missing fence panel. While I was there over the summer, I had secured the railing that was loose, but I didn’t want to do any of the other work. It also helps that we have a partner, so the cost of any work to be done is only half for us.

For the past year, we took over management of a property that had been with our property manager in Virginia. We knew the tenants from a previous house of ours, and we felt that our management of that house from afar would be easy as compared to the $120/mo we were saving by self-managing. We didn’t have any issues we couldn’t manage during the year. However, they’re now purchasing a home. We’re obviously not there to manage showings, so we gave this property back to our property manager. She listed the house and showed it for us. It’ll cost us $300 for the listing and 10% of the monthly rent for her management ($135). For the last 11 months, it has been rented at $1200. That means that we’ve had an extra $1620 worth of income for the year than we would have ($120 for 11 months, and the $300 listing fee).

PROPERTY MANAGEMENT

For our Kentucky houses, we are very hands off. We don’t weigh in on costs less than $200, and we don’t get any updates regarding rent payments or tenant searches. Sometimes it’s too hands-off for me. For instance, I don’t even get a copy of the executed leases until I ask for it, and I don’t get a copy of any receipts (I just get a summary of charges taken out of our proceeds). It has been hard on me psychologically, but I’ve learned to let it go over the past few years.

For our Virginia houses, we’re more hands on, and sometimes it’s too much. We still discuss all the details when an issue arises, so it’s just saving me the time of calling and coordinating contractors, which is rarely necessary. Then there are times that I even handle ordering and contractors; for instance, I just handled replacing the hot water heater and refrigerator at one of our houses. All of our tenants pay rent electronically, so that’s not even on our property manager’s radar (she used to collect rent and then deposit it in a joint account we gave her access to). Since she’s not responsible for rent collection, it’s then on me to let her know if someone hasn’t paid, and she handles the follow-up communication.

However, our Virginia property manager has been worth her weight in gold because she has handled multiple lease defaults for us (with one actually leading to an eviction), which involves going to the court house to file the motion and then showing up for the hearing(s). We had one tenant who had to be served multiple notices, but she eventually left on terms mutually agreed upon. We had another tenant vacate a house because his kids were attending a school out of the address’s district (and blamed us for that.. I don’t know!), but we took him to court to require payment of past due rent from before he vacated. Then we had a true eviction, where the tenant stopped paying rent and had to be taken to court multiple times. The judge ruled in our favor and told her to vacate the premises, which involved police officers escorting them out of the house. We have been very lucky that the houses we manage haven’t ventured into the realm of taking them to court (although one in close), and that our property manager has been able to handle everything on our behalf for these instances.

SUMMARY

We can get caught up in the “we’re paying for nothing to happen” mentality with our property managers. Each month, we pay out $720 for property management. In Virginia, our property manager doesn’t even collect rent, so most months there’s no action from her for the houses. In Kentucky, the property manager collects rent, holds it, and pays out our share the next month. It can be hard to see that total number that we’re paying, but for those months that involve a lot of coordination in receiving quotes, going to court, or meeting contractors, it’s nice that we don’t have to deal with it.

Sometimes it’s worth paying for peace of mind and relaxation, knowing someone else is handling your problems for you, but you need to choose where that balance is for you. Do you want to manage it yourself to know your money is being spent fully at your own discretion; do you want to have a manager while maintaining a lot of the decision making; or do you want to be fully hands off with a management company who you can trust to handle your property with your best interests at the forefront? It’s all a balance of how much you think that’s worth compared to your time spent and knowledge on managing rentals.

September Financial Update

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Cooler weather is here! We have a full calendar these days with pre-school and sports. I’ve been managing that by setting a lot of alarms giving me a half hour warning that we need to leave the house for something. We also celebrated our son’s 3rd birthday with both sides of our family, which was so much fun. He knew all about a birthday and the traditions, did a great job at being grateful for his gifts, and hasn’t stopped playing with all those new toys. This month, his birthday party and a long weekend trip to Virginia were our big expenses, while the sports and activities kept us home and not eating at restaurants in between those things! On top of all this craziness, Mr. ODA went on a work trip, then I picked up a few shifts at the race track to help them out. And so, here we are, two-and-a-half weeks since my last post.

NET WORTH

About once a month, we have a meeting with our financial advisor. During last month’s meeting, his software system said that we hit $3 million net worth! Unfortunately, my numbers last month didn’t say that, and they still don’t, but we’re right there. I didn’t think it worth it to line up my information against how the software is reporting the number because a lot of our net worth is based on the current market value of our real estate, which isn’t necessarily an exact amount. I know Mr. ODA had a goal for the first million in net worth, but I wouldn’t say that we had a goal to hit this particular number. With the financial advisor, we’re working on our mentality. We’re basically trying to figure out what’s our true goal (instead of just this number), and if we had (and did) everything we wanted, what would that cost difference be? I’m working on two other posts about our mentality, and I’ll have to include this side of the thought process as well.

DETAILS

One of our credit cards has a balance of over $2,200 in this net worth update. That includes almost $1,000 of a hotel that Mr. ODA had for a work trip, the hotel for Richmond at $450, and an AirBnB charge for an upcoming trip of $424. It also includes Mr. ODA’s food purchases while on travel, which amount to about $180, and an Uber trip of $10. The work expenses will be reimbursed, but that’s not yet accounted for in the math since the payment hasn’t hit our checking account yet.

With the child tax credits coming in, our investments have gone up each month. We’re putting some of that into the kids’ investment accounts. We’ve also had other unexpected income, which led to another $500 transfer into Mr. ODA’s investment account. Usually, we see an automatic contribution of $1100 between our Roth accounts and the kids’ accounts. This month, we had $1,900.

All of our housing expenses were about the same. This coming month has a trip planned, a day to hang drywall in the basement, and me working at the race track nearly every weekend.

A Second Home & Summer of Travel

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Why did we do so much traveling and activities this spring and summer? Most people probably assume all our travel was making up for a year of not traveling during the pandemic, but we came at it from a different perspective.

We’ve had a long term goal of a beach/lake/mountain home. After another failed search to make this dream come true this past Spring, we decided to redirect that money to trips this summer. I’ll run through the background, the financial decision, and how we spent our travel “budget.”

BACKGROUND

We first looked into a vacation rental in Snowshoe, WV – six years ago. Snowshoe is a ski resort, and one of the better available ones to those of us south of the Mason Dixon. It also has a draw during the summer with hiking and mountain biking, albeit not as constant of a stream of people needing a rental. The draw for us was that it was halfway between our home in VA and Mr. ODA’s family in KY.

We went as far as meeting a Realtor and looking at properties. If the house was off Snowshoe proper, it was a good distance from the ski lifts and not in great condition. If the house (condo) was on Snowshoe proper, it came with a lot of rules and regulations and costs. Everything near the ski lifts had to be under Snowshoe’s management, which included their cleaning costs, and their booking process. This meant that someone couldn’t necessarily go onto the website to book our unit. Someone would go on their website and book “a 2 bed and 1 bath unit” and the system would cycle through the bookings. With the high condo costs and the uncertain bookings for those units, as well as the distant location of the units that weren’t subject to the condo process and cost (plus finding a management and cleaning company for that), we stopped the search.

Since then, it’s been on the wish list, but we weren’t sure what direction we wanted to go. 

When we moved to KY, we decided to look into a lake house. We want it to be close enough that we could just pick up and go (e.g., trying to keep it under 2 hours), we want it to be on a lake that allows motor sports (so this rules out anything that’s “no wake” or prohibits motors of any kind), and we want it to be lake front (we learned this during our recent search, and hadn’t fully realized how much we wanted this until we saw a house that wasn’t on the lake directly). 

We looked at parcels of land and kept an eye on a few houses listed in the March/April timeframe of this year. Our initial thought was that we would purchase land and hold it until we were ready to have a house built. The parcels of land we looked at didn’t meet the criteria we wanted (good size, on the water, ability to build a dock). I started to feel like we were pressuring ourselves to make a decision for something that we didn’t actually need. 

We took a break and just kept an eye on Zillow. We went to see a new construction house on Herrington Lake, but it wasn’t actually on the lake. It was next to the community pool, across the street from the community’s dock, had 3 bedrooms and 2 bathrooms with a loft, and it was brand new. It even had a two car garage, which wasn’t something on our wish list. However, the price tag was high; it had been listed for many months, and we didn’t feel the comps supported such a cost for it not being literally on the lake. We spent a lot of time mulling it over, but decided to not even put an offer in. Lucky for the seller, they did get a full price offer shortly after that. 

I decided that we should wait at that point. I figured we may have better luck waiting until the end of the summer (perhaps people will think they’ll spend their last summer on the lake and then unload it?), and that we shouldn’t force this decision to not get exactly what we want for something that isn’t a necessity. 

THE FINANCIAL DECISION

If we purchased a $250,000 second home, and I assume an interest rate at 4.5% (even with excellent credit, the rates you see advertised are for primary residences), we’re looking at a mortgage payment of $1,200. On top of that, we’ll have escrow costs, HOA costs, the possibility of management fees, and then even PMI costs. That was another big factor; we’ve been throwing any ‘extra’ money towards paying off two rental property mortgages, so we don’t have $50,000 liquid to cover a 20% down payment. Without having the 20% down payment, it wasn’t even guaranteed that we’d be able to get a loan for a vacation house.

Knowing $250,000 was even more than we expected to spend, I conservatively assumed $1,200 in monthly house costs. Instead of spending $1,200 each month to go to the same destination over and over again, why don’t we just mentally allocate $1,200 each month to travel and go to all different places? And so, months of a crazy amount of travel began.

HOW DID WE SPEND OUR ENTERTAINMENT ALLOCATION?

MAY: $618

We started with a last minute trip to Atlanta to see the Braves. We spent 4 nights in Atlanta, went to two baseball games, met up with family for lunch, visited Stone Mountain, and explored the city parks. We stayed in a 2-bedroom hotel room because it was cheaper than any AirBnB options, and I was highly focused on giving the kids separate sleeping spaces. The hotel experience was less than favorable (dirty, AC broken, limited breakfast, roaches … and a good name hotel!), and after some conversations with the hotel, we ended up not paying for it. They had credited us one night without us asking after the AC continued to not work after their “fix.” Mr. ODA then had a casual conversation with the manager about the stay as he was checking out, and the manager credited a second night. I thought we paid for the rest of the nights, but it never showed up on the credit card. Our total trip cost was $460.

Later in May, we went camping in the Daniel Boone National Forest with some family. We booked a “cabin” (I used that term loosely; it was walls, a roof, and platforms for sleeping bags, but it had electricity and AC!) for two nights. We went swimming, rode bikes, and hung out under a canopy while it poured on us for most of the main day we were there. Our dog got to come on this trip, so we didn’t have any pet fees. We brought groceries to cover our meals since there’s nothing close by. Since we’d be buying groceries anyway and gas is negligible since it’s an hour away, I’ll just focus on lodging, which cost us $158.

JUNE: $200

Almost a year ago, we planned a trip with the extended family to Hocking Hills. This shouldn’t really count against our “monthly allowance” mentality since it was going to happen regardless, but I’m including it anyway since we didn’t do any other June trip. Mr. ODA’s parents covered the cost of lodging, and the rest of us covered the cost of food and our canoe rentals. We went hiking, got rained on, and played games at our rental. On the last full day, we rented canoes and went down the Hocking River, which was a great experience. We went with 6 kids, 3 of which were under 3 years old. So if you’re a beginner or looking for something to do with little ones, this was a fun time for $52 per canoe! This trip cost us about $200.

JULY: $690

Before we left Virginia, we discussed doing walk throughs of our properties and being more present with them. There were some properties that we hadn’t seen since we bought it because they don’t have maintenance requests or we call someone else for the work. Well, it was a whirlwind to move, and we didn’t do that last summer. After the debacle with the flooring replacement at one of the houses, we knew we needed to get back there to tie up loose ends. We have a wedding to attend in the area in September, but decided this couldn’t wait until then. The first weekend we could go ended up being the 4th of July. Being in Richmond, VA, there isn’t a large AirBnB market for a normal sized family. All of the options that were available were meant for multiple families in a large house, and we just aren’t interested in paying $700 per night for ourselves. We went with a hotel halfway between Richmond and our old neighborhood, and because we stayed for 5 nights, it was considered “long term,” and it only cost us $525, which included $75 for the dog being with us. Since our entertainment was either working on rental houses or visiting with our old friends, we just had food and gas costs. The total trip cost was $690 (and most of that was tax deductible!).

AUGUST $1069

We learned that St. Louis is only about 4.5 hours away from us, so we looked to see the Braves’ schedule. They were scheduled for mid-week games for the first week of August, so we marked it down. Unfortunately, things were busy, and I didn’t make the plans in advance. I struggled to find pet care for our dog, and I ended up booking an AirBnB the morning before we left. We searched and searched, and this one randomly popped up that morning, and it worked out well. Lodging cost us $585. Our entertainment (tickets and parking) cost us $135. Food and gas cost us $213. Total trip cost was $933.

My plan to visit my family in NY in July didn’t come to fruition because we had to manage 4 days worth of our builder being here to fix things in the house, and then I had a doctors appointment pop up that had to be a specific time. Instead of driving there and back (12+ hours each way), we booked some flights. We’re able to go from Cincinnati to JFK directly (such a blessing with 2 kids under 3!). The flight was 2 hours, plus an hour on each side for driving (although, it took us an hour and a half to get to my parents’ house when we landed at JFK because a 3:20 arrival, plus what felt like a 2 mile walk from the gate to passenger pickup, put us at getting on the Belt Parkway at 4 pm – that’s not good for that area!), and getting to the airport an hour early. We left out of LGA, but it was still a direct flight, and we arrived 25 minutes early! We had hardly any wait at TSA for either leg, no issues with boarding or the flight, and we got our gate checked bags easily. I’ll take 5-6 hours of travel over 12+ hours. The flights were booked through our Chase Travel Portal, costing us the equivalent of $833 in points. The parking is $9 per day, the gas to get there is negligible, and we actually didn’t spend anything on food (I very much owe my parents for that!). Our entertainment goal was to go swimming in my parents’ pool the whole time, and that’s just what we did! The trip cost us $36 in parking and $100 for our dog’s boarding.

On top of these long trips, we also did a lot more activities that were just for one day. We went to 2 Reds games, the Cincinnati Zoo several times, a UK baseball game, Bernheim Forest, and random family/friend activities. It turns out we didn’t spend the $1200 per month we had mentally allocated, but we kept ourselves really busy and had a great time making memories! 

Now it’s time to enter a new phase of life: preschool and sports! I’m pretty excited!