Saturday, June 5, 2010

The ABC's of Property Management...


The book of the week was The ABC's of Property Management by Ken McElroy. This is another book from of the Rich Dad series, a series that I am a huge fan of. It's not the first book I've read by McElroy either. He is a great writer and gives all types of great information about the real estate sector. This book was clearly about property management and I found it very helpful.

I think the most helpful aspect of this book is that it opens your eyes up to the work that goes into property management. It's a big decision whether or not to manage your property yourself or have someone else do it. The largest incentive to self-managing is decreasing expenses and thus increasing cash flow. However, when you dive deeper into self-managing, you could potentially do more damage and cost yourself more money in the long-run due to lack of experience and know-how.

There are several things that could cost you money in the long-run by self-managing. It could be legal fees because you didn't follow the right protocol when evicting someone. It could be maintenance fees because you tried to fix something yourself and didn't have the skills or didn't keep up with preventative maintenance like you should have. And maybe worst of all, it could be the cost of physical vacancy because you don't have the resources to get the right tenant into an apartment within a reasonable amount of time.

Property management is a full-time job for people for a big reason- it's a lot of work! One of my favorite investments is cash flowing real estate, but it is important to know when your abilities cease to be effective and where a professional management company should step in and help out. But don't get me wrong, I don't think that property management isn't something that can be done alone. It all depends on the size of the property and your time-constraints. If you have invested in a duplex and you live a few miles away from it, it would make sense to self-manage it. And I think it's really good experience for anybody going into real estate investing. However, if you have a 30-unit apartment building a couple miles away you'll have to really think about the pros and cons of self-managing. If you are like me and have a full-time job it would be very difficult to manage it effectively without exhausting yourself completely in the process.

McElroy has a great system for researching a property management company in the book. It has 3 levels of research that I will summarize real quick. Level 1 you will search the internet for the companies and get yourself a good list with any background information you can dig up on them. Then with Level 2 you can visit the companies. Take a look around their operation, ask about their staffing, maintenance connections, and the accounting program they are using and, lastly, ask for a list of the properties they already oversee. Secret shop these properties and look for cleanliness of the property, effectiveness of local management, availability of rental resources... depending on the property, you may have more things to investigate like a clubhouse, a pool, mailboxes, etc. Then with Level 3 you take your data to your team and ask what they think. They could be your lawyers, friends in property management, accountant, anyone that may have some insight on your big decision.

A really great resource for real estate is at Ken McElroy's website at www.KenMcElroy.com. It has all types of great sample forms that help give the scope of property management.

I recommend this book to anyone that is going into real estate investing. It has all kinds of signature Rich Dad tips that all help to maximize your cash flow. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

3 comments:

  1. Ken,
    Great review of the book. I agree and also think that self managing is good in certain circumstances only.

    The other significant advantage of using a Property Mgr that comes to mind is the fact that Prop Mgrs will be able to get maintenance done for much cheaper than if you were to hire someone else (if they are not in the business of ripping off owners).

    I actually consult start up Property Managers and they are usually able to provide maintenance, mark up 25-30% for their time and still come in much less than other most bids for standard work.

    -Patrick

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  2. Learning the basics of property management is definitely a great idea. That book looks very helpful. I should read it sometime.

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