Hi, I’m Todd Ortscheid, CEO of GTL Real Estate. This week I wanted to take a moment to talk about how you should think of your rental house.
A very common mistake that new landlords make is to think of their rental house as if it’s still their home. They want to be personally involved to make sure that the lawn is mowed, that the shrubs are being trimmed, that the gutters are being cleaned, etc.
This just isn’t a viable way to be a landlord. What we encourage you to do is think of your rental property the same way you think of your 401k. When you put money into your 401k, you basically set it and forget it. The money goes into the account and goes into a series of mutual funds, and there are professional investment managers who take care of managing those mutual funds. They have years of experience managing stock, bond, and other investments, and you trust them to handle that because that’s their area expertise.
Well, that’s who we are when it comes to managing rental properties. Our staff has many decades of combined experience in real estate and property management, managing hundreds upon hundreds of rental properties. Just like the investment manager who takes care of investing your 401k money, we take care of your rental property. From finding tenants, to getting repairs done, to collecting rent, and even processing evictions, we take care of all of that for you so that you don’t need to worry about it.
Think about what would happen if you were on the phone with your mutual fund manager every day telling him what you think should be done that day to buy and sell stocks and bonds. Would your investment portfolio perform as well, or would it perform worse? I think most of us can admit that we aren’t experts in stocks and bonds, and we aren’t likely to produce the same results as a professional. But for some reason, many landlords erroneously think that they can do a better job on managing their rental house than the professionals can. Usually this is because the landlord still thinks of the house as their home, rather than as an investment. It’s really easy for the average person to think of their 401k as an investment, because it isn’t tangible to them. The money disappears from their pay check before they ever put their hands on it, and it just goes off to an account far away for someone they’ve never met to manage. But when it comes to their first rental house, in many cases it was actually a home that they lived in, and perhaps even raised their family. It has sentimental value in many cases. So people have a very hard time letting go and allowing the professionals to do their job.
But just as with the 401k, allowing the professionals to handle it will produce the best results for you. Without fail, every time one of our clients tries to get involved in an aspect of managing their home, it goes south. Whether it’s trying to hire their own repair vendors, or wanting to second-guess the rental price that we recommend, it virtually always results in the landlord making less money in the end.
Here’s an example from one of our clients. We manage several properties for an investor who lives out of state. One of the properties a couple of years ago had a section 8 tenant in place who had been there for several years. Section 8 is a bit picky about raising rents. I won’t go into the details here, but suffice it to say that you usually aren’t going to be able to raise rents on tenants every year when they’re in the section 8 program. But this investor wanted to raise the rent, so he told us to give the section 8 tenant notice to vacate the property at the end of her lease.
We tried to talk the owner out of this. We explained to him the risks of creating an unnecessary vacancy, but he was adamant that he wanted fair market rent, which was about $50 more than he was getting from the section 8 tenant. So we did as he asked and gave the tenant notice to vacate. As we predicted, the tenant was not happy, and she did not treat the property well when she vacated. Thousands of dollars of rent-ready repair work was needed, and the property was down for repairs for weeks. In the end, the owner spent about $7,000 to get an extra $50/mo in rent. Do the math, and that’s not a very wise investment.
This is just one example of a case where a landlord decides that he doesn’t want to listen to the property management professionals and wants to do it his own way. We could provide many, many more. It almost never turns out well.
Just as you trust your 401k mutual fund managers to handle those investments, we strongly advise you to trust your property managers to manage your property. They will treat it as an investment every time, because they have no emotional attachment. To them, it’s strictly about making the best business decisions for you as your fiduciary. Let them do what they do best, and you won’t be disappointed.
If you want to hire a property manager, or you just have some questions, please don’t hesitate to let us know at firstname.lastname@example.org