One of the key questions that investors ask themselves prior to starting is whether they should manage their own properties. We are groomed to think that real estate investing is truly passive, but it depends. In fact, you can make it as passive or as active as you want. That is the beauty of it – you get the choice of how you want you want your investment portfolio to look like. There are of course pros and cons for each one. We will run you through our experiences and what we considered throughout our journey. Hopefully, this will help you get a different perspective and assist in making the decision that is right for you!
We decided to manage our own properties from Day 1 – this was not by choice. When we first started out, we did majority of the work ourselves because the cash flow was tight on our first property. We were new to the world of real estate investing and simply wanted to get our feet wet. In hindsight this was the best way for us to get started. It allowed us to experience different parts of the property maintenance world and understand the requirements. It also gave us a chance to see what “good” looks like. It helped us understand what we should keep in house [based on our goals] and what should be outsourced to a different company to give us that freedom that everyone seeks.
When we thought about outsourcing, we had to think about 2 things:
1) What jobs are we currently doing that someone else can do much better and/or faster?
2) How do we ensure that we always stay close to our Top line? Stay close to the money!
We will split Maintenance into 3 sections - PRM [Parts, Repair, Maintenance], Administrative, and Capex [Capital Expenses]. This will help us break down the reasons as to why we chose to keep somethings in house vs outsourcing.
First, we will cover PRM this is where we decided to outsource most of our work. If you notice its also has the tasks that are re-occurring more frequently.
Cleaners: When we first started investing – we used to clean all the units ourselves. Our average turn over was 2 years, so it did not seem like a big deal until we tried to fill our second property [basement unit]. We typically spent 5-6 hours cleaning the properties after a tenant moved out. We also had 1 day turn around between tenants. We liked the tight turnaround in the units as it put more cash in our pockets. Our new tenant moved in and had a laundry list of complaints on the “cleanliness” of the unit. Little did they know – it was us that cleaned it. It was at that moment we realized that someone else can do this work much better and faster. In addition, we were spending 5-6 hours per unit and this is not scalable if we wanted to get to the next level. From that point on we decided to outsource the work. We now use our cleaning company to do tenant transitions and clean ups of newly renovated units. It is the “golden seal” – when we tell our tenants that our “cleaners” will be coming in prior to move in date.
Landscaping – Snow and Lawn Cutting: When we were house hacking, we cleared the snow and cut the grass ourselves. We did this for about 3 years. Once we started to scale our portfolio, we then got our tenants to do property maintenance however we found inconsistencies with the work that was being performed. In a lot of scenarios, the snow was not removed on time or the grass was a bit to high [in comparison to our standards]. There is a certain level of curb appeal that we expect with all our properties – so this was a big trigger for us. In addition, our tenants were great overall but just could not do the task as per our expectation. This is the main reason why we decided to outsource. We wanted to keep it consistent and offload the work from our tenants. We also found that by doing this our properties become more valuable in the tenant’s eyes. When they hear that we take care of landscaping – they are thrilled as most house conversions do not offer this service in our area.
HVAC: This is a good point of contact to always have on speed dial. Its important that we build a good relationship with these service providers to ensure the Health and Safety of our Tenants. Heating and Cooling for the household are essential and emergencies need to be dealt with fast. Our rule is same day – dispatch. We want to make sure that our tenants are comfortable with limited interruptions. When looking for a vendor – ensure that they offer 24/7 dispatch service. This will be more expensive but necessary. It also gives you a piece of mind to know that you can call someone at anytime and they will be there for you.
Plumber: You never want to be in a situation where you wish you had one. There are a lot of issues that come up throughout owning a property [leaky faucets, toilets, clogged bathtubs, etc.]. These are all easy jobs – but why bother with it yourself. These types of jobs are great to outsource while you relax at home. In addition, we came across a back up in one of our basements’ drains a couple months ago. We got our plumber to dispatch the same day. We scoped the lines and found out that we had to break up the concrete to fix the collapsed clay pipe underneath the house. Its during situations like this that you wish you had a professional to help you during a time of need.
Handy Person: Ideally you want a person that can take care of the small things that break over time due to wear and tear. This could be doorknobs, painting, and small touch ups during tenant turn over. If you get a skilled handy person – they can replace your plumber for some of the small jobs like changing out the faucets. This person is essential to the business and ensuring that you can concentrate on growing your portfolio. The problem during your growth stages is providing enough work to keep a good one around.
Tenant Selection: Getting new tenants, verifying credentials, hosting open houses [Pre-Covid] was something that we wanted to stay inhouse. In Ontario, LTB favours tenants and evictions can be a tedious and long process. To avoid this – being proactive and taking your time during the tenant selection process is the “key” to a successful investment portfolio.
Bookkeeper: This one we decided to keep in house. We enjoy this part of the business – it helps us deep dive into various expense line items. Its easy and it takes only 20 minutes each month to track accurately. As we scale up – this might be an opportunity for us to outsource to someone so we can just look at the final numbers for the month/quarter/year.
For CAPEX [Capital Expenses] you will have some leeway in terms of having teams on standby. Usually, these expenses have a longer lead time. If you are proactive you will have plenty of time to get quotes for competitive pricing and quality of work. For us, all Capex work is outsourced. These are big jobs that require expertise [sometimes specific trades]. Vendors can provide not only a faster turn around but also better work quality. CAPEX includes but not limited to HVAC, Boiler, Roof, Windows, Front Doors, Driveway, Gutters, and Appliances. If you have an HVAC point of contact already established [which is the most important CAPEX expenditure] – you should be ok with simply tracking the life of the expenses and getting in touch with companies as required. Eventually you will build out a list of trusted providers, but it will take some time as most of the CAPEX have a long-life span of 10-20 years. If you want to know more information on how we calculate cashflow and reserve funds for those hot ticket items, please refer to our previous blog on cashflow: https://www.steeltowntitovs.com/post/how-to-calculate-cash-flow
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The information provided in this blog is for entertainment purposes only and is not intended to be a source of advice with respect to the material presented. The information contained in this blog do not represent legal or financial advice and should never be used without first consulting with a financial professional to determine what is in your best interest to meet your individual needs.
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