FORBES: Eight Reasons You Shouldn’t Manage Your Own Investment Properties

1Purchasing an investment property is an exciting business venture. If your building is in good shape and you find the right tenants, you stand to earn a lot of money from your rental units.

At first it may seem like a good idea to manage your own property and retain full control over costs, tenants and income. However, self-management can often be a headache: When something breaks down or your tenants are late with rent, you bear the sole responsibility to address it.

Hiring a third-party property management company can be worth every penny, especially if you’re looking to grow your investment business over time. Members of Forbes Real Estate Council shared eight common scenarios in which it makes more sense to outsource your property management tasks.

1. If Real Estate Investing Is Your Side Hustle

If an investor has a full-time job and they are investing as a side hustle, I would suggest hiring a property manager from day one. If the investor is fully focused on real estate investing, it makes sense to bring in a third party once they reach 10 units. At that point, their time is better used looking at more deals versus collecting rents or dealing with tenant maintenance issues. – Ali Jamal, Stablegold Hospitality

2. If You Lack Housing Expertise

Investors should not manage their own properties in situations where they are not familiar with the type of housing being managed. For example, with affordable housing, there is much compliance involved and making a mistake can result in fines. In that scenario, property management is best left to third-party companies that specialize in affordable housing. – Nathaniel Kunes, AppFolio Inc.

3. If You Want To Maximize Your Time As A Passive Investor

Your time is valuable, and technology is opening up many outsourcing options by connecting investors with qualified professionals in property management and skilled labor. Take advantage of every opportunity to maximize yourtime. In fact, investment platforms are allowing people to diversify across several properties without ever picking up a hammer. – Nav Athwal, RealtyShares

4. If You Need To Fill In Skill Or Resource Gaps

Each investor’s access to resources and prior skills and knowledge needs to be reviewed before providing this type of recommendation. It needs to be personalized. An investor who is a handyman likely doesn’t need to pay someone to make repairs. Finding the right tenant can make or break success, so evaluating candidates may be the best area to have help, particularly at first. – Michelle Ames, HorsePower Team Texas/Independent Realty

5. If You Don’t Have Time To Learn The Laws And Run It As A Business

Outsourcing will avoid legal liabilities from Fair Housing and Fair Credit Reporting Acts, state landlord-tenant laws and local regulations. Property managers will have resources that can perform services for less. You’ll also be less likely to lose income from tenants who don’t pay their rent or rents that end up being below market. – Alex Hemani, ALNA Companies

6. If Your Properties Are Located In Different Markets

Using third-party management is usually advisable when properties are located in different markets, as well as when owners don’t have the time or skills required to manage the property effectively. While it is tempting to save the 7-8% management fee typically paid to property managers, there are a host of tasks they take care of to keep the property occupied, cash-flowing and maintained. – Gary Beasley, Roofstock

7. If You’re New To Being A Landlord

You should hire a third-party manager if you’re new to being a landlord and don’t completely understand local ordinances and leasing practices, or don’t have all the contacts needed for repairs and maintenance items. A good third-party manager will know all of the above and you will learn them over time. – Lee Kiser, Kiser Group

8. If You Want To Scale Your Investment Business

If you want a large income property portfolio, don’t self-manage beyond one to two years. After that time, you will be better able to understand “a manager’s perspective.” Your highest and best use isn’t faucet repair or replacing bathrooms. It’s researching geographic markets and establishing competent teams. If you self-manage, ask yourself better questions like, “How scalable is this?” – Keith Weinhold, Get Rich Education

Source: forbes.com

Four More Years? No Quick End In Sight For The U.S. Housing Shortage

1The inventory of homes for sale continues to shrink. There were 2.02 million homes listed for sale at the end of October, representing only 4.3 months’ supply. A balanced market would be closer to 6-to-7 months’ supply. From a year ago, the raw inventory count was down 4%, which marked nearly two straight years of decline.

This shortage of housing inventory is the principal reason why home prices have been outpacing people’s income growth for the past five consecutive years. From 2011 to 2016, the median home price will have risen by 42% compared to the median household income gain of only 17%. Such disparity hurts affordability and is unsustainable over the long haul. The only way to lessen home price growth is to bring in more supply. It cannot be a simple case of existing homeowners listing their home. Keep in mind that nearly all home sellers are also home buyers, and thereby not truly providing a net increase to the inventory. The same logic applies to underwater homeowners who come above water after home price gains. What is needed is for homebuilders to boost construction and/or for investors who bought for the purpose of renting to unload those rental properties onto the market soon. There is no indication of the second occurring because of nice rental income flows. The only way to bring additional supply, therefore, is for homebuilders to get really busy.

Economic logic says that about 1.1 to 1.2 million net new households are formed each year. So that is the number of new homes needed to be built just to accommodate this rise in housing demand. In addition, 300,000 to 400,000 old, uninhabitable homes are demolished. Therefore, additional new homes of the same amount are needed just to replace the demolished ones. That puts the logical need for new home construction at right around 1.5 million per year.

In fact, the 50-year annual average for housing starts, up to the year 2000, was 1.51 million units. Quite comforting to know logic and the long-term statistical average matches up. But from 2001 to 2006, which covers the early years of the housing bubble to the peak, housing starts averaged 1.8 million per year – an oversupply. From 2007 to 2016, from the crash and subsequent recovery, the average new home construction clocked in at only 870,000 per year. Over the total big cycle from 2001 to 2016, the average is 1.25 million, and not the prior historical average of 1.5 million.

But as said above, an average of 870,000 new units per year over the past decade imply 8.7 million cumulative new units, when 15 million units would have been needed. Taking the difference between the two figures, the country is short by 8.3 million housing units. Part of this shortage has been absorbed from people moving in to what had been empty buildings and hence falling vacancy rates. But as evidenced by fast-rising rents and fast-rising home prices, we cannot expect a further fall in vacancy rates to handle the ongoing and growing housing shortage gaps.

The bottom line is that we need a few years of above-normal construction activity, say 1.7 million housing starts per year. Only then will we see a slight rise in vacancy rates to help lessen the rent growth pressure and bring the inventory of homes for sale to a more balanced market. However, based on various economists’ consensus projections of housing starts of 1.3 million in 2017 and at best 1.4 million in 2018, if proven true, then we are in for a housing shortage for at least four more years.

Source: Forbes.com