Jim, thanks for the post.

Just been doing NOI & capitalization rates on Pre Licensing course.

Alan

Jim- Great information, so many people try to save a penny by not having a professional manage property and then run into problems.

Great blog and excellent point made. It is ALWAYS advisable to have an experienced person or company managing your asset.... if not, you won't have that asset very long.

Sean Allen

In your example you state 33K gross and 18K net meaning there must be some expenses for running this property over 14K.  These expenses are not included in your managed example where you limit the unlisted expenses.  Why? 

With current gross income of 33K these must be three relatively nice apartments to avg 916 per month in a mix of 1,2,3 bds.  Why are there vacancies?  That is the real issue and wasn't addressed.

Next time you sell one of your properties tell me if you would be so quick to put no value on them.

A small apartment building such as this can be managed successfully by a local owner, distant or pm.  The self-managed property owner has a six percent cushion of mismanagement error not likely to be used by an attentive owner/low-demand property.

I normally would delete an anonymous entry such as the one left this morning, however, there are questions raised that I was not clear about in my original posting. So, I will address them here. First of all, I did not provide a detailed income/expense statement as that was not the point of the post. The expenses were included in the managed example along with the additional expenses of $9828 (management, vacancy rate, and reserves.) $70,200-9828=60,372. It is cheaper and makes more business sense to use a management company than to provide free rent to the tenant in this example. Also, when calculating income and expenses, the tenant receives a rent credit that shows up on the expense side. So, the average rent is $687 not $916.

My understanding of the situation is that the on-site "manager" was not doing a good job of maintenance as well as not being available to show the vacant apartments. I apologize for not putting that in my original post, but didn't because I do not have first hand knowledge, only third person information on that.

When doing a pro-forma income/expense, even if you have 100% occupancy with long-term leases in place, you will always use a vacancy rate of some %. You never know when someone will move out. If you are getting financing on the property, the bank will certainly be using a vacancy rate.

Not sure what you mean by this, "Next time you sell one of your properties tell me if you would be so quick to put no value on them."

Now, your last comment about self-management. I have repeated throughout my posts that it is possible to self-manage your properties, and some people have successfully done that, and have even created their own side business of property management. My point is and has been that this is a business and as such, you should be utilizing professionals that are experts in their fields. If you do your research and also get referrals, a professional property manager will minimize the paperwork, vacancies, and you will not be receiving calls in the middle of the night for lockouts, plugged toilets, etc. Running it as a business will allow you to purchase many properties and easily manage them. Trying to run it yourself will TYPICALLY cause frustration and burnout.

I hope that this has cleared up some of the points. Next time you post, please let me know who you are, even your first name would be nice. It is common courtesy when having a conversation. You had some valid questions and should not think that I would be upset. This is a forum for exchange of ideas.

Take Care All!

Jim Barbour

Jim,  Good information.  I own a management company and the biggest problem owners who self manage run in to is their inability to pick good tenants.  Your example proves makes that point.

Jim, This is a good post and your follow up information.  I know people that own an airplane but I would not want them to be at the controls at least with me on board

Don Eichler