A few weeks ago, I wrote about a breakthrough in thinking regarding an opportunity in one of my Master Marketer Club weekly membership reports. I’m curious as to what you think might be a better opportunity, so I’ve decided to share what I wrote with everyone. I would love to hear your thoughts on this! Please feel free to add them in the comments section!
My breakthrough occurred when I compared starting property management services to buying an investment property. Most agents are hesitant to offer property management services, but would happily buy a rental property hoping for passive monthly income.
Why is this so?
You would have to do the same things on a month-to-month basis to own a rental property as you would to manage someone else’s property. However, you have significantly less risk when you manage someone else’s property vs. owning your own rental property.
As an example…
If you own an investment property, you have to keep them rented to remain profitable. If you lose a tenant, you have to cover the mortgage payment out of your pocket. Moreover, you’ll probably have to invest additional funds to paint, carpet and spruce up the property to get it ready for a new tenant.
I’ve learned with my properties that ONE vacancy can suck up every penny of cash flow collected throughout the year. If the property is damaged, you have to cover the cost to make any repairs. And if you live an area requiring city rental inspections, you’ll have to cover the cost of fixing any violations required to obtain an occupancy permit.
Even worse, if the real estate market drops further, you could lose a lot of money when the value of your property gets pulled down.
Now let’s compare owning a rental property to simply managing someone else’s rental property. When you manage a property on behalf of another investor….
1. You never have to cover a mortgage payment out of your pocket.
2. You never have to invest money to renovate the property during vacancies.
3. You can collect a management fee every single month of the year, regardless of whether the home is rented.
4. You have no risk of loss if the property is damaged.
5. You never have to pay to correct any violations required by the city for an occupancy permit.
6. You have no risk of loss if the property values decrease.
7. You don’t have to put 20% to 25% down to buy the property.
8. You don’t have to borrow a penny.
9. Your credit score is not on the line, because you’re not buying the property.
Let’s stop for a second. Which is the better opportunity? Are you starting to have the same shift in your thinking, about property management, as I did?
Now, here are a few additional considerations:
- It’s pretty challenging to get financing for investment properties these days. How many rental properties are you able to acquire right now? If you’re lucky, you might be able to buy one or two investment properties with today’s lending requirements. More than likely, you’ll have to invest 20 to 25% out of pocket to buy these properties for the down payment. So you’ll have to invest a significant amount of money to generate passive income from one property and you’ll have to carry 100% of the risk of loss.
- How many rental properties could you start managing right now, assuming you had a few key systems in place? Answer: as many as you wanted. There are no lending requirements, down payments or other restrictions that would limit the number of homes you manage. This simply means you could generate more monthly income by managing properties than you could by buying properties! All without any risk of loss.
- Some might argue that you lose out on any future profit when the home appreciates. This is definitely true, assuming the home does appreciate. It’s probably going to be a long-time before home values go up by any meaningful amount. Believe it or not, you can receive a BIG check down the road from the properties you manage. Simply turn each property management agreement into a listing agreement and you’ll set your business up for many future commission checks.
Sure property management comes with a few headaches, but what good business opportunity doesn’t?
I had a huge shift in my thinking with this little comparison, because I was reluctant for many years to get involved with property management. However, during this same time period, I would happily run out and buy investment property after investment property.
This seems crazy in hindsight.
I was willing to invest large down payments to buy properties, handle the same management responsibilities, and carry the risk of loss to receive monthly cash-flow. With property management, you don’t have to invest a penny, have no risk of loss and can generate monthly revenue all for assuming the same management duties.
I might venture to make this statement…
It’s more profitable and less risky to manage a rental property than it is to own a rental property. You profit when the home is rented. You profit when the home is vacant. And you have the opportunity to earn a commission down the road, when the home is sold.
Once again, I didn’t think this way previously. I do now. What do you think? Please feel free to share your thoughts in the comments below.
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