Making Multifamily Money - Jan 31st 2024

Real Estate Updates

Property managers make or break your deal. If you have a good property manager and a bad deal, it can become a good deal. If you have a bad property manager and a good deal, it will become a bad deal.

Unfortunately, 9 out of 10 property managers are bad. The 1 good property manager may get complacent over time or be spread too thin if they scale rapidly. This is why I always have 2 backup property managers - a backup for the backup.

Signs of a good property manager? Communicates timely, educates you about the market, saves you money on expenses, decreases expenses over time, maintains occupancy over 90%, saves you money on renovations, gives you monthly reports (P&L and rent rolls) timely, rents out units, evicts tenants as needed, property well maintained and communicates regularly.

Signs of a bad property manager? Just think of the exact opposite. Doesn’t communicate timely, expenses trend up over time, occupancy decreases over time, lots of non-paying tenants, tenants complaining a lot, things not fixed timely, and so on.

I’ve had the same property managers for about 2 years. They assisted with stabilization of my apartments. They helped me renovate the units, churn the tenants, and achieve market rents. Over the past 2 years, I haven’t noticed any complacency. Now that the apartments are stabilized, I am still monitoring for complacency. How do I monitor? Periodically text and/or call them to get a status update on the apartment. Make sure all my documents are received every month.

What I Learned

Tie your motivation and dopamine to the process, not the outcome. This will ensure you don’t burn out and will not feel underwhelmed once you achieved the outcome

Weekly Self-Reflections

I work full time so I can never qualify as a real estate professional (REP) as a single tax filer. Once I get married and my wife works part time and becomes a realtor, we can collectively qualify as a REP meaning all my passive real estate “losses” will offset my active W-2 income. This is how people pay little to no taxes.

Becoming a REP is tricky. You have to work more hours as a REP than your part time W-2 job. For example, if you work 20 hours a week as a pharmacist and 21 hours a week as a realtor (plus make more money as a realtor) then you can safely qualify as a REP. If you work full time W-2, you will not qualify as a REP. You must document your hours worked too.

Another workaround is “material participation” which is why short term rentals are popular. If you qualify as “materially participating” then those loses are considered active losses and can offset your active W-2 income.

Video of the Week

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