How Many Rentals Can One Person Actually Manage?

Dave:How many rental properties can one person realistically buy, and even more importantly, how many properties can one person actually manage? Is it really possible to scale a rental property portfolio without property managers eating up all your profits today? We’ll dig into that question and much more. Hey everyone, I’m Dave Meyer, head of Real Estate Investing at BiggerPockets. Thank you all so much for being here and Henry Washington, thank you for being here, helping me answer some of our community questions.

Henry:Hey man, this is one of my favorite formats to do is finding a way to answer questions and help the BP community.

Dave:Absolutely. Well, we got some really good questions from real investors on the BiggerPockets forums today. First up, we have an investor in California who’s wondering when it’s time to hire a property manager. Then we’ll get into tricks for analyzing deals quickly, which is a super important skill to have in my opinion and steps that you can take now even if you’re not planning to buy a property for the next couple of months. We got that and a couple of more. Let’s jump into it. Our first question comes from Austin in eda, California. I have no idea where that is, but Austin asked is anyone that manages their own properties able to acquire many properties? What systems do you use to achieve scale? So I think the heart of the question here is at what point does self-management become unreasonable or is there even a point where self-management comes unreasonable? What’s your take on this?

Henry:Yeah, there’s a point, but it’s going to vary for every person depending on what kind of other job you have and how much time freedom it allows you, what kind of software systems you’re using, what kind of processes you have in place. You can be super efficient, self-managing with the right systems, a couple of VAs, but it does require you to know how to put those processes in place and know how to train the people you want on your team. For me, I got to about 65, 75 units

Dave:Seriously

Henry:Before I hired out a property manager.

Dave:And you were doing all of that yourself?

Henry:Yeah, not well.

Dave:Okay. Yes,

Henry:So the one thing I will say, I was good at picking tenants and so the tenants I picked, it was a very rare situation where we picked a tenant that we had trouble collecting rent. Same. I just feel like at the heart of being a landlord, you’ve got to get good at tenant selection. I don’t care what price point, what class neighborhood. There are people who suck at paying rent in an A class $3,000 a month rental, and there are people who suck at pay a rent in a de class, $500 a month

Dave:Rental. Totally. If you could analyze deals and pick tenants, you’re 90% of the way there,

Henry:Right. You just have to, if you’re going to self-manage, that’s the skill you need to figure out how to hone is your tenant selection process. If you do that right, everything else is much easier.

Dave:Can I ask though, you were doing 60 75, but you were working on your portfolio full time?

Henry:I had about 68 doors when I quit so somewhere.

Dave:Oh

Henry:Dude. Whoa.

Dave:Okay. Your number is 10 times higher than what I was going to say.

Henry:I started to realize between 65 and 75 units that things were taking longer than I wanted them to take. Turning a unit after somebody moved out was taking longer than I wanted it to take and finding a tenant and getting them in. The vacant units were taking longer because when you have that many units, you’re not just doing one turn at a time. You’re sometimes doing 3, 4, 5 turns at a time. Plus I was still flipping 15, 20 houses a year, so it was just a lot, but I still didn’t want to turn it over. It’s just something in me didn’t want to turn the business over.

Speaker 3:Totally.

Henry:My property manager basically told me, you’re probably paying more than 10%.

Speaker 3:Oh, for sure,

Henry:And just lost rent collection and sitting with vacant units, so you might as well just pay me and let me do a better job than you.

Dave:Wow, that’s impressive. I think I was at 10 units or so when I decided it was time to get some help, but I didn’t go into full property manager at first. I hired a handyman who would take maintenance calls and I still did all the tenant screening myself. I did all the leases and I still did what I would call the asset management myself, and I think this is something that people get caught up on a lot and miss in rental property investing is there’s two jobs when you talk about being a manager, there’s property management, which is dealing with tenants, finding tenants, making sure that they have a good quality place to live. Then there’s asset manage, which is like just what are you doing with the property? Are you making upgrades? When do you sell it? When do you invest in it? And that part I think is always the hard part to outsource. That’s kind of your job as the investor. For me working, I found it difficult to get past 10 units and to do the property management piece

Henry:Well,

Dave:And I think you’re totally right. I’ve been fortunate to have really great tenants pretty much universally, never really had a problem there. The thing that kept dropping off for me is that asset management piece. I was not at the properties enough to notice when something was starting to go wrong and being able to proactively fix it before something went really wrong, and that was sort of where things started to break down. It really wasn’t on the tenant side, and so that’s sort of how I’ve thought about my portfolio structure and where I hire and get help later is focusing. I want to be able to asset manage well and I will pay people to do the property management because property management, it’s not even that time consuming. It’s just when the time comes is very variable and you need to be very flexible and that’s hard for me investing out of state and working nine to five. So that’s really how I’ve thought about it and I don’t regret it for a single second. It has been one of the best things I ever did. I wish I did it sooner. I actually think I’d own more unitsBecause that was what was holding me back. In retrospect, I didn’t want to manage more properties even though I had the capital to probably go buy more,

Henry:I still felt like, man, maybe I should have kept the property management in-house until about two months in, I was on vacation in Hawaii and I got a text message that someone drove through my house. They jumped the curb. They were under the influence. They drove through the wall of the house. Luckily that wall led into the garage and they just drove through my garage but not through the door, and so as a self-manager while you’re on vacation, that’s a nightmare text to

Dave:Get nightmare, absolute nightmare.

Henry:But I looked at my phone, I looked at the pictures and I went, huh, that sucks. And then my property manager took care of the tenants, called the insurance company, filed the claim, got bids for the work, got the work done, got me the insurance payout, paid the contractor, and I literally didn’t think about it again after I got that text message and I was like, great decision here. Yeah. Can I give my property management a hot take? Yeah, please. Once you get past a certain point in your portfolio in terms of number of doors, it’s no longer even if you plan to continue to manage your own rentals, if your portfolio is big enough, you’re not self-managing, you’re just building a property management company.

Dave:So true.

Henry:You have to have people, systems and processes when you get over a certain amount of doors, so you’re going to need VAs or somebody in-house that’s helping you keep up with all this and systems that cost money in order, you’re literally building out infrastructure for a property management company. I’d say probably 30 doors plus.

Dave:Could I tell you another reason I do it to hire a property manager?

Henry:Absolutely, you can.

Dave:Do you ever get that recurring dream when you show up to school and you’re not prepared for a test or something? I know that’s a really popular recurring dream. I get

Henry:That. Yeah, 100%.

Dave:But I was having this recurring dream where I just forgot that I owned a certain property and had it shown up there all

Henry:The time. I have that literally all the time. I completely forget that I bought a property and I’ve just been sitting on it renovated, not making on

Dave:That tree

Henry:All

Dave:The time. Oh my God, that’s so true. I’m always like, oh no, I just bought it and just left it there for what is wrong with me. Wow. I’m going to start asking that to every guest on this show. Have you ever had that dream where you forgot about a property? Wow. All right. I’m glad we could talk about these things, man. Yes,

Henry:Real estate therapy.

Dave:All right, well, that was a very good question and I think hopefully we helped answer your question there, Austin, because it is really personal, but absolutely you can do it yourself. I think almost anyone could do five to 10 probably by themselves. Realistically, once you get past that, it really depends. Are you working full time? Are you building a business, as Henry said?Yeah. All right, well, we have plenty more questions from the community, but we do have to take a quick break. We’ll be right back. They say real estate is passive income, but if you’ve spent a Sunday night buried in spreadsheets, you know better. We hear it from investors all the time, spending hours every month sorting through receipts and bank transactions, trying to guess if you’re making any money, and when tax season hits, it’s like trying to solve a Rubik’s cube blindfolded. That’s where baseline comes in. BiggerPockets official banking platform. It tags every rent, payment and expense to the right property and schedule e category as you bank, so you get tax ready financial reports in real time, not at the end of the year. You can instantly see how each unit is performing, where you’re making money and losing money and make changes while it still counts. Head over to baseline.com/biggerpockets to start protecting your profits and get a special $100 bonus when you sign up. Thanks again to our sponsor base lane.Welcome back to the BiggerPockets podcast. Henry and I are here answering community questions, and our next question comes from Shahab in Irving, Texas. He says, I’m new to real estate investing and learning how to analyze deals quickly and confidently, especially small multifamily or house hack opportunities. For those of you with more experience, what’s your step-by-step process before deciding to dig deeper or pass? Which tools, calculators or spreadsheets do you rely on? I’ve seen some online, but I’d love to know what actually works in real life and any advice for building speed without losing accuracy when running deal analysis. Can I just say shaha? I absolutely love this question. This is a great question because getting good at analyzing deals kind of means getting faster at it over time. I feel like especially the way I look at deals, which is on market deals, I need to look at a lot of them before I find good ones. You need to be able to accurate at it, but you also can’t spend 30 minutes on every one or you’ll never buy a deal, so love this question, but Henry, let’s start at the top here. What’s your step-by-step process before deciding to dig deeper? You just told us you’re not detail oriented, so let me guess. It doesn’t start a spreadsheet.

Henry:Oh, absolutely not. It’s literally on the back of a napkinAnd so let me put a caveat here, right? You need to be able to analyze deals quickly in order to make offers, and you need to be able to do it quickly so you don’t get stuck in analysis paralysis because if you’ve got to go through some complex calculation every time you see a deal, you’re going to second guess yourself. You’re going to be playing with the numbers over and over again and you’re not going to submit enough offers to get you where you want to go. I would suggest to people, if you are a super detail oriented person, that’s cool. Get yourself all the calculators and spreadsheets that you need, but only use those when you get to what I would call level two of analyzing a deal.Level one should be something that you can do quickly that just lets you know what offer will get you in the ballpark. Then you can make your offer or dive deeper into the deals that have a fighting chance of you getting them, so maybe you are analyzing a bunch of on market deals, you do it super quick back in the napkin and then you submit 10 offers and then you get a counter or two. Well, then on that counter or two, you can plug those suckers into your super fancy smancy crazy calculator spreadsheet thing and you can get the numbers and spend the time on the appropriate deals and not spending that amount of time on every deal.

Dave:Now, I think the thing that people get mixed up about that is that they think it’s some math problem that you’re running in your head. For me, there is a little bit of math. You look at maybe rent to price ratio, something like that, but actually what it is, it’s a function of just knowing your market really well. That’s the most important thing you’re looking at. Is this in a good neighborhood that I’m interested in buying in that will disqualify probably half of them. I don’t know. I’m making this up. It’ll probably disqualify a lot. Is it on a busy road? I don’t want it. Is it in some neighborhood that’s super expensive and there’s no juice? I don’t want it. Is it in a neighborhood that’s probably not going to have a lot of t demand? I don’t want it. Those are the things that are going through my head.The second thing is knowing your buy box and comparing this property to the buy box, so that’s honestly the first round of filtering is I’m not coming up with some cash on cash return. In my head I’m like, does this just kind of fit the kind of thing I’m trying to do? And it’s less about math. It’s mostly about knowing what you want, which is why we talk so much about figuring out your goals in buy box and knowing your market enough to see if this particular property matches that. So for me, that’s phase one. Step two is putting into a calculator, and again, by this time in my career it takes me 10 minutes or less, 15 minutes at a certain point. You can use the BiggerPockets calculators. There’s plenty of guides on there, but that’s where you really figure out is this going to offer me the kind of return I’m looking for, and then I actually even go one step further and do sort of a third round.Sometimes this is after I’ve put an offer right before I’m about to put an offer. That’s where I would talk to my property manager or my agent and get just double checks on the assumptions that I’m putting into this deal because a calculator is only as good as the numbers you put into it. If you’re just wrong on rent, yeah, it’s going to show you an awesome ROI, but you’re just wrong. So that’s where I sort of have someone else double check it. That’s kind of the process I have. Getting good at step three. I don’t think you need to be fast at that. You shouldn’t be doing that that often unless you’re like Henry and you’re making offers all the time, but for someone like me, I don’t need to do that all the time. One and two are really what I would focus on to be able to really look at the volume of deals that you need to be able to look at in order to find good deals with relative consistency.

Henry:My gut check is still, where would I need to be for this to hit a 1% rule or better? 1% rule is about break even. Maybe you’re losing just a little money, so if I’m better than 1% rule at the price point I’m looking at, I’m probably going to be making money, and so I will then dig a little deeper if I feel like the property passes that, that vibe check.

Dave:I literally, while you were talking, I just pulled up a property I was looking at before someone sent it to me. I asked what the year of construction was, what the rents are, if those are sustainable, and the asking price, it hit 1% roll, it’s in a good neighborhood, so now I’m going to move on to step number two and start checking this out. That’s all it is. It took 30 seconds, 45 seconds to just be like, is this good enough? And you’re going to look at a lot of them and honestly they shouldn’t be good. Most of them, I’d say if more than like 30% of the things you look at past step one, your criteria are probably not strict enough.

Henry:Yeah, your analysis is off. There’s no way

Dave:People get very frustrated by this, but that’s the whole point is you have to be selective. Not every deal is meant for real estate investors. Alright, great question. We have more including questions about doing burrs and what kind of neighborhoods you should target for those. That’s a great question. We’ll get to that when we come back. Stick with us. Welcome back to the BiggerPockets podcast. Henry and I are answering questions. Question number three is from Salvato in Rochester, New York where my alma mater is Salvatore S, I’m searching for my first deal and I want to do a burr, but the only homes I can buy with cash and rehab are C or D neighborhoods. I’m concerned the value of the home won’t go up over the years as it would in a better neighborhood. Can anyone with experience doing burrs in CRD neighborhoods give me some advice?Good question. Lots in there, so I guess my first question would be why do you have to buy cash? Absolutely. Do you have to buy cash was kind of what stood out to me because I think he’s right generally speaking, especially in the sort of weird housing market correction that we’re in. The assumption that the value of the home won’t go up as much in a B or a neighborhood is absolutely true. You should count on that. Maybe it will change, but generally speaking, you should probably count on the best appreciation in a markets a little bit less in B markets, a little bit less in C markets, a little bit less in D markets. Maybe you’re on the path to progress, maybe you can nail that, but generally speaking that is true and so it really comes down to are you trying to hold this forever as an appreciation play or as the brr? Are you just trying to get it an equity kick upfront and then hold it for cashflow? Both are okay, but I kind of think it just comes down to a personal question unless for some reason you are set on having to buy this property for cash and then you kind of just have to do the c and d neighborhood, but you can still make a great profit on that even if it doesn’t appreciate as much as other neighborhoods. You could still get a huge equity kick and have a cashflow.

Henry:I do have several follow up questions. One was why do you have to pay cash? I agree with you. The other one is, I don’t know, you just have to know your market, so just because it’s a C or D neighborhood doesn’t mean it’s not going to be an appreciating market. There are C and d neighborhoods in appreciating markets all over the country, and so I think this is more a function of understanding where you’re trying to do a burr and if properties go up in value in that market, look at the 10 year adjusted appreciation rate and that’ll let you know on average what you can expect properties to do when you zoom out over the long term. The other thing is I just sometimes think C and D neighborhoods get a bad rap.

Dave:Same

Henry:People hear C and D neighborhoods and they think crime and no appreciation and nobody wants to live there and that’s just not true. Again, you need to understand your market. Sure, there are some neighborhoods in almost every market that are going to be a problem, but there are a lot of c and d neighborhoods where you can get great numbers.

Dave:Absolutely.

Henry:My other caveat is it’s the concern of the value of the home won’t go up. Is that concern related to you needing the home to go up in value in order for you to refinance and pull your money out, or is that concern related to you just wanting a property that appreciates over time? Because my real concern with this is are you paying cash for a property at retail value and then renovating it and then hoping that the market appreciates enough over time for you to pull your cash out in a short period of time because that’s not going to work?

Dave:Yeah, don’t do

Henry:That. That’s not going to work, but if you are, even if you buy a bird deal in a not appreciating area or a very slowly appreciating area, as long as you buy that deal at a low enough price point, you can absolutely refinance it and pull your money out. It’s just did you get the property at a low enough discount to enable you to pull your cash out?

Dave:Yeah, I totally agree with Henry. I think that this idea that you can find something that’s distressed enough that you could buy it low enough to do a successful bur and it’s going to be in a great neighborhood that appreciates more than the average in your market. It’s just a little bit. I think the big change that we’re going through right now is a change in expectations, and this is just normal investing, right? The reason you do the brr is because you don’t need market appreciation. You’re forcing that appreciation. You’re doing the value add and so expecting to be able to do that and get market appreciation, hopefully you do, but to me, the burr in today’s day and age, the value of it is you get the value add, you get a pop of equity right upfront, quickly, super valuable. That is amazing and hopefully when you refinance it, you have a cash filling property that is now renovated is going to have high tenant demand, is going to command good rents for the neighborhood.That’s probably going to cashflow for you. That’s more than enough for me. If you get that, that’s great. If that market appreciates, that’s also good, but if you go into a neighborhood for example, let’s just play this out. You go into an neighbor neighborhood, it’s going to be much harder to buy at the right price as Henry alluded to, and it is very unlikely in a neighborhoods, no matter what market you’re in, that you’re going to be able to cashflow a property after you refinance it. It’s going to be much harder to do that, so I think it’s really a question of priority For me, I’d take the B or C class neighborhood, do the Brr get a cash flowing property rather than being a BNA neighborhood, but that’s just me.

Henry:Yep. I’m 100% with you and I would also say in this market, I wouldn’t expect you to be able to execute a full 100% burr in six months like you could before, but if you’re able to get into a property in a B or C class neighborhood that’s got some slow appreciation, but you’re getting the equity bump on the buy, you’re forcing the appreciation, it’s cash flowing and you can pull 50% of your cash out. It’s a pretty solid win in my book.

Dave:A hundred percent. I think that’s a great deal. Alright, but good question. I think that makes a lot of sense. Salvato, let us know in the comments we’re on YouTube, what you wind up doing with this project. We love to hear from you. We do have to get out here, but we have one more time. A quick question here. Fourth question comes from Erica in Washington who’s also kind of just getting started in real estate. She asked, is it ever too early to start taking actionable steps? I plan to move to the market. I choose to invest in and house hack a multifamily home, but I know I won’t purchase a property for at least another year. I’m not sure if I’m at the stage of speaking to lenders, is this thought process holding me back? Should I reach out to local banks even if I don’t have the savings I want yet? Any other advice on realistic well action steps to start taking early

Henry:This question, has you written all over it?

Dave:Me?

Henry:Yeah.

Dave:Okay. All right. You’re just ready to go. You just want to leave.

Henry:I mean, my answer is good job. Keep

Dave:Doing that. Yes, absolutely. Yeah. The reason I put this at the end with question is because it’s easy to answer. Absolutely. The fact that you’re on the BiggerPockets forums asking questions is excellent. I think most people usually take, I don’t know, 3, 6, 9, 12 months to get comfortable enough with the idea of real estate investing to want to pull the trigger on a deal, so I think you’re absolutely talking about it. Go talk to lenders. I think that is totally acceptable as well. They are not as much going to look at in the first conversation how much savings you have. They’re going to look at your debt to income ratios and they’re going to help you understand what payments, monthly payments you’re going to be able to afford and just be honest with the lender and they will have an honest conversation with you. In the meantime, I think you said you haven’t moved to the local market. The other thing I would do is the second I move to that market, go to real estate investing meetups, start meeting people even before you are ready to go out and execute on a deal that’s going to be super helpful and comforting and getting you to know the right people and just keep doing this. Listen to the podcast, read a couple of books, but I think it is very normal to spend a half a year or a year getting comfortable with the idea of investing before actually doing

Henry:It. Yeah. I think the difference between her and what we hear a lot of investors say is a lot of new investors, they think they want to invest, but they’re not truly bought in yet and they’re still scared, and the vibe I’m getting from her post is not that she’s scared, she isTrying to be as prepared as she possibly can, and that may mean she needs to take some more time and save some more money, and she can learn that by talking to a lender. It may mean that she needs to focus on learning a little more about a particular strategy. When you have made the decision that you’re going to do this and now the time you’re spending is helping you become a better investor before you even start, that’s positive. If you have a plan and you’re trying to execute that plan and you can talk to lenders and learn how much money you need to do the thing you’re trying to do when you’re going to need it by how much payment you can afford, and then you’re taking steps along the course of a year to help you be prepared to do that, that’s great.

Dave:Absolutely. I love that advice. I think that’s a very important distinction is preparedness and fear are different questions. If you know you want to do this and you’re committed and you’re just getting all your ducks in a row, do that. That’s just smart if you’re just stalling because you can’t decide if you want to be in. I understand that that’s a real issue. It’s hard, but that’s a different question. So I think for Erica, she seems to know what she wants to do and taking time to save up money and do that in a responsible way. I think you’re doing exactly what you should be doing. Erica, so good for you. All right. That’s what we got. We talked all about self-managing. Henry and I talked about our dreams.

Henry:We did talk about our dreams.

Dave:Yes, we talked about our dreams. We talked about analyzing deals quickly, how to do a burr in the right type of neighborhood and whether it’s ever too early to start making moves into real estate investing. If you have questions you want Henry and I to talk about, you can always send them to us on Instagram, comment them in the comments on YouTube or participate in the BiggerPockets forums. We have thousands of forum posts every single day where people are helping each other with their real estate journeys for free on biggerpockets.com. You can go do that, and we might just pluck your question right out of those forms if you are an active member of the community, so go check that out as well. Henry, thanks so much as always for your support and answering these questions. It’s great having you here.

Henry:Glad to be here, buddy,

Dave:And thank you all so much for listening. We’ll see you next time for another episode of the BiggerPockets podcast.