A lot of real estate investors start out doing everything themselves — the property scouting, the repairs and renovations, the tax paperwork, the maintenance, the sale itself. Why? Let’s be honest: Hiring specialists to handle all those tasks costs money, and the less money you spend on the front end, the more profit you’re in a position to make on the back end.
But as your investments level up, your time becomes your most valuable commodity. You should be thinking about ten-year market trends and 1031 exchanges in your state, not unclogging your tenant’s garbage disposal. That’s when outsourcing begins to make sense.
Whether you’re a house flipper, a long-term rental investor, or a short-term vacation rental host, smart investors eventually start delegating. Here’s a list of the tasks you can easily outsource so you can concentrate on the big picture instead of getting bogged down in the fine print.
A lot of investors, especially if they’re just starting out, love the idea of “sweat equity”— i.e., buying a fixer-upper and doing all the repairs and renovations themselves.
This can be a great learning experience, and sometimes it even works out. But as any novice who’s undertaken even a small DIY renovation has quickly learned — home repairs are a lot harder than they seem. They’re expensive, time-consuming, and can even be dangerous. That said, it can often be a good idea to do the work yourself on your first house flip, as it will give you a good idea of the costs of materials, the amount of labor involved, and the general timeline. But once you’ve got that first one under your belt, you’d be wise to look for a good general contractor going forward.
A good general contractor brings experience, know-how, and dependability to the table. They should be willing to give you estimates upfront and stick to them — and if they do exceed their budget, they should be transparent about why.
Even if you find a superstar general contractor, it’s likely they won’t be able to perform all the work themselves. Jobs such as plumbing and electrical systems, just to name two, require licensed professionals and proper permitting. Many general contractors can bring in electricians and plumbers they’ve worked with before, but you’ll often have to find them yourself. That means that once your investor operation scales up, you’ll need to juggle several types of contractors among your different projects. A contract coordinator can handle this for you, making sure needed work gets done on all your projects while also monitoring quality and cost. The best contract coordinators are often ex-contractors who know how the business works and have a robust professional network in place.
Managing your properties is one of the most time-consuming tasks for a real estate investor. Doing it yourself means being available to unclog a toilet at four in the morning or fix a clothes dryer on Sunday afternoon. It’s no wonder that a 2016 survey of landlords found that maintenance was by far their main source of stress, with 62% listing it as their biggest headache. (In second, with 58%, was finding quality tenants — something that, along with maintenance, professional property managers often handle.)
Outsourcing your property management will free up a lot of your time and mental bandwidth, but it’s not cheap. The average property manager charges around 7-10% of the rent collected. Still, if you’re in the early stages of building your investment portfolio, delegating to a property manager could free up a lot of valuable time. How do you find a reputable property manager? As always, referrals from people you trust are invaluable. Look for a manager who’s communicative, efficient, has experience with basic accounting practices, and charges clearly defined fees.
Showing vacant rentals to prospective tenants can be a time-consuming and frustrating experience. The first applicant might be the right one or it might be the fifteenth. Even if you have a property manager to handle showings, it can take up a lot of their time — time that’s better spent on more important matters.
Luckily, technology has advanced to the point that you can fully automate showings. A system of a scheduling app (many of which also screen potential tenants before granting them unsupervised access), electronic lockboxes, and keyless smart locks mean that tenants can show themselves around and contact you or your agent only when they’re ready to sign.
Real Estate Scouting
We’ve all heard the anecdotes about investors driving around town looking for “For Sale” signs, and it’s true — many investors find their first project themselves. But once you have a system up and running, a good agent can be your most valuable partner.
A seasoned local real estate agent will understand neighborhood dynamics: which areas are evolving now, which ones are next in line, and where the undervalued properties are. They also know what buyers want and can alert you when a diamond in the rough hits the market, so you can slide in with a quick offer.
Here’s a tip: If you’re buying multiple properties from the same agent, ask about a reduced commission. Many agents will give you a bulk discount if you’re going to have an ongoing business relationship.
The reason you’re required to have a licensed electrician working on your house flip is because the stakes are so high; a rewiring mistake can result in fire and serious injury. This is also true when it comes to the legal aspects of your investments.
Every property purchase, every house flip, and every rental comes with a stack of paperwork and a raft of regulations. Forgetting to get a permit, filling out your closing paperwork incorrectly, or overlooking a required disclosure can have serious consequences — sometimes years later. Hiring a real estate attorney to backstop you when it comes to the legal and regulatory aspects of your investments can save you a ton of money down the road and give you peace of mind today.