QUESTION: My wife and I are thinking about investing in apartment buildings. We have looked at several which have nice positive cash flows with about a 20% cash down payment. But the problem is these properties are located about 900 miles away. The agent who showed us these properties will manage them for us at only a 2% fee. What do you think of this idea?
ANSWER: Forget it. The real estate agent obviously wants to make a sale to an out-of-towner like you. Once the agent begins managing the apartment for a very low 2% fee, you will probably soon see either poor management or the so-called professional manager will quit. Typical professional management fees are in the 5% range for larger properties and as high as 10% to 15% of gross income for single-family houses.
I strongly recommend not buying property more than a maximum one-hour drive from your residence. Out-of-town real estate investors can't possibly know what is happening in a distant real estate market, such as in the situation you describe.
Easy Sale Terms May Be Solution
Q: For about 10 years three other physicians and I have owned some vacant land where we expected to build a medical office building. But our plans have changed, since one of the doctors left town and the rest of us have nice offices near a hospital.