Real Estate University

Don’t Do It Yourself!

It’s 2021. You have a rental property that you just acquired. You’ve gotten over the excitement of realizing that you’ll be earning passive income monthly now. Great job! I genuinely mean that. “Make money while you sleep” is what the Entrepreneurs preach. But you’ve never been a landlord? You may be getting up in age? Or you may be wisely deciding that the time spent on managing rentals is more valuable than the dollars that you’ll save! Think about that… You can always make more money, but you can’t make more time.

Very briefly, let’s discuss why Property Management is a good idea.

1. You’ve never done this before – leave the heavy lifting to someone that does this full time. If you want to sit back and learn what they’re doing so that you can become a great property manager in the future, I get that. But I’d let these guys handle it upfront.
2. Liability – People love to sue each other these days. Your Property Mgmt. Company has probably been sued before and their cash flow is different than yours. They likely have an array of properties that they manage, with Attorneys, Insurance, and a full network of professionals at their disposal that they’ve already built relationships with.
3. Contracts – The legalities of a lease agreement are complex, and evolving (hence Covid). I’ve represented clients on purchases of homes that needed Rent Verification for Loan Approval, and they didn’t have a written Lease! Can you imagine how crazy that is? An Owner should always… and I mean ALWAYS… have a Lease Agreement detailing what-if scenarios (such as Grounds for Eviction) with a record of Rent Payments, and signatures.
4. Tenant Turnover & Vetting – Credit checks, background checks, employment history… If you’re wise, you’ll have an amazing vetting system in place before you allow that first tenant to occupy the property. I’m sure you’re imagining all of the reasons why right now. The hours that you’d spend doing this & interviewing tenants is time that could be spent doing some other money-generating activity.

That list could go on and on. But let’s get to the meat and potatoes!

Step 1: Build a Spreadsheet

I’ve made an Example Spreadsheet for you – You’re welcome to download these Files:

The Cost side of this file is a very basic Profit & Loss Guide. You should modify the Excel Spreadsheet to fit your needs, obviously. Subtract the Monthly Expenses from the expected Monthly Rent, and make a note of the expenses that are charged each time a new tenant moves in. This will be the Net Monthly Income, allowing you to compare each Property Management Firm side-by-side.

The Contracts side is meant to allow you to compare the coverage (Contract Protection) in their Lease Agreements. Like the image at the top of this post suggests, you want to choose the Company that has the best balance between Quality & Cost. This includes Coverage! You’d be surprised at how many people simply choose the cheapest (to save money), or the most expensive (thinking that they’re the best). They may just go with the company that their friend suggests? If all goes well, you’ll use this company for years to come. Do your research.

Remember this too – it’s 2021. Most of these companies will have a pretty website. Most of them will at least be somewhat decent at selling you their services, and a good bit of them will show up in Search Engines with reviews.

None of that makes them the best.

Step 2: Communication

Net Income isn’t the only important factor to consider when choosing a great Property Management Company. Effective communication is the key to a smooth experience. This Company is going to be your Partner. Do you want a Partner that is difficult to reach? Do you want one person in charge of your portfolio, or would you be willing to speak with a concierge when you need them? What’s the communication like for your TENANT? Who will they contact if a pipe bursts? How quickly will they send someone out to fix an issue? How will they handle an Eviction Scenario?

Now imagine this… You’re on vacation with your family on the beach, and your phone rings. “Mr. Owner, this is your Property Management Company. We’re calling because…” Because what? Are they calling you because they can’t solve a problem, or are they calling you to notify you that they’ve already taken care of the problem?

No Property Management Company is perfect. But if you can find one that rarely contacts you (handles problems for you), gives you detailed statements on rent(s) received and dollars spent, and receives good feedback from your tenants, you’ll have a Partner that you can build a portfolio with.

Step 3: Start Interviewing

Now that you have an idea of what to look for, you can perform a search online. Drive by a few communities (look for signs), and put yourself out there. Remember, being shy can cost you money! Don’t be shy. Introduce yourself to the local Property Management Companies and request a sit-down or conference call with one of their Reps.

Go into these meetings prepared. Make a list of questions before the meeting so that you don’t draw a blank when you’re in the moment. Use the Contracts Column in the files above if you need help knowing what questions to ask, or contact me. I’d love to help:

Real Experiences – Interviews With Landlords

I interviewed a few Landlords for this post, all of which work with Property Management firms. The two that I chose for this article are in different states. Both of them are very reliable sources. For the sake of their identity, we’ll call the Tennessee person “Jon Doe,” and we’ll call the Georgia person “Don Joe.” (Haha)

We are in the south after all…

Jon Doe in Tennessee says, “My Property Management Company is the best money that I spend every month. They do all of the work and communicate with the tenants. I basically sit back and collect a check.”

Me: “What type of information do they send you per month? And how detailed are their lease agreements?”

Jon Doe: “I mean, not very much? But I’m fine with that. I don’t need regular spreadsheets or any of that. They inform me when tenants vacate, and when they sign new leases. I’ve already agreed to the terms and fees, and those never change. So it’s fairly consistent… As far as the lease agreements, they’re standard. Pet Fees, what-if scenarios, their Rights and our Rights, Exit Clauses, and all of the legal wording.”

Me: “How well do they communicate?”

Jon Doe: “Very well. I’ve been on the beach with my family and had a problem erupt once with a busted pipe in one of my houses. They called me twice. Once to inform me that it happened and to give me a couple of quotes for the repair, and the second time to inform me that the problem was solved. It was super smooth.”

Our friend Don Joe on the other hand, hasn’t had those same experiences down in Coastal Georgia. He feels more guarded with the companies that he’s worked with (more than one), and gave me his experiences.

Don Joe: “I’ve seen crazy contracts that won’t allow an Owner to sell a property unless you list it with them. There’s some that have clauses stating if the property is sold while under their management, they’re owed a commission regardless of how the property is sold. Far too many property managers never raise the rent just to save them the “headache”. Most never do proper move-in and move-out walkthrough inspections.”

He further discussed becoming a Landlord for the first time and making that hiring decision.

Don Joe: “Most don’t know about the move-in and move-out inspections. And the Property Managers charge the same rate, usually around 10%. So a consumer is looking at a ton of companies who have the same rates, and I feel to some extent they have no way to separate the bad ones and good ones. There’s a company in Hinesville that I won’t name, that we’ve bought 11 of their clients homes from. Every one of their long term rentals was severely neglected, and long overdue for routine maintenance with really low rents compared to the market. And it’s a common trend with certain companies in the area.”

Conclusion

The tale of two stories above really paints a picture for what your life might emulate as a landlord. But there’s also an internal piece of this puzzle that I hope you picked up on. How you handle your working relationships with whomever – whether it’s with Property Management, Real Estate Agents, or the Tenants themselves – is critically important. You can’t be lazy! You aren’t retired yet. And the condition that you keep your properties in is also key. Awareness and attention to detail is probably the most keen “survival” trait that you need. Because the black words on those white papers can either rescue you, or they can be a bull in a glass house. Take your contracts very seriously.

You’re going to make mistakes. You will definitely have bad tenants. But like the best entrepreneurs in this country say, “Hire slow, and fire fast.” Don’t let a bad partner or business decision derail you for longer than it needs to. That also means you need a contract or paperwork that allows you out quickly! So pay attention to the details.

And Congratulations! =)

Now that you’ve created a money stream for yourself, find ways to minimize your tax burden on it and turn your cash flow into “unrealized income” so that you can keep more in your pocket and pay less to Uncle Sam.