5 Property Management Answers for Entrepreneurs Seeking Passive Income From Real Estate

everybody's Ken McIlroy here I'm with Leslie Brice partner in MC companies and she is behind-the-scenes runs all the ops all the operations she has about 250 employees I think that's right they like that so she's got her hands full here and so I appreciate you being on the show this is all about property management today yeah my pleasure yeah so so we have about almost 10,000 apartments multiple asset managers that manage multiple on-site managers and on-site maintenance crew concentric senator senator Leslie is in charge of all that and so she's been in the property management business for a long time once you just do a little bit about your background oh sure so I started in property management about 30 years ago I just started working on site and turned around and Here I am 30 years later just kind of worked my way up through the ranks through every position there is on site yeah it's been an amazing actually there's a you know it's easy to buy a property it's not so easy to make it perform which is really why this is so important because property management is the most important thing in fact a lot of people don't know this but before I met Robert Kiyosaki I read Rich Dad Poor Dad because I knew I was gonna meet him the next day and my buddy's like yeah you know this guy's got some cash you know and he just wrote this book so I read the book Rich Dad Poor Dad and in the book he says the most important person on your team is the property manager and I actually found that to be interesting because I've never seen a what do you say that before no I it took me many years to realize what we knew when property management is it's so nuanced there's there's no two days the same and that the knowledge that we get over the years can't be replaced it's you can't just jump in and manage a property I know it's anyway I appreciate everything you do here very much you have no idea you basically produces the returns for our investors so it's really something to be said for that so there's a lot of moving parts so let's talk because we get I get lots of questions about this you know do I manage the property myself do I hire a third party you know how does it work what do I ask all those kinds of things so let's break them into two segments the first one is you know just about property management so what should a good property management company be offering somebody as a client well I so I think the most important thing that they can offer is a high degree of communication and fiduciary duty to you I'm meaning taking good care of your money and always having that at the forefront and it's the most important thing you can do it is cash because if people buy things so what happens my experience has been a lot of times people hire the property manager at the end like you know they've done a transaction and then they call I mean we've had this happen many times they call us up like hey we just bought a property we need a manager it's like like you're like really like you didn't have them involved in the due diligence or you don't know with what the broker is telling you is correct and all that stuff and so I think that the other thing that I that came to mind when you were saying that is not only a cash but a lot of times there's property management companies their brand in my opinion is not as important as the individual so in other words you know you might go somewhere where has a big long 30 year track record ten year track record which is not bad because then you have systems all that but sometimes what happens is you might get stuck with somebody who's just burnt out on the business or maybe they're new maybe they have too much business you know cuz sometimes guys are owned companies like ourselves you know they're try to load up the property managers and there's not enough time right right so how do you navigate that well it's it's true because property management doesn't earn you a lot in terms of fees so a lot of these management companies work with really thin teams they don't have enough staff so one of the most important things you need to know is who's on their team yes you know and making sure that they're properly staffed to be able to oversee your property you want them to have a large enough portfolio that you get some good economies of scale but not so many that that you that they lose sight of your particular property I like to I like to have regular meetings so because it kind of holds the property manager accountable and having been a property management myself for years and years and years what happens is if you're saying hey I want to have a meeting at my property trust me there's a lot of work that goes in prep the prep for that meeting right well yeah you want to believe that they're always managing the property the same way but the reality is is you being there helps them to restaurant check you have to have boots on the ground to be able to see for yourself what's happening that's right so so you can you can mitigate a lot of issues just by having regular meetings it can be twice a month once a month once a week whatever you want and it could be very short half hour hour that you know could be half a day it can be whatever you want but you do have to weigh in regularly you can't just buy something turn it over to a property manager and then you know happy across the checks yeah yeah wait for the checks it just won't happen you have to there has to be a level of management of them right I totally agree I I think that when you know even us we've we've been prone to hire third-party management companies it's really important to have a good relationship with your management company and having the ability to be part of the decisions meaning who's managing the property you want to know and build a relationship with those folks so that you have a bond and a lot of communication with them it has to be a real transparent communication it does and you know if you are kind of you know you have a across the country and you can't be there regularly and you can't communicate with the property management firm regularly I think one of the things is just having some kind of a weekly report you know something anything and you know we do that you know we have weekly reports each property we have gives information to the to our company MC companies and says this is where we are this is where our occupancy is this is where our vacancy is this is how many of the units are ready or not ready this is how many delinquents we have you know any issues and so what happens is it makes everyone accountable you know the property management becomes accountable to the client and just that little thing kind of keeps things in check well it does because if you're just measuring the physical occupancy or the amount of cash flow that you're getting you don't get to really see where the opportunities lie I mean there's always another area you can dive into like you were saying about maintenance you know it's really important to have units ready and if you're not measuring are they ready to move into you're probably not going to lease those units and checking in on the customer satisfaction you're checking into a hotel and you walked into a dirty room what you want to rent it you know that's the same thing with apartments you should not show dirty apartments but people do and you know and then they're you know the it's hard to command high rent once you you know when you're you know showing units of where somebody just moved out they need to be perfect absolutely you know I really appreciate you guys listening to my show and to learn more I have an entire website dedicated to real estate education at Ken macro comm and the price is just $14.99 a month and you'll have access to hundreds of videos in the video library so please visit Ken McElroy comm if you're interested in more education second question what are the key questions you should ask a property management company before hiring them well I think there are so many things that you'll want to know that can be revealed in the property management agreement you'll want to get your hands on that and read it cover-to-cover good point boy there's a lot of help so when you call up somebody and say I'm interested you know most people focus on the fees right they're like they're you know it's funny when people try to negotiate fees because the margins are super thin for property management they're they're horrible actually you know you really it's like battle pay but but getting the management agreement kind of flushes everything right oh it does there there are so many ways for them to double or triple dip when you're looking at your management agreement you want to really be watching not just the fee you know there's a standard for that depending on the size of the property could range on a single family property ten to twelve percent of your revenue but there are other fees built into a lot of these management agreements that you want to know about like good points like late fees they some manager some management companies people actually keep and then they charge you for the benefit of evicting that resident so that's a double dip then a triple dip is some of the maintenance know they may negotiate a good price with a vendor and keep the between that and what the market is yes so for example they might have a maintenance guy in house that's making $25 an hour but they're charging you 75 exactly that happens all the time so those are the kinds of things that will be in the management agreement you know what we ought to do is we ought to take we got to do a whole video on the management agreement see all the fees all the things inside of that we'll do a specific video on that later that's a really really good idea okay third what are there certain rule of thumb on the percentage that they should be charging you know cuz this is you know what what's easy people focus on them you know how much you charging right right happens all the time well and I think this will always depend on the size of the property you know if you've got a single-family property it's it's usually 10 to 12 percent but it that'll be determined based on the rent right now they're looking for a specific dollar amount and so they what they need to be able to do is measure if they're gonna be able to cash flow by doing the account so if you got multiple properties with 100 hundred units or 50 units plus it could be anywhere from 3 to 4 percent of the total revenue but again that'll depend on the rent levels right and here's what I like to tell people like around this no because I go okay how much is your you want to find a property management for your house how much is your house rent far they go 1500 I'll go okay so 10 percent of 1500 is what hunter $50 okay do you think the property manager makes money at $150 a month no way right right because you have you know the phone calls the vendors the communication with the tenants the accounting you know with the paying the bills all the kinds of things that happen it's very very hard when people people think the property management business is profitable it's super difficult to stay profitable agree agree you know and when when you now however if that property management company has 500 houses then there is some economies of scale but if they have 20 I can tell you 20 at $150 it's not very much money and it's gonna be super hard for them to make well and they may even try to do that but the issue will be is they won't be properly staff to oversee your problem right right right you got against gotta give exactly right so just be we're cognizant as you're starting to beat up the property manager on fees you know don't don't get me wrong you have to question them and you have to get into you know what's included in all that stuff but just know from their side of the ledger you know because we are in this business you know we have a counting staff here of what twelve people right and they're all highly paid people they're basically CPAs and bookkeepers and have people finance degrees etc and you know it's a it's a big number we probably have a hundred thousand dollars you know each month in just accounting fees right pretty close just to payroll so you know there's there's kind of an ebb and flow and they're all busy it's really important to realize that you want to pay your manager really well you want to pay your management company well you'll get more attention that way they you know if you try to squeeze them down by way of percentage or dollar you don't get more for that you end up suffering in service somehow so so the fourth one is should you be able to cancel the contract at any time probably managed under typical agreements or a year long you know typically you don't see it any longer than that but they all normally have a 30-day out clause yeah and I've seen sometimes these are regulated by the landlord tenant law sure right and we haven't really talked about landlord tenant law but we are bound by it so we have properties in Oklahoma in Texas Arizona Nevada Oregon Washington we've had them in all those spots and each of those areas have different landlord tenant laws and you have to know what they are right yeah absolutely and it's it does change from state to state there's also broker requirements so real estate law also kicks in related to your property management agreement yeah so so 30-day notice might be an Arizona law but it might be something different somewhere else and so it's really important you understand and these are online that land or tenant laws are online super easy the fifth one the last one is can you hire a management company before you actually buy the property and what is the cost for that now this is I think what most people they like miss like the this is the biggest hidden thing that they should be doing well not only should you you you really have to if you're buying a property the minute you get your offer out you put a letter of intent out you should have a management company already identified and and help them get to the property so that they can help prove your underwriting well let me ask you a question Leslie in all your years when is the first time is has there ever been a time where you've actually seen a broker package or something from a seller that's been accurate I know know if they have to pay their job is to paint the sky right your job is to make sure we prove this right so so if you think that you're getting accurate information on my seller or from a broker I'm here to tell you it's just not true now I'm not saying they're trying to be deceptive but they're kind of they're trying to sell it to you for what the future brings right exactly and sometimes we've found a lot of this where they'll they'll have vacancies that are shown as occupied they they you know they they actually have written leases to themselves to make the offices look better you know there's been a number of things sometimes they don't report all the expenses so that it shows that the expenses are lower and these are all ways to have the net operating income or the net income be higher than it really is and these are things that property managers see really quickly well and they do and I think the other thing is if they operate in a specific area they're gonna know it better than you will well that's for sure they're gonna know every French you know they'll be more familiar with what kind of lift you can get I know listening to them yeah you remember we well we bought a management company in Dallas years ago like ten years ago nine thousand units and you know what we did is we stepped into all their knowledge you know their knowledge of sub markets like Addison you know and and South Lake and you know areas are in Plano and Frisco and Carrollton and things like that in the in the Greater Dallas area which you know are very very different and there are some sides of the street that are good and some signs of streets that are bad there there are properties that are performing and not performing and all that stuff is happens at the ground level you know and for somebody who's just coming into a market for the first time if you're not utilizing a property manager to to tell you what's the truth because if you're gonna hire them and they have to perform they're gonna tell you the truth oh no kidding and the regulatory requirements and one thing we didn't know was what the city's we're gonna require by way of inspections right right if you've got a good management company they're already gonna know all of that that's right you just don't know what you don't know yeah like when we went into Texas like they have all these state inspections right oh it's City inspections and so again it costs to do that do it but that also there's penalties for not doing it and these people you know they know each other they have relationship relationships so you step into all these kinds of things that if you're trying to you know do self management which we're gonna talk about next is super difficult you know and a lot of people do it for to save money on fees and so so that's why I I think that you know engaging a management company and and I've seen actually management companies for the deal itself do all this work for free agree they'll they'll likely chart charge you if they're not going to get the management account but oftentimes these are absolutely free and it helps you to be able to realize whether you're under writings right if you're not facing well that's the thing whether it's right or wrong at that stage you might be in for some trust me yeah the very basic thing you should do is have the property manager take a look at the rents the vacancies the other income the expenses specifically insurance taxes marketing payroll those kinds of things and it you know they can tell you because if they're managing a bunch of properties you know they can draw off of the experience from locating all those other properties right yep so nice job yeah thank you fun stuff

Channel: Ken McElroy

Views: 12,839

Rating: 4.9804401 out of 5

Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Self-Help, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Freedom, Lifestyle Business, Hustle, Property Management, Self-Management

Id: uduFKiPsCg4

Length: 17min 25sec (1045 seconds)

Published: Mon Dec 02 2019