Managing Your Rental Property for PROFIT

hey everybody's Ken macro here the Ken McIlroy podcast is Leslie Bryce one of our partners and emcee companies and so for those that you don't know her she runs all the operations and and all the property management side and much much more than that but there's about 250 employees that we have in our management company she handles all the accounting all the on-site the occupancy you name it we have a big team here to pull off you know the management all these investments that we have and so her job is never-ending there's never a day that's the same the welcome thank you yeah so once you tell everybody a little bit about your experience so I've been in the industry for over 30 years now I and started off on-site like most people in our industry and fell in love with it like like you said no two days the same I was hoping to go to college and and decided that I would start in property management while I was waiting to go back to college and quickly moved around into different departments at an apartment property and before I knew it I just had been there 10 15 20 30 years now I love it it's such a great industry I think it's a great industry it's a tough industry to to make money and but we get this question all the time which is you know one we already went over how do you hire a property management company and that's we've already done an episode on that so if you haven't seen that one please do look at it but the second one is is do we self manage and so those are always the questions and so what I always say the first thing I always say to the person is why do you want to self-manage usually it's money right yeah two hundred dollars a month I'm like really like you know can you do all the accounting and fly there and meet there and meet with the manager and you know interview tenants and you know deal with vendors and all that kind of thing is that worth $200 to you or you know what I mean it's funny isn't it right so you hear this a lot right absolutely so what are the biggest pros and cons of self managing there are not many pros I agree I have to say I guess one pro would be if you've got just one property you might be able to manage it but you're on 24/7 Yeah right so I have a good friend that just bought a $140 horde for $140,000 condo in Sun City and he's renting it on a short-term basis you know which is cool he bought it with furniture and but he lives in Mesa so he drives 45 minutes to clean it you know to do the maintenance if somebody needs like I remember they had a cable issue or you know key issue you know so he's back and forth or back and forth back and forth and back and forth you know and because you are the gatekeeper for the tenant or the resident right well yeah and there's no end to their requests so you gotta be prepared for that if you're gonna manage for yourself especially somebody who just moves in oh for sure yeah there's a right when you move in you just trust me you just don't think of everything and there's things that come up when they move in and and so you have to handle those and manage this you do and the only way it makes sense is if you've got enough units to be able to support having a team around you you know if you want to do it yourself you got a finite number of hours in a day if you want to get more deals done managing the property is going to take you away from that right I think what I found is by the way we love self-managed properties because typically they're you know the best ones to buy right oh my gosh we had multiple stories about people management remember that one I remember the one in Chandler where the guys are flying in from Colorado and you know and the manager was stealing yes and and they weren't approving people the way they should and all his investors were pissed at him and so he decided to hire us and you know so that took gosh almost five six months to clean up it does and you know it takes a while you can't just evict people you know the next day you know and and so sometimes when you put bad residents in a place it takes a while you know when you started enforcing the rules and make all kinds of things we've seen but not all you I've seen good self managers - well you have to have experience though so jumping into it without having that is going to be really difficult for anyone just not knowing what you don't know that's right so well with that number two is what are some of the things you should consider before self-managing I would say going to work for a management company and learning the ropes we've had several folks who wanted to intern here to learn a lot more about it and I you know I realized many years ago how few people understand how to manage on a day-to-day basis it only comes with experience yeah it's so basic to me but it isn't basic to a lot of people but I'm like well okay so when you you know fix the place clean the carpets or put new stuff in paint it all that stuff why would you rent it to somebody who can't pay the rent you know but it's such a basic thing that they do they you know they don't run the criminal and credit background checks and they don't do all the little things that essentially weed out you know people that can't pay because why would you ever rent a place tell somebody they can't it's better if it's vacant because they're not doing damage it is better if it's fake yeah because and now think about it you had to spend all the money to turn that unit maybe market it move somebody in now you have to actually Vic them perhaps and you're spending money on the legal side and you don't get rent for that whole period of time it's just making you may ever sit yeah right so that's probably the biggest mistake we see in the self-management is you know they they go by a gut feeling or somebody has a lot of cash or whatever right yes yeah you gotta have criteria to follow and be very strict yeah and be very strict because you can get into discrimination issues right so yeah your criteria has to be sound no matter who it is oh you have multiple units - it's gonna spoil the rest of the property you'll have your neighbors move oh that's my gosh we've seen that remember remember that one where the guy I got evicted from once we kicked a hole in the wall I moved in the other one literally two units the guy got evicted so he kicked a hole through the drywall into the unit next door opened it up moved two stuff in there that's a podcast oh my gosh it's like a four-bedroom unit now two kitchen anyway so things happen on saying this was a self-managed property and the guy who's like clueless he's flying he's parachuting in you know for a few hours every two weeks or once a month or whatever and but police was a disaster yeah so unless you're close enough to have you know the ability to get to the property within an hour or so it's really difficult to manage for yourself I don't even manage for myself I have condos out of state that I use a third party interesting right yeah I do too I mean you know you guys think we're crazy we actually bought properties out of state and hired third-party management companies because we didn't have boots on the ground there and people now of course would we have loved those fees yes but it wasn't the best thing for the property you know so you know where we are we manage our own stuff but the ones that we feel like are maybe outside of our circle come from a circle of comfort we hire a third party right and we've done it all the time it's very helpful to have people who understand it better plus you learned from them I mean that that was one great way we learned in Texas was by hiring a third party management company to begin with yes learning that way was the only way we could have established ourselves in Texas so on the continuing on the theme of self management is it true that repairs are more expensive if they self managed versus hiring a management company Oh oftentimes yes I know explain why because I you know people don't realize this I I think most of it relates for from my standpoint is from relationships that you build and you get economies of scale when you have multiple properties so property management companies don't usually have a company unless they manage multiple units so I'll give you a great example do you remember when we started taking a look at Florrie yes so as we were growing we were unit unit unit you know we said hey let's cut one deal with one flooring company so we had them come in and look at all of it and in one year we saved was a million for at least a million for we saved by consolidating it and negotiating one major deal and so what happens is as you start stacking deals on top of that you get that economy scale that pre negotiated deal that we already have for example we've done that with insurer I mean insurance is a big one you know we do our property tax appeals you know which is difficult and complicated we negotiate all our marketing and all that stuff so all that stuff's negotiated and we also are very big around utility management well for sure and it's important to have a company a management company that has multiple units to be able to get those economies otherwise you just won't that's right so you're stepping into all that experience all that negotiated stuff that's done and I'm telling you I don't know how many vendors do you know how many vendors do we work oh gosh at least 500 yeah at least 500 just our company and you know we have multiple roofers and multiple you know people who do the sealcoating and multiple landscapers and multiple lists and multiple that people can paint buildings and paint the insides the outsides you know those are all like trust me there's a ton of work around negotiating those those folks because as you guys probably know from being in your own home you know if you water heater breaks you know you're gonna have a $250 number and a $750 number right just you know just so that happens at the property management level too so if you're self managing and you're you're in some your out of state or maybe you're not even out of state you know you're just trying to get stuff done because your tenants going hey I don't have any hot water I need a water heater well that's the kind of stuff that the manage that's those are the hidden things the benefits that are met that a property management company can give you I totally agree and I think the the extra piece for a company that has multiple units is they can have staff to take care of a lot of this stuff on site meaning in-house is what we call it and then in-house repairs come from our labor rather than vending it out to a third party that is a huge point in fact we do that now so we have like we have a property that has a lot of students and so of course as students get out of school they leave for the summer and then we have a lot of vacancies in one month and so so what we do is we utilize our company and our maintenance folks to go up there and try to help turn those units and get them rentable again because you know when you're when you're hit with 50 or 75 vacancies in one month you know you have to you you just don't have the manpower to turn those okay and you're not gonna rent them so that's one example yeah yeah those companies those those vendors have to make a profit so it's built into that price yeah you could do it yourself right you should do that with your own team if you can if you can right right so the fourth one is if you're going to self-managed what are the biggest obstacles you have to overcome oh I think unless you have enough units it's gonna be just running your ragged you got to have a team around you 100% I was gonna say time time though because like you have no idea the phone calls we get here right yeah that the property's total it's beyond belief I mean we have 10,000 tenants so you can imagine we have everything from you know suicides - you know maintenance requests like and everything in between it's like you know there's a lot that goes on when you have managed 10,000 homes a lot right and no two days are no two days are the same and you know and they're all legitimate good requests and they have to be handled and so what happens is people move out when there's they're not being attended to exactly and and it takes a lot of energy to to manage the property but you have to start by bringing in the right residents so I think one of the most important things if you're gonna manage for yourself is have a system for approving people with strict criteria like we were talking about before I think that's an easy thing for a lot of owner managers to fall into you know though like somebody you know a strike up a conversation with somebody and feel comfortable with them well when they move out you you may be surprised with what you get unless you follow well I you know I'm gonna throw a Robert under the bus here for grumpiest sake but you like you remember they had a property in and and it was a small property I can't remember he's like hey would you help us something no like it's too small I'm not gonna we're not gonna manage that and so finally after about a year remember I'm like okay we'll go over there we went over there and they loved this manager I mean and she was sweet but guess what her son was stealing was doing renovations and buying things and stick him in a unit we walked into a unit and there must have been about $100,000 with the stuff in there like compressors and lats and cabin plumbing supplies yeah he said loaded up and and you know he'd all through the property and Robert and Kim were like why right so anyway we put our own team in there we filled it up and then you know helped them out but you know this stuff can happen even with seasoned investors and Robert and Kim are definitely seasoned investors but you know they they fell in love with the manager there and she wasn't remember she was awesome she was he was fine it was her son and then she was relying on her son and anyway it was just those things happen all the time guys I'm telling you they just happen all the time and then the last thing is this is an interesting edgy one but this one came in this is one of the questions from some of our listeners would you personally invest in a property if the syndicator is the individual and is planning on self-managing personally I would say no unless they've got a lot of experience in multiple units and a team around them but no right so right here's the thing now we have a management company we have 250 people in it and it's a fully operational running thing with collectively hundreds and hundreds of years experience and that's why we manage our own but what this particular question tells me is that the syndicator wants to make money on the management company right and they want to make money on the syndication so now there's nothing wrong with that if they know how to do it right but but my experience has been syndication is a deal to deal thing and you get commissions basically you know I call them it's just tips really it's a good way to put it yeah they're tips the management company revenue is a reoccurring monthly revenue and so it's a tough thing to walk from if you're syndicating so nothing wrong with doing that but if if you have 8 10 12 15 properties then it can start to make sense well it good as long as you have some separation of duties and you know how to do it yeah you need to know how to do it and you can't do all of it if you're if you're syndicating and you want to manage you need to have different departments working on each side there's no way to so I was just meeting with recently with you know a friend of ours that has a twenty five thousand units under fee management and I was asking him I'm like hey like you know what are you seeing he's like oh my gosh like we are we are getting these units these guys don't know what they're doing you know they they know how to raise capital they know how to buy them but then they've tried to manage them and their investors are pissed and so then they bring them and turn them over to us cuz it's one of the bigger management companies in Arizona and you know they have properties in other states too I'm not exactly sure where but I was talking to the principal and he's like oh it's just horrible you know so what happens is they try to do it themselves and then the investors aren't getting the returns that they want and so then the pressure becomes you have to fire themselves and go to a third party this happens all the time yes that is a rough situation I think it's all the more reason to hire a management company help you proof that underwriting so if your syndicator what you're gonna want to do is manage it to what you've underwritten well that may not be reality you got understand more and that's a really good price so if you don't have a check you're gonna end up having a check later on in the form of lack of cash flow so what you're saying is probably the biggest lesson in this podcast if a syndicator is underwriting the deal and saying these are the expenses ease of the revenue this is the revenue and then they're managing it it's tough for them because now they don't have a scapegoat it's the oh they have to perform so so we've seen the other side of this where the syndicators will say oh hey their rents are gonna be really high and the expenses are gonna be really low and then they bring a third-party management company in there like hey we had to fire them because they haven't delivered then they hire another one then they fire them and then they hire another one they fire them now the community property may it's close enough to kind of know who those guys are but they moved from management company management company never really accepting the fact that they maybe did the original underwriting incorrect right right right or maybe the market changed in their marketing now remember we had one property the break-even now listen close here the break-even on the property was a hundred and four percent of collections remember that that is the worst a hundred and four percent basically that means the expenses plus the debt equaled one hundred and four percent of the gross revenue which of course doesn't wings it will never work so if you're running let's say you're collecting ninety percent your 14 percent off so it's basically a cash call every month they didn't want a cash call they don't want to cash call their investors so they fired the management company right so these things happen all the time as people try to lever up their deals they happen all the time as they put the the bad debt on there or they're running the high expenses or they're running high vacancy and we see it time and time and time again and I'll tell you what don't scrimp on this if you're going to self-manage you really need to understand how to do it because you can totally screw up all the hard work you've done on raising all the money and buying a property very very easy yeah don't take don't take the brokers opinion for for what it is you have to do due diligence and get out there and see for yourself there may be hidden expenses in the form of regulatory requirements maybe changes that are coming in to the you know city or what have you just you got to be eyes wide open and no better way to see it then through a third-party manager absolutely another great podcast Leslie thank you fun stuff

Channel: Ken McElroy

Views: 23,244

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

Id: tjK_VzjjPIo

Length: 19min 32sec (1172 seconds)

Published: Thu Jan 16 2020