My $40,000 Property Management Problem (Never Do This)

this is real estate rookie episode 400 but could you stomach losing 40K how long should you go before you fire your property manager my name is Ashley K and I'm here with Tony J Robinson and welcome to the real estate rookie podcast where every week three times a week we bring you the inspiration motivation and stories you need to hear to Kickstart your investing Journey now before we talk about today's guest I think ashle we just got to reflect and appreciate the fact that we've gone through 400 freaking episodes I know that's a lot of weight that we' made it we we did it 400 a big stack 400 episodes now Ash we've been so fortunate because the rookie podcast has touched so many lives and we've been able to talk to a lot of rookies at bpcon or meetups whatever we're doing where they're like thank you guys so much for everything that you've done but I I think we always try to remind people that you know you know obviously we try and do our best to provide value but the true value of the show comes from our guest and them sharing their stories and sharing their experiences and from our rookie audience continuing to support the show so I think from Ash and I both just want to give a big heartfelt thank you to all of our rookies for supporting the show 100% and not only our guests in the rookie Community but being the rookie community members that are engaged asking your questions for a rookie reply we just did an episode where we learned about lean prohibition where Tony and I had no idea what that was and we had to go down this Rabbit Hole researching so thank you guys for always taking the time to ask your questions and may not always be the easiest to be vulnerable and you know put yourself out there asking these questions but it's helping so many other people learn um just like Tony and I learned every single day something new on this this episode so we love the rookie Community thank you guys so much for for listening and for being so engaged in such a great Community supporting each other and last we got to give a big shout out to the team behind the scenes for the Ricky podcast so our producers Danny Eric obviously we couldn't have gotten to 400 episodes without all the hard work that you guys do you guys make it so easy for me and Ashley just to show up and and hit record and uh so if you guys ever meet Danny and Eric make sure you give them a big a big round of applause as well because they make the show possible so today going back to our guests we are here with Dave Meyer who is the host of the Bigger Pockets on the market podcast and he's here to share some lessons he learned going through a 1031 ex change how he landed in a vacation Market uh and even though it was kind of some rough roads so add some pretty good returns and he'll detail what happens when a property management company owns your short-term rental listing and what the offboarding of that uh property management company looks like and just some of those details that can pop up to maybe maybe make it a little bit more difficult for you now guys we we aren't here to scare you but to share with our rookie Community just kind of how to manage these bad situations so if you have a story you want to share about a tenant a deal a contractor or anything real estate related submit your personal Horror Story for a chance to talk with me and Ashley at biggerpockets.com reply now let's welcome Dave into the podcast Dave welcome to the show I mean this is exciting a lot has happened between you and I in the last month we partnered on our first joint venture deal together and now here you are on the rookie podcast to get emotional and deep with us on you know a horror story so Tony and I are here for therapy so lay down on the couch and tell all well thank you hopefully our deal that we're partnering on goes better than the horror story I'm about to tell you so give us a little background into this property so I sold the property in Denver I was doing a 1031 exchange and for those of you who've never done 1031 before there's a very tight timeline where you have to reuse your money and I had this deal lined up in Denver that was supposed to be really good and then literally I think two or three days before the deadline my agent called me and told me that the permits for the Adu that they put in were not legal and there was going to be this whole big problem and so I'm like two or three days out I had to cancel that contract uh and I wound up just telling him you know what let's forget about Denver where to that point was the only place I had ever bought real estate and we went and looked at every single property that was on the market in this small ski town in Colorado wound up finding a place and it actually I'll tell you the Horror Story part but it was a great buy that part I actually did well well it also sounds like finding out two days before a 1031 exchange you lost your deal in the timeline um real quick can you explain what a 1031 exchange is sure so yeah 10:31 is basically when you sell a property that you have owned for I think it's at least a year uh you can reallocate the proceeds or the profit from that deal into a like kind investment without paying capital gains which is hugely helpful for investors so if you sold the property made 100 Grand you could take that 100 Grand rather than paying 20 grand in capital gains tax you could take the whole 100 Grand put it as a down payment into another property and that allows you to invest more you can afford more expensive properties and you can compound more of your money but Dave there's there's also uh like you said a little bit of a a time pressure with the 1031 exchange so uh what kind of had you under the gun to find a deal so quickly so the way it works is you actually have 180 days to close on a 1031 exchange but you have I think it's 45 days to ID identify it's this weird process where you basically have to file with the government that you're like I think you could do three or either four depending on the price points of the property uh properties that you were considering and then you have can close on them you know you have another four and a half months to do that and so I had this deal locked up like I had under contract I think for 30 of the 43 days and then something just came up and I was left scrambling and know worse comes to worse you pay the tax but obviously that wasn't the intention of selling this deal and I really didn't want to and so I was fortunate to be able to find another deal in just a couple of days but I always use the story to recommend to people like that's why you should always be analyzing deals and knowing what's going on in the markets that you invest in because you never really know what's going to happen and having a pulse on you know like today what's going on can really benefit you so Dave at this point in my life life I've already have my closing check ready I'm like if I need to have something done I cannot sleep if I'm having this tight of a timeline what is going on with you emotionally at this point I was I was honestly a little panicked but a little excited because I had been eyeing the ski town in Colorado for like three or four years and just never had the nerve to go buy something and I had been doing analysis of the market for a long time I like knew exactly what I wanted to buy and sort of even had a buy box and so it's not a big area it's like a county you know with I think the full-time population is like under 5,000 people and I called my agent and he was like okay there's like 11 properties on the market I was like we're going to go see all of them and one of those 11 I am buy and luckily it worked out uh so I I got a little bit lucky real quick and can you tell us the numbers on that deal yeah so I wound up buying it for 742 th000 so is a pretty expensive single family home but ski towns in Colorado are are quite expensive and uh the reason I like this area is because a similar house in Keystone Breer Edge Veil like some of the more well-known uh ski towns in Colorado would probably literally be like four to five times more expensive and there's just always demand for skiing it's very close to Denver and so I felt like it was going to pop uh and was willing to pay up for it so Dave you saw 11 properties that kind of fit your buy box what's specifically about this one made you say all right this is the one I'm I'm going to move forward with it was actually the first one we saw I walked out onto the porch and it had this amazing view and I was like this one's it we actually went to go see the other 10 uh but I don't know Tony you probably know from short-term rals like there's just something like having a property that's just really special and it just like felt super special and there would be demand um but part of it actually went back to my data analysis so I bought all this uh data from Air DNA and it showed that if you had a four bedroom or bigger uh it was going to be much better Revenue you know people go up with their whole families um and this was actually a three-bedroom but there was a 2,000 foot basement that was just a big open space and so I knew I could add bedrooms and add value and they actually already had egress windows uh and so I knew that for relatively cheap I could actually really do value ad from a cash flow perspective and I could use a property that was priced like a three-bedroom to bring in the cash flow of something that was more like a five-bedroom and was so this was an on-market deal or did you deal with the owner directly so it was an on-market deal uh and although there was an agent there we actually had a very funny experience meeting the odor cuz they were there during the showing and we like pulled up to this uh driveway and there's a detached garage and we're just like Milling about looking around and a man walks out of the detached garage like covered like neck to knees in blood like just covered in blood and holding a knife in each hand and I'm like looking at my agent who's like also one of my good friends and I was like should we run like do we get the car just drive away like what do we do and he just like walks over us like completely silently and I was just like too stunned to do anything and he was like Hey I'm Rob sorry I'm like butchering an elk in the garage right now I was like okay this makes a little more sense I was thinking is this going to turn into a true crime podcast episode right now I was like man like you could be butchering an El but like could you put down the knives at least like that part you have control over you could have at least just like walked out only covered in blood not also holding a weapon and I'm assuming he probably knew you were coming to the property too like that was the precise time you had to butcher it yeah I actually got to know him pretty well over the course of the next few years and he's a super nice guy but it tracks with his personality now that I know him a little bit better so the blood covered uh knife wielding owner didn't turn you away from this property Dave so what happens after you you do this first initial walkthrough um so it it went great and actually the reason I one of the other reasons I love this house is uh the guy who I bought it from was a builder he built it himself and it was just a rock solid place I think you know you could see the pride of ownership and pride of construction and it just everything was done extremely well uh and so I I bought it and began turning into a f a short-term rental this was my first and still is my only short-term rental and so uh I went about Furnishing it designing it and because I was moving out of the country I started interviewing property managers which is where the Horror Story Part actually begins you don't say does that sound familiar Tony before we actually get into what happened like thinking back now are there things that you would have done different during this time period when you're seeking out property manager before you even actually hired them are there different things you would have done during that process of soliciting a property manager I think one of the things I learned is I should have inquired about property managers before I even bought this property I it didn't even cross my mind to be honest I was just like oh it's a great deal but in small town s in particular there aren't always good property managers and aren't always good contractors and you need to make sure that you can build the appropriate team and operations when you enter a new market and I did not do that I think that's great advice right there and um Tony you've pretty consistently invested in two different markets until your commercial property that you already had your team built you knew where it was but for anyone just starting out and that's great advice especially in small rural towns you really don't have a huge pool of selection for property managers so Dave you're R in this High you just bought this house it's sturdy wellb built you got it all furnished and you're ready to you know bring in some guests so tell us about the property manager so I I interviewed quite a few and wound up selecting a large you know sort of national brand and they were on the cheaper side and I was having a really hard time differentiating between the cheaper side and the really expensive side and like what the difference was going to be I was like oh just take the cheaper one all things being equal uh and it actually went pretty well at first I think these large companies have some really good processes for like onboarding like their listings were really good they put in some really interesting technology the reporting the homeowner portals were all really good um and so I was pretty happy at first until guests actually started showing up and then things just went really poorly so Dave I guess look looking back right just quickly on the the analysis or I guess your decision between the you know the more expensive and the the less expensive do you recall what some of those differences were and why they were able to charge such a low percentage the price I think it was 18 or 20% is what I was paying for this other one and the the other comps I had found one that was at 30 but the the rate was about 35 in this town 35% of Revenue and the services they offered on paper if you just like line them up looked very similar I can talk about now knowing what I know why they were not similar but just sort of looking at their marketing material it it sort of looked the same and what they were saying to me was like Hey we're this big National company we can reach a level of scale that we can lower prices which sort of makes sense and they said you know we're really Tech enabled so we're able to be extremely efficient and I am a real estate investor but I've also been in Tech my entire career and that kind of just resonated with me and I was like oh I like Tech I'll go with the tech company so now wait now now everyone who wants to be a property manager knows what to put in their pitch just use words like tech tech infused artificial intelligence exactly but no now after listening to this episode hopefully everyone will know not to get swayed like I did okay so what was the first thing that went wrong so for the first few months that I was working with this company I was still living in Colorado so I would go up there periodically and the house would be just absolutely filthy between guests and like as my wife would tell you my tolerance for dirt is like pretty high like I'm okay with it and I was like I was disgusted by the the these types of places and so you know as a you know a landlord you're you're allowed to go up there and use it like 14 days a year and so I'd go up and want to enjoy it and I would just be literally cleaning and fixing things the entire time and then just things just started to break like not just Furniture but systems that should be working like HVAC systems and Plumbing Systems and the guest reviews uh would just uh go up and down so some people would be doing really well and then a couple weeks later we'd get three in a row that were two stars saying that it was really filthy uh and so there was just seemed to be this really big lack of consistency and I was pretty on it in the beginning and was having hard conversations with them and they'd say you know we'll switch out your cleaner we'll do this and that and it would get better for a little while and then two or 3 months later it would just sort of revert back to the way it was and this is sort of the pattern that went on for quite a while that was probably a year and then I moved abroad and then there was the pandemic and I wasn't able to visit the property for a couple years I think and it just got worse and worse so how long did you have them as the manager oh in total it was like four years yeah yeah so that's where I think the the real Horror Story here is like I knew one year into it to fire them and and then I didn't for three more years which was really the big mistake well it's the convenience like the convenience of sticking with it cuz I did that too with my property manager company I stayed for three years when we probably should have left after one but it's the convenience of like oh my God having to switch to a whole new company do a whole new onboarding y having to look for a new property manager instead of trying to make it work it's a lot easier and convenient to just stay and to to try to figure it out exactly and like I had never done this from abroad and I just didn't know how to do it effectively and not have someone there personally uh you know it's not like I have friends in town who could like go help me out with something it's in a town I don't really know anyone and somehow like because of the pandemic demand I was making money so like I was still getting a good return somehow so I kept being like it's not worth you know breaking up with them because I could just do literally nothing and make money and that just seemed like a better option until it wasn't so what was the final straw what was the thing that you were I'm I'm out of here so the reviews were getting just worse and worse and worse and I was getting really frustrated with it and I wound up going to Colorado cuz I was like I got to go see this place and so I went up there and all the doors were unlocked one of them was actually open and I was just like okay you know dirty bothers me but like now it's a safe it's like a safety issue and it's like an asset value issue and um there was like literally I just wrote a blog post about this we'll put it uh on biggerpockets.com there's just like literally mountains of garbage in the garage like just like piles and piles of garbage and they knew I was coming like I don't understand how how inep they have to be and so I finally just sort of lost it this time my wife was with me and she was like what is wrong with you you need to fire these people immediately and so I uh I finally did that and and the breakup was was pretty rough but it was well overdue Le let's talk a little bit about the the breakup Dave like were you were you under contract with them for like a predetermined period of time like what did that what did exiting that relationship look like for you the unfortunate part was I had to give them 90day notice and they would service the bookings I had within those 90 days but after that I would lose all my bookings after that and that was another mistake I made was I didn't time this very well and so I I think I broke up with them in like February which is the tail end of ski season so I got like a few more bookings um but April May is what is known as mud season in Colorado where no one really goes to the mountains and then I lost all my bookings for June July August which is actually the best three months and so I timed it almost comically poorly so that I lost like all of my revenue for the whole year wow um and then the other part of it was that they owned the listing on Airbnb and so that was part of why the timing was so poor is that like they wouldn't take down the listing until the 90 days I had thought when I broke up with them like they take down the listing they would service my existing bookings and that my new property manager would put up one so I could start getting book for the summer but legally that is not what happened um and so I couldn't really start marking it until like May and so I got a few bookings but it was really rough and that I mean normally like 60 is% of my Revenue would come in June July August and I basically missed the whole season last year Tony as a Airbnb expert what can you do to like protect yourself from that happening yeah so if if they wanted to keep the listing up Dave you unless like your contract explicitly stated that you couldn't also have a listing live you should have been able to to create a listing of your own and just block out the calendar for the dates that was booked on their uh like under their listing so there would be two instances of the same property one that you control one that they control but people just wouldn't be able to book the dates that were already uh booked out by this rental property manager that way you could still get that Revenue coming in for yourself Lessons Learned well that's another mistake should have asked Tony what to do last year now you see the value I get of the being on the rookie podcast of Tony I self serving Tony my short to rutell man another mistake not using resources your network and friends it's too bad so Dave as we wrap up here what are some of the other Lessons Learned you talked about maybe how you should have found a property manager while you were analyzing the market before you bought a property what El would you add on to those lessons yeah I think a lot of times you know instinctually what you're supposed to do in an uncomfortable situation it's true in real estate and pretty much everything in life um and you just need to sort of rip the Band-Aid off and I think that that's what made this more painful is if I had done it a year or two earlier I could have timed it better and then would have just been able to miss the mud season and but I like left it till I got so frustrated I just was like oh I got to do it right now um and it sort of put me in a really bad situation where I reacted more just emotionally or just like knee-jerk reaction after I had known I should have done this for literally years and it just it was a poorly thought out move by me and so I think you know I would recommend just people yeah just like having even though it can be difficult and it can be harder like the breakup and the convenience factor you were talking about earlier Ashley like it would have been way more convenient to just have done it two years ago there's been so many more headaches now um because I waited it's like that uh quote like fire fast higher slow I don't know if that's exactly what it is but something like that yeah that is oh and then the other thing that is just not always true but is usually true in real estate especially when we working with service providers is you usually get what you pay for like if people are offering a Cut Rate service it's probably because they're G to Cut Rate service on you you know like it's not just they're not just lowering their price on the goodness of their heart so uh there was one more thing where it was like just sort of getting kicked when you were down um I was just like having this terrible year and then I have a friend of mine who is doing a lot of maintenance on the property and during the transition because we had no bookings I took the time to just like do some paintings spruce up the place and a friend of mine was sort of like taking care of it um and then he wound up moving out of state for his wife's job um sort of abruptly and he had been taking care of filling the propane which all the heat in the house runs on and it just like fell through the cracks and I didn't tell the new property manager that it had to be done immediately long story short there was like this cold snap over a 3-day weekend in Colorado and the house ran out of propane and so it lost all heat and guests were checking in that day but it was a long weekend so the propane company was closed and so we had to relocate the guest which cost like four grand it was you know it's like a Colorado ski town like Christmas week it's pretty much the most expensive week possible and then I had to thankfully they agreed to this but I paid the cleaner to stay at the house and there's a wood burning stove and they basic basally just fed the wood burning stove for like 3 days until the propane company could come out and fix it uh luckily they did uh the the pipes did not freeze and the house is like on the up and up everything is going well now um but sometimes when you just like think you're like on the upswing something just kicks you one more time to remind you you did this very poorly and so it was a very expensive reminder so you you talk about of reminders Dave I guess if you in totality look at this whole experience with this PM how much revenue do you think you potentially lost in working with them like if you have to Ballpark it I think in the transitionary year I probably lost like 30 or 40 Grand in Revenue which is crazy but now that I think about it I'm like man I was making money during the pandemic but now I see how competent and great my new property manager is like it probably is more I it's I can never say that but I feel like there is also this opportunity cost that I can't really quantify and it's yeah some kind of like time commitment too to having to deal with these issues and just the stress overall of having to look at a a bad review like we only have three short-term rentals and we really haven't gotten a lot of bad reviews but when there has been one that's like a fourstar it's a an immediate like turmoil like what happened what went wrong why didn't they like it I know it's hard because you know I want to make a great experience like I'm sure you guys are the same like it it makes me mad obviously on a financial element but like people are going on vacation they want to enjoy themselves like I put a lot of time and effort into making it a nice house and even in the bad reviews they're like great design beautiful house it would be nice if they mopped like it's like we did all the hard stuff can we just please do the easy you make this thing work the stuff that can easily be controlled and taken care of yeah for sure and I I do feel lucky CU you know I bought this thing before the pandemic it has still been a great deal so that's why I'm able to to laugh about this otherwise it would be very painful um it still is painful the opportunity but um thankfully the deal actually has still done pretty well cuz we bought like a really solid thing just the operations are really fit failed and I know everyone says like you make money on the buy and there's a lot of Truth to that but you really like optimize your deal and you know a lot of how well your deal performs is is in operations and it shouldn't be overlooked so what has happened now with the deal are you self-managing did you find a new property manager when you hired yourself no I actually hired a a full service property manager um one that actually had rejected me in the beginning because my property was like a little outside their service area but they grew a lot during the pandemic and they're fantastic I mean I have other property managers for long-term rentals and the they are really topnotch but I think the main thing they do differently is they employ their cleaners and a lot of their service providers and technicians full-time which makes a huge different in these small uh towns where there's a lot of transients and it's like hard to hire people and so they're a very good employer in the the area um and so they have really great people working for them and I actually have heard great reviews of the first company I worked with in other locations I think it just shows like tech only goes so far it's like really about the people who are physically going to be at your property and in the small town like if you're not the good property manager to work for which they weren't they couldn't get good people to manage my property and now I'm working with the people who are seen as the good employer to work for and now they have the best employ employes who are looking after my property what an interesting way to look at it as to where would the great cleaners the great handymen go to work instead of looking at it oh who's the the great PM you want to find the great people that are working for it well Dave thank you so much for joining us today and if anyone listening also wants to find a great property manager and not go through the hassle that Dave went through for four long grueling years you can go to biggerpockets.com and soon coming very very soon is going to be your own property management tool to be matched with a property manager in your market and that is very investor friendly because as we found out today with Dave not all property managers are great and wonderful to work with so make sure you watch for that new feature with Bigger Pockets coming out soon and make sure you check out Dave at his podcast on the market and definitely to see the results of the flip off as James along with myself and Dave who are doing nothing for the deal but are very excited to be a part of it are going to beat Henry so make sure to check out more episodes about the flip off to see the end result of Henry and James deal thank you guys so much for joining us I'm Ashley and he's Tony and we'll see you guys next time try so hard cover up your [Music] games nobody see all this time change [Music]

Channel: Real Estate Rookie

Views: 2,178

Keywords: property management, property management mistake, rental property, income property, short term rental property, short term rental, real estate investing, invest in real estate, how to invest in real estate, landlord, landlording, managing investment property, how to manage rental property, airbnb, airbnb investing, airbnb business, airbnb host, airbnb superhost, investing mistake, vrbo, vacation rental investing, biggerpockets, real estate rookie, real estate rookie podcast

Id: pEoUCvIFw7g

Length: 31min 44sec (1904 seconds)

Published: Wed May 01 2024