ADPI_023: The Secret To Passive Income: How To Find A Good Property Manager

Sep 07, 2018


Episode Transcription:

Hey what's going on team how you doing out there, Mike foster here? Welcome to the active duty passive income podcast. Today we're going to talk about property management, why it's important and how you can find a great property manager to make your passive investment truly passive alright. But first.

Hey freedom fighters welcome to the active duty passive income podcast. The only place where military members, veterans and their families learn how to build wealth through real estate investing. I'm your host Mike Foster and I'm here to show you how to stop wasting your benefits. Now get off your ass, step up to the firing line and make me ready for today's lesson. Shooter stand by.

What's going on guys? Hope you're having a great great weekend or I hope you know if your Friday right is off to a good start and you're going into a great weekend. I'm actually broadcasting from Annapolis Maryland. I'm here for my alma mater 5 year anniversary and or reunion I'm sorry and I'm really excited. I'm excited to see some good folks and catch up with some old friends.

We’ve got a lot of events planned for today in the weekend and we also have a football game for tomorrow, which is really really awesome I'm super pumped for and yeah it's going to be a great great time. The weather is nice and man I'm already really pumped up. I got in contact with my sponsor mom, so I'm going to see her and some of the other friends I made in the area. It’s going to be great. But anyway so today's lesson is on property management and how finding a good property manager can make your investment truly passive okay. you've heard me say it before and I'll say it again right, there is no reason why if you are you know the owner of an investment property that you should not have a property manager okay and I'll tell you why; the 10 percent right which is the most that you should pay for it right is definitely worth it.

I mean it's worth not having the grief of having to sacrifice time whether it's with a loved one, whether it's with a friend, whether it's with whoever right to go fix a leaky faucet or to go fix a washer that's now you know having problems or you know whatever right whatever the case may be. Yes right you might not be the one fixing these problems, you might be the one making the call. Okay I get that. But how much time do you have to make calls right. we all are most of us right in the military work from Sun up to Sun down and there will be times that you won't be able to answer your call. so here's what happens right, they either leave a message and you take care of the problem as soon as you get you know the chance to or right they leave a message and for whatever happens during the day you can't get to it.

Maybe you're underway on your ship and something happens right. Let’s say someone falls overboard and now everything's radio silent and you can't communicate with anybody. that's a problem, that's a problem not only for you, but that's a problem for your tenant and so you want to do the best

you can for your tenants and respond to their issues in a you know quick amount of time. I mean let's say you know the toilet is overflowing and it's flooding like rapidly into the bathroom, that's a major problem and the longer that these things take you know to fix then the longer that issue is going to be.

So you could be left with some serious issues guys and it's important to take into account the fact that you might not be available. because you're either a on deployment or you are you know you're tied up, right you're tied up for all intents and purposes you are tied up and for whatever reason you cannot get to your phone right or you can't check your email or whatever the modem medium may be for your communication with your tenants.

All I'm saying is it definitely does not hurt to have someone designated as that person that your tenant calls in emergency for whatever or whatever the case may be and you don't have to worry about it. I mean the whole purpose of our podcast, whole purpose of our business is to show you how investing in real state can be something great and passive and something that benefits you and your lifestyle. So we are going to teach you passive investing. If you are someone who wants to manage the property yourself by all means go right ahead.

But I will tell you that there are a lot of struggles that comes with managing your own property and so you better be ready and prepared to handle all of them or have someone that can help you out when you need the help. Because it is not easy. It’s not easy for sure right. So for those of you who are looking for turning real estate into a passive investment, get a property manager all right.

It will be the best investment that you make for that property I'm telling you okay. having had to come out of a movie one time watching this movie, I forget what it was but I was watching it with my wife on a weekend and I literally had to come out of the movie so I can deal with an emergent issue going on at my rental and this was over the summer a couple years ago right and I think it was like yeah it was flooding. It was flooding in front inside the bathroom right and I had to deal with it. We had to find the emergency shutoff valve for the water out on the street and here I am trying to doing this over the phone walking my tenant through it okay. Now yes was I really glad that that happened and my tenant was able to get me? Absolutely right I was in a movie with my wife and my fiancé at the time.

But you know did I notice that that's not where I want to go with this investment? Yes in a heartbeat I realized I needed a property manager, I need someone to help me out. I can't continue to do this on my own. Because I may not be able to answer that call the next time. I may be underway, I may be you know in the office right because I work in a secret building; so I can't take my phone with me and obviously I can't you know I have air bob or her VRBO logged in on my computer screen. So I'm not going to be able to just feel those issues. but yeah right so I need to have someone to help me out oh and by the way aside from the military, do I want to have to continue to sacrifice movies or you know good times or date night or whatever with my wife or with or  spending time with my family on vacation just to deal with these issues? Absolutely not. I want the property manager, I will pay the 10%; that's it for me okay. So yes that is your why.

Okay that's why having a property manager is a great great asset in your team and definitely make your investment more passive okay. Now how do you find a good property manager? let's say I am you know seaman whoever right and I am now trying to find out how to find a good property manager. So you're going to look up the property managers all right or property management companies in your local area and you're going to give them a call okay.

I would say list out three or four different ones okay and talk to them. because the more you talk, the more you ask the questions that you're going to need to know; that is how you're going to find out which one is right for you or which one is right for your property and it's going to make you feel more comfortable having this investment you know out there wherever it is okay. especially if it's not in a place that you are physically in, if it's not in a location that you're in. now questions that you're going to want to ask are how much do you charge okay. Because that's important and you should never pay more than ten percent.

I said that before, I'm going to say it again; you should never pay more than ten percent a month of your rental income to your property manager. If they're charging you more than that, they're charging you too much. Okay now if it's a short this is for long term traditional rental. If it's a short term rental, then you'll likely find them charging more okay and that's understandable.

I mean whatever right. So there's a lot more stuff that goes into it. But for a traditional every day you know long term, 12 month lease type properties that should never be more than 10% okay and it will be less sometimes right. You could find some that charge 8%. That’s also kind of common especially in the Midwest. So just take a look okay. But you want to ask how much, you want to ask what their fees are okay. A lot of property management companies have these like added fees. You got to watch for those too okay. I'm not saying that they're all bad. But I don't typically like to go with property management companies that tack on all these fees. I'll tell you one reason why is because if a property management company feels they need to add on all these fees, then again they might not be doing a good job right. Because they feel like they need to have all their ways to make money.

A good property management company should sufficiently be able to make money from the 10% rental income that they get each month right and then maybe like I don't know some kind of fee where they charge you know when you first signed on with them, that's it.

Now some of the fees that they can hit you with our leasing fee, tenant turnover fee, a contract renewal fee they also come up with all these random things. You just got to make sure that you read their contract or your agreement with them and you understand everything that you're paying for okay. I'll share a story with you later on. But you know you definitely got to read the contract and make sure that everything is legit and everything makes sense. Okay you also want to find out what happens if you know the contract between you and your management company right goes south.

Let’s say the agreement right goes south, how long will it take for you to get out of a contract. Do not all right I repeat do not sign on for any more than 30 days. This goes into my story that I have for you later okay. But do not sign on for anything that's going to take you more than 30 days to get out of okay just in case. Trust me that 30 days is a long time and 60 days is worse okay that's a hint. But like I said historic times later okay.

So you want to make sure you understand what they're charging, you want to make sure that you understand how long the contract is okay, how long your contract with them is and then what are the terms for ending your contract. Okay you also want to find out how they screen their tenants, this is important all right. you want to make sure that you understand are they doing a background check, are they doing a credit check okay or do they assess you know their job or whatnot right. You got to understand clearly how your property management is going to qualify your tenants to live in your home.

Because if there is any sense that they are not really screening tenants, I promise you that's a company that you want to be very careful in employing alright. I'm not going to say don't do it because maybe you know them clothes or whatever I don't know. But if it were me I wouldn't do it. Because I want to make sure that the tenants that are coming in are reputable, they don't have like felonies or any you know anything crazy like that on the record where they're going to either take advantage of my property or you know the other tenants that might be living in my property. You know if you have a multi-family and I also want to make sure that they're going to pay and they're going to pay on time okay.

This is something you know a side of property management. but you do want to make sure that you know the area that you're investing in, you want to make sure that you have a good sense as to whether that area is tenant friendly or landlord friendly and what I mean by that is you know if your tenant for whatever reason fails to you know uphold the terms of the contract, i.e. paying on time, i.e. you know making loud noises on the property, i.e. you know doing drugs or whatever right whatever the case may be. If your tenant violates your contract, how hard or how long will it take for you to evict them and to find a new tenant okay? So the eviction process varies from you know state to state and you do want to make sure that the state that you're in is as close to a good landlord state as possible.

So for instance right in Norfolk Virginia, you know in the state of Virginia it takes about six months or so to evict a tenant from the start of the process. In Mississippi it takes three days. So if your tenant doesn't pay three days’ notice right and then the court comes through or the sheriff comes to the door to evict that tenant. Whereas you know the courts won't let you evict in Virginia until after six months. Which again six months is a long time guys okay. So keep that in mind. All right anyway right so you want to understand how your property manager is going to deal with all that okay.

Are they going to go to court for you? all right that's something important to know in the event of any kind of issue that comes up legally on your property, are they going to go to battle for you and if not are they going to have a representative or that's something that you're going to have to take care of. Okay that's something important to know as well and yeah I mean those are the major ones. there always are you know if you onesie twosie the things you want to ask as far as like securing deposit how that gets handled.

Oh another important thing that you will want to ask too is for maintenance or repairs. Are they going to you know how much they are going to ask you for I guess is the proper way to phrase that. Usually what I've seen is that you know property management companies will hold back a percentage of the rent maybe from the first cheese or you can give them that deposit you know whatever. But that is your deposit for maintenance and repairs essentially. So in the event something happens and the property management company needs to take care of it.

They’ll pull from this amount of money and like I said it can be a deposit that's held back from the rent so let's say from the first month's rent they'll take back $300 in addition to their 10% payment. but that $300 goes to your like whatever fund, whatever happens and so what that property management company will do is if the water heater needs replacement right or if the tiles broken and they need to replace it or you know something small right.

For something small if they need to take care of it for you, they will take from that money and they will take care of it and they won't even bother you with it okay. Because in real estate you can get calls about little things all the time okay. All the time I'm telling you that it can really get exhausting if you allow it to. so if you have someone else to feel those calls i.e. a property manager and you give them a budget to handle a certain amount of damages right under a certain dollar amount and then if anything exceeds that dollar amount, they're required to come to you about it right. so let's say if flooding happens and they have to you know spend a thousand or a couple thousand dollars in replacing you know a commode or and like a bunch of the flooring around it or in you know fixing the ceiling and drying out the walls that are around it, cause maybe you got a leak from above. I mean you know they can run the gamut right. But if it falls over that dollar amount that you set, then they  will contact you and now you can improve you know what your big expenses are going to be and you leave them with something small to take care of okay.

So that's definitely one that's important to you to know as well and yeah you know talk to them. Talk to them and see. you want to interview and the reason why I said you want to find maybe four or five in your area no less than three for sure is because you want to get to know how they're going to handle business in your absence and in your absence you want to have that comfort ability and that confidence that your property is going to be well maintained okay. Definitely make sure that that gets done.

Another small thing and it's not really as big but you know may be big to you, how are you going to get paid. Okay that's definitely another question you want to ask. How are you going to get paid as a landlord? Are they going to send you a check? Are they going to deposit it straight into your account? You know how is that dynamic going to work. Because that's just something you're going to want to take into account. if you're going on deployment or if you're going to mobilization right you're going to be gone for you know seven to ten months, do you have to have somebody frequently check your mailbox for a check in the mail and then deposited into your account for you right. Something like that. We all know checks that you know they don't last long. Last may be you know a month and I have two months or so and that's it they bounce. So you're going to need someone to take care of that for you as well and if your property manager can do that for you and deposit it straight in your account. That’s a win-win right there that's perfect. So you won't miss a beat okay. Yeah so that's pretty much how you find one.

Now I'm going to tell you about the unnavigable right because of the inevitable rather. Because not everyone is perfect okay and there will be times that you will face setbacks in your career and you got to be able to plan for them okay and plan for the worst and also just be able to deal with it too. You know there are a whole bunch of crisis's that can come up in life and you know you are a hundred percent of how you deal with the scenarios around you.

So if you're a person that gets all you know flustered and you know can't deal with a little chaos in your life, then well I would question why you decided to join the military. Because you know or why you stayed in the military rather. Because I mean chaos goes you know happens almost on a daily basis. Whether it's you know something small like your boss freaking out at you for not doing maintenance on time or you know if it's you know crazy like a drone strike or something you know what I mean like anything can happen. but I'm just saying you know the military helps build us in dealing with casualty control and using and applying those you know critical thinking skills and that ability to you know slow down the situation and handle things one at a time until you deal with the problem, alright that makes us; well that gives us the ability to be great investors okay. Because a lot of people fail, because they get too frustrated and they give up.

Frankly, they give up right. They say oh I've had a bad experience and now I don't want to do this anymore. It’s not for me. They make up these excuses in their heads telling themselves that this is not good or even worse right. you get those that you know listen to other people's bad stories and they don't ever decide to do it for themselves you know and they just assume that because my friend or because my family member or because you know whoever had a bad experience, it's not for me and it's not something I want to do okay.

I'm willing to take a guess that if you are listening to this podcast right you understand or you sort of understand the kind of guy that that I am, the other kind of company we are. We’re not afraid and taking risks. We’re not afraid in you know investing in real estate because we know what the end state is. Yes we may have a few setbacks in life right. Because who doesn't. But we are constantly working towards improving our system and making it better. That way when crisis does happen we can.

Handle it and we can move through it swiftly and smoothly until we get to our end result okay and that is what we preach, that is what we dedicated. I'm going to share a story with you on how having a property manager can go wrong and how you can deal with it to get out of that situation okay. So here I am alright on deployment this past year, okay I deployed from January to the end of August and I closed on my property in Mississippi in December timeframe of last year right and so the property was a single-family. It was a 3-bed 2bath about eight hundred square feet-is. A great great property and was just outside of a base in Gulfport. Which is outside the CV base there. Awesome property like I said and I was getting close to the deployment timeline right.

So I was a little bit under a crunch and I had looked online for different property managers after that month I like you know vetted a few of them. I'd only heard back from two and when I had called two, I got the warm and fuzzy from this one particular property manager that I used and I got a say like you know the warm and fuzzy was there because the lady I was talking to, you know I asked her some questions; she kind of qualified in my head.

However when I looked at their contract I did see a couple things that I wasn't necessarily too happy about. One of them being some of the fees and the other one being this 60-day cancellation right or termination of contract notice. so I had to give them notice 60 days prior to our official termination of our closing of contract if anything you know went bad you know if either party was not acknowledging or honoring the contract. So yeah that did bug me. But I decided hey you know maybe this is standard for them, maybe this is just how they operate, and I’ll work around it. I didn't get a bad feeling from the lady I spoke to. So I was  you know hoping and praying that this was going to be good anyway. Well there's a reason why I said This is a story right of how to get out of bad stuff.

So yeah long story short that didn't end up going well. So within my first couple months of deployment I started to realize that the company was very slow in responding back to enquiries that I had on the property. On the status of some repairs and on kind of what was going on. They send me pictures and whatnot. They were disorganized when it came to collecting invoices from some of the service professionals that you know that they had hired to take care of, some of the maintenance that needed to be done before the property was rented.

There was one project in particular that should have been done within a week. Honestly within one week all right, this deck right. This outside deck that was maybe 400 square feet, maybe. I would venture to say it was a little bit less all right. But this one project in particular was supposed to be done in like a week, two weeks at the max dude Oh like weather and delays and you know I just want to be lazy time you know whatever right, whatever it is.

Now the issue is that this guy or whoever the contractor was kept giving them excuses. All the excuses in the Sun. it's too wet today, I can't do it today because of I don't know XYZ right, just so many excuses and they would just relay these excuses to me without really doing much to engage and try and get the guy to finish his job right. They kept making promises to me saying that oh they're going to, he's going to finish by the end of this week and we'll give you an update on when it's going to get done. Then of the week would come no update

Would be given. I would give them a couple days to you know find out if they're actually going to tell me what's going on and of course nothing right. So I follow up and I say hey what's going on with the property. They don't respond back that day, another day goes by. Right sometimes they just didn't respond then and then I would get a response back like the day after right or whatever. As this became a pattern I would be following up every single day with them saying hey what's the status, what's the status, what's the status.

This little small four hundred you know square foot deck took two and a half months to get done. Almost two and a half months. I think it was like two months and like a week or week and a half on some change. Anyway it was a little over two months okay. Two months to get done and this entire time my property is vacant. So now here I am right I'm losing money off this property. because I'm paying for the mortgage, I'm paying for the tax, I'm paying for all this stuff and my property's not getting fixed and it's literally just sitting there and I asked them. I remember one point I asked them you know when was the last time that they went to go see my property and know the lady told me it was like a week or something like that right. now okay I asked them all right so was is there anything else wrong with the property, like what else is going on with it and then the lady told me is like oh yeah I didn't go in it, I just went drive outside and see if it was okay. Like okay so we have these projects going on right.

We have these things happening and you don't even go in to go see my property like what the heck are we? What are the heck am I paying you for? You know what I mean. Like what is that? so it's just guys I'm sorry it was just long long drawn-out process and so a long story short, like a really really long story short okay like they did not do a good job at all. They were very negligent in terms of our contract and our agreement. They were just dragging their feet on getting my property rented and getting my property fixed and then getting rented right and it was a nightmare. I got fed up right, I got fed up with them and I put in the notice. I went back to look at the contract and I was reminded of the 60 day thing which definitely was not a good feeling at all.

But I went in and I put my notice via email right via email right. So that way it was recorded that I was going to terminate the contract in 60 days unless I had a drastic improvement of service. Because it was absolutely ridiculous you know and here I am in the middle of deployment mind you right and trying to deal with all this. Now you know I only had you know but a few times like it you know get in and respond to. But it was just a mess you know like it was a mess.

So yeah anyway you're trying to deal with all this on deployment was not fun. But you know it had to be done and you know it wasn't a good experience. But it was a learning experience and there are some takeaways that I took from it and you know I moved on right and so at the moment I gave them my 60-day notice. I went to work on trying to find another property manager and I actually got a little creative and went outside of Gulfport, right into the Biloxi area to look up other property managers and I tried qualifying those right. I went through another three and I found one that looked really good. that was very very comfortable with and I ended up you know taking a look at their contract and then we went through a back-and-forth of maybe a week on negotiating contract terms and whatnot and I was good to go you know at that point I was ready that I decided that at that end of that 60-day period I was going to roll right into this next property manager and that's essentially what I did.

You know I think there was a little bit of delay with communication. but at the end of the 60 days you know I rolled right into this next property manager and it was good to go and since then right my property is rented, we've got a tenant in there and we're making collecting you know rent checks and ironically right ironically the previous property management company was able to finally get this project done and they were able to find my tenant you know so as my tenant was moving in, we were under new management and things were good to go and now she's been running just fine.

So anyway you know a little victory story there. Obviously you know things were not ideal and the timing was not ideal at all. But regardless you know I handled it and that is the kind of mindset you have to have when it comes to real estate investing you know. Nothing is going to be perfect and it doesn't even matter if you're investing okay. Let’s be honest here. If you're just buying a property in general you're going to have a lot of responsibility in maintaining that property and making sure that it is functioning properly right. Otherwise it could be an issue for you, can be an issue for your neighbors.

It could be an issue for all parties involved. Yeah so just make sure that you know you don't get discouraged by having a home. Whether it's your personal residence, whether it's an investment property right problems will happen, issues will come up right and you just have to be able to have a clear head going into it and have your crisis control procedures in place okay. So in the event of having a bad property manager, first thing you want to do is have a backup okay.

Well first thing you want to do is take a deep breath, okay deep breath don't get flustered, don't get frustrated. Start looking for backup property managers, look at your contract and figure out how and why you can break out of that lease right. Maybe they're being negligent okay. Negligent is for all intents purposes of the regulative term. So if your property manager is not really doing something that you agreed upon or that you think they should be doing right you could deck them for negligence and that can usually get you out of the contract okay. But you want to make sure that that phrasing is there and if it's not you want to be able to put it in there from the jump, okay from the beginning and likewise to make sure that 30 days is all you need to get out of a contract, 30 days guys, and 30.

Trust me 60 days is a long long long time. Even when you're on deployment sixty days is a long time to deal with a bad property manager okay. So oh man definitely that was my probably my biggest take away from that scenario. But again learning occurred and it was good to go right. so I'm glad that I got that off my back and I moved into a new property manager and I found you know someone that I trust for my next properties.

All right so that was a win. All right so that's going to do it. Thanks again so much for listening. I really appreciate you guys taking the time. Whatever you guys are doing out there whether you're on deployment, whether you're in the office, whether you're on your way to work, on your way from work whatever right. I really really appreciate that you guys giving us your feedback and letting us know how we're doing but how we're serving you the best we can. It definitely takes a team to accomplish the mission and so we value all of your input. Because we are all in this together right, we are a community. speaking of community or make sure you guys check out the meet-up that we have set up in the Hampton Roads area if you are on the East Coast.

We are going to be meeting on the 19th of September at Keegan's Irish pub in town Centre at 7:30 or 19.30 right for you military types out there. It’s going to be a great time. so come join us for a little social with some drinks and some great conversation on you know acquiring properties and you're in the military using your VA loan and just meeting and networking with you know other folks in the area, it's going to be great. Okay also make sure that you check out our page. We’ve got a lot of exciting stuff coming down the pipe. We’ve got an e-book that we are remaking and we are looking for ambassadors to help us spread the word. So if this is something you want to do and you want to receive a little special something from us from helping us out, we appreciate it.

Come hit us up on our Facebook page or shoot us an email and let us know that you want to be an ambassador okay for our new military house acting eBook 2.0. It’s going to be awesome. I cannot wait for it. We have a few special surprises and certain people that are going to be helping us out. But wait for that it's going to coming down the pipe and I am really excited for all the other awesome stuff that's going on as well as my five-year reunion from my alma mater. Okay so I'm going to go get to that and I’m going to let you guys get on with the rest of your day.

Thanks so much again for listening. Mike out.

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