Personal Finance Resources

Continuing on the theme that I was writing about in my last article, I wanted to give you a specific example that happened to me just last week in property management. A friend on mine that I manage property for referred me to one his friends to help him get his property leased. This man seemed very friendly and easy to work for. His house payment was somewhere around $1,200 per month, and you guessed it, the going rate for a property like his in that area was somewhere around $1,200-$1,300 per month.

So after talking with him, he wanted to gross $1,350, but I needed to make at least $100 per month to manage the place. So I decided to go ahead with the property management marketing for him without an agreement up front. Now, normally when I manage property, all the money flows through me, so the problem of having the up front written agreement with the owner is not “as much” of an issue. So I proceeded to market the property for $1,500 per month, well over the going rate for the area.

Well, when the rubber met the road, I was only able to rent the property for $1,400 per month. So I went ahead and got the contract going with the new tenants. But when I talked to the owner about it, he wanted to manage the property, and just pay me the monthly fee that we agreed on. Now, I went ahead and met him in the middle, and dropped my fee down to $75 per month. So getting the news that he was going to take care of all the hassle of the tenants really had me excited.

The Penny Drops… 

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In today’s world, you never really know anybody. Think about yourself, and your family members, do you have a cousin or uncle that you just wouldn’t trust to even feed your dog while you are on vacation? Well if that’s true, do you think that strangers you are trying to do business with deserve any more trust?

In my short experience in property management and real estate investing, I have seen some very wicked things go on. Extensive damages to property, lying, cheating, playing on your heart’s strings, all examples of people’s lack of integrity and failure to take responsibility.

Here is the quick tip for today, make sure when you are doing business, if you don’t know the person implicitly, get everything in writing, and get it up front. I know it is extra work, and work that may end up not being paid, but nonetheless, get a contract. Things will just go better for you that way. Next week, I will outline a specific example of how I was taken advantage of, and how you can protect yourself.

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When I first examined property management fees, I thought that they seemed to be a little high for the work involved. But, over the course of time that I have been in property management, I have seen many different types of tenants and found that overall, the money charged to the owner is well worth it, probably too cheap. Consider the following costs and efforts expended by the property manager:

1. Advertising Costs
   Advertising is expensive. Just running an ad in the paper over the course of a month could run up a 3 digit bill. But further, many realtors have websites, with incur monthly costs as well as time and effort to gain exposure on the web. And what about the costs of signs and fliers? Truly, advertising carries a high cost.
2. Communication Costs
   In today’s world, a realtor almost has to have phone, internet, and email connectivity to be able to make a living. Most realtors go a step further and maintain their own website, in order to generate more exposure for their properties. So just the costs alone of these services tend to be high, and the time it takes to accept phone calls, check emails and voice mails can pile up quickly.
3. Office Costs
   Many realtors do not own their own office, however they pay an office rental fee to their broker for use of an office inside the realty. These costs tend not to be cheap, either.
4. Gasoline and Automotive Repair
   In times past this wasn’t as much of a problem as it is today. Today, many realtors are just getting scalped at the gas pump, and driving back and forth to your property and waiting for the no-call, no-show prospective tenant is extremely expensive. I have begun to call contacts just before I spend the time and gas to get to the property.
5. Ongoing License and Dues Costs
   All realtors have to pay for license renewals, and most realtors are members of a local board of realtors. Of these, many are also paying dues to have access to their local MLS (multiple listing service). Combined, these costs can add up to 4 digit per year expenses.
6. Tenant Maintenance
   This is the most costly for property managers. No matter how much screening is done to a perspective tenant, there is still no guarantee that the tenant will pay, or will take care of the property. As I have begun to manage more and more tenants, I find that a small percentage of the tenants costs me a ridiculous amount of time and money just getting the rent from them every month, not to mention the costs associated with cleaning up their messes.

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There comes a day in every real estate investor / property manager’s life when they have to issue a notice to vacate. Last Monday was my first time. I truly believe that this is the worst part of managing properties; other than perhaps a contractor that does shotty work and still wants to get paid. But truly, in evictions, there are no winners. The tenant loses their residence, and the landlord is typically left with a trashed out unit and an unpaid bill. I am not anyone special, it was the same for me.

This particular tenant was having problems getting their rent to me on time in the past as well. Only one or two months did they pay their rent on time. So, as you probably can guess, they just got further and further behind on their rent, until finally last month they were only able to pay a little over half of what they owed in regular rent, not to mention all of the late fees. The good news is that they did in fact leave without me having to go to court and get the eviction finalized. With just the notice to vacate, they left the property. This is one area that I think my treatment of them through the problems paid off.

Working with Your Tenants

You know, problems happen, and tenants sometimes cannot come up with their rent in a timely fashion. But I believe if you work with them a little bit, and don’t hassle them too much, they will be more likely to make it a priority to pay you. Now don’t get me wrong here, you still charge your fees and you still send letters, but getting nasty and upset with them is not going to get you anywhere. In fact, in some instances, getting upset with them will cost you more, if they think you are tyrannical, they may trash the place before they leave, and drag you through the eviction process to expel them. I think in my case, the tenants were so ashamed about the whole situation, that they just left.

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If you operate a property management company and/or invest in real estate like I do, you need to be able to work with contractors and subcontractors to get the best deals possible. However, more than just finding the cheapest price, you need to be able to trust the people doing the work for you. This week, I had a battle that I wanted to share with you, hopefully to give you some help when shopping and working with contractors and subcontractors.

First, you want to build relationships with people, not with businesses. I am a firm believer in the good ole boy system, and let me tell you it works. But the problem I had this week was, my typical plumber who I know and have done business with in the past, was not able to complete the work on a job I had. So rather than going to the phone book, I took his recommendation of another plumber in the area. Normally, this is a great idea; however, I made a mistake.

My mistake was that I assumed that the terms, conditions, etc would be the same as with my typical plumber. They were not. I was assuming that I would be billed for the service by mail, and then would have 10-30 days to pay, as this is the typical deal with my usual plumber. But this plumber wanted to be paid immediately. The problem was, neither of us talked about this ahead of time. We found out our difference after the job had been completed. This made the situation an ugly one.

The problem we had is this - he was afraid of being stiffed, and I was afraid of his work failing shortly after completion. And, in fact there was a problem that surfaced after he completed the work. But he was not willing to go back to the property and check out the problem. He simply wanted to get his money and move on. The job was completed on Wednesday, and by Friday he had called me some 6-8 times looking for his money. Terrible, terrible customer service.

I was able to call my usual plumber in to check out the problem, and he identified that it was not the fault of the other plumber. So in the end, I wrote the check and paid the other plumber, just to get the monkey off my back. The contract price was only $400, so I guess it was a lesson learned for me.

Bottom line, whoever you deal with, make sure that you have the scope work, price, terms and conditions all worked out before you agree and they start the work. It just makes sure that everybody involved is on the same page and that nothing sneaks up on anyone else. In this case, if either party had made the other aware of his expectations through job, it would have gone much smoother.

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It has been tough, but the Lord is good. The two renters I mentioned in my post on Eviction Notices decided to pay their rent and fees. I got the full amount from both toward the end of the week last week, just before submitting the actual eviction notices. So getting an extra $300 or so in late fees really makes the picture look better when I look at the net effects for January.

As you may or may not know, eviction hurts everyone involved. There are no winners. The tenants lose their home, and the landlord loses rent, court fees (assuming they don’t move out when instructed) and advertising costs to find a new tenant — everybody loses. So it is safe to say that I was very relieved to see the money come in.

So now it is back to concentrating on getting 4 different properties that I am managing leased. I am getting many calls in on the different properties, just haven’t gotten anything closed. Most people I am running into have bad credit, and I really don’t want to work with people that can’t pay. The two renters that I have had problems with both had bad credit, however I do have another tenant with bad credit that has paid on time every month. Are there any tenants out there with good credit? Please step up, I have some quality properties to put you in to.

The latest 2 duplexes have really been a great investment. They are making far more than the 1% that the typical investor looks for. One duplex that we have, if the top rents for about as much as the bottom (they are identical so it should rent for about the same amount) then we will be making over 2% on the rent. So we will see what happens, I need to go now, I have a showing for that duplex at 10 AM. Please leave your feedback/questions at the bottom of the page.

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In my latest acquisition, the investor that I represent as a property manager wanted to meet one of the tenants. So I said OK, and we have that scheduled for 11:00 AM this morning. This tenant is a good tenant, but is a little anxious, thinking that his rent may increase substantially with a new owner. This is very understandable, and is why I met with him myself last week just to calm his fears.

But, my investor wanted to meet him before I signed a new contract with the renter, so we will be going over there in a few minutes. I hope to get the lease contract completed and signed today, and get our first month’s rent in as the new landlord. From what I see and what I have been told, this renter is a good one. But as you may know, the old “Put your money where you mouth is” applies here. Once we get a couple of month’s rent on time from this renter, then I will become a believer.

The other new renters that we currently have are still in default. Friday I will be getting with them to collect the rent, and inform them of the contract penalties that will be applied next month if they are late again. I will report in tomorrow on what transpires today…

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It has been a hard week, but a good one. As I mentioned in my December Lull for Property Managers, it is a tough time of the year to be marketing properties, however it is an excellent time of year to be buying. I also mentioned there that I had a negotiation going on 5 rental units located here in Belton, TX. My update for you is, we were able to close the negotiation on those properties. These properties will cash flow at about $1,000+ per month combined, which is an excellent deal, considering we are only risking a contract price of $154,000.

So stay up, keep plugging away in your markets, and let me know if you have any questions. While you are waiting, sign up for my RSS Feed to get free, automatic updates on all blog posts here at Personal Finance Resources.

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Working on potential real estate investments is totally fascinating, and finding deals that fit a profitable formula is both extremely challenging, and extremely rewarding. Currently, I am working on a deal with a local realtor who is also a real estate investor here in Belton/Temple TX. He is trying to get out of the property management business, and owns a number of properties in the area (maybe about a dozen properties).

These properties are single and multi-family homes, and are in different areas throughout town. He has a few problem properties in the Temple market, which are a risk to me and my investors, remembering that location is the most important factor in real estate. But overall, he has a good spread of properties, and I am interested in about 3 of those properties. One is a duplex located just across the street from a property I already own, and therefore I am totally convinced of the neighborhood and the ability for this property to produce.

All in all, I am looking to put two properties (which includes 5 rental units) under contract, with the attempt to achieve a total payment of around $1,100-1,200. These properties gross around $2,200-2,300 per month, which is really good money for the risk. So this is just as word of encouragement to y’all out there, as you can get into good deals, you just have to keep looking.

One point I will make, I found this guy just by checking the MLS for some multi-family properties for another potential client. I saw a good price on a duplex, good location, and knew it would cash flow. If you have a little time, drive the neighborhoods you want to do business in, and just look for some “For Sale” signs. Farm those markets, and find those deals. To make it big, you are going to have to do a little more than the next guy.

‘Til next time, sign up for my RSS feed, and get the updates as they happen on this project and more to come in the future.

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