In this episode of the Creating Wealth podcast, Jason Hartman discussed both the hybrid approach to real estate property management and the self-management method. In an effort to gather insight from different points of view, Hartman’s client Drew Baker and Hartman’s mother Joyce joined the podcast to offer information about their own methods of managing their investment properties.
While Drew Baker has had property managers to assist with the management of his properties, Hartman’s mother Joyce has always managed her own properties. Hartman’s method is a hybrid of the two.
The three discussed their strategies, tips, and concerns regarding the management of their properties and how different real estate property management methods lead to different experiences.
MTM Photos and Ice Hotel Trip
Hartman introduces his client, Drew Baker, and his own mother, Joyce, to the podcast to discuss their real estate property management strategies. Hartman states that there are a lot of misconceptions about self-management that he’d like to clear up for listeners.
Before initiating the interview, he mentions that photos of the last Meet the Masters event are now available at www.jasonhartman.com/photos if listeners are interested in seeing them.
As for the upcoming Venture Alliance trip to Sweden’s Ice Hotel, another registration has come through and Jeff and Shannon are going to join the event. A few more people are needed to greenlight the trip, and for more information about it, visit www.jasonhartmanicehotel.com.
Another Jason Hartman University event is set to take place on March 3rd in San Jose, and Hartman explains that there are differences to each of his events. The Meet the Masters of Income Property event is an annual conference where aside from Hartman’s speeches, there are several guest speakers in line to discuss their areas of expertise. The Creating Wealth seminars are a single day of core content that Hartman has been teaching for the past fourteen years, being more philosophical in nature than other events. The JHU was added a few years ago to incorporate the integrative math concept of investing. It teaches calculations and how to determine smart buys. Early bird pricing is available for JHU at www.jasonhartman.com/events. Tickets will sell quickly, and seating is limited.
Issues with Real Estate Property Management
Joyce joins the podcast after speaking at Meet the Masters with her sister, Aunt Joan, about their methods for managing their real estate properties. Drew Baker is on as well, having set up the three-way call for the episode.
Hartman explains that there are several things in the world that he doesn’t like, one being leaf blowers and another being Skype. The program’s user interface gets worse every time the system updates, but in its defense, Skype has good sound quality when it works.
He states that another annoying thing is cars and motorcycles with unnecessarily loud exhaust that he can hear all the way up in his high-rise at night. Baker explains that for motorcycles it’s a safety measure to keep cars aware of their location in order to avoid being struck by a vehicle. He agrees that cars modified to have extremely loud exhaust is obnoxious.
Hartman explains that both Baker and his mother are wealthy, but both have different issues that they face with their real estate portfolios. Baker has problems with his property managers and Hartman states that he has recommended self-management. He explains that this move is not for newbies and mentions that it’s best to learn from your property managers before venturing out on your own.
Joyce has been managing her own properties since the beginning, and Hartman states that he used to have property managers and accidentally became a self-manager on a good deal of his far away properties. Self-management is truly something to consider, as sometimes it’s easier to go direct and cut out the middleman, but other times it’s easier to delegate tasks.
When it comes to real estate property management, Joyce is an extreme do-it-yourselfer and she has properties in several areas of the country. Baker, on the other hand, has had property managers since he started investing in properties in 2010.
Baker explains that he initially saved money to put on a down payment for a home in California and had about half a home price to put down, but because he was self-employed, he was not given a loan. He decided to buy foreclosures as an investment instead. Now, he has ten properties, six in Indianapolis and four in Memphis.
Baker’s Deal on A-Rated Property in C+ Neighborhood
Baker mentions that his first deal was incredibly cheap, and he bought several fairly new constructions at between $40,000 and $50,000. His best deal was on a four-bedroom, two-bathroom, 1400 sqft home built in 2003. He paid $40,000 for it as it was a foreclosure. It was an A+ house in a C+ neighborhood and because of this it averaged a B-class rating.
Hartman explains that Joyce was investing in Southern California until she moved away from the state and Hartman eventually got her interested in properties in lower priced markets. She now has properties in Alabama and Mississippi.
Joyce explains that at one time, she had property managers for both properties, but found herself much happier when she got rid of them and managed her properties on her own.
Hartman explains to Joyce that Baker is a DIYer in many other aspects of his life, but he is questioning the self-management method. He suggests a hybrid approach to use when a tenant is moving out of the property. It’s at this point that a real estate agent or property manager should be hired to perform the lease up between tenants.
Hartman suggests giving the property manager or agent a little more responsibility than the lease up, though, and advise them to meet with the leaving tenant and retrieve the keys, take photos of the property’s condition, and determine how much of the deposit you plan to return to the tenant. Be sure to itemize the deposit deductions and remember that depending on your state, there is a time limit on the deposit letters. Have the agent or property manager perform a la carte services like screening tenants and taking applications and pay them to perform the lease up.
Joyce states that at Meet the Masters when people asked her why she doesn’t get help managing her properties, she answered that she was retired and had nothing better to do. She explains that she likes to stay active and would rather manage her properties and work in business than attend boring luncheons or raise money for charity with other retired women.
Baker mentions that once as an April fool’s joke, Hartman posted on Facebook that he planned to retire. Hartman explains that even if he became wealthy beyond his wildest dreams, that would still remain a joke because he enjoys his work and wants to stay busy.
Joyce’s Resource for Self-Management
Joyce mentions a useful resource for Baker if he plans to self-manage. She states that an organization called the Apartment Owners Association costs only $79 per year and allows property owners to run credit checks as well as providing any form imaginable for property management. Membership includes a monthly magazine with interesting articles and advice from other property experts. For more information, visit www.aoausa.com.
Hartman clarifies that the association isn’t only for apartment owners, it can be for any residential investment property, and there are chapters all over the country. Joyce belongs to the California chapter because she used to live in the area.
He explains that his company sells properties nationwide. Baker currently lives in Orange, CA and both Hartman and Joyce lived in Southern California for a large portion of their lives. Hartman states that he wanted to invest in properties with better cash flow, so he expanded to other states.
He also notes that Joyce lives in Alabama currently, and she manages all of her properties from afar. Even the properties in her same state are not close to where she resides.
Hartman reminds Baker that aside from conducting the lease ups the way Joyce does, self-managing properties is quite easy. He reminds listeners that with the hybrid approach, hiring a property manager to conduct the lease ups works. Property managers will try to woo owners in hopes of receiving a full account, though.
Inform Tenants of Strict Rent Due-Date
Joyce mentions that a very important part of self-management is letting the tenant know that as an owner, you’re very strict about receiving your rent on or before the first of the month. She explains that if you allow a real estate agent to handle the contracts, they will make the mistake of allowing a grace period. Don’t allow a grace period, she says. Inform the tenant that the late fee is $70 if the rent is not posted on the first, and there is a $5 charge every day until the rent is paid.
Hartman reminds listeners that the laws on late fees vary by state and recalls a property manager at Meet the Masters stating that his late fee was $25 a day. This late fee is legal in Memphis, where the property manager worked.
Joyce explains that it isn’t wise to say that rent is due on the first of the month but not late until the fourth of the month. If this grace period is offered, you’re going to be chasing your rent every single month, she says. Her rents are always in on the first, and there is almost never a problem with the arrangement.
When Hartman asks Joyce if tenants call her at all hours and bother her, she explains that they do not because,
“The longer you have the tenant, the less hassle you are going to have with that tenant.”
Long-term tenants tend to fix things on their own as they see the property as their home as well. Your lease should clearly state what tenants are responsible for, Joyce says. For example, if a tenant clogs the toilet or the garbage disposal, they’re responsible for calling a plumber. You do not find yourself being bugged with phone calls when you spell out tenant responsibilities clearly in the lease.
Hartman mentions that asset protection lawyers state all the time that owners need protection all of the time in case a tenant sues for a slip and fall incident. Joyce explains that she has owned rental properties since 1980 and has never been sued.
Baker notes that the only time he heard of suing over a trip and fall was when his wife owned and lived in the bottom unit of a property and her grandma lived in the upstairs unit. She slipped on the porch and fractured her hip, and Baker’s wife advised her grandma to sue her so that she could receive help from the HOA.
When Hartman asks if tenants ever call for pest problems, Joyce explains that if the house is clean and you’ve already had fumigators come in, the pests are the tenant’s problem. She recalls having one tenant say that her dog contracted fleas from the backyard. Joyce told the tenant that most of the time, tenants with pets have the backyard sprayed. At that point, the pest problem was not her responsibility.
Conflicts of Interest for Property Managers
Hartman explains that a lot of good property managers will get complaints online because they’re tough with the tenants, and when you’re looking at property manager reviews, it’s important to make sure that the negative ones are from tenants rather than owners. Property managers, at times, try to serve two masters. If they’re soft on the tenant, they can end up costing the owner more money because they don’t want a bad review online from that tenant. He likens it to liberal politicians that give other people’s money away like they’re Robin Hood. Ted Kennedy, for example, took money from people to give to other people.
“Everyone is generous with someone else’s money,” says Hartman.
How Joyce Readies Her Properties
Baker asks Joyce about her methods when it comes to refilling a vacant property, and how she terms the unit without a property manager.
Joyce explains that she physically goes to the area, but before she makes the trip, she lines up painters, gardeners, and people who can do quick repairs. She does not waste her time and will make appointments with ten different companies and get estimates. She explains to these companies that she will be at the property at a certain date and would like them to meet her there where they can agree on a price. She explains that the workers must be willing to begin painting or repairs immediately or the following day. Within three days, the property is spick and span.
Question Prices for a Reduction
Hartman explains that it’s okay to delegate tasks in these situations, though his mother does these tasks herself. A real estate agent or property manager will handle it for you, but when Joyce does it, she get’s good deals on things.
He recalls one of his own experiences with one of his Florida properties. He has a property manager for some of them, and she reached out to him on Voxer to explain that one property needed a new fridge and that it would cost $870 for a new one. He refuses that price and instructs the property manager to offer the tenant $10 off the rent and they can buy their own fridge. The property manager found another deal for a returned fridge at a shop. It looks great for only $350. However, the installation price was $160. Hartman explains that he didn’t want to pay that fee, so the property manager found a new fridge, and with the disposal of the old one and the installation, the whole price was $460.
Because he resisted the first price and haggled a bit, he saved money. He reminds listeners that just because he has money, he doesn’t want to waste it.
Baker recalls a time that one of his tenants wanted a security door in the front of the home, because he’d heard that there was local break-in recently. It would have cost $300 to pay for and install the door. Since the tenant rented the property as is, the security door was their prerogative. Baker offered to add $10 to the rent, or to split the price and he’d cover half of it. The tenant chose to split the price and the security door improved the value.
Hartman states that he also had a property that he self-managed in San Antonio and the tenant sent a note to him asking for a garage door opener. Hartman offered to buy one if the tenant paid $15 more in rent until the opener was paid off and he agreed. The tenant installed the opener himself an in fourteen months, he paid it back and it improved the value overall.
Hartman advises listeners not to be afraid of deals, because sometimes they will improve a piece of property.