Jason Hartman brings us a Flash Back Friday show originally published in September 2016. He hosts Fernando and Oliver to create an expert panel on self-management. They believe that a great property management company is worth the costs but that it is very important to be knowledgeable about your self-management options. They talk about technology and companies that help you save time and money and give you tips on improvements, repairs, and maintenance.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy. Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. Here’s your host Jason Hartman with the complete solution for real estate investors. Welcome to the creating wealth show. This is your host Jason Hartman episode number 729 729. Thank you so much for joining me today, as I am sitting in the car, so pardon, the audio quality won’t last long, because we’ll get into the main portion of this show, which will be a replay of our self management panel from our recent Real Estate Software with real estate tools. That was our joint event with real estate tools and my company. We talked about technology for real estate investors and self management versus professional property management. And Fernando and I happen to meet here today in Mesa, Arizona, at a little income property Expo. And we thought we’d just report on that real quickly in this intro portion here. Before we get to the main part of the show, Fernando welcome How you doing? I’m doing
Fernando 1:59
great, Jason nice. Be here
Jason Hartman 2:00
Good to have you and so we met up at this this little Expo then we just decided to walk out and record this intro here sitting in my car which is soon to be your car that’s true. tell everybody about that we we’ve done a lot of business together Fernando you and i
Fernando 2:20
i i wasn’t much of an electric car fan but after being here with you and seeing how cool your car is and you know a lot of the pluses and some minuses but I think mostly pluses I made up my mind that this is the next step in going from my my current you know Audi based car with the combustion engine to go into an electric vehicle as powerful and as interesting as the Tesla is really as sexy
Jason Hartman 2:53
as sexy, sexy looking car. So Fernando bought my car Yeah. It’s a small world. So first Fernando was a client. And he bought a bunch of properties of course and then he came to work with us then to get together last year, we bought that real estate software company real estate tools. And then he says, You know what? Why don’t I buy your Tesla from you? And so we just struck a deal. And now he’s gonna be ending up owning this car soon. So
Fernando 3:24
I like to have you pay for the you know, the depreciation.
Fernando 3:30
You know, it worked out well.
Jason Hartman 3:31
Yeah, that I definitely took the depreciation hit. Never, ever consider an automobile and investment. It’s a terrible deal. No matter which way you slice it. But hey, let’s tell the listeners about some of the things you know we just spent the last hour or so walking around visiting all of the exhibitors we talked to every one of them we we talked to a company that offers Nationwide Insurance. We talked to a company that has a high tech locking mechanisms for property I’m really sort of excited about that one. I know you are too, because that lends itself well to self management of our properties. And we talked to some vendors that do paving and things like this. There’s a lot of apartment, people here. Gosh, the hard surface flooring. That was a pretty good deal, huh? Yeah. So so in your properties, Fernando, you’re converting, I believe all of them as EMI, whenever I have a make ready, and it’s time to just get rid of the carpet and install new carpet. I am not doing carpet anymore. I’m doing hard surface floors. And you can do this for around $2 per square foot. Talk to us about what you’re doing. And while you’re paying a little more than that, right, yeah. So
Fernando 4:42
so we just met with a vendor in this Expo, income property Expo. And their prices are excellent. I mean, what I think what he quoted was $2 a square foot installed. Yeah, for plank vinyl, which is, you know, going back to what you said, I’m trying to stand up dies in my properties in not us carpet in US plank vinyl throughout the entire property playing final lasts a long time. And you know as we’re discussing here, it’s not that expensive and they have so many different textures and colors. You can really spruce up your place with a pink vinyl and make it look very sharp and not spend as much money in in if it’s gonna be there throughout your house and last forever. It’s definitely a good investment. So bear to anything else you could do.
Jason Hartman 5:31
Yeah, and so cost wise here. Here’s the approximate difference at least from this vendor. You know if you have a 1500 square foot house, this is about $2 per square foot and you can put it in every room and I really recommend that you don’t cut up your house with a bunch of different floorings number one, it’s overcomplicated. Number two it really doesn’t look good. I think it looks the best when you just have one flooring throughout. And in my opinion it should be the light After playing vinyl, the lighter colored version of it, I think the darker color gets dusty. It shows the scuffs a little bit more. And it also makes the house look smaller when it’s darker. So I like the lighter look definitely kind of like the Apple Store. You know, if you’ve been doing a store, you know, they’re looking here, they’re gonna update that. So this will not be timeless By the way, it’s the Apple store as of today, not tomorrow. But this plank vinyl is really good. And this guy quoted that at $2 a square foot and carpet at $1 19 per square foot. So a buck 20 a square foot, well, let’s just take thousand square foot house 1200 dollars for carpet throughout and obviously wouldn’t do carpet throughout but just to compare apples to apples and the playing vinyl 9000 square foot house can be $2,000 to do that. I think that extra $800 in that example, is very well spent for the long run because you’re just not Going to have the make ready issues down the road you know it becomes nothing is indestructible but you know figure a speech kind of an indestructible house
Fernando 7:08
right? No, I mean that the plank vinyl is easy to replace if there is one, you know they come that’s why it’s called plank Vanu vinyl. It comes in planks and if you need to replace one plank, it’s very easy to do.
Jason Hartman 7:21
Just cut it out with a big exacto knife. Exactly.
Fernando 7:22
And the installation is very simple. There’s different kinds of playing final but there’s there’s a version of it that they sell at Home Depot that you install with a pair of scissors, you know, just just a heavy duty pair of scissors, and it’s not even glued down. It’s really easy to install. Now, these prices are excellent. I wish this vendor was national but I think he’s local. And, you know, here’s in Arizona, I know that Home Depot sells for $1 79. A lot of there are lower plink vinyl that I’ve looked into. So by the time we get that installed, you know It’ll cost a few, a few dollars per square foot. So his his prices are really good. And here’s the thing folks look at. Don’t let your property managers mark this stuff up a whole bunch, or don’t let them choose the most expensive vendor in your market.
Jason Hartman 8:15
Look at you can get this stuff. The great thing about the world today is that we are in the world of the empowered investor, you can go online and you can find this stuff. And the new benchmark is $2 a square foot for plank vinyl. So if you can get it for close to that, that’s what this guy’s price was. But you know, if you can get it for 210 a square foot even, you know, to 15 to 20 a square foot you’re doing pretty darn good, I think. Okay, so that was one thing. And what we want to do is make the long term cost of these properties lower. So if you inherited or purchased a house with carpet, well, I don’t think many of our investors are inheriting these properties but Whatever. Yeah, well you’re inheriting it from somebody. But you know, you bought a property and it had partial carpet. Get on a track of replacing with this plank vinyl. I think that’s a very good decision. And I think you’ll be much happier in the long run your house will be more bulletproof. Yes. So that’s good. Now, the other thing is these locks. And we’re going to talk about this in the upcoming segment here in just a moment. But again, the empowered investor, you can self manage properties. The lock technology, I think, has been comparatively to smartphones and all of these great things we have. I think it’s been pretty slow to evolve honestly. But it is it is right upon us. Where we saw a lot today what was that called Kiko? Ke, ke le ke v? Oh, yeah. And I think it’s by Quick Set is the manufacturer. So ke vo and what this lock is a Bluetooth enabled electronic lock and was pretty neat the way that worked without having a WiFi or a cellular receiver and transmitter in that lock. Right? It’s simply a Bluetooth. transmitter receiver. Right. Right. thoughts on that?
Fernando 10:13
Yeah. Yeah. So I think that’s halfway, you know, from an investment. They’re
Fernando 10:18
pretty close. Yeah. We had an interesting session with with the guys at the booth. We got the whole demo. Yeah, we gave it to them. And we gave them a piece of our mind as far as what we would like to see as investors we’re never clinical.
Fernando 10:36
And, you know, they’re they’re doing something neat, which is a Bluetooth, enable electronic lock in essentially, your smartphone can control the lock as long as you’re within, you know, 30 feet or so of the lock. And you obviously can communicate with the lock via smartphone. But what we want is, you know, we’re not at the property, the properties that we own when there’s a make ready, they’re vacant, and we are probably Thousands of miles away from the property. So we want because we invest where
Jason Hartman 11:03
it makes sense exactly, not where it’s convenient to have a lock and key, you know,
Fernando 11:09
we don’t live near the property so that we want to make sure that that lock can communicate with with the software that controls the lock via a cellular connection. Okay, don’t want Wi Fi, as we know, you know, the house is vacant and maybe doesn’t even have electricity. So they’re
Jason Hartman 11:24
not gonna have Wi Fi so it means cellular, but Fernando, it’s not that bad. You know, this is this does more than you led them to believe you gotta tell them a little secret. So here’s the way this chemo lock works. Okay. And I know sometimes on the show, we talk about big, elaborate macro trends in the economy, and big, elaborate investing philosophies. Now we’re just being a little practical today, folks. So we’re talking about some nuts and bolts stuff. You know, on a future show, we’ll talk about the big, you know, elaborate stuff, you know, or the big philosophical stuff. But here’s the way this works, basically. With the Kibo lock, you can provide access to Contractors Repair people, prospective tenants, prospective agents and property managers that you might want to hire. So they can look at the property and insurance agent, whatever, right? And here’s the way you do it. It’s pretty cool. Even though it doesn’t have everything Fernando wants, which I agree, I want all that too. But it’s, it’s a step in the right direction. And so here’s the way it works. You download an app to your smartphone, and you can control that lock via Bluetooth. But you can control it via Bluetooth, sort of as a proxy through somebody else’s phone. So that person is local. So it might be say, a painter, and you say, hey, go paint this house for me or go give me a quote on painting it. The painters got a smartphone, and you tell them to download the Kibo app, which is a free app, they can just download in the app store and then you basically Link over the internet with their app. And you basically give them through the internet a key to that lock. And that key has an expiration on it. And as soon as they open that lock with their smartphone, you get a notification saying a lock was open, so you know exactly what time they opened it, and what time they locked in. Okay, so that’s pretty cool. Even though there’s no Wi Fi or cellular, it works through Bluetooth as a proxy.
Fernando 13:31
Okay, of course, we need to, we need to see how it works in real life, as we all know, to make a connection via Bluetooth with your car can be very frustrating when you have multiple devices. And so when you when you when you have a Bluetooth enabled car, where you’re trying to connect your phone, oh yeah, a car. Yeah. And if you have multiple devices, you know, there’s there’s issues that I can imagine with the tenants, nine, maybe two Have the Bluetooth enabled or not making the right call.
Jason Hartman 14:02
Remember, the lock is a regular key on it. So your regular tenant will probably just use a key, okay. But you can use the electronic functionality of it too, right? And so like, what I can see happening is, the person downloads the app, they get the key from you virtual key, and then they go to the door, and it won’t work, because maybe the Bluetooth on their phone is turned off. Right. Like, sometimes I forget to turn mine on. Like, why is it? Well, it’s not on Yeah. And so you know, there, it’s certainly not perfect. Okay. But you know, the point is, investors Look, it’s an amazing time to be alive. And these technologies are progressing to empower us all more, so that we don’t have to be beholden to a property manager and we can manage and run our properties from around the world. It’s it’s truly amazing how you can do this nowadays. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. What you’re going to talk about in the upcoming panel that we’re about to play the recording from is about these lock boxes that do that, right. And so stay tuned for a moment and you’ll hear more about that without boring them on this lock subject and the flooring too much. And what else do we want them to know from from this any takeaways? Today? nursing homes are far more complicated than they were one of my friends who promotes assisted living. I think that’s a great idea, but like anything, you gotta be a specialist. And it’s much more complicated in real life and all the promoters make it sound. I hope I’m not that guy, by the way, because I constantly talk about, I think what we need, we need to tell
Fernando 15:49
him tell anybody that is scheduled to host a booth in an expo that you must know about your product, how
Fernando 15:58
you’re gonna get customers that before I’m aggravated very quickly. I think you had that experience today.
Jason Hartman 16:03
So I’m one of my apartment complexes. I wanted to do some repaving why and in my mobile home park to same thing, you know, because the blacktop is looking pretty ratty. Okay. And I walk up to the booth and well, you know, how much does it cost to do a parking lot? What’s the price per square yard? And they don’t know. It’s mind boggling. Well, and I understand completely depends on the condition, right? Is it level ground? Is it all you know? Do we have to do a bunch of move some stones and rocks? And is it all Alligator, as they call it? You know, with the, with the, you know, the way it breaks up over time? I get it. I get it, I get it. But where does it start? You can’t even give me the starting cost. Are you kidding? Like
Fernando 16:46
it’s a secret? Yeah. Well, he does. He does, he truly did not know.
Jason Hartman 16:50
So we looked at some screening services. That was kind of an interesting discussion with the tenant screening service. Yeah, also. The other thing I just want to mention You investors. I, you know, this one is something I have not talked about very much over over the past 728 episodes. But I, you know, I really want you to consider adding a little color to your properties in the interior. I think, you know, having an accent wall that has a color on it would be a pretty good thing. I think it would be attractive to tenants, when that home is vacant, and they’re looking at that. I just think that really lightens it up. I remember a bunch of my properties and offices. When I have regular real estate offices. And I had, you know, homes I was living in that I own. I would paint this beautiful color. It was Ralph Lauren Molina red or Malaya red, I can’t remember. But it was gorgeous. And all the other walls I just leave them alone, but I just do one wall in that color and people constantly commented on how beautiful that was. And the Ralph Lauren you Want to buy that brand because it’s outrageously price, but every other paint vendor just copies it, and they give you this exact same color. And you want to do this with, again to make your properties more durable eggshell finish paint or low sheen finished paint, because flat paint scuffs up, and it looks so bad so quickly. You want your properties to be durable, it’s slightly more expensive, not much, but doing the eggshell or low sheen paint is a I mean, talk about lowering the cost of ownership over time and properties. Fernando you’re nodding your head like crazy Oh,
Fernando 18:35
yeah, no, I agree. 100% because with with eggshell, the low sheen finish you can, there’s a good chance of you being able to just literally wipe off some of those marks on the wall and not not have to do painting a
Fernando 18:49
painting
Fernando 18:50
or the only issue. The main issue with with these lotion paints, including egg shell is that the touch up is very tricky because over time that Changes mellows.
Jason Hartman 19:01
Yeah. But the idea is you don’t have to do touch up in the first place, rightfully, you know, because the last one, I remember my last calcium Orange County that I sold in 2011. I had eggshell paint on there and I lived there for seven years. And that paint look pretty good the day I moved out. Now, of course, the new the new buyer did repaint, because I went over and saw them afterwards. But, boy, it I couldn’t believe how durable it was.
Fernando 19:28
Yeah, really. That’s definitely the right choice.
Jason Hartman 19:30
Yeah. Good stuff. Well, hey, I think we ought to get to our segment today without going too long here. Be sure you go and check out Jason Hartman comm for some great properties. And check out Hartman education comm for some great educational products. Several of you have expressed an interest and a couple of you have signed up for the venture Alliance. We’ve got our next meeting coming up in the beginning of December, tentatively planned for our hometown near Scottsdale, Arizona. Right here locally. So that’s going to be a great event more to come on that check out venture Alliance mastermind for details on the venture lions, high level mastermind group. And let’s get to our segment where we talk about self management on this great panel with Fernando and Oliver. Let’s talk a little bit about managing your property manager versus self management. We’ve got Oliver and Fernando here to talk about this. You’ve got 70 units. Now, you said a very interesting thing to me at I think it was the last week the Masters maybe the one before possibly. And what you said is you said some of your self managed properties are easier than your property manager properties. Really? Yeah. Yes.
Fernando 20:46
Tell us about that. So there’s different aspects of it. One of them is just because you have a property manager doesn’t mean necessarily that the properties are on cruise control. You have to look at the statements you have to ask Prove items you have to be on top of items that look suspicious on the on the statement. There’s time evolved in talking to your property managers. And if you add all of that up compared to self management, it does play a role into which one is easiest thing.
Jason Hartman 21:18
So how many units are self managed in your portfolio? And how many are property managed by manager? So actually,
Fernando 21:23
I have I have two new things that you don’t know about
Jason Hartman 21:27
All right, that’s gonna be pretty huge. I can’t wait to hear you and we’re gonna hear.
Fernando 21:31
So I prior to in the last meet the Masters I had about 10 properties that were self managed and most of them were in Austin, Texas. Austin was a good choice is a good choice for self management. Because the tenant pool in Austin is the B plus there’s a lot of tech industry in Austin and the properties that are that I own there are BB plus properties and therefore those those tenants are easier to deal with a lot of them. They are tech savvy. If there is issues, they can do some of the research, they sometimes can fix the properties themselves. They use email, you know, they, they can communicate well, they’re, they’re easier to deal with
Jason Hartman 22:11
the basic concept there is a more sophisticated tenant is easier to deal with. As long as they’re not a lawyer. I had a lawyer called me up. He said, my wife and I want to rent a property and we have two dogs. And we’re both lawyers. I’m sure you don’t want to rent two lawyers and two dogs, right? He said that not me. I didn’t say anything. But he does. Yeah.
Fernando 22:34
But the most interesting aspect of it is that the dynamics when you’re self managing in this sort of B to A type, tenant pool, the dynamics are just different in that the tenants tend to ask for a lot less things and they tend to be self reliant, which means that you have less issues. A lot of times the tenant will say, oh, send an email, because they use email and like some other Johnson tenants, and they’ll say, you know, there’s a problem with the AC, what would you like me to do? I already checked. And there is a local guy here if you don’t have anybody available, maybe I can call the local guy.
Jason Hartman 23:11
That’s how my Houston tenant was self managed property. Just he did all the work. It’s amazing. Yeah.
Fernando 23:15
So I smiled, and I said, Oh, please contact the guy, let me know No, you know, reimburse you, whatever is needed. There was another case where there was a leak in the flooring got wet. The tenant, you know, took out the part of the carpet that was wet and called somebody to see if that could be addressed and was not just telling me what the problem was, but also provide well being sold. Right there,
Jason Hartman 23:38
which is just awesome. Okay, so here’s the thing that happens with self management. So first, let me just tell you what happened to me and on the road to self management. I had a Texas property, property manager wrote a letter I’m getting out of the business. I’m not gonna be doing property management anymore. And so I had Karen, my operations manager at the time recently Searching other property managers. That was a market that we weren’t very active in. Okay. At the time, she started researching other properties manager, she found a couple of them said, you know, made some suggestions. I was just busy and I did not get around to actually hiring a property manager. following month, I get a check in the mail with a nice note. Hi, Jason, I heard that I should send the checks to you right now. This is your tenant on so and so’s Street. And he wrote me a nice note, right? And he says, If you need anything, he says this to me if you need anything. Here’s my number and email address. Right. And he stayed there for about I think three and a half years. And he was awesome. I couldn’t believe it. I just after receiving checks from the tenant directly for get this property I’ve never seen a tenant I’ve never met. Right? I just thought it was a phenomenal experience and what I kind of realized, and I know a lot of you are thinking well, I can’t self managed properties from a distance. Well, two things about that. Number one is in the vast majority of cases except for maybe annual inspections. How do you think your property manager knows if there’s something wrong with the property? The tenant tells them, right? You know, the tenant is the monitor of the property. Okay, not the manager, the manager doesn’t live there. Obviously,
Oliver 25:15
I think ultimately what it comes down to is really setting the expectation up front as much as you can with that tenant. So in terms of, you know, setting the expectation of when something does go wrong, these are the steps to take, whether it be send me a text right away, or if not, send me an email have some sort of correspondence. And if you even if you want, you can even set the expectation of if it’s under a certain amount, for example, like 100, or $200, you can go ahead and do so if you know and if we have any issues with it thereafter, then we’ll take care of it. And there’s very easy ways to actually to credit the tenants with certain programs, that we can
Jason Hartman 25:49
make a deal with a tenant saying that they have to do the repairs under a certain dollar amount. I mean, I know landlords that do that all the time. See, here’s what the other thing that happens with self made management is that the tenant has the social pressure of maintaining a relationship with you, and you’re going to attest to this I now. Okay, so the tenant needs to maintain this good relationship with you as the owner. And with a property management company, ABC property management, they just sort of act like they asked for everything, oh, I saw an ant in the kitchen, you better send an exterminator over, you know, a light bulb burnt out, I’ll come and fix it, you know, and, and when it’s when it’s a person that they’re dealing with, and they know you’re an owner, you’re the owner of the property and they have that social pressure of needing to maintain that relationship with you. They literally, at least in my experience, they just don’t ask for that much.
Fernando 26:44
It’s a similar concept. When you go on vacation and you stay in a large hotel, any little thing that goes wrong, you feel at least I don’t feel you don’t feel bad about asking for them to come fix. But if I’m stay, doing a home exchange or staying in somebody’s home, you know, you You have a different relationship with a person almost embarrassed to say certain things and he just fix it. Yeah. So that is that is definitely a true you are attended. And so am I. Interestingly at the moment we both read
Jason Hartman 27:14
I love renting because, well we have to touch on why right? Okay? So, you know, when you rent a high end property, it’s such a good deal because the rent to value ratio just gets all out of whack and the delta between these two are just mind boggling, right? You rent if your property is under $200,000, you should probably own it. If it’s over $200,000 that delta gets bigger and bigger. And if it’s $2 million, you’re definitely better off being a renter. But what about that?
Fernando 27:46
were you gonna say about repairs? Right? I can I can see that dynamic playing with myself as a tenant. If I have an issue with the house, and I’ve met the owners and I know them, you know, I fix it myself. Before Thinking of asking them it’s almost embarrassing.
Jason Hartman 28:03
If you lived in some big institutional apartment or you had a property management company managing that property. Not you would no hesitation or hesitation. Yeah, it’s interest. Interesting. Yeah.
Fernando 28:12
Yeah. All right. So the two updates that I wanted to talk to you about, I think it was either last meet the masses or two years ago where we, we talked about that flat fee concept. You remember that
Jason Hartman 28:24
two years ago, two years ago, year and a half early?
Fernando 28:26
Right. So I actually have that in place with my property manager in St. Louis.
Jason Hartman 28:31
Ah, so what tell us what the deal is, right? So percentage Did you read it? So I have
Fernando 28:36
eight buildings in St. Louis for plexes to four plexes and the rest of duplexes and I was being negotiated about 8% monthly fee for property management, plus the lease the normal lease up fees and, you know, some percentage of maintenance that they charge on top of the regular repairs. So this is the old deal, old deal. You know, that’s what most property managers do. I wasn’t too happy with this property management company. And I decided to switch over to some other property managers that I had a relationship with. Previous to the to the one that I have in St. Louis. And I negotiated with a property manager a flat fee, that includes the regular monthly fee. That property managers charge in my case 8% includes all the lease up fees, the renewal fees in any other of the nickel and diamond type of fees that you might see in a regular property management, me negotiated a rate of 12% that would cover the entire everything. Yeah, the whole thing.
Jason Hartman 29:37
What about on the late fees, everything. So in other words, they get 12% of the late fee, and you get the rest instead of them keeping it all exactly
Fernando 29:45
okay. Right. Interesting.
Fernando 29:46
So it’s a very simple equation. And we just started about three months ago. And the deal is that as I add more properties, so So what I’ve done is I’ve tried this model with One building. And if it works well, I’ll be moving over some of the buildings from my traditional property management agreement to this new model.
Jason Hartman 30:10
So this is what I had suggested at meet the Masters 2015 that the property management fees and we talked about it with our local market specialist meeting on Friday before this event, I suggested that it’d be a flat concept where instead of having clients feel nickel and dime, that they actually pay a higher percentage. I didn’t name what that percentage was. It’s just whatever people agree to these are not fixed by law. You know, there’s competitive market, obviously, but actually pay a higher percentage, but know what I call garbage feeds. No lease up fees when a late fee is collected from the tenant because we want to have the interests be aligned between the tenant and the manager when a late fee is collected. The manager doesn’t keep it all as they mostly do. It is split on percentage. So if it’s 12%, then 12% of every dollar that comes in goes to the property manager, but nothing else. No renewal fees, no lease up fees, no late fees in the sense that they keep it all which it doesn’t feel like that’s a charge to you the owner, but guess what, your tenant is your customer, we got to remember that our tenant is actually the one paying the money right? They’re our customer. You know, you don’t want to make the manager predatory on the tenant. In that example, you don’t want to give them too high a motivation to be collecting late fees because then your tenants gonna be unhappy and you’re gonna have higher turnover rate. And that’s not going to be good right? You want your tenants to stay along time
Oliver 31:39
my opinion this works even better with multiplexes because now instead of having what you see the movies Yeah, exactly what you see the Canadian we go to the cinema anyways, it works even better with the four plexes duplexes, etc. Just because you’re now having that one set rate instead of having to essentially manage and look after each expense for every one of those units, like Tell us a bit more about how much time and how much less stressful it is when you’re reviewing those statements everyone write
Fernando 32:05
in also in the same vein, because these are the most transparent tenants and the ones that have the highest turnover, there’s a lot more lease up type costs, either release or new tenants turnover. So having a flat rate works in my favor for those sorts of properties. So
Jason Hartman 32:25
so you’re really excited for the lower rate lower like C plus properties, C properties, right? It’s better, you don’t think that would work on the A’s. I mean, where you have managers or in the B properties.
Fernando 32:37
I mean, I haven’t tried to put too much thought into it. But as Oliver mentioned, the amount of decisions that you have to make and how much of those charges you have to watch out for it just it’s it increases with the lower quality tenant, right, so having a flat fee works in the in the landlord favor. Yeah,
Jason Hartman 32:54
good, good. And I think it aligns your interest with the property manager. One of real problems that may not have occurred to you yet. And it took a while for it to really occur to me is that there’s a concept in business and in law that you can’t serve two masters, for example, if you hire an attorney, they can’t work for you. And the other side too, even though sometimes it might feel that way. Technically, they can’t be working for the other side and for you at the same time, because it’s a conflict of what a conflict of interest, right, the property manager sort of has this inherent conflict of interests. They’re really serving two masters, because they have to serve the investor owner of the property, but they also have to serve the tenant in a way. Why do they feel like they have to serve the tenant? You might think? Well, they do because the tenants, they get angry, and they go online and they start writing stuff on Yelp, okay, or wherever. The property manager does not want that to happen. And they don’t want complaints with the Better Business Bureau and whatever. Even though the better Business girl is a bit of a joke. If you ask me. They don’t want that. So they have to serve two masters, the investor and the tenant. And I find that a lot of times the property managers, they’re reluctant to take legitimate fees out of the tenant security deposit. Do you find this to be true at all?
Fernando 34:16
Not so much that but I can see, I can see where where that would have. Yeah,
Oliver 34:20
yeah, I definitely agree. I mean, there are a lot of tenants out there, or property management, especially whenever any of you have any type of make ready, watch what they put into that scope of work, because you could essentially dispute some of those items so that they actually be withdrawn from that security deposit. as Jason mentioned, they want to stay in the good favor of the tenants so that way, they don’t get bad reviews. Some of the best property management companies I’ve worked with have horrible reviews on Yelp and some other outlets out there. But ultimately, just bear that in mind whenever you’re doing your due diligence and your research online.
Jason Hartman 34:52
And interestingly, you say some of the best you’ve worked with have horrible Yelp reviews because they’re fighting for the owner. Exactly. And those reviews are probably attendance, right? I mean, they may not be owners could review them too, of course,
Oliver 35:03
exactly. Just meet with them as if you can otherwise just do your due diligence in terms of interviewing them asking the right questions.
Fernando 35:10
Jason talks about this all the time, you know, if you if you have a property manager and you have good chemistry with them, if they’re doing a good job, you don’t have issues, keep them. Yeah, you know, they are worth their weight. And I do have one, one property manager in particular that goes on cruise control, very few interactions with them. They work very well. So we’re not touching that at all.
Jason Hartman 35:30
In other words, it’s cruise control for you, not them because they’re doing their job.
Fernando 35:34
Yeah, right. On the other side of the spectrum, we talked about self management. So the next update that I wanted to bring up is in Atlanta, I had a property management company that was managing about 25 of my properties. And I was paying a traditional type of arrangement with them. I was paying them and negotiated down to 7% monthly fees, but they had all kinds of other garbage fees. If it was actually closer to eight or probably more, at least on the fees, not counting the lease operator, that sort of stuff, but they weren’t doing a good job, be very careful with quote unquote, property managers that are nothing more than dispatchers, they should be solving problems, not just passing the problem on to you. Yeah, right. And it really it got to a point that there were in this case, there were two people that working in this property management company, one of them was terrible at this issue, where the the initial come up from from the tenant in the property manager would not provide any solutions when the communication would come to me
Jason Hartman 36:38
essentially pass the problem. Yeah,
Fernando 36:40
please advise. Yeah, right. My immediate reply, Okay, tell me more about it. How much is it gonna cost are there different, it was always the same type of conversation. It got really old very quickly. In I looked at the amount of money I was speaking to them and there’s 25 properties at a standard type of property management, roughly 4500 hundred dollars a month with
Jason Hartman 37:01
25 properties, you are a nice account for them a
Fernando 37:04
very nice account. As I mentioned, there were two people working in this property management company. And I got along pretty well with one of them, which I had a relationship with in the past through through another property manager company. And I wanted to know, if if there was a better way to do this, could I self manage these properties? In what, what I decided to do is to give an ultimatum to the property management company. And I told them that they had to cut their fees by 50%.
Jason Hartman 37:34
Wow, to 20 $250 Yeah, exactly. You can’t say that when you’re only paying the manager $90 a month, just so you know, it’s just not gonna have more leverage. Okay.
Fernando 37:43
Yeah, in the you know, you know, would you would, I will be willing to stay, you know, working with you if you cut your fees by 50%. And if you don’t, what I’m going to do is I’m going to self manage the properties, I’m gonna transfer the properties under the LLC, that The old style on the properties, and I’m going to hire an assistant to help me with the issues of property management
Jason Hartman 38:10
for 20 $250 a month. For 40 $500 a month, you could pay someone 60 grand a year almost.
Fernando 38:17
Well, it gets better than that. Yeah. When I do the math with how much time they actually spend, I asked the property manager, how many hours a week do you actually spend on these 25 produce? Well, you know, so so spends five hours I spent about, you know, five hours, maybe 10 hours a week. So I did the math, I said, Well, wait a minute, if I pay this guy, you know, 30 or I don’t remember what the what the exact rate was, I would actually pay 1500 dollars a month for property management services through through an assistant compared to 4500 that I was paying to the to the traditional group. Oh, I got that guy’s attention. It was a small property management company. So he called me the next day and you know he I think I have 50% margin. In my business, you know, what do you think you’re doing and bla bla bla bla bla bla, and I was very calm. And I said, Look, you might have the wrong business model.
Jason Hartman 39:07
Yeah. Just a reminder, you’re listening to flashback Friday, or new episodes are published every Monday and every Wednesday.
Fernando 39:20
You just might not realize that the the industry is changing right under your feet.
Jason Hartman 39:25
They don’t it’s a really old fashioned Yes, unfortunately,
Fernando 39:28
in in he was he was, you know, telling me that he could not hold the account. And you know, there was no way that he could make this work and would have to end the agreement that the conversation lasted about five minutes. Yeah.
Jason Hartman 39:41
So now you’re self managing?
Fernando 39:42
Yeah. So we started this, three months ago, three months ago, there was a clause, a termination clause that was in a contract that required me to stay with them for 60 days. So the 60 days expired and we transferred over the properties and now we use that folio as part of the Communication with attendance and track of Have
Jason Hartman 40:04
you bought a subscription to App folio? Yeah, yeah, how much was that? 250 a month $250 a month. So. So if you want to really build a good sized portfolio and self manage it, you can just use that yourself. Okay, for example, you don’t need to be in the property management business, but you can take advantage of the software they use. That’s what property managers use at folio. A lot of them
Fernando 40:28
the the checks get directly deposit into my own bank account, as opposed to stay in a few days with a property manager
Jason Hartman 40:34
using cozies
Fernando 40:36
for them so cozy I use for 10 other properties. And that’s cozy is another company that we we love, we love and we had them meet the masses before, right? They do rent collection really well and they set up accounts with the tenants and they have direct deposits coming into your account days after the payment is done and it works really well.
Oliver 40:58
They can actually also screen tenants to which helps immensely because you’re the credit score will show up their employment history. Also any type of criminal record will also show up on some of these reports that you’ll just go to cozy.co it’s not.com.co and it happens seamlessly and only takes about four or five days to actually get your checks deposited. So for anyone self managing that’s definitely
Jason Hartman 41:20
so when you self manage you get your rent faster like my mother, the extreme do it yourselfer, okay and I disagree with her extreme do it yourself or philosophy but a little bit of do it yourselfers. Okay. She’s like a hawk. I mean, I remember I was at the Cleveland Clinic with her and this might be a little overkill. I was trying to take the phone away from her. And she’s literally in the recovery room. Coco and I are there visiting her. Yep, that’s you Coco. Were there visiting, you know, they let the dog in the recovery room, which was kind of cool. Um, and all the nurses fell all over. The dog just loved her. It’s the first of the month and she’s looking to make sure her rents are in her bank account, because she makes the tenants responsibility to go to She’s with a national bank, okay? And the tenants responsibilities go put the money in her account on the first. And if it’s not there, she’s on it. So versus having a property manager, you might not get paid till the 20th of that month because they’ve got to collect and do their process. And the check has to clear and then they send a check to you or they deposit direct deposit, hopefully in your account. If you’ve got a good property manager, they’re worth their weight in gold, I mean, an income property. Because gold isn’t that great, as we’ve discovered. But, but if you’ve got one that’s just not that good. You know, you might try self managing. Sometimes when you do things directly. It’s actually more efficient than having someone else do it. Like if you look at two US presidents right, and one that I kind of consider to be a pretty bad president, one that I consider to be a pretty great president, Jimmy Carter versus Ronald Reagan. Now, this was way before my time I wasn’t even born yet. But I hear about them and watch some documentaries. And so you know, Carter was like This He did everything himself supposedly, which wasn’t really true. But that’s the image. He liked to portray the common man thing, right? And Reagan was like an executive, he was more like a delegator, right? And some things, it’s just easier to do them yourself. And if people try to tell you, oh, Jason, you got to delegate this. They say to me, right, you said this to me. And sometimes it’s true, it should be delegated. But sometimes it’s literally just easier to do it yourself. And with technology that we have nowadays, a lot of times it’s easier. I mean, look at the example of you go into some usually older executives office, and occasionally you’ll go into their office and there’s no computer on their desk. It’s kind of shocking. Why have a secretary for that? Are you kidding me? Like, you know, to type an email. I mean, just that’s just so inefficient. It’s just easier to do it yourself to now have a third party. So sometimes it’s easier you take out the middleman and go direct, but I think you really hit on it. It depends on the type of tenant Yeah,
Fernando 43:57
if it’s a and b 10. Probably much easier if it’s a C tenant. You know, it’s not as easy to self manage it. I know most of you listen to the podcasts. There are a ton of companies that you bring up in interview the executives of these companies and the owners. And they tell you about the services that were traditionally done by property managers, like all Lockhart type services cozy we just mentioned that or rent Lee calm, which does the lockbox and stuff, we have the national eviction podcast that you had the other day, all of these pieces that were under the umbrella of a property manager can be done more efficiently with all of these companies. Yep, you know, directly and that’s what essentially self management is, is the ability to be able to create accounts and have these companies work directly with the property in this case or with me or with the, with the bank for direct deposits and that sort of thing and make it happen for you instead. Having a property manager be the minimum
Jason Hartman 45:01
in the beginning of the internet era, the first.com bubble that happened shortly after, but you know, late 90s, early 2000s the big word in the tech world in the internet world was disintermediation, right? Getting rid of the middleman. And you know what you can deconstruct a lot of this stuff and it’s sort of all a cart now that you really can do it more easily yourself. And one of the visions that Fernando and I have with real estate tools is to create this platform that in my dog moves like a cow, it’s hilarious. Did you hear that way back there, Coco. What do you think? Yeah, there she is. He’s behind Fernanda there. So one of the visions we have is to create this platform that empowers investors to self manage, and if they have a manager empowers them to work better with your manager. You know, they get the choice of how they want to do it. One thing I wanted to say About Oliver’s comment and it’s really related to cozy is that there is a big sea change happening in the world of renting a property and you need to know about it. Because it matters to you as investors probably matters more to the tenants. But it’s just important to think about this and how it’s going to play out over the years cozy just did a big deal with the National Association of Realtors. There are other companies doing big deals to work on this type of stuff. And the concept used to be and still is largely where when a tenant because remember, we’ve got to understand their experience have the tenant experience, not just our own experiences the landlord when the tenant goes to look at different properties, and they see one that they like to rent, they fill out an application with that individual owner and they pay them an application fee, you know, that will cover the cost of the credit report plus, frankly, make the owner a lot of money. Usually a lot of owners make a bunch of money screening tenants, frankly,
Fernando 46:58
that’s how close he makes money. Yes, because they’re coming election is free, but they make money on the report.
Jason Hartman 47:02
Yeah. And on the float how much they charge for the reports for the tenant, you know, I think it was like 35, maybe $50. That’s pretty, pretty cheap, compared to some that are 250. It’s absurd. And yeah, really kind of ridiculous. One of the sea changes that’s happening is instead of tenants applying for individual properties, they now go to one centralized place like cozy, and they create a tenant profile. And I did this myself as a tenant on Zillow, where I basically went in fill out a profile put in, you know, here’s my income, here’s my whole scenario. And then if I get these alerts for properties, I it just says, send, you know, send your report to the manager or the landlord or the owner, right. And I just click a button and they get my report and they call me right back because I say this looks like a pretty great tenant. Thank you. And, and so that’s the way it really should be. So what does this mean to us? Well, we don’t know yet frankly. But one of the predictions I would make is that this is becoming a much more fluid liquid frictionless market with landlord tenant relationship. That means that it will be easier for tenants to search for new properties and find new properties. And that’s the same way with things like jobs. In the old days, people’s resumes weren’t perpetually online, but now they are with LinkedIn. Everybody’s always available for a job. And if you’re married, everybody’s always available for an affair on Ashley Madison. Okay, you know, it’s like, no one ever. The deal is never solid anymore. It’s kind of a terrible thing, in a way, right? So it’s much more fluid and dynamic. And that’s what’s gonna happen with tenants. I think it’s gonna be a lot easier for them to shop. Oh, yeah. And that’s going to work for us sometimes and against us. Other times. Yeah. But certainly if we want it to work for us, we have to be using the modern technology, because that’s where the tenants will find us versus If they’ve got to go if they call up about a property, and they see an ad on Craigslist or something, and you know, they say, well come by, take a look, fill out an application pay me an application fee versus ours. They’ve just done a cozy profile and we’re using cozy and they can just easily apply to us, right? We make it easier for the tenant, make it easy for our customers to do business with
Fernando 49:21
us and even viewing properties. I mean, did you talk to rent Lee? Yeah, on your podcasts or no? Yeah, I’m pretty sure that the ones with the lockbox where you can get a credit card.
Jason Hartman 49:30
That’s the one where I sent you that. I think I sent you a voxer message from the Ironmen conference.
Fernando 49:34
Oh, yeah, that’s better. Yeah. Yeah. So we are using rent in one property in Austin. And
Jason Hartman 49:41
actually, wait, do you hear this? This is awesome. Okay, explain to them how it works. It’s so awesome. It’s an amazing time to be alive.
Fernando 49:48
So really rent Lee essentially puts lockboxes into homes and you have access to the home by providing your credit card information. As a tenant, you can view the home on your own. You don’t need a property manager, you know, you just sign up online and you can go and check out if you like the property or not, you know who was there because they had to give their credit card in order to, to go there. And it’s very convenient to get these reports that come online, and you can, you know, see what the activity is. You can see if your showings are going well. It’s a very interesting model. The piece I think that rambley still needs to work on is that the boxes can be placed in the home, but they don’t physically deliver the boxes to where you have right properties.
Jason Hartman 50:42
So you can’t really do it yourself. You could use TaskRabbit
Fernando 50:46
TaskRabbit. Or you can use a tenant, the previous tenant so that’s what we
Fernando 50:51
write is can you put this lockbox there,
Jason Hartman 50:54
and what do you ship it to them? Do you have them in your house or do you ship it direct from rently really sensitive to them? Isn’t Isn’t this amazing? Do you see how empowered you are nowadays? I mean, once you have that, folks, are you awake? You shouldn’t be amazed by this. Do you know how difficult it was to do all this stuff before? You need more logistics that you could just
Fernando 51:17
couldn’t do it?
Jason Hartman 51:18
Yeah, if you have enough coffee coffee is a superfood.
Fernando 51:22
Okay, this coffee is great because it’s
Jason Hartman 51:24
this coffee is pretty good here usually hotel coffee. Actually like this coffee pretty well. Usually it sucks.
Fernando 51:30
But But the key thing so if you’re right, this is awesome. Because once you have a lockbox that is controlled remotely. You can have people that contractors go out there and do events on your property or do make readies or move out or move ins. You now have control and that’s what the like the property managers. That’s where I had the argument with that guy in Atlanta is that he’s
Fernando 51:56
changing Yeah, you know, it’s it’s not that hard to put lockbox and and i think control here, you know, via a mobile or mobile device, it’s
Oliver 52:06
just to give you an example for that as to how easy it can be. We had a we had a completely remodel, we had to take some carpet out and put laminate floors. And we actually had the entire job done without a tenant or anyone actually being present at the house. We coordinated everything via email. So there’s
Jason Hartman 52:26
no no property manager or agent or nobody to lead them in
Fernando 52:29
this thing. Amazing. It was absolutely, it was unbelievable. The first time we’ve really done that seamlessly. And you know, the the person that was there just called me up, took pictures of the place and have the job done. Also, you know, before and after pictures, it was quite easy. Ultimately, I think what we’re all getting to here is there are so many different mediums out there to really self manage and it can be quite easy no matter where you are in the world. Up in the Canadian Arctic or down over here in California, Canada. We do have internet up there. We actually do, yes. But ultimately I, you know, getting to yes back to some of this is that you really can do it. For some of you that are getting into this for the first time. self management is not really something I would recommend. That’s my personal recommendation. I would definitely suggest getting in getting a property management lease for the first year maybe to seeing how it’s really done, seeing what type of expenses typically come up with your property. And then if you decide to take the plunge, go forward and try it out with one property, and then add on more as you feel more comfortable.
Fernando 53:41
Yeah, I second that I did not start with self management. I thought it was much it would be much easier to just learn first with the existing provider. So when you you guys purchase a property in there’s a provider of property management that comes along with the provider, it’s probably a good idea. To start out with those, and you can always change property managers, I’ve done that over the years in self management and in different properties. And
Jason Hartman 54:07
you haven’t been that many years in this. You’re four years in, right? Four years. Yeah. Over the years, he says, Well, you got a lot of properties. So it’s like dog years. Yeah.
Fernando 54:21
mistakes you make and the more they are doggy,
Jason Hartman 54:24
which is a great point, fail fast. Don’t be afraid to fail, but fail forward and just learn from a quick so when you have these experiences, like if you’re newer, and you’re not into this self management idea, and you think we’re crazy up here, right? Which we might be crazy, okay. It’s not perfect. There are some real pitfalls that can happen with self management to assume that the experience you have with your property manager is them, teaching you to be a manager. Okay, view it like that. They are your free tutor. You know, you’re paying them to be your manager, but you’re going to Learn about property management.