Jason recently had a very special guest on The Creating Wealth Show – his mom! She happens to be an extremely experienced real estate investor and has taken the art of self managing her income properties to the next level. Jason calls her the “extreme do-it-yourselfer” and there is a lot we can learn from her. One of the things she excels at is getting the absolute highest yield out of her properties. Perhaps his mom’s approach is more extreme than even he would recommend, but Jason is a firm believer in taking control of your properties. He suggests that a hybrid approach is suitable for most people. This includes getting help managing the tenant turnover, but collecting rent yourself without a manager in the middle, potentially skimming something off the top. At the time of this interview, Jason’s mom was headed out the door to buy three more income properties in Florida. She recently bought three others there, which would bring her grand total to ten in that state after this buying trip.
As much as Jason bashes and complains about property managers, his famous question – “compared to what,” applies even here. Managing your real estate portfolio yourself even with the help of a property manager is still better than attempting to invest on Wall Street where you have no control.
Marketing to Potential Tenants
What does Jason’s mom do to get the house ready for lease? And how does she market to get new tenants? In the good old days, one would have to go around putting up signs, but thankfully those days are long gone. Posting your property on Zillow and Zumper is a very easy solution. Jason recommends you get a real estate photographer to take really good photos of the property that you can use over and over for many years. Don’t trust the agent to take photos. Sensibly and intelligently arrange the photos on your posting to show some greenery and a nice lawn photo as the first photo, and then intersperse other outdoor photos between white walled indoor photos. Handle this part yourself so you are confident about the results because in our extremely visual world, photos count!
The next step for an active self manager like Jason’s mom is to schedule a property tour where everyone shows up at the same time. By doing this, you create something akin to a bidding war among potential tenants. They fill out the application on the spot and you can go over it with them right then and there. Before the day is over, you’ll have a pretty good idea of who people are once you combine their application with that final credit report.
If you are doing a hybrid approach and can’t physically go to the property yourself to host a property tour or meet potential tenants, you will do this through your manager who will give you his or her feedback from the screening process. Then, Jason and his mom encourage you to run a credit report yourself and not rely on a third party. There are many subscription sites which do credit reports, background checks and eviction history. You will have all of the tenant’s data in your own file and avoid information being withheld from you by a property manager. You are in control. Do not forget Jason’s Ten Commandments of Real Estate Investing: thou shalt maintain control.
Leasing Up New Properties
Jason just leased up a few properties using his hybrid management strategies and documented and shared his entire experience with the members of the Empowered Investor Inner Circle. Join this incredible community, even if you don’t self manage; you will undoubtedly become a better investor. Jason had his tenants pay three full months up front – first, last and a security deposit. If tenants take possession on an odd date, they still need to pay a full month’s rent up front. The second month is prorated to reflect the date they took possession in the first month. In doing so, you start out with more security for you. A lot of managers will allow tenants to move in with less. Do not allow this to happen. You must get three full months of rent up front. Jason also charged pet rent. Many managers will object to this, but you’re in charge now, so consider it!
How do we manage ongoing relationships with tenants? Jason’s mom recommends you check immediately that the tenant has changed the utilities in their name by calling the utility company. She also recommends collecting rent payments with Zelle; they are easy to set up and arrive immediately. She was checking her due rents from the recovery room in a hospital once, saw that a payment was missing and called a late renter right there and then! So as you can see, self management can be done anytime, anywhere.
Index Inflation By Gradual Rent Increases
The biggest fear that most people have when it comes to self managing their properties is what to do when you have tenant turnover. Jason’s mom increased rents recently and two tenants moved, but she saw it as a great opportunity to get better quality tenants. However, most of her tenants stayed in the properties and accepted the rent increases because the rental market is tight. She uses Zillow to compare rents in her neighborhoods and it’s amazing how fast they are increasing. You might raise rents one year, then a year later by doing some research, discover that you are way behind the market! Rents are a great hedge against inflation as investors.
You must index inflation by raising rents gradually year over year, as opposed to shocking a tenant with a large increase out of the blue.
What about evicting a tenant? How does Jason’s mom deal with it? Well about eight years ago, she underwent eviction proceedings to remove a tenant who was lying about not being paid and therefore not making rents. The tenant went to an attorney to see if she had the right to evict him and found out he had no case and decided to stay. He ended up paying the eviction charges and brought the rent up to date and has been an excellent tenant ever since and is still there!
Property Managers and Security Deposits
What do you do when a tenant gives notice to move because of rent increase or life change? Since most rental property investing is long distance, it might be difficult to go to the property and do a walk through before leasing it to a new tenant, but if you can, this step is highly recommended. There are many reasons to self manage and this is one of the most important reasons right here: too many property managers are reluctant to dock the tenant their security deposit for things they should absolutely be paying for, things that aren’t normal wear and tear. Your contract makes it clear what the tenant is responsible for and oftentimes, property managers don’t want to charge the tenant because they are afraid the tenant will write a bad review on Yelp or complain about them somewhere. This is the biggest problem with the property management industry; they are trying to serve two masters, us and the tenant. Jason’s mom always gives tenants houses that are perfectly painted with washed windows, working appliances, lawn and hedges trimmed and expects to find the house and landscaping in similar condition when the tenant leaves. Repainting after many years is one thing, but having to repaint after one year of renting is not typical wear and tear and the tenant should be charged accordingly. As a rule of thumb, paint jobs should last five years and the cost should be prorated to tenants.
Choosing Your Own Contractors
What about hiring contractors? We have a lot of technology available to us nowadays, but Jason’s mom is a bit more old school. Granted she did throw out the yellow pages a few years ago, but this can be done without using any apps or software. Here’s how she does it: simply search online for painters, etc. in your area, then beginning at the bottom of the third page, start making phone calls asking for quotes. It actually doesn’t take that long to call 10-15 people and before you know it, you will have several good estimates and you will know what the job should cost you.
How does this apply to Jason’s hybrid approach? You can have your property manager get you at least three quotes (more precise than estimates) and once you successfully hire a contractor that you liked, you can use them for other properties in the area next time if you have them, assuming their prices stay competitive. Since the investor industry has taken off considerably, many of these painters and contractors have expanded their services and will now do the job of several different contractors (or they will just line up friends and colleagues that they work with and give you an inclusive price). More and more, we are seeing this concept of the holistic, whole house business emerge and they will just handle it all for you: painting, landscaping, HVAC, etc. If you can land on someone trustworthy to handle it, this all inclusive approach is incredibly convenient.
It’s important to maintain a good relationship with the tenant. If something breaks, fix it if it’s your responsibility. Most tenants are good people, they will help you more than a property manager will. They just want a nice place to live and to pay a fair rent. Jason has had tenants that, without asking, got him quotes for a new HVAC system when it needed to be replaced. Consider your tenant (not your property manager) the watchdog of a property and an ally.
So roll up your sleeves, get in the trenches and make the phone calls yourself. Sure, Jason’s mom is the extreme DIY example, but she has shown you how things can be handled easily and without consuming too much of your time.
Exciting things are happening in Jason’s community! Join us at Jason’s second virtual event “Creating Wealth,” on January 28th and 29th, 2022. He’ll be taking a deep dive into original, cutting edge investing techniques which have yielded incredible results for income property investors for years. Register now!