105: Passive Income as it Relates to Property Management Services

Episode Transcript

Welcome to Episode Five of season one of the Growing Empires Show. Today we're going to talk about passive income as it relates to property management services.

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Welcome to growing empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

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So what is your definition of property management services? So typically, when I ask somebody what their definition of property management services are higher things like I need somebody to help me lease the properties market the properties for rent, screen tenants, handle repairs, and maintenance, collect rent, and potentially help with evictions. And I would say that's a pretty well rounded assessment of what a typical property manager will do. My question to you is, is that a passive investment or an active investment, and in many cases, I think I would Get a very different answer depending on who I asked and what their experiences were in typical property management.When you have somebody handle the services that we just discussed leasing, and marketing and screening of tenants. Typically you're left to making a decision on the tenant, potentially looking through all the screening reports to make sure that the tenant is the right tenant, you may be tasked with following how quickly the property is leased.

And if it's time to maybe make a price reduction to get a qualified tenant. But it's gonna require a little bit of your time to pay attention to if your property is being leased quickly enough so that you're not swallowing up your potential cash flow as it pertains to repairs and maintenance. The same could be true typical property management is a call comes in. They take care of the maybe a 24 seven service regarding repairs and maintenance. But are you required to answer the phone in the middle of the night for an emergency Are you going to have somebody that can just make a decision? Are you going to be called for everything on your property? So for example, an appliance breaks. Are you going to be called about that? Do you need to make a decision? Or are you going to look for somebody that's just smart enough to realize you got to replace the appliance? If it can't be repaired? Then there's the rent collection? Are you going to be able to get reporting from your property management company?

How often you're going to get that reporting? Is there somebody watching your cash flow? And are they acting upon it when your tenant doesn't pay rent? Or is this going to require you to check on the income on a regular basis to make sure that it's being obtained? And all the answers to all those questions is really going to help you determine whether the property manager that you hiring, run their operation in a manner that requires you to be an actively involved investor, or whether you can sit back and relax and trust that your investment properties being looked after and cared for appropriately? My definition is that I believe the right property manager or the right property management company, allows you the investor to have a truly passive source of investment opportunity. And it should allow you to be limitedly involved, if involved at all. And if done right, you should be able to get to a place with your property manager, where each of you understands that you're in a business relationship, and you're both looking after the money.

Essentially, your property manager is your manager, and you need to think of it like a manager in any other organization. Do you trust that person to run your business? And if the answer is yes, then you have found a great property manager and one that's going to allow you to have a passive investment vehicle. If the answer to that question is no, then perhaps you need to keep looking for the right type of property management company. By definition, I believe that buy and hold properties should be passive investment vehicles not active unless for some reason you have a great deal of time and can just do it on your own. If you're going to take the time and energy to hire a property manager, you need to make sure that they have the capabilities to make sure that your investment is a completely passive investment vehicle.

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The episode will continue in just a moment.

04:16 It's true passive income from real estate investing is the secret to building wealth. However, portfolio development takes a great deal of time and experience to be successful. It's important to protect your portfolio so that it remains strong and can continue to provide you with passive income you desire. I help investors bulletproof their investments by developing a portfolio strategy that hedges economic cycles and provides for consistent income growth. I can do that for you too. Start by scheduling a call with me at growingempires.com. Whether you're a new investor or have several properties that need better management, I can help. Schedule a consult today at growingempires.com, that's growingempires.com, and we'll make your portfolio stronger than ever.

What is your desired level of involvement? Those should be the things that you can identify with a great property manager. So for example, when we're bringing on new clients, we talked to them about how involved they want to be with any kind of repair and maintenance decisions on their properties. Typically, we will put a budget in place. So they will not get calls, nights and weekends. Under any circumstances, any emergencies are handled right away by the property management company.

But typically, there's $1 volume involved. And what that will mean is that so let's say we put $1 volume of $250. That means that the property manager is able to make a decision based on the repairs and maintenance of a property as long as the bill does not exceed $250. And if that bill exceeds $250, then the owner has to be contacted, and approval has to be given. But even so, how the approval is given is the difference between an active investment or a passive investment. And this is something that I'm doing passionate about because I've learned over the last 11 years, how to create a vehicle for people to have a truly passive income that they do not have to think about. So as an everyday process, I teach my employees that they're the experts. They're the experts in our market, they're the experts in our field. And it is their duty to provide the owner with the least amount of questions is their duty to provide the owner with the most amount of options where the owner can say the landlord can say yes or no.

And if what you're bringing to the owner cannot be answered with yes or no, we did not do our job as the property manager to think of all options first. It should be a very, very quick answer, if done right. So for example, we talked about the appliance a second ago. So we have an appliance that's broken. I sent the repairman out, it's going to cost $50 for labor in $10 for materials, so $60 I can have it fixed today. Or I can buy a new appliance and that new appliance is going to cost $400. Which way do you want to go. And if you have somebody that's not experienced in passive investments, how that conversation is gonna go is going to be a little bit different. So this is what's gonna happen. your property manager is going to call you and say, Hey, an appliance broke today, what do you want to do about it? And now you're the investor taking your time to try to lead the property manager to the water to help the property manager source out all of the options that are there. And now your time is being wasted in your you're taking a great deal of energy to think about and focus on something that is really not worthy of your time.

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So how do you choose the right property manager? First, you need to interview multiple property managers, and you need to be very specific, not only about the basics of property management, that is, you know, essentially one size fits all But you need to think about where your time can be impacted. And what's your desired level of involvement. If you just want to protect your money until you feel comfortable, then you need to make sure that your property manager is willing to take your direction and potentially think on their feet. When we work with investors, one of the things that we do is we always provide them with all of the details, and just allow them to make a decision. And the conversations can be very quick. They don't require a lot of time. We communicate by text, email, phone calls, but that's something that you have to make a determination of, how do you want to be communicated with what's the best message for you if you really can't be bothered nine to five, and most of the property management companies are open nine to five, how are you going to communicate with that property management company? Who's going to look over your money? Who's going to make sure that the rent is being collected? If the rents not being collected, how quickly are they going to act upon that? And are they going to need your guidance to do so? Are they going to wait for you to ask, where's my rent? Or did you file for evictions before they actually go out and do something.

So to help you find the right property management company, I've developed a series of questions that you should ask. You're going to want to talk about all the basic things that would be important to you. How do they take care of their leasing? How do they market their properties? What's their typical vacancy rate? What's their typical occupancy time from vacancy to occupancy? How many days? How do they handle repairs and maintenance? Do they subcontract everything? Or do they have an internal service department? And those should be fairly easy questions for any property manager, you're going to want to ask that property manager, how much time you're going to need to commit to answering their questions. You're going to want to ask them if they feel comfortable making a decision. On your tenancy, you're going to ask them the difference between passive and active investments, because they don't understand the concept of that if they can't even answer a simple question. Theydon't have any concept of real estate investments in general. They're just As an employee of the property management company and they have, there's no way that they're going to be able to look after your money. You're going to want to ask them what procedures they have in place to make sure that tenants are not destroying properties. What's their typical turnover time? How quickly from the time a tenant moves out to the time a tenant moves in? What's the time period like you're going to ask them what they do on a daily basis to make sure that your income is protected? You should ask your property manager if they do a yearly review on their services and your portfolio's performance. Because if your property manager cannot even take the time to sit down with you once a year to review performance, like any other business would probably not a business partner you want to have and then you want to talk to them about your current portfolio. So I would give them examples. I would say this is my current rental status. I have X amount of vacancies.

This is my current rent. What do you think market rent should be? You want to test their knowledge of the local area. What do you think market rent should be? How would I get to that market rent? These are some of the improvements that I need to make to my building. do you suggest that I do them now? Or do you suggest that I wait and why? Again, to be a great property manager, you have to not only have an understanding of the investment market, but you have to know what tenants expect for that local area, what the max rents would be, what would be typical utilities that a tenant would pay. What are the typical amenities that one could expect in an apartment building or in a rental unit. If your property manager doesn't have their hand on the investment world as well as the rental market arena, they're not going to be able to put together a package to protect your portfolio over a great deal of time. If all you're looking for is somebody that you give directive to, then pretty much any property management company can help but if you're looking for a way to Close your eyes, go to sleep at night and not worry about your cash flow, then what you need to make sure that you have is that a property manager that understands how to create a vehicle for you so that your investment can be a truly passive income vehicle. I never encourage anybody to self manage their properties. Unless your property is literally next door or you live in the building. Those would be the only circumstances where I suggest that you self manage. If the property is outside of your local market, I would never suggest that you self manage your property because a great property manager is not going to cost you money. And I think that's a big misconception.

Anytime I hear somebody referring to self management, they always talk about I just needed to save money I needed to save money. Well, I assure you a great property manager is not only going to save you money, but they're going to help you maximize your cash flow. And that is something that you cannot possibly do on your own. If you are not an expert in that real estate market or in that rental market, and there's no way you can be an expert, because if you're not involved in real estate and doing this on your own, you're not an expert, you may have a lot of properties, but you're not a market expert. So I assure you that the best property management companies out there charge the highest fees, and they charge the highest fees because they're worth the most amount of money. And the way that a property management company earns their money is that your cash flow can continue to increase and your expenses can continue to decrease and your cash flow grows year over a year over year.

If the property management company or the property managers willing to put their money where their mouth is, they will take the time to review with you every single year, how your property performed, then they're going to take it very personal that your portfolio is profitable year after year. A good property manager is going to enhance your investment and is going to be focused Just specifically on the financials, they're not going to be your robot or the person you dictate to. So I definitely suggest that he really think about finding the right property manager. Again, unless you're living in the building, there should be no reason why you self manage unless you intend to get into real estate full time. You need to leave the day to day functions to the experts, and choosing the right property manager will help you enhance your investment portfolio and will help your money to grow year over year. I really hope you enjoyed today's episode next week, we're going to be doing our question and answer segment. Until then, take care.

14:38For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit growing empires.com

Season 1JENNIFER DEJESUSJuly 30, 2020Comment