00:01

Welcome to episode 5 of season 13 of the Growing Empire Show. Today we’re going to talk about the reality of managing your own investment property and what is your time actually worth. So make sure you stay tuned.

00:14

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.

00:35

Congrats, you just bought your very first investment property and now it’s time to decide whether or not you should manage the property on your own. The reality is the hard part is over, you found the property that makes the most sense, you’re now adding that investment to your portfolio, and you’ve
got to decide whether or not you’re going to self manage this property. Now, hopefully you’ve decided this long before you’ve actually purchased the property. Because if you were going to hire a property management company, that should have been something that you predicted in your proforma. But let’s say that you’re a little slow to the game, and you are just learning. And you’ve got to decide whether or not you’re going to manage the property yourself. The worst thing you can do is assume that property
management is a part time gig. It is not. Not at all. And we’re gonna go into some of the details today about why it’s so time consuming. So if you are not working, maybe working from home and have a lot of flexibility, it might be something that you can actually do. But if you are working a structured nine to five job, or corporate job, for you to be able to think that you can successfully manage your own property and not risk losing 10s of 1000s of dollars is our true mistake. So we’re going to talk about some of the things that are required to be a good landlord and have a profitable investment property.

02:01

Number one, you got to learn the local laws. Most people invest not close to their home. They invest in other states, other areas and each municipality. So you think of the federal laws, right? You need to know everything that is imperative regarding federal laws, and state laws. And a lot of those things are like fair housing, Americans with Disabilities Act. So there’s a lot of those types of things that affect your rental properties. Knowing what discrimination is and how you can avoid it in your rental marketing and your leasing services. But if you break that down into a much, much smaller chunk, then you have the municipal laws that are dictated by the location of where your property is located. And those laws affect your rental license registrations, your business privilege taxes. It affects your annual certifications for municipal code compliance. You need to know all of those laws. And then in addition to that, you also need to know landlord tenant laws regarding what you can and cannot do, or what the expectation or your responsibilities are as that landlord. So there’s a lot of things just in preparation to make sure that, A, you don’t get yourself in trouble. B, make sure you don’t get yourself sued. But, C, to make sure that you are doing the best that you can to be the best landlord you can so that you can have positive results and not something that negatively impacts your cash flow.

03:29

Assuming you were able to breeze by the first step of just knowing all the laws, the next thing is that you’ve got to make sure that you are drawing up a customized lease. Now many people use their attorney. And if they have a property management company, the property management company likely is well versed in that area and can draw the leases for you. And if you are not well versed in legal statutes and landlord tenant laws in the state that you have your investment properties, you’re going to want to make sure that you do have an attorney draft your lease. But be careful, because the next step of that lease is you being able to have a conversation with your prospective tenant about that lease. So it’s one thing to draw a lease, but it’s a whole other thing to make sure that your tenants understand and it’s clear plain English language so that you can have a discussion with your tenant regarding what you can and cannot do in the building. One of the biggest mistakes that landlords may initially when securing tenants for a property is they never take the time to discuss the lease and the terms of the lease with a tenant. If you think that everybody reads cover to cover, you’re sadly mistaken. That really is not the truth. So it is more common than not that tenants will say things well, I didn’t know I didn’t know that that was a requirement of my lease and that’s because they never read it. So if you just simply send something for electronic signature and you never take the time to outline or discuss the main points of the lease, you’re already entering that relationship on a very negative footing. So after you have your lease drawn up by your attorney, you’re going to want to take the time to make sure that you understand it cover to cover, and that you are able to have a conversation with your prospective renter about the terms of the lease. It is
really important that you get on the same page immediately for a successful relationship with this tenant ongoing.

05:24

Now, assuming you have a vacancy, or will have a vacancy somewhere in your ownership, you’re going to have to know how to set the rental price. Do you have access to market news, market trends? Do you know what market rates should be? Probably one of the bigger mistakes that I see landlords that self manage make is that they have no concept whatsoever, because it’s not their expertise, on what market rate should be. And they almost always are renting their property far under market value. Now, if you’ve got some kind of slam dunk deal, maybe that’s not such a big deal. But when you go to sell, and somebody’s looking at that property for cash flow, the fact that you didn’t get market rates this entire time of your ownership is going to be a negative impact on your potential sale ability. Not to mention all the cash flow that you’re losing during the term of your ownership if you weren’t able to set correct market prices. Now hopefully, if you were using a real estate broker or agent to help you acquire the property, they could have given you some insight to this during your purchase of the property. And if you do not have a property manager, you’re going to need to figure out a way for you to get access to market data that would help you reflect on what an accurate and fair market value price is for your rental units. You’re going to want to make sure that you know what amenities you should be including and what is competitive in that market. So it’s not just about making up a number for rent. It’s also about knowing what your competition is. One of the key factors in making sure that you’re successful leasing your property and doing it quickly, is knowing what your competition is also offering. If you have the best price unit with the most amenities and the nicest unit, your tenants are going to flock to your units. If you are overpriced and are delivering a product that is substandard to the market, you can expect that your unit will sit on the market for some time. And as we all know, you know from real estate investing 101, zero rent means zero profits. So it’s really important that we’re not only setting the tone with the correct market price, but we are giving a product to the consumer that is attractive, fair, and is of a better quality than most of what is out there as your competition.

07:43

Now that you have your unit on the market for rent, you’re gonna have to plan for showings. And the reality is, is that showings happen on off hours. So if your typical tenant works nine to five, you can expect that they’re not going to look at the unit between nine and five, they’re going to want to look at the unit in the evening on the weekends. So how often are you going to make trips to the property to show the units? Because for you to be able to lease the unit, you have to be able to show the property. There’s a thing in sales called speed to lead. And that is a real thing when it comes to rental property, speed to lead. So as that tenant, think of like Craigslist, or the the old fashioned newspaper, white pages, if you were looking for a job or looking for something, a place to live or anything for that matter, you are probably going down the list and making phone calls to multiple people. And the one that snags your attention and get you in the quickest is usually the one that you select. So speed to lead for showing your rental properties is really a key factor in successfully renting your properties quickly. Going back to my previous topic is you know, look at your current job. Does it allow you the flexibility to meet a tenant at the tenants convenience and not necessarily your convenience? Because if you’re really looking to secure a renter for your unit, that’s going to be a really critical component in doing so. Now that you found potentially tenants that are interested in your unit, you need to figure out how you’re going to screen the tenants. There’s multiple ways to do screening of tenants. Some are free, some are not free online, but you’re going to want to make sure that you have not only a screening method, but it’s really easy and accessible for the tenant, and that you remain consistent so that you’re not violating any kind of fair housing laws, or any kind of discrimination statutes. So make sure that when you go to screen your tenants, you’re using some kind of resource that is quick and easy for the tenants to use. They can give you all the valuable information but that it’s also consistent from tenant to tenant.

09:45

Now you’ve got to think about your rent collections. How are you going to do that? Is there any kind of automation? Tenants look for automation, they look for convenience in a lot of different areas. So if you’re the landlord that’s going to force them to write a check out and send it to you, that’s going to be kind of a red flag. Because not every tenant has a checking account and not every tenant wants to take the time to write out a check and send it. They like options like cash slips, not actual cash payments, but cash slips, where they can take that money to, like a Western Union are 7-11 and have it deposited. They like online payment methods. They like direct deposit options. So anything that you can do to collect rent and automate that rent collection, would be something that would not only save you time, but would also give the flexibility that a tenant is looking for, for ease of leasing your units. Online options, as a whole, are something that you really want to consider. Can your attendant get a hold of you online? Can they is there like a portal or something that they can access? Can they submit maintenance requests online? Can they access their lease online? Can they pay their
rent online? So online options, again, we’re talking about a technology age where these things are really, really critical to the age and the generation of renters that are out there. And if you’re going to be doing things by snail mail, and cash, you know, as we did back, you know, 50 years ago, you’re going to expect that the tenants are not going to be as favorable. And they’re not going to want to deal with that long term. So that could also impact your ability to retain that tenant long term. If everything that you’re doing makes it harder for them. Online options and technology are a really big piece of the
current tenant population.

11:36

Evictions, let’s say it’s time to evict a tenant because they’re not paying or maybe they’re doing some kind of lease violation. Do you have any concept of what time it takes and how long you could be in a courthouse waiting for the judge to get good and ready to hear your case? But depending on the state that you’re in the eviction process could be multiple steps, it could be one step, two step. In Pennsylvania, it’s two steps. It is the filing of the initial eviction action, then you go to court, and then you wait a 10 day period for appeals and then you file a possession order and then you have a constable lock the tenant out. So you have to be available for three of those steps. Because you have to be there for the constable to lock them out. You have to be able to change the locks on site in front of the constable. You have to file a possession order which is a trip to the courthouse and the person that filed the initial judgment has to be the one signing the possession order, and then the actual judgment hearing. You know, the initial hearing is sometimes could take 15, 20 minutes and sometimes it could be several hours just depending on how many court cases the district judge has prior to yours.

12:48

The episode will continue in just a moment.

12:51

As an investor, we know it’s important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you’re interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today’s and tomorrow’s real estate opportunities. As a member of the Empire Investment Club, you’ll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you’re an active investor, passive investor, a combination of both or just starting out, the club is where you’ll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we’ll see you in the club, where everyone’s on a journey to becoming a better investor.

13:50

Rental Property accounting, how are you going to count for all the income and expenses on your property? And how are you going to be able to facilitate delivery of that information to your accountant that hopefully is preparing your books at tax time? Making the time to properly account for your rental property is the difference between success and failure. In a lot of cases when it comes to profitability. You have to know what your expenses are for you to be able to accurately plan to lower those expenses. You have to know what your income is to accurately plan for what your potential cash flow is going to be. And without those two pieces of the puzzle, you really don’t have your eyes on the prize. So it’s really important that you have some kind of facilitation for your rental property accounting that again takes a considerable amount of time. How are you going to inspect and maintain the property part of owning a rental property requires you to inspect the property. Because number one, your tenants are not going to tell you everything that is wrong with the property. And number two, you’re going to have to maintain the property. To avoid being a bad landlord which we’re going to talk about in our next episode, you’re going to want to make sure that you are tending to maintenance request timely. One of the biggest reasons that tenants move out of properties is lack of maintenance and a lack of attention to maintenance. So, do not think for one second that you can pinch pennies in this department, and not do what is required to make sure that the tenant is comfortable and happy but you’re also maintaining the property. And part of maintaining the property is also things like grass cuttings, snow removal, you know, just general repairs and maintenance, it’s also capital improvements. There’s quite a number of things that your tenant is going to be blind to, they’re not going to see. So for example, the gutters on the outside of your building, they are not going to notice if one of those becomes you know, unattached from your building. They are not going to let you know that the downspouts are not extending away from the foundation, and they’re causing ice slicks on the sidewalk. Those are things that the tenant would not actually notice. They’re going to notice things that affect them in their unit, but they’re typically not going to notice things out and around the building. So as a general practice, when we’re managing properties, we go and we inspect each property, each unit, quarterly. Because we want to make sure that not only are we prepared for each seasonal change to the weather, and to the environment, and that affects your rental property. But we also want to make sure that the tenants are abiding by their lease. And that is, in addition to any kind of general repairs and maintenance that need to be made on the property. So how are you going to inspect and maintain your property so that you, A, can keep good quality tenants in your units, and B, you can make sure that you keep the cost down? Because on resolve maintenance issues turn into bigger ticket items. So keep that in mind.

16:42

I know all of this sounds like a whole lot. And the reality is, is that this is only just the tip of the iceberg when it comes to what it takes to manage rental properties. I mean, we didn’t take the time to even mention all the tenant calls. What if two tenants in the building are fighting? What happens when your snow supplier or your snow contractor doesn’t show up and you’ve got snow all over your sidewalks and now you’re being fined because you had only a few hours to get the snow off of there. There’s just so many things that go into managing a rental property. I’m not going to be the one to convince you to not do it. But I want you to think about the cost of money and the cost of your time. For you to be really successful in managing your own property, it is 100% a full time job and then some. We are, as property managers are on call 24/7. And that is on a good day. That is not reflecting on emergencies. pipe breaks, really extreme temperatures, hot and cold, and a list of other things that cause havoc to your rental properties. We’re just talking about general upkeep 24 hours a day, we are on call. Can you be on call 24 hours a day? I know that that’s impossible. So as much as I think that you can be successful in very small increments, the reality is, your time is worth so much more. Think about what you get paid in your current environment or at your job per hour. And what it would cost you per hour to have somebody else do that management for you. And if a management company is really worth their weight in gold, they’re going to not only help
save you loss, and 1000s of dollars year over year, but they’re going to really help you maximize cash flow and they’re going to essentially pay for themselves. But you got to go back to, what is your time worth? Is it worth it for the savings to potentially take the risk? And do you have a job that gives you flexibility? Can you work a full time job in property management? Because even one property could be very, very time consuming for you. I think ultimately when you’re looking at the numbers and you’re looking at the actual functions of property management, again, from the outside looking in, it’s really simple to say it’s not so hard, I can do this. But far too many landlords fall victim to this looks simple on TV, or this looks simple in perspective. But when you actually get into the nuts and bolts of property
management, you find out that it’s much much harder than you anticipated, and it takes a lot more time than you initially anticipated. My suggestion is always do not attempt to do things that you are not an expert in.

19:40

One thing you could do to give it a go, if you are insistent that you want to try to learn to manage your own property, is see if you can find an ala carte property management service that maybe could take pieces of this off your plate. So maybe they just do the leasing side of it for you or maybe they just do the accounting side for you are the maintenance side of it for you. But ultimately, if you’re accounting for true financials on a property, they should include the help of a third party management company, a management firm, that is going to effectively help you maximize your cash flow and prevent you from having excessive losses due to lack of understanding how to manage your rental properties. What I’ve seen people learn very quickly is that their time is worth so much more than the savings that they would have received had they managed the property themselves. And the reality is, is that if you are hiring the right type of management company, not only do you save, but you gain. So before you enter into the world of property management, think about how valuable your time is, after all, you’re probably getting into investing for passive income and to have passive income, you do not want to be involved in the day to day operations. If you do decide to go at it alone, I wish you the best of luck. And if you do go down that path and for some reason, it doesn’t turn out the way that you would expect it, the quicker you make the adjustment, the quicker you will recoup any losses that you would have experienced. For future property purchases, I highly recommend that you budget for property management. Because the reality is your time is worth so much more and the savings that you would have received are not worth it in the end. Make sure you stay tuned for our next episode of how to avoid being a bad landlord. And until next time, take care.

21:41

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com