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Tom, Michael and Emil continue our series on how to source a powerful real estate team. In this episode, we discuss the property manager. --- Transcript   Hey everyone, welcome to another episode of The Remote Real Estate Investor. My name is Emil Shour, and I'm joined by my co-host,   Tom: Tom Schneider   Michael: And Michael album.   Emil: And in today's episode, we're going to be continuing our series on finding and vetting different people on your real estate investing team. So last couple episodes, we've covered insurance carrier and lender and then in today's episode, we're going to cover the property manager. So let's get to it.   Theme Song   Emil: Alright guys, in the last episode, we gave a quick shout out before we got into the episode and want to do that again. Give people shout outs for leaving us reviews. So this last one came from IanC11. Love the pod great for someone who is new to real estate investing combos and personal experiences are super insightful, and the info is easily digestible. Thanks, Ian. Appreciate it. Man.   Tom: We are almost at our 100th review on Apple podcasts, which is pretty awesome. And I think for the person who hits, who writes the 100th review, what do you think Emil? Some sort of like,   Emil: What if now nobody wants to write a review? Because they're waiting to get to 100?   Michael: They're waiting?   Tom: Yeah, I think we sent him a shirt, a roof stock Academy shirt and books done. approved, budget approved.   Emil: How about the next 10 reviews? So anyone from 94 to 104? will pick one person and send them that cool pack you mentioned?   Tom: Well, maybe it's at 98, 95. There's a term for this type of promotion. It's we could be at 100. I don't know we could be right below good reason to write the promotion. We'll do it for two people.   Emil: Two people. There you go. Alright, next 10 reviews, we're going to randomly choose two people and send you some cool stuff. Okay, so we're talking about the property manager. This episode, we're going to follow the same format that we have been, which is a three part question series. So the first part is, when in the process, should we be finding our property manager? When in our real estate acquisition process? How do you source a property manager? And what are some good vetting questions to ask them to make sure you're finding the right property management partner? So let's kick it off with when in the process? Should a new real estate investor start looking for a property manager? What do you guys think? When have you guys started looking for your pm in the process,   Tom: I would say you can't do it early enough. Because it you know, if you take one thing from this episode, and I've probably repeated this a couple of times, is you can bring, especially as a remote investor, leverage that property manager as local boots on the ground. And you can begin the interview process by adding them as a data point within your acquisitions process. So let's say I'm looking to buy a house in Columbus, Ohio, or Atlanta or Indianapolis, you know, in talking to property managers, I can get their feedback on properties that I'm looking at and neighborhoods, it's a really, a secret sauce to a remote investor is bringing in that local property manager early and often. So I would say as early as possible, what you don't want to happen is in a transaction, you know, you've found a great property you like it fits, checks off all the boxes you're looking for. And then like last second scrambling to find a property manager, you're not going to make as good of a decision. And plus, you're wasting that opportunity to use that property manager as part of your acquisitions team. So early and early. Yes, early.   Michael: I agree with you, Tom 150%. I think you, you nailed it. And they can be your eyes and ears, they can be adult, they should be involved in the due diligence process, they can give you insights into markets and sub markets and streets where you want to avoid and things where you want to be looking out for. I think they a good property manager is going to really have their finger on the pulse of a particular market. And so that only goes to stress the importance of finding not only just a property manager, but a good one. And Tom, to your point of scrambling last minute to find a PM, I've been there done that I did that twice. Actually, in the same market, I was really excited about the market, I was really excited about the deals, I didn't have a pm in place. But I had a really great agent.   And I've talked about this in the past. And so I purchased the deal. And then I threw it in interviewed a bunch of different property managers, and there were just no good options. So I had to pick the least bad of all the options. And like, just to put it bluntly, it sucked. Like it was so bad. I ended up firing the property manager A few months later. And it was a really awful experience. And after I closed that second deal, I was thinking about selling both properties and just getting out of the market because it was such a nightmare dealing with the pm in that market, because there were just no good alternatives. And the whole time before I fired him I was looking for alternatives and I just couldn't I just not none existed. And so I can get into it a little bit later. But I then convinced my agent to start a property management business and that worked out pretty well. But so in lieu of find if starting your own property management business are forcing someone to do it on your behalf. Definitely try to find a good pm early. Well, before you purchase. Again, if I hadn't been able to do that I would not still be in those markets today. I think your investment lives and dies by your pm.   Tom: Yeah, I think we had an earlier episode where we talked about the decision of using professional property management or self managing, yes. This is the the, this episode, the guise of it, I think I'm using that word right, is you are buying remotely and you are using professional property management is the assumptions that we're making. In this episode,   Emil: I would say that once you've decided on your market, once you're saying I'm gonna go invest in Dallas or Atlanta or wherever, I think your next step should honestly be to go talk to property managers, they know so much about the area. Yeah, you can spend tons of time researching online, looking on forums, whatever, but like property manager lives and breathes that they're managing, often hundreds of properties in that market, they can tell you the areas that they like managing where they don't like managing, where they're seeing a lot of growth, rent growth, whatever it is, they can tell you the types of properties that they are able to lease up very easily, versus ones that are more difficult. They're just a knowledge of wealth that I think you should tap as early in the process, like you guys mentioned. So honestly, it's like, once you've chosen a market, I would go start talking to two property managers, honestly.   Michael: So Emil, I actually work with a student in the academy who takes almost the exact opposite approach. He's involved in a particular market, loves, loves, loves his property management company, and is now investigating other markets, only those in which that same property manager operates. So he's actually following on his property management coattails to other markets, other states, because he likes them so much, because he believes in them so much. So you can almost use your property manager as a roadmap so to speak, if they're operating in other markets as to other markets to potentially investigate. Now, of course, you can still go do your market due diligence and validate it for yourself. But knowing that that piece of the puzzle is already solved for you, makes it kind of nice.   Emil: Yeah, this person probably chose a market and then found the property manager, and now is using them to explore other markets, right?   Michael Correct. Yeah, it's only it's only for secondary. After you've established that property management foothold,   Tom: I'd like four different property managers that I interface with, and man, it'd be a lot cleaner to just have one.   Michael: So much better.   Tom: That sounds pretty good.   Emil: And just knowing that you have a reliable property manager to keep using, like, that's so invaluable.   Tom: Yeah. And some specific stuff that I've gotten from property managers is they're like, for the most part, they're pretty honest. Like, in talking about a neighborhood, if they like or don't like it, in my experience has been a pretty like low pressure sales, like not like high pressure, like, Oh, yeah, this is the house right? where they'll give honest feedback. And some specific feedback I've gotten is, oh, you know that property, it's really consistent rent, it hasn't shown a lot of appreciation. But you know, it's always occupied that kind of neighborhood. Another one was looking at a property.   And they were talking about the bedroom count, I'm like, Yeah, it's a four bedroom, two bath, and like, oh, wow, we manage a bunch of properties there. And there's very few four bedrooms, that's going to move right off the shelf. So getting that kind of insight information that you wouldn't be able to get if you didn't bring a property manager in super early. So those are some specific examples of the benefits of bringing the pm in as early as possible.   Emil: Nice way to throw some good anecdotes in there. All right, ready to move on to the next one, then?   Michael: Do it.   Emil: So our next question, or subtopic is how to source? So how do you go out and even find a couple of property managers to start interviewing. So what have been some ways you guys have researched potential property managers in the past?   Michael: I'll jump in here and say personal references have been top of the charts for me. And if there's not personal references, then professional references, whether that's the agent you're working with, or through roof stock, or other investors in the area that you might not know on a personal level, the slack forums if you're a member of the Academy, or bigger pockets, great places to reach out to folks and ask who they've used to, they've had success with. And then cold calling and Google reviews, I think good sources as well. We talked about this in the past, but a lot of those reviews, you kind of take them with a grain of salt to a degree in that it's usually the unsatisfied folks that are leaving the most reviews and the loudest reviews.   But also by that same token, I've mentioned on previous episodes, that the people making these reviews, if their tenants are your future clients, and so you want to make sure that the client population being served by the manager is happy and satisfied, because that's who your tenants are going to be dealing with as well. So that's kind of the hierarchy that that I'll use, and it's a lot of cold calling, a lot of cold calling.   Emil: Yeah, I've recently there's a property manager in St. Louis, who I'm looking to grow with. I was just doing a round of interviews last week and it was one pm that really stood out to me. And I always like to look at reviews but at the same time, like you mentioned, take it with a grain of salt because it's a You could have 100 happy tenants and they never write reviews and it's right I've disgruntled ones who were like, they want to get back at whatever pm and so that's the way they do it. This one actually had a bunch of great online reviews. So I thought that was really cool.   Michael: That's even better sign.   Emil: Yeah, rare. Yeah.   Michael: Yeah, that's pretty. That's pretty rare.   Emil: Anyway, Tom, what about you?   Michael: Oh, just one more to add. Sorry, Tom,   Tom: Take all my points. Make sure you take em all.   Michael: How's the scraps man? NARPM. National Association of Realtors and Property Managers I think is that acronym, but there's some national accrediting body for property managers, and if they're a member of that…   Emil: National Association of residential property managers, just look.   Michael: Thank you, sir. So checking out that website can be helpful. And it's just another accolade for them to put to their name into their business. So they're usually held to a certain standard level, which can be helpful to know that they've got that in their back pocket, I Tom scrap away,   Tom: Scrap away, I'm gonna try not to just repeat it, but the the Maslow hierarchy of selecting a property manager. Okay, I'm just gonna repeat it. So the first reference is a great place to start. But that's not the end all process, then you go into your interview questions and references, but personal references and professional references, and the best professional reference with the property managers I found to be his agents. So is there an echo in the room. So like Roofstock has some references within all the markets that we operate in, we go through a pretty thorough process of identifying property managers, so professional references, and then kind of blogs, social reputable forums, our friends BiggerPockets, Roofstock Academy, we talked quite a bit about specific local property managers that we like. And lastly is the old Google search bar. So on top of that list is where I will start in opening a market searching for a property manager. Yeah.   Emil: As someone who works in digital marketing, I want to give one word of caution to our listeners, just know that a lot of times online, when, let's say, someone posts about who are the best property managers in x markets, you'll a lot of times either find vendors or vendors will peg a customer like they're watching those forums. They know a lot of investors are there. And so sometimes they'll peg a friend or somebody to go post on those. So just know that going in, right that things can on the internet can very easily be skewed and always do your own research. That's the one tip I want to give people here.   Michael: Wait, you mean? You mean the internet doesn't have like editors that make sure everything is factual?   Emil: Look, man, we're saying that all here, but think about it. Think about it. 10 o'clock at night, you're looking around. And you know, there's a couple couple people chiming in for the same property manager online on a forum, right? You're not immediately. You may be skeptical, you may not. So I just want to heed that warning to our, our wonderful listeners.   I don't have anything else to add here. You guys, you guys hit all the good ways to source potential property managers. Alright, so let's get to the good one. I think this will probably take up the majority of our time here is the vetting questions. So this is such an important part. It's important because I think it's easy to get a list of questions to ask. And I think property managers often get a lot of the same questions, and they can get good at responding in a certain way that they know and investor likes to hear.  So I'm curious if you guys have like, tried and true questions that kind of help break past the the canned responses.   Tom: Emil I feel like Michael and myself has been like taking a lot of the low hanging fruit with some of these initial questions. Would you like to take the lead and leave us with more more scraps?   Emil: Absolutely. I thought you'd never ask.   Tom: Being a gentlemen.   Emil: I'm going to go through kind of the questions I mentioned last week, I did a round of interviews. I'm just going to go through the questions I have listed to ask and some of them they get canned responses, but I need to know them anyway. So the questions I like to ask, and there's always things that come up that I don't list here, but how many properties Do they have under management? This kind of just lets you know, you know how big of a shop they are. I don't think there's a right answer for big or small. It's just good to know how many people they're serving.   Tom: I think the size of the market is really important. Not so like if it's a much smaller market, it would be unreasonable to expect them to have these huge amount of properties. But if it's a very big market, so I think there's some thoughts in evaluating their answer based on what market they're in. Sorry, go ahead.   Emil: Yeah, I mean, maybe some pros and cons, I would say, like, let's say they have less properties under management is you may be taken care of more, because you're not one out of 1500, you're one out of 200 properties under management, but they like maybe they only have 30 owners that they work with, right. So you're just going to naturally get more attention. The advantages, maybe some bigger shops is that they probably have some of their more like their processes and reporting. More buttoned up. I don't know. Do you guys have any anything else add in terms of properties under management?     Micheal: Yeah, I like your take, too. I would also just add that I think a lot of the smaller shops are kind of more boutique key, and they can often be a bit more catering to their owners. And so I don't think that number alone, necessarily dictates good or bad, or strong or weak. It's just an interesting number to note, interesting metric to note and just kind of be aware of.   Emil: Yeah, yeah, it's helpful as you're asking these other questions. Go ahead, Tom.   Tom: My last thoughts just on volume of how many units they manage, I would, if I had to choose between one that manages less versus more, I would pick the one that picks more just in viability of the company, like it would stink, if you had a property management company that didn't manage a lot of properties and wasn't profitable, or wasn't able to stay in business that would just stink casting to all things aside, needing to change if for whatever reason, they were not able to stay in business. So that's not like a tried and true way to say how profitable that company is, or you know, if they're able to be sustained as a business, but looking at indicators that it's a business that's viable, that's going to continue on would be important to me, because I don't want to have to go and go through the exercise again.   Emil: Okay, so some other questions, I like to ask, areas that they cover within that market. So there's some property managers that will have just a geographic concentration, they just a lot of their properties are packed into one area, so they'll know that area very well. So I just like to know what areas they cover where they really pros where, you know, they can help with determining rent, just knowing quality of tenant in those sub markets, so I always like to get an idea for the areas they cover. Next is the types of buildings they manage. So do they manage primarily single family homes? Do they manage a lot of small multifamily? Or do they primarily manage large, multifamily 50 unit plus or something? So, again, if someone's a property managers, primarily large multifamily, maybe me bringing them as single families, not the best idea, so I'd like to see what kind of buildings they manage and that they specialize in. And by the way, guys, feel free to chime in on any of these, if you have anything to add.   Tom: If you are investing in section eight, making sure that they have section eight experience. So you know, not just building type, but tenant type would you say or if you're doing a short term rental versus a longer term rental, making sure that their inventory that they have now kind of maps up against what you have, I love to look at companies, property managers website and see what listings they have available for rent, I can tell you a lot of occupancy one, if you know they manage 100 homes, and they have 50 homes available for rent, like that's not a great sign like 50% occupancy is not very good. And then also making sure that that map, there's a great overlay of the property where you're looking at its similar location as well as rent. So you know, if you're buying a property that rents for $3,000, in this person's property management, they manage homes that rent for $800, that may not be a good matchup. So just making sure it's similar type property, similar rent type, all that good stuff.   Emil: Great tip. Another question I like to ask is, usually you try to speak to maybe one of the co founders, or one of the owners of the company. And I always like to ask them if they own any real estate themselves real estate investments. And the reason I like to ask that question is, I think if they personally invest in real estate as well, they just have a much better understanding of the investor and how an investor thinks. And I like that I want them to think like an investor and how do my clients think, right? Like, when it comes to income expenses, all these different things, if they're doing all that stuff themselves for their own portfolio? Hopefully, the idea is that they're treating your portfolio the same way.   Michael: Absolutely. On that note, I like to find out if they do own investment property, where they are located, and ask them the question kind of carte blanche is hey, if we both have a vacancy at the same time, who gets priority?   Emil: I doubt they'll ever say that their property gets that would be bad. If they're like, yeah, my property and then your property.   Michael: Yeah, but you can keep them honest. You know, if you ever happen to see their property listed on their website at the same time, yours is you can bring it up.   Emil: Yeah, sure. A couple other questions. So I always like to ask them what their standard operating procedure for handling repairs with tenants. So is it an online portal that people Submit through, do they call in? What is their typical response time, things like that? How do they manage tenant calls, some people will immediately send someone out other people, what I like to hear is whoever speaking to the tenant, if they call in or whatever is trying to help walk them through how to potentially fix it themselves. If it's something minor, right? Instead of just getting someone out there, you have to pay for that time, that person's time. So like, just getting an understanding for how they deal with repairs with tenants is always a good question, ask.   Tom: Nice, I'm gonna go ahead and jump in here. fees, the Oh, so important fees. And what's pretty remarkable about property managers is it's it's not a one size fits all the way that property managers charge fees, specifically around repairs and maintenance. Some charge a percent overhead, some charge, like an hourly project management costs. So knowing how they charge fees as it relates to property manager, excuse me repairs and maintenance, how they charge fees as it relates to rent collection, how they charge fees as it relates to late charges, all that kind of stuff. And generally speaking, the ranges that I see with single family rental, I've seen as low as 6% on a rent collection, to as high as 12%. In a market where it's more competitive and more property managers, you're going to see a little bit of a lower rate, generally speaking, versus markets where there's not not that many shows in town. So that would be my kind of range and thoughts on fees. And, and also the right now we're we're all three of us are looking at it as part of Roofstock Academy, we have this playbook, this interview template, that's part of the package of Roofstock Academy, where we have it for property managers, and all these other ones. So we're both kind of skimming through our interview template here, as it relates to property managers looking through them. But I think that's such a key one, the cost aspect?   Michael: Yeah, it really is. And it can often be the determining factor between, you know, really profitable investment versus not. And I think one of the biggest components of that is what a releasing fee looks like, or a new tenant placement fee. Oftentimes, you'll see that up at 100% of one month's rent, and I've seen it as low as 25% of one month's rent. So on $1,000, a month rental, that's $750 annual swing one way or the other.   Emil: What do you guys think about management fees instead of percentage based being kind of like a flat fee structure. So example somebody I spoke with last week, they charge you $50 per building, and then $25 per occupied unit. So let's say you have a single family home, I believe it'd be 50 plus that 25 or 75 bucks flat a month. And then if let's say you have a four family, it would be 150. Flat a month would be I've seen that before.   Tom: I think the psychology of it is really interesting, it's like you should have some aligned incentives, right? If the property is occupied, that's great. I want them to be happy about it. And you know, making more money versus when it's vacant. There's also some perverse incentives around construction, where if the property manager is getting paid more money, because more work is being done, and they're getting a percentage, I'm not offering a solution and more just kind of pointing out a problem on the repairs and maintenance and construction side. But to your point on a flat fee versus a percentage, I like the percentage and that there's some aligned incentives, if the property is occupied and performing well, maybe get creative with some like year end bonuses, if they're low, or whatever. I don't know,just thinking outside the box.   Michael: On the flat stuff. I've never worked the property manager that has done it. But mathematically speaking, it could make a lot of sense, especially on higher end rentals. I mean, if you're at, you know, call it 750 bucks a month per unit in that four unit. Let me just run some numbers real quick. That's what 2900 750 by fours 3000. And let's call it 8%. Is $240, is what you would typically be paying on that and in this case, you're paying 50 plus 25 by four, which is 150 bucks, 150. You're saving 90 bucks a month right there. So I think you just got to run the numbers. I don't think it inherently means good or bad. Again, it just you have to look at the numbers for your specific situation. And in that instance, I would take that, yeah, 10 days out of 10.   Emil: Yep. If all the other things obviously check off, right. Like, like, I know, everyone likes to key in on the fee. Oh, yeah, absolutely. You got to make sure these other things that we're talking about, I would say that those are more important, because I don't know, they're just gonna play such a big role. It's easy to get like just honed in on the fees. And something I did early on, it's all I looked at really, which is big mistake. So I think a lot of these other questions are super important to factor in as well.   Michael: Absolutely. And I harp on it all the time with insurance, you can go get the cheapest insurance, but if they suck at the one thing they're designed to do, and that's pay claims, what are we doing here? And so same thing with property managers, if you go find the cheapest property manager, and they can't do the one thing that they're designed to do manage your property, what's the point, you know, it's going to be way more headache and you're going to pay for it later down the road, probably through the nose, as opposed to just paying a little bit more up front. And so there's the age old expression of pay for it now or pay for it later. And pay for it now it's probably going to be cheaper.   Emil: Exactly. Any other questions? You guys really like to ask that our listeners could really benefit from   Michael: Last one I'll throw in there is what their accounting software looks like and what their portal online presence looks like. And if they even have one, that's a big, big, big must have for me, if they don't have an online presence, it's really difficult for me to kind of keep tabs on what's going on. And not that I need to keep tabs on what's going on. But anytime I'm working with a new property manager, I over communicate like probably to the point of a being obnoxious, but that's okay, because it's my property, and they work for me. So we got to make sure that we're both on the same page at the beginning, that just takes time to do and having an online portal makes it much easier for me to track what's going on what expenses are being paid, versus once a month getting a pal profit and loss statement showing, hey, by the way, we spent $300, this month on x, or if I had known about that three weeks ago, I would have called you and asked about it. So I think that's a big big plus for for property managers.   Emil: And the way you can kind of suss that out is again asking about, okay, when a tenant repair issue comes up, do you guys notify me? Do I get an automated email, like a lot of the property managers I work with as soon as if it's under $500? They don't even come to me for approval, and I just get an email with the issue. But I like that, right. I like that at least I'm getting notified about it. Because if it's most of the things are running the mill things, okay, whatever you at least you just know, and you can move on. But some things is like wait, this is like the third time this issue has come up this year. Now I want to go inquire about it. So just asking them like how do you as the tenant or the owner get updates on Repairs as tenants file those tickets? Go ahead Tom.   Tom: My last question, I'll have more of a request versus a question is to take a look at what their property management agreement looks like. This is your your prenuptial agreement with the company. It defines everything we're talking about. We're talking about fees. Specifically, what I think is, is there's like a breakup costs, I had a property that I sold the other year where I didn't look into the property management agreement, and I ended up having to pay this stupid fee, it makes me mad just thinking about it right now, because I sold the property. And the person who bought the property didn't retain their property management services. So I would look through that property management agreement and see one, what are all the different fees and different ways of the property managers gonna be making money. And then two, if the relationship was to end, either you finding a different property manager, or you're selling the property doing 1031, doing whatever? What are the implications of that with property management agreement, but love all the other stuff you guys are talking about? The investor portal is so important, and point of contact, knowing who your ongoing point of contact would be? And what preferred means of communications and what the expectations are for getting back and responses. And all that stuff is really important as well.   Emil: Yeah, you I remember, you've talked about this one about that fee you've paid when you sold the properties. And in this round of interviews, I talked to a property manager who said the same thing. They have a brokerage out there as part of their company. They're like, if you don't use our brokerage to sell your property, we charge you 1% of the sales price. And that was like an automatic deal breaker.   Tom: It’s a deal killer.   Emil: Yeah. Total deal killer.   Tom: Yeah, no thanks. Take that out. Or I'm done. Yeah.   Emil: Yeah. So good. Good to ask that are like really review that management agreement, because it'll be in there. So you got to read those things for sure.   Michael: Emil. a follow up question for them is do what percentage commission do they charge? If they if you do use your brokerage? Do you know?   Emil: That's a good question. I just was like, What? Are you serious? Yeah,   Tom: Yeah. Yeah. Why are you trying to force my hand like this?   Emil: Yeah, but that would be a good one.   Michael: That's a pretty big red flag. But I have a property manager where they charge like, I think for four and a half percent commission, if they are the listing agent, but no requirement to utilize them. They just offer an incentive for you to utilize them.   Emil: So that's great. Yep. That's awesome. It's like, hey, if you end up selling with us, we give you this preferred rate. Not like if you don't sell with us,   Michael: You must.   Emil: Yeah, exactly. Basically forcing your hand so that wasn't cool.   Theme song   Emil: So we've done a couple of our Ask Us Anything, we call them ama's. But there's multiple of us. So they're asking us anything's. And we've gone through the initial batch of questions, and we'd love to hear more from you guys on questions we can answer in future episodes. Literally, whatever's on your mind, Tom, Michael, and I will we'll tackle them on future episodes. And so the best way to submit those questions to us, you can email one of the three of us so I'm at Eshour@roofstock.com. Can you guys give me your email addresses? I don't know them by heart.   Michael: I'm at malbaum@roofstock.com.   Tom: And I am at Tom@roofstock.com. And other way to submit would be Leave us a message so the phone line for submitting these ama's is area code 415-343-5866. You like my tone goes kind of up and down like a   Michael: and I was like I was like wait a minute. That's not how you say a phone number.   Emil: You're like a commercial marketer, 435 he's calling one 800   Michael: Yeah, 588 2300 Empire   Emil: And Twitter. We're always on Twitter. So I'm @emilshour.     Michael: And I'm at. I think it's AlbaumMichael. Michael Albaum probably works too, I'm not sure. I don't know how Twitter works, but I seem to be talking about it all the time.   Emil: And Tom, you are at?   Tom: @tschneido   Emil: All right. We're looking forward to tackling your questions on a future episode. And guess we'll see you guys in the next one. Happy investing.   Michael: Happy investing.   Tom: Happy investing.