BiggerPockets Real Estate Podcast - 958: Hiring a Property Manager 101: Make More (in Less Time) from Your Rentals w/Luke Rzepiennik and Michael Vialpando

Episode Date: May 22, 2024

Hiring a property manager can be one of the best or worst decisions in your real estate investing career. The right property manager can give you the time to scale your portfolio to new heights, all while increasing the revenue on your rental properties. But the wrong property manager can drown you in unnecessary fees, push time-consuming tasks back on your plate, and leave your properties worse off than they were before. How do you distinguish between the two when every property manager tells you they’re the best in the business? In today’s show, we’ll show you how. After building their real estate portfolios, Luke Rzepiennik and Michael Vialpando struggled to find property managers that fit their standards. They both had portfolios of short-term rentals, but no manager in their area was making the cut. With busy schedules and full-time jobs, neither of them could drop everything to become the perfect property manager. So, instead, they started Renjoy to not only manage their own properties but other investors’ properties as well. If you’ve struggled to find the right property manager in your area or are at the tipping point of needing one, Luke and Michael can help. They give a masterclass on property management, from the exact questions to ask a property manager to signs of a great one, red flags to watch out for, and when it’s time to stop managing your own properties and start hiring it out. Plus, we’ll share the huge mistake most rental property investors make and the little “fees” that can kill your cash flow when using a property manager incorrectly. Find a trusted property manager in your area today with BiggerPockets Property Manager Finder! In This Episode We Cover How to hire a property manager so you can spend less time managing and more time scaling What a property manager does and the roles and responsibilities you should expect them to take on  Questions you should ask any short-term rental property management company BEFORE you hire them Death by fees and the tiny charges that are draining your rental of any cash flow When it’s time to hire a property manager and common property management pricing  And So Much More! (00:00) Intro (01:25) Building Their Rental Portfolios (04:07) Property Management Problems (11:59) Questions You MUST Ask  (18:42) When to Hire and Pricing  (24:53) These Costs Will Kill Your Deal! (28:26) Medium-Term Rental Management  (31:25) Saving Your Time  (36:35) Connect with Luke and Michael! Check out more resources from this show on BiggerPockets.com and  https://www.biggerpockets.com/blog/real-estate-958 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Rob, do you remember how much time you got back when you hired your first property manager? Oh, yeah. Yeah, still work with them now. And we'll get into that arrangement a little later in the episode. But for me, it really allowed me to focus on the things that I'm good at. Recently, I've had this whole revelation on how can I make every single property as good as they can be. So I've just been focused on redesigning and reamitizing my properties. It's been awesome, man.

So basically, property management allowed you to let your inner diva finally loose. That's right. That's right. I could finally step in and let thy peacock feathers flap. Is that, is that a phrase? I like it. I do like it. And it fits for you.

Thank you. And with that, this is the Bigger Pock's Podcast Podcast show 958. What's going on, everyone? This is David Green, the host of the Bigger Pock's Real Estate podcast, joined today by my fellow peacock, Rob Abbas solo. Rob, hello. Howdy and welcome. Today we're talking to Luke and Michael, two property managers who started out as investors, and we're going to get into some fun stuff here.

One, you should start working with the property manager, how to determine if a property manager will make you money, because not all of them do, and how to use the time you get back wisely to grow your portfolio. That's right. You're going to learn much more about property management than you probably ever expected to learn as well as what to look for, what to avoid,

and what went wrong with my own portfolio, as I had to learn this lesson the hard way. So let's get into it. Luke and Michael, welcome to the show. We understand that you own a property management business, but you're also both investors. Tell us about your portfolio and what kind of properties that you own. Yeah, thanks for having us.

I'll kick it off here. But my wife and I got started with short-term rentals back when Brandon and Josh were still running the podcast before you, a lovely gentleman came on. We started with house hacking. Once we got that taste, we couldn't stop doing it. So we did it rinse and repeat as fast as we could over the last six years. Along the way, we couldn't figure out if we were going to. to hand over our properties.

You know, our side hustle kept getting bigger and bigger, turning into a full-time job, either handing it off or doubling down. And that's kind of what brought us to where we're at now. All right. So, Michael, what's in your portfolio? Yeah, I have quite a few house and cottages. Those are pretty common here in Colorado Springs, as well as a few single-family homes as well.

And Luke and I and our third partner also own a five unit in the springs that we purchased together. And that was actually kind of the catalyst of Renjoy of not knowing who was going to manage it. So that's how we got started there. Luke, how about you? What do you have? Yeah. So we own a number of duplexes around Colorado Springs. My wife and I have purchased four duplexes, all short-term rentals at this point, in addition to the fiveplex that I owned with Michael and Jacob. Okay. Do you guys remember the old Ninja Turtles movie where Michelangelo comes across the Nunchuk Ninja? And he goes a fellow checker, eh? I didn't understand that Chucker meant Nunchuk until I was a little bit older. But I'm curious, Rob, when you come across another short term rental specialist,

if that line ever goes through your head. Because if you were a Ninja Turtle, you would definitely be Michelangelo. No, that doesn't. But I do always have questions when people start telling me about their things. And Luke, you mentioned you have four duplexes. First question I have is, I love the strategy because I love making double income on a property. But do you ever have too many issues with tenants on the same property and all that good stuff? stuff like seclusion, privacy, anything like that?

Yeah, good question. You know, occasionally, but it's one of those things that we've just learned to manage over time. We found ways to mitigate things. I'd say the biggest problems we have are when we have up-down duplexes, you know, and the people downstairs are, you know, hearing all the footsteps of the people upstairs. That and then, you know, if they end up sharing, some of them share HVAC and, you know, the basement guests, you know, get either frozen out or the upstairs guests get too hot. But, you know, it's one of those things that we just kind of factor in.

we account for and try and make guests aware ahead of time. And at the end of the day, it doesn't end up being too much of an issue. Nice. Obviously, you guys have grown pretty substantial portfolios and your time and everything like that. So tell us a little bit about what happened that made you start looking for a property manager. Obviously, there's a catalyst. I'm sure things started to kind of pile up there. So tell us a little bit about that story. Luke, you can kick us off. Yeah, sure. So I think it was a couple of things. The three of us had joined a mastermind together. There were five of us. We've been meeting for quite a while. And, you know, we kind of got to know each other, realized we had this, you know, shared passion for helping people work towards financial freedom. Jacob had a lot of the fundamentals of real estate. And Michael and I had a lot of the knowledge around short-term rentals. And so we were all working full-time other jobs. And it was getting to the point. Our portfolio was getting to the point where it was getting a little bit difficult to be owner operators, do it effectively, give them the time that they need. Airbnb, there's a lot. going on with cleaners and maintenance and whatever else. And, you know, so we started looking,

thinking, man, it's going to be too much to balance at these two things. And so we're growing at the same rate and we're all thinking, hey, let's look around. Let's vet some people just because we don't have the time or the energy anymore. So that was kind of in the back of our minds and right around the same time as when we found this five-unit property. It was a really great opportunity in downtown Colorado Springs. And we decided to jump on it together. We started doing the Renault. then we're like, oh, shoot, who's going to manage this thing? Are you going to do it or am I going to do it? And it doesn't make sense to hand it off to a property manager who, you know,

couldn't find anyone we liked for our own properties. So who are we going to hand it off to? And that's really kind of what led to us getting Redjoy going and wanting to create a, create a company that we would actually want to hire. Yeah, I'm kind of the nerd on our team. I, uh, coming from an engineering background and just enjoying kind of optimizing and tweaking and the operator has so much impact on a short-term rental. You know, three, two, stainless, long-term rental in the same area,

your plus or minus a few percent on the rent you could get. But with short-term, as you guys know, that swing can be massive. And so seeing that, I'm just like, oh, man, I don't want to take a haircut on the revenue it's going to get and a property management haircut. Isn't that wild? Isn't it wild? That's the same experience that I had.

you think when you hire the professional, you're going to pay money to them, but they're going to make up for that by making you more money. And you're thinking, well, it's like what I pay and what they make is going to offset. And so I really am getting my time back for free. But you don't. You often get less money coming in and you have to pay them money. And then we'll talk about this later, all the nickel and dime charges that property managers throw in there. And so you went up with an asset that's managing terribly that you don't actually even have control over in a lot of cases. and no one ever talks about it, which is why we're talking about it today. We always focus on getting the deal, finding the deal, acquiring the deal, structuring the deal, creating the deal. No one says like, okay, now you've had the baby. Congratulations, you have to raise a baby. And that's not always fun, right? There's parts of it that can be taxing. I think the bummer part about that situation is I think it actually happens all the time. Someone's a bad operator. Then they handed over to a bad operator as well. And so they say, oh, short-term rentals or real estate or long-term rental, it doesn't work. I've tried it two different ways. And I'm out of this. When the property was actually

perfectly fine. Yeah. So we're going to talk about that right now. Like, how did you guys know that the other property managers in your area weren't performing well so that you knew, hey, we should just do this ourselves? I'll start with that one. One benefit to the short terms is there's a lot of public data or at least scrapes data on that side. So you can look up AirDNA, see other property managers in the area, what the reviews are, how they're performing as far as revenue goes. And so that's a really good like third party audit you can check can i i'd like to ask a question on that because that's that's what i use as well there's a lot of different property um analysis uh platforms out there but is there a specific process like what are you looking at in air dna to really make that determination it's uh it's definitely

a little tricky i think they they definitely focus most of it on reviews which doesn't always directly coordinate to to revenue um it kind of does but not entirely um besides that just looking at the rankings of each one. Like is this, if they're managing a two one property in this area, is the revenue they're getting kind of average for a two one in that area? Or are they on the upper end of that? Yeah, I think just like red flags that you're looking at, you know, look at AirDNA is kind of a baseline, but also usually through that you can find their Airbnb profiles. And just taking a look on there, do they have, do they have a whole bunch of negative reviews. That's a red flag. Like Michael said, are they below average in rent consistently?

Go look at their listings. Do they look nice? What are their photos look like? Are they taken on a cell phone and they're all dark and grimy? Are they actually professional photos? You know, no one thing is a deal breaker, but I think those are just some red flags that I would keep an eye out for. Yep. I had it. I found out the property manager that I had turned over my properties to you. This is going to blow you away, was using the listing photos from the MLS to advertise on AirVRBO and AirDNA. And what makes this even worse is that's a strategy that I teach is I target houses with the ugliest photos ever. I just find the ugliest houses that have been sitting on the market the longest and then

you look for the hidden gem. He was using those ugly pictures on the actual online travel agencies. And I lost my mind. And their answer was, well, nobody really books through Airbnb and VRBO anyways. We generate it all. SEO on our own platform. Absolutely horrible. So had somebody from my team looked at this company's other listings, right? On the platforms, they would have seen this right away. We wouldn't have signed up to use that company. I wouldn't be locked into the situation I'm in right now. So I think

that's great advice. Just how are they advertising their other rentals and how's the copy? Did they misspell things? Did they give a description that made you go, ooh, I might want to stay there. Does it give you that tingly feeling that you get when you see Rob's quaff? Or is it boring? Are you just like, man, why am I going to listen to that? I mean, I don't even think a lot of people think about looking at the product they're putting out. I think most people just have the conversation with the property manager and go by either whatever they can negotiate for the rate or the feeling they get from the person. What do you think, Rob?

Yeah, yeah, totally. I think, well, you when you don't really know anything about short-tribrentals, you kind of, if someone just knows marginally more than you, you tend to trust them in almost any of these professional services. And I think that's what happens is that property managers, if they're taking on that role in their responsibility, they kind of know the basics, right? And so if you know nothing about short-term rentals and you talk to a property manager that talks about dynamic pricing, for example,

that's going to sound really impressive and make you think, oh, hey, like, they're smart. Okay, great, I'll just hand it to them. But there's, you know, as we've discussed, they're so, there's such a, it's not just knowing the things. It's actually being an expert at them. And I think that's where most property managers, fail because I think it is one of those things that really I think most property managers usually start with a couple of their own, right? This is the origin story for all of them and they kind of

scale. And if you get them right at the beginning of that, that's kind of the hard part, right? Whereas if you get someone like three or four years into property management, that's whenever I can actually trust that they're pretty good. All right. So now that we know why it's worth having a good property manager and what a bad one can cost you, how do you find a good one? And how should you think about this differently if you own long-term rentals or even mid-term rentals. We'll get into that right after the break. If the new year means getting rentals back in order, listings are a good place to start. Avail. Part ofrealtor.com makes it simple to list a rental for free and get it in front of millions of renters. One listing, one click, post it across 24 top rental sites. Avail even helps

generate listing titles and descriptions to save time. More visibility means fewer days sitting vacant and getting your property rented quickly. It's a fast, free way to find renters without the usual hassle. Get started at Avail.co slash bigger pockets. That's A-V-A-A-I-L-C-O-Sash Bigger Pockets. There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale, and cash flow

protection. One claim can erase years of returns. If you own a rental property, don't assume you're covered. Have NREG review your insurance with someone who gets investing at NREG.com slash BPPod. That's N-R-E-I-G.com slash B-Podd. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand-new construction homes, 10% below market value, in the best markets across the country without making real estate your second job. That's exactly what rent to retirement does. They're a full service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've

partnered with Bigger Pockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more. Welcome back to the bigger pockets real estate podcast. We're here with investors and property managers, Luke and Michael talking about how to find and work with a good property manager. Let's jump back in. Rob, let me ask you, what is the financial impact on choosing the right or the wrong property manager, especially in the STR space?

For sure. Well, I think there are four main categories or buckets that people really don't consider whenever hiring a property manager or managing their property in general. So photos, how you're actually advertising and marketing your actual property to everyone looking online. You've got your reviews. What are other people saying about it, right? Because you can have a very beautiful set of photos. But if all the reviews say, hey, these photos are fake or, hey, they weren't super accurate with how they depicted their property, that can hurt you quite a bit as well. And that all comes down to just disclosing and making sure that you're

advertising your listing correctly. So this is like property catfishing? Yeah, exactly. It's catfishing. And, you know, Airbnb is notorious for, you know, I think the hosting community. We have a bad reputation for catfishing because a lot of times it just doesn't live up to what we expect when we check in. Listing order on Airbnb slash Verbo. So this basically means your SEO ranking. Where do you actually place? And then lastly, I talked about this one already, dynamic pricing. Are you actually pricing your place competitively according to the supply and demand of your market on any given day?

And I think the financial impact is actually pretty big. Because it doesn't take a lot of money to really turn the tide for your short-term rental. So think about it this way. If your property gross is $50,000, and let's say all of the expenses on that property come out to $45,000, that's a $5,000 profit, right? But if by hiring a bad property manager, you have, let's say, a 10% dip, that's a $5,000 dip, which may not sound like a lot in the overall gross revenue, but that's your entire profit. So even a 5% dip in revenue can cut your profit by 50%. And those are the types of numbers

and calculations that I don't think people take into account with the downsides of hiring a bad property manager. Michael Luke, what do you think about that in Rob's expert opinion? Ter them apart. I think it's spot on. You know, revenue management is huge. And I think, like we said earlier, it's one of those things that is actually very, very complicated to do well. And so a property manager could very easily confuse someone who doesn't really understand what they're talking about. Throw out a few fancy words and some numbers and a chart and they're like, oh yeah, they know what they're doing. But, you know, maybe just some basic questions. You could ask them is, do you have a dedicated person doing revenue management, doing your pricing?

Or is it the owner that like read a book and now kind of does that for you? Are they using a, you know, a smart tool, you know, or are they using a smart tool plus a dedicated analyst? you know, are they taking pricing seriously is what you need to figure out at the end of the day? And they should be. If they're not, that's a huge red flag. A couple other, like, big questions, I think, to ask. First, we kind of touched on it already, but ask if the property manager owns any investments themselves. What does their portfolio look like?

It's like when you're looking for an investor-friendly agent, first question should be, what's your portfolio look like? What investments have you done? Should be the same exact thing because even if they say they're, you know, an investor-friendly property manager, and they own maybe one. You know, maybe they started with one Airbnb in their basement and they haven't done anything in the last five years. How are they ever going to relate and know exactly what you're looking for as an investor?

Finally, along those same lines, financial reporting is huge. This is probably the thing that people underestimate the most and most clients when they're coming to us don't even think to ask about. And we've realized, and honestly, even when we were starting the business, didn't realize quite how important and impactful it is. because suddenly, especially if you're operating yourself, you've got control of all these finances. It's running through a bank account. Maybe you've got it set up through Stessa. But as soon as you do that, you're giving up complete control of the finances of this property over to that manager.

And so making sure that they're doing really transparent reporting. Because otherwise, it's easy to have a situation where you're getting stolen from. Or, you know, they're just tacking on fees that you don't see. Tacking on fees to you because I know long-term property managers are notorious for lots of like fees to the owner. But it's just as easy for a short-term property manager to charge them to the guest, charge them exorbitant, cleaning fees, charge them a management fee and a hot tub fee and insurance fee and all these other fees that stack up. And that's going to end up coming out of your bottom line at the end of the day.

Well, hold on, Luke, just to clarify, though, when you say financial reporting, what you mean is, as a property manager, I handle all the expenses. And it's how I actually display and put together that report to show the owner. Yeah, and just showing like, hey, here's all of your expenses for the month. Here's all of your income. Here's a breakdown of each single reservation. I think a lot of property manager will just provide a, hey, here's your money. And you're like, okay, what actually does that look like?

Where's my money going? And yeah, that can be really difficult as an investor to not have any of that control. Yeah, it kind of makes me think, maybe asking, this just kind of pops into my head, but ask your potential short-term rental property manager. Can I see an owner's statement that you give all your other owners? Like, how detailed is it? What's going to be on there? What line items pop up? I think that would be a really good one to ask.

That was one of the things that was a problem for me is when I actually saw what they're spending money on. I was shocked. It's basically like if a guest just says anything, they're just throwing money at the guest. Even when the guest is breaking things or stealing things, we're like compensating them after they stole the thing. I was like, what the hell is that? And it turned out, well, it was just easier for their employees. to make the guest happy by just giving them whatever they wanted and charging me. But when you're not looking at it every single month and see that's happening, you don't

know how much money you're losing. Yeah. I think it's at least another good question to ask the property manager. And that is what is their core objective? I hear some of the big conferences and stuff. So many of them say, we have a relentless focus on guest experience, which is great. I mean, guests are super important. Reviews are super important.

We care about the guests. But we always say that is not where our. our relentless focus is it's on our owners and their returns and taking care of their property. And it really does inform exactly those types of situations. When do you provide a refund? When do you let people cancel last second? What do your policies look like on those things? Is it easier for the property manager or does it actually serve the interests of the owner?

Yeah, it's a fine line, right? It is. And it's something that we have to deal with quite a bit as self-managers whenever we're managing our own properties. And it's kind of a lot, right? It's like if you're scaling up one, two, three properties, you're kind of dealing with it and it does wear on you if you're, yeah, if you're not a customer service oriented type of person. So I just wanted to ask the question to both of you. When is that tipping point in which someone is self-managing? When should they consider even getting a property manager? Because I think that's probably the question that a lot of people at home are asking. They're like, hey, I have two, three, four, five. When is it a good idea? You know, I think that really depends on the person, especially if they're doing short-term rentals, even when they're their first one, I think they need to consider what kind of time commitment they're willing to put in. One, because the learning curve for short-term rentals is steep, as we've already

talked about. There's all these things to think about like revenue management and managing cleaners and managing maintenance people. And if you do it halfway, you're not going to be successful anymore. And so you need to be able to have the time and energy to commit to learning how to provide good customer service and all these other things, being willing to take the 2 AM phone calls from guests. And so if you're not willing, or maybe not able to do something like that, you should maybe look at a property manager right off the bat. Otherwise, you may just not be successful with short-term rentals. Past that, you know, it's, again, balancing your time.

For us, it was we were willing to do all those things and educate ourselves. We liked working on our own properties. We liked working with guests. But then it got to a point where we had a focus on, you know, our normal day-to-day jobs. And you can't always be available 24-7. Is there a typical price range that people should pay? Because I mean, I've heard, I mean, it can be as low as 10%, not my recommendation, but 10 to 30 is kind of the range. Typically 20 to 30 seems to be the sweet spot for quality property management services. Curious on y'all's point of view there. Yeah. So there's a there's a lot to it. And again, another way that maybe if you're not particularly educated in short-term rentals, you may miss point. because different managers offers different levels of services.

If we're talking about 10%, they're probably offering something very limited. They might just be doing your pricing and your marketing and maybe guest communications, which may be a good fit. But they're almost certainly not offering full service management. There's going to be a lot that are offering in that 20% range. And same thing where they're going to claim to be full service. But in actuality, they don't manage your maintenance people. They don't do any of your handyman services.

They don't manage your lawn care. They don't get your pool guy out there. And so it's partial full service. Typically, when you start looking in the upper ends of pricing, that's when you're going to see the full service management. You know, we're actually managing your vendors and actually having in-house maintenance and actually having in-house cleaning teams. So it's a broad spectrum.

The other thing I'll say is to make sure you probe that as well because they're, especially in a lot of areas with older vacation rental markets, some of the maybe older, old school managers are going to. have different pricing structures that don't look anything like what maybe some of the bigger managers are offering. Makes it really hard to compare apples to apples. For instance, are they charging that 25% on your gross nightly rent? Or are they charging it on after they've collected all of the cleaning fees and everything else? And that's what they're charging you on. And so really, it's a lot more, even though they say they're only 20%. It seems like what, 20 to 25%? Is that kind of the

usual range for, I guess, a more quality person? Or like, what's the actual like? I would say If you're looking for full service, high quality, I'd say more like 25 to 30%. It depends on the area to different parts and different parts to the country, but I'd say that's a pretty good rule. I manage a couple. I wouldn't do it for less than 20 to 30 percent or 25 to 30 percent myself just because if you do it right, then yeah, it requires some serious time and expenses. But one thing I really want to get across to the viewers at home is that that is a pretty,

it's not insignificant. It doesn't mean it's not worth it, but it is a premium. to 30% of your gross revenue. You know, that's 25,000 to 30,000 on a $100,000 grosser. And what I want people to kind of keep in mind when they're analyzing the stuff at home is oftentimes a short-term rental host, all we're really doing is we're analyzing our utilities, we're analyzing our cleaning fees, and that's how we're coming up with our cash on cash return. But people very often do not factor in CAPEX, right, capital expenditures and maintenance. And that's where a lot of short-term rental hosts get bit in the.

but, you know, three, four, five years down the road. But lastly, let's just say that we do have a short-term rental operator that does actually cover those things. The one expense that most people don't factor in is a property management expense. And I want to just reassure everyone that eventually you want, you definitely want to factor that in, even if you're not paying for it now. Because if your property doesn't work with this like 20 to 30% property management fee, that just basically means you are going to be locked into self-managing your property for life. And that means at the moment you do hire a property manager, a quality one, if it doesn't pencil out with that, you're going to lose money the moment you choose to do that,

forcing you to have to sell. And it's like a whole thing. So I try to tell people to bake in some kind of property management fee into their upfront analysis because you never really know when that day is going to come or you decide to hire someone. Yeah. And I think on top of that, allowing for additional expenses that come on top of that too, you know, especially as people are starting out, their house hacking, doing whatever, they get used to doing a lot of their own repairs and, you know, the guest needs towels at 3 a.m. and they're running out doing it themselves. The property manager may charge extra for some of those things that you might usually take care of yourself and maintenance might cost more than, you know, what you're used to paying. So padding those numbers as much as you can. Yeah, even some of those sneaky ones, one that pops into my head is like pest control. It's like when you're when your owner operator, it's like, oh, I can go out there and spray. every so often, but, you know, when you actually have a professional service doing that because

your guests don't want ants in the bathroom or stuff like that, depending on what area of the country you're in, those kinds of expenses you don't think about. Okay, we have to take one more short break, but while we're gone, if you're curious about making your investing more passive by working with a property manager who gets your needs as an investor, check out our new property manager finder tool over at biggerpockets.com slash manage me. We'll be right back. There are two kinds of real estate investors, those who have reviewed their insurance, and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps

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Cost segregation guys is the go-to firm, having done over 12,000 of these studies with 500 million in total depreciation identified. Head to Costsegregationguise.com slash BP to get a free proposal and see your potential tax savings. Welcome back, everyone. Let's pick up where we left off. Yeah, and that's on the short-term rental side.

But David, obviously, you've got a lot more experience on the long-term rental side of things. So tell me about your experience there. What is the typical property management fee on that side of real estate? It kind of centers around 10%. I notice you get like an 8 to 12% swing for. long-term rentals, but that isn't where you're going to get hammered. It's going to be in the little fees that they're going to throw on. And even more so than what you're paying the property

manager, where you lose money in long-term rentals is maintenance costs. I mean, the difference between paying a handyman a hundred bucks or them sending someone out for 300 bucks, it may only be $200, but that could be your cash flow for the entire month. And if that happens every three to four months, that becomes your cash flow for the entire year. And then you get a big one, like an air conditioner going out or a roof going out. And that becomes your cash flow for like several years. It gets out of hand very, very quickly if you're a cash flow investor with maintenance costs. And that's going to be the first thing that a long-term rental property manager delegates.

Immediately they're like, oh, the tenant had a complaint. Let me just have my employee send a maintenance guy out there. Have you guys ever had a maintenance person that didn't say, yep, we're just going to need to replace the whole thing when they didn't know how to fix it? I mean, that's like the standard knee-jerk response is this. I don't know how to fix this cheaply. So I'm just going to recommend you have to buy the whole thing. But what you hear as the client is the professional said I need a new one.

The property management company who's a professional said I need a new one. My staff member told me we need a new one. And your head, three people have looked at this problem and every one of them has decided I need an entire new hydrogen electrical G14 coil. And you're like, all right, I guess I got to spend six. $6,500. And then the few times that I've said, no, I'm tired of this. Send someone else. And that person goes, I was able to fix it for $75. And I'm just, I lose my mind every time that happened. So long story short, long term rentals, it's not going to be the price that you negotiate with the property manager that makes or break your deal. It's going to be the maintenance costs.

Yeah. I, you know, you guys mentioned you recommend some people like, you know, if it's right for them getting the property right out the gate. I kind of come from the other side of that. I do like being in the trenches of your first or second property because then property managers can't BSU. You can actually ask them questions and test them a little bit. You know, I definitely see the use case for if the property is just going to perform excellently at the gate and you want it to be passive totally. But I like the idea of kind of cutting your teeth and struggling a little bit so that you know, you know, you basically know the work that goes into running the short-term rental. Yeah, I think, you know, That's what we tell new house hackers and stuff come to our meetup and are asking about our services and stuff.

That's the first thing I ask. I'm like, have you done this? Have you considered doing it yourself? Do you have the time? And some people do. Some people don't. You know, quick a little anecdote for you. Like we have a, we have a lot of military clients.

Colorado Springs is a big military town. And so we get a lot of those house hackers that, you know, they don't have access to their phone during the day. And they could get deployed, you know, any time. We had a client last year. who ended up called and said, I'm heading to the Middle East next week. They just told me. And so we ended up having to get his unit furnished and up and running while he was gone in the Middle East with no communication.

And so those are the times, you know, and a great, you know, example of a situation where he had to use a property manager from the get-go, but could still continue his investment journey. Yeah. That makes sense. Is there a tipping point for, let's say the midterm rental side of things in which someone may want to consider a property manager for a midterm rental? because that's kind of like, right, that sweet spot in between short term and long-term rentals.

Would you say kind of a similar thing on that side of things too? You know, it's a lot of the, it's a lot of the same, a lot of the same skills that you have to learn. But the ongoing frequency, you know, of having to deal with guest issues and having to get it cleaned is just so much less that I would say that's probably a little bit easier to operate. And you could probably have a little bit more capacity. Like you said, it's kind of that sweet spot in between long term and short term. Yeah. I think I'm actually okay with the lesser fee on midterm rentals for that reason because they actually, they are pretty usually significantly easier. But would you say from a cost perspective percentage wise, is it similar to short term rentals? Is it in between? What's been your experience there? You know, as far as like what we charge as a property manager, we charge the same for midterm rentals as we do for short term rentals. Just because for us as a business, it ends up taking a lot of the same resources and a lot of the same. effort. And it's really not worth it for us to take these midterm rentals at a lower rate.

I think other property managers see it differently. But yeah, it may be a big consideration, right? It is less work. And so if you're going to be paying the same fee as you would as a short term rental, it may not make sense. You're probably going to make less with a midterm rental than you would a short term. And so the numbers just may not work with a property manager. Now, if you're going to charge the same, are you going out in sourcing midterm rental contracts and calling hospitals and places. Because if that's the case, that's when I definitely see the higher percentage coming in, but curious if that's even the norm for a midterm rental property manager. I don't know about you, Michael. I haven't really heard of that much. Someone, you know,

a lot of property managers focusing on midterm. We don't. We have, we manage them, but it's not a focus of ours. And we find we mostly just list them on Airbnb and the other platforms and see that is the kind of the best option. Yeah, that's where we've gotten. I mean, we've had them on Furnish Finder and other sites, but haven't had a lot of success there. But I've heard of others having a lot of success with insurance companies and kind of getting an in that way. But it's not something that we've we've cracked the nut on or spent a lot of time on since our bread and butter has been the short-term rental space. I will say too, as far as the tipping point, like I said, there are a lot of managers out there that will offer partial services. And so it may

come to the point where something like pricing, you know, doing all that data analysis is just not your game. And so you can hire out just parts of that. We actually, we're just launching a new service where we're just a small portion. We're just doing revenue management and your listing management and nothing else. And that might work for some people and maybe, okay, I'm not ready to totally give up my property yet. I want to stay engaged with my guests, something like that, but can still get help where you need it. And there's different companies out there that offer those kind of one-off services. I think there's two ways you can look at using a property manager. The incorrect way and the correct way. The incorrect way is you think, I have offloaded all of the

responsibility of my property onto this person. It is their job to make it perform well. The correct way is to say, I have offloaded the majority of the energy and time draining activities to my property manager, but I have retained the responsibility. It's not about absolving yourself a responsibility, but it is about absorbing yourself of time, right? They're sort of like assisting you. They're helping you with a lot of the paper cuts is what I call them. You don't die from a paper cut, but it sure is freaking annoying. It can make it so reading is it very fun.

If real estate investing becomes too painful, you're just like, I don't want to do it. And you don't think about it consciously, but subconsciously, you just check out. You're like, all right, I'm not going to do this. And five years later, you're listening to the Bigger Pockets podcast. And somebody else has made $250,000 in equity. And you're like, oh, man, I should have bought more house. But you don't remember why you got out of it. It's because part of it wasn't making it fun.

You want to keep your relationship fun. You want to keep your relationship with real estate fun. And I think hiring a property manager can help with that. Rob, when you, because you don't necessarily always hire property managers, but you sort of have hired your own people in your company to do the work of a property manager like me, right? What were some changes that happened in your business when you got your time back so that you weren't having to do all of the tasks, even though you maintain the responsibility? I get to really, I'm a visionary, right? So in most businesses, visionary integrator. So I'm just not really good with like the day-to-day detail-oriented, very organization side of things. And so for me, what I got was I have like a pseudo property manager. She's like my assistant. I have her kind of run the day-to-day communications, vendor management in terms of getting the plumbers, electricians, whoever needs to go out there to fix things. I still get every single message on my phone. I think a lot of people are very

by this and they're like, Rob, you need to pull yourself out of the business. But I kind of feel like it helps me keep a pulse on both my own portfolio and also the industry, right, from an anecdotal perspective. So for me, what I get out of having a property manager in place is I get to just focus on the bigger projects. I do a lot of development, underwriting and trying to get into some of these hotel type of deals or some of these bigger, you know, 40, 50 unit properties. And then I also like to create like very big experience Airbnbs, like the, the Pink Pickle property in Austin, Texas. So for me, what I get is I just get to flex my creative bone a lot more and leave the day-to-day stuff to someone else that's a little bit more capable at handling it.

So it allows me to just kind of really dive into the stuff that I'm specifically good at. Michael, Luke, what are some advice that you have for people who they own a short-term rental successfully? They're thinking about wanting to hire someone else. What are some things that they could accomplish if they could get their time back that you've seen? Yeah, good question. I think Like I said, short-term rentals can be really, you know, time-absorbing. And I think it could go a couple of ways. For some people we've seen, it's doubling down and focusing on their careers because they have, you know, really successful careers that allow them to continue to investing,

but it's actually worth it for them. I know a lot of people talking about wanting to get out of their careers, but we know a lot of great people that are using us because they actually love and are very successful in their careers and don't have the time to focus. So that's one side. Or the other is, like you said, focusing on the next. deal, whether it's finding the next short-term rental deal, being able to get creative with it, or maybe it's, you want to start looking into new types of real estate investing and really get

yourself educated there. Maybe you need to spend time door knocking, whatever it is you need to do. Again, just taking that off your plate. All right, Michael? Yeah. The only thing I think that we could add to that is, you know, you could actually spend time on looking at not just new properties, but maybe when you've already got, like, what could you do to help make it perform better? redo the backyard at a sauna, a put-put-golf, fire pit, something else that your property manager is not going to do for you,

but you could work with them and partner with them to help make it better. You can ask them those questions of like, what could I do to help it earn more rather than kind of just taking it as is and being like, man, this isn't what I thought or I'm not hitting the numbers I wanted to. Yeah. It opens up the creative part of your brain. You could think about the fun stuff because you're not getting paper cuts constantly, which just makes it hard to think about how you can make something better if your heart's not in it.

You got to protect your emotions. I don't think we think about that a lot. When you're doing well with real estate, you want to do more of it. When you're enjoying your workouts, you want to work out more. You got to find ways to make it so that you like your relationship and you're happy with that person. You're not always fighting. I know Rob himself, when he got his time back, he did such a good job. He got about three hours a day.

And he used it to watch Interstellar every single day with that time he got back. I'm on 200 right now, 200 times. So I think I've sent it setting the record. Yeah, you know, we don't, I don't deal with the paper cuts as much, but I do still feel like I get the occasional cardboard cut, you know. I deal with the big problems of my portfolio, but. Yes, when you're the business owner,

you deal with the problems that everybody else didn't want to. Luke, Michael, anything you guys want to add? No, I think that about covers it. If you want to connect with Luke, Michael, David, or myself, we're going to leave all our contact information in the show notes down below. so you can connect with us. And if you're curious about working with the property manager who understands your goals, check out the new property manager finder over at biggerpockets.com slash manage me. That's biggerpockets.com slash manage me. Michael Luke, thanks for being here today. Thanks for fighting

the good fight and doing your very best to make the real estate industry better and not worse. Rob, thank you for watching Interstellar every single day and making sure that the Easter eggs are available on your blog. Go check that out if you want to see Rob's critical reviews of Interstellar. stellar. We appreciate you guys. If you've got a minute, please leave us a five-star review wherever you listen to your podcast because those make a huge difference for us and subscribe to the show wherever you're listening. This is David Green for Rob. Skip the paper cuts and get right to the cardboard cuts obis solo. Signing out. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify,

or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host an executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.w.w.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all

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