Epic Real Estate Investing - How PROPERTY MANAGEMENT Made My Passive Income MORE Passive | 1161

Episode Date: August 5, 2021

When it comes to receiving passive income from your real estate investments... the property you buy or the market you invest in aren’t the most critical of details, but finding good property management is. Today I'll share with you what a good property manager does, how to find a good one, and how to keep them on their toes and care for your investment. Also, I’ll let you in on a dirty little secret about property managers that is rarely shared. Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit r-e-i-aise.com.

here's Matt. Hey there, Rockstar. Matt Terrio here from Epic Real Estate, where we show people how to invest in real estate, using more of their mind than their money, using creative real estate investing strategies with an emphasis on retiring early. Let's escape that daily grind and all retire early.

At least create the option to, the opportunity to do so. And if this is your first time here, really glad that you found us. Make yourself at home. If you like what you hear, make sure you hit the subscribe button before you go. And if this is not your first time here,

welcome back. and thank you for sharing this, continuing to share it with your friends and family. I just would not be here if it weren't for you doing that. So you're the absolute best for doing that. So thank you so, so much. I'm eternally grateful. So in today's show, I'm going to share with you how the right property manager made my passive income much more passive and how you can do the same.

And today's sponsor of the show is REI Blackbook. It's everything you need to run your real estate investing business. And if you want to embrace the multi-offer approach, the very approach that the very approach that helped me build my entire portfolio, about 92 and a half percent of it. And you want to watch your closing rate increase by as much as 287%. Get 14 days of free access to REI Blackbook. Their automated follow-up machine will be absolutely free for you. Plus, right now, their brand new multi-offer generator, the one I just mentioned,

that tool is available to you as free as well at epic blackbook.com and start closing more creative deals. Get all of this for free, only available at epic blackbook.com. All right. So when it comes to receiving passive income from your real estate investments, the property you buy or the market that you invest in, those aren't the most critical of details. But finding a good property manager is absolutely critical. So today, let's go over what a good property manager does, how to find a good one, and how to keep them on their toes and make sure that they're caring for your investment. And I'm also going to let you in on a dirty little secret about property managers that

is rarely shared. And if you don't know, that could be a problem. It could blow the whole thing up. So I'll let you in on that. All right. So, as you know, if this is your first time here, maybe you don't know. But if you've been with me for a while, you know that I begin each and every show with.

This is where we show people how to invest in real estate so they can escape the daily grind and retire early, right? And that early retirement will come about from the commonly misunderstood passive income. That's how it happens. You get your passive income, your monthly passive income to exceed your monthly expenses, and you are free. You might not be rich. I wasn't for sure when I first made that happen. But I was free, and it was nice.

I almost think sometimes it's a better feeling than actually being rich. So if you've ever dreamed of passive income profits from your real estate, you're going to want to know that it's virtually impossible to happen without good property management. So much so from this point forward, you're going to want to conduct as much due diligence on your property manager as you do the properties themselves. That's how important it is. And contrary to popular belief, And you'll hear this frequently to people that just commoners will call them. Bless their hearts. They'll say real estate is risky.

But no, real estate is safe. It's really safe. Perhaps it's the safest investment with the highest returns that there are available for the average person. It's the people involved that can really make real estate risky. And this is especially true for real estate investors that own multiple properties. and want to get income from those properties. And it could be even more so if they own multiple properties in multiple markets like we do. You know, it's for investors that invest in markets other than where they live.

Property management is crucial. So if you get property management wrong, I mean, you could really just kind of be nickel and dime to financial death with maintenance costs, repairs, and tenant turnover. And resulting in your property being more of a liability than, an asset than an investment can be a big pain in the neck, be a big source of stress, cause you to lose sleep. It could go really bad if your property management is wrong. But if you get it right, your rental income will flow consistently. It'll truly be passive. And in early retirement, that won't be a pipe dream, but rather a real probability. Now, these days, it's not uncommon for investors to look to other real estate markets, passive income,

considering where they live might not present the greatest rental opportunities. And so long distance investing has become very popular because of this. And as you know, Mercedes is here each and every week. She's taking a little bit of a break. But she'll be back very, very soon. And you can always talk to her because that's what she does. That's what she does for busy professionals and people that just don't know how or just too busy to do all that heavy lifting. Or they just don't want to do all that heavy lifting.

And that's totally understandable as well. And if you like more information on that, you can download a free investor packet at cashflow savvy.com. All right, but here's the deal. A bad property manager can make the best of rental markets a terrible experience for investors. However, a good property manager can turn middle of the road markets into fantastically performing passive income investments for their owners. So the property is important.

Yes, the market is important. I'm not saying it's not. But without good property management, you're really rolling the dice. in your early retirement, it shouldn't be a gamble like that, right? It should be a little bit more of a for sure thing. So here, you see, you turn your property investment into more of a passive income sure thing when you hire a property manager that removes these following types of tasks from your plate. First and foremost, they've got to find the most qualified tenants for your properties.

So it's not going to work without that. Second, they've got to collect the rent and collect the rent on time from these qualified tenants. And third, they've got to maintain detailed rent rolls, detailed records. And these rent rolls, you might have heard of this before, might not understand totally what it is or how important it is. But this is just, it's an accounting statement that shows the rental income from a property. And these are really important. They're more important than most people realize because while some people view a rent role as a just simple, boring, accounting document, it's the information from the rent roll that is used in key rental property

financial performance formulas, you know, such as calculating your net operating income or your internal rate of return or, you know, figuring out what your gross rent multiplier or your cap rate is. Because if you ever sell your property to another investor, this is an essential document to validate your property's value, to validate your property's performance. I mean, the rent roll can make or break a sale. Or what I consider even worse, it could make or break a refinance. So you're going to want to make sure your property manager is on top of all of that and also on top of the security deposits, the utility payments, repairs and maintenance, and you're going to want to, you're going to want them to make routine inspections at least once a

year, preferably two, but at least once. And just all of these things, these are all just expected, right? They're proper and reasonable expectations of a property manager. but you don't always get them, right? And the reason that they might not perform, and the property manager might not do this, is because their business model could be in conflict with yours, meaning your interests might not be aligned.

And this is the dirty little secret about the business of property management that I mentioned. And it's a little counterintuitive when you first discover this, but it's really just economics. You just have two sides of the coin here. So some property managers,

they get most of their profits in performing repairs and tenant turnover. That's how they make their money. While others might make less money, but they prefer the low maintenance and the low work and the low effort from the tenants and they want their tenants to stay the long term. It's less work for them.

So it's not uncommon for your goals to conflict with your property manager. So, I mean, their goal should be to keep your tenant in place as turnover will kill your cash flow. But performing repairs, whether they're necessary or otherwise or not, and tenant turnover, those can be real profit centers for them. So what that really means is the worst your property performs, the worst the experiences for you with this type of property manager, the more money they make. So how do you avoid this type of?

relationship. How do you find a good property manager where yours and their interests are aligned? Well, I'm going to tell you how I did it. Tell you how Mercedes and I did it. And then I'll tell you how if we were to do it all over again, how we'd probably do it differently or how we are doing it differently. We're doing that now. But if we were to start all over, I wish we would have started this way from the beginning. So I found all of my really good property managers. Mercedes and I found all the really good ones that we have because we have probably six or seven and six, seven different markets. And that's why we're in those markets. Not because the markets are great. The markets are good. There might be better markets on paper, but it doesn't make a difference unless you've got really good

property management there. And we've been to a lot of markets and we've left markets because we just couldn't find one. I mean, I think in Cleveland, we went through every single property manager in the city. And I've got a friend, I don't know if you guys know, Sensei, Gilliland. And so he does properties over there in Cleveland. And he says he's having a blast and everybody's happy. And so, well, God bless him. I wish I knew who he was working with back then. But anyway, we left Cleveland. And so, like I'll never say never, we could go back. But so we found all of our good property managers by working with a lot of bad ones first.

And that's why our turnkey service at cash flow savvy, it works so well. But it wasn't always like that. You see, there were definitely some growing pains in the beginning, some significant ones. And they were expensive. They were really expensive. And you don't want to take that route, I promise you. So you don't want to go through and work with the bad ones to find the good ones, although that could still be your experience.

And I'll explain a sec. Because if I were to do it all over again, I'd begin by asking for referrals from fellow investors. I'd go to the real estate investor meetings. I'd go to the real estate investing groups that you can find on meetup.com. And I'd just start asking around. I'd ask around and look for landlords. I'd find them. then I'd look for the ones and talk to them that had rental properties and that were happy with

their property management. That's where I'd start. And I have since done that. And that's what we do now when we need a new manager. We always start by seeking out a referral. But it's not a foolproof system. No. It is better, however, than combing through the yellow pages or Google like we used to do it.

But it's not a foolproof system when you get a referral. There are some other steps to follow and some specific. questions to ask when interviewing a property manager. And I'm going to share all of those with you in just a second. But what I've found to be really effective in finding and maintaining good property managers are these two things here. One, start small. And if you only have one property, then you're going to start small, right? You have no choice. But I mean, start small by giving them just one property. So if you have multiple properties and you feel like switching, you find a new one that gives you a little better feeling about everything, start small by giving them just one property and then

micromanage them for a little while. Like don't be a pain in the butt, don't be a pest, but you want to micromanage in a way just to let them know that you are watching, that you are paying attention. And then when you receive your monthly payment and when you receive your statement, call them up and ask some questions about the statements. Even if you already know the answers to the questions you're asking, you just want to let them know you're watching. So that's the first thing. Start small. Two, you want to diversify your property management relationships. And you know what? This might sound a little bit

extreme and I might even contradict myself and my actions and what I'm saying right now. But I'd do this as soon as you had two or more properties. As soon as, like once you're in a place and you've got a good relationship with the one property manager. And if you're going to get a sat down, second property, start looking for another property management relationship. You want to diversify that. If you can, right? There might be only one that you're really happy within your city. And if that's the case, then that's the case. I'm not saying diversify for the sake of diversification. I want you to diversify into two good property management relationships. And let your property managers know that you are indeed working with more than one. Now you're not going to pit them against each other.

don't do that. And you're not going to hold business over their heads and make threats. You don't want to do that. I mean, you want a good working relationship with your property manager. But let it casually be known every once in a while that you do have other properties managed by other property managers in the area. And so since doing these two things in each of our market, starting small and a diverse market of property management, we've clearly witnessed performance rise and expenses fall.

And not just for our properties either. We've also witnessed how our clients. The cash flow savvy clients benefit from our property management relationships and in getting the best service for themselves too. You see, we're able to leverage this volume, this group, their strength in numbers. And that's worked out really well for our clients, just being able to piggyback off of what we do. Now, with that said, the initial interview is really important. So you do want to ask the right questions so that your property manager knows up front that you're not totally new to the game. even if you are, and that you won't be walked on that.

You're not going to stand for no BS. So when you're asking these questions, when interviewing a property manager, it's like in an interview. The interviewee is going to be on their very best behavior and they're going to answer in a way that they think you want to hear. If they're not on their best behavior, there's a red flag right there, right?

But most of the time, they're going to sit down, be professional, nice, courteous, and patient, and like I said, be on their best behavior. So the questions that we ask, and you can, I'm going to give you some questions to ask, but don't feel in need like these are super important. They're just kind of routine questions, and every property manager will typically have an answer that will satisfy you.

And you could just go to Google and type in questions to ask a property manager, and you'll get all kinds of results. Like I said, the specific questions aren't what necessarily so important because there are countless questions that you could ask. and like I said, I'll give you some good ones in a second. But it's very common for a property manager's answer of one question to lead you to another question that you didn't even know you're going to ask. So just kind of go with the flow, right?

Don't abandon all your own personal communication skills, your social skills. You know, if something comes up with an answer, go deeper with that. Why is that? How is that? Tell me more about that, right? Follow up with those types of questions. Get them talking. And while you're asking, it's really important to trust your little spidey sense when it comes

to the property manager's attitude, their communication, their organization, the details, and their passion for their work, if they have any. Because sometimes it's not just the answer that matters, but how they answered it. So trust your gut, trust your instinct. If I look back and I would have trusted my instinct every time, I don't think I would have had a bad experience. But I just got into situations where I needed somebody or I kind of like that. them personally and I was hoping they would do a good job because I wanted to work with them

and they were fun to go out and have a beer with. But, you know, just trust your gut when it comes. This is your asset, right? This is your property. You've spent a lot of money on this and, you know, you want it to perform. Otherwise, what good is it? Might as well just throw your money in the stock market and roll the dice like the rest of the world. All right. So here are the 15 of them. I guess, yeah, I'll go through all 15. Why not? Of the best questions that we ask during a property manager's interview. And I won't do any real commentary in here. I'll just read you to the questions.

One, how long have you been in business? Two, how many properties do you have under management? Three, how do you screen tenants? Four, what's your vacancy rate? Five, who are the contacts for tenant placement, the contacts for accounting and repairs? Number six, how do you collect rents from the tenants? Seven, how do you pay your landlords?

Is direct deposit available? And these two questions are kind of important these days as technologies is becoming more and more sophisticated and easier to use and cheap as well. Is, you know, do they have to go knock on the door and ask for a check? Does the tenant have to mail it in? Does the check able to wire it? Actually, does the check, is the tenant able to wire it? Or does the tenant have to come to the office to deliver it? That happens a lot in the Midwest.

We see on pay days or on the first. You'll see a line out the door of the property manager's office because everyone's there to pay. their rent. But there's apps and software that can make this really, really simple, both for collections and the payments to you. So ask how that's done. The number eight, how do you report to your landlords and what's the frequency of your reporting? Number nine, are maintenance and repairs handled in-house or by a third party? Ten, is there any markup on maintenance and repairs? 11, what's your eviction process and expense? Let me back up to number 10. Is there any markup on maintenance and repairs. That's suggesting that I already know the game. I've been around. I know this is

a potential profit center for property managers, right? And it's not a bad thing if there is a markup on that because everyone's got to make money and I don't really hate on anyone making their money, but just let them know, drop it in there and let them know that you're aware. What's your eviction process in the expense? Number 12, what are your management fees? Number 13, are there any miscellaneous fees I should know about. Number 14, what's your management cancellation policy? Because if it turns out to be a bad relationship, you want to know what that looks like. And then 15, are you an active real estate investor? So we ask that question just because we want to know, do they know what it's like to be in our shoes? Right. So that's the question. And so I went through those and you can go back and re-record or

listen and write those down if you want. Like I said, it's not. crucial that you ask every one of those questions or those specific questions. But of this list of questions, what we'll typically do, and this is kind of like the real test of the whole thing, like we go to this whole charade and this conversation, just to get to know the property manager and go through that whole process. But we'll always leave a question or two out of the live interview intentionally. And then we'll call back after hours after we know that they've all gone home. Then we'll just leave the question with their answering service. Most of the time they have a live answering service. Maybe it's a machine.

and then we'll just kind of time how long it takes to get a response. How long is it going to take for us to get an answer back to that question or two that we left after hours? And here's why we do this. You know, two of the ultimate qualities that you're going to want to look for in your property manager is if they're communicative and if they are accessible. Because these really are deal breakers from Mercedes and I if they aren't. Because you don't want to worry about the proverbial clause. toilet in the middle of the night.

We've never had that phone call before, but everyone always seems to throw that out there. So that's why I called it the proverbial. But we never had a clogged toilet in the middle of the night call. Or any other emergency type repairs that may come up because all kinds of stuff can come up. It's a house, right? Things happen.

And so for that reason, you're also going to want to strongly prefer a property manager that is in a relatively close proximity to your rental properties. because there are national management companies out there that will manage in multiple markets and they don't even have a presence there. And maybe they have a good system for it.

I don't know. I've never used one. But this type of stuff of being communicative, being accessible, and being local, this type of stuff is really crucial to turning your rental income into more passive income than not.

All righty, so I'll go ahead and I'll end with how I began. real estate works, real estate is safe. It's the people that are risky. So conduct as much due diligence on your people. And for this episode, that would be property managers. I could throw contractors into the mix as well, but conduct as much due diligence on your people as you do the properties and markets themselves. All righty. So now this week, as I am on vacation, I'm in a sprinter van making my way with my son, just he and I, through Utah, Idaho, Montana, and Wyoming. And so no news this week. All righty.

So we'll see you next week. And if you found this episode valuable, who else do you know that might too? There's a good chance that you do know someone else who would. And when their name comes to mind, please share with them and ask them to click the subscribe button when they get here. And I'm going to take great care of them. All right. So that's it for today.

God loves you. And so do I. Health, peace, blessings, and success to you. I'm Matt Terry. Yeah, yeah, we got the cash flow. You didn't know home for us, we got the dash low. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.