Epic Real Estate Investing - What Questions Should You Ask a Property Management Company | 995

Episode Date: April 21, 2020

One of the toughest parts of real estate investing is to find quality property management. Therefore, Mercedes, the Turnkey Girl, shares the 5 questions you MUST ask when hiring a property management company! Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes Torres, the turnkey girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire. I help busy professionals

create passive income through real estate investing so they can retire even sooner. So on this show, I share tips and real life, real estate experiences so that you can create passive income in your world. So this week's deal of the week was a dynamic deal. It went to Derek in South Dakota. He purchased a four-bedroom, two-bath single-family residence in Indianapolis, Indiana. This property came with a two-year lease already in place. It rents for $1,2,190, and it sold for $1,200, and it sold for $128, $128,000. It is a cute little ranch-style home that is going to make your family. Your tenants are very, very happy.

So to Derek and his expecting wife, they are expecting their first baby to come in August of this year, congratulations because you guys did pick up a dynamic single family rental. Congratulations, guys. So, believe it or not, despite these unprecedented times that we are currently living in, I am not seeing a whole lot of drop in sales. I know, surprising, because while banks are tightening up on their guidelines, I find that my clients are still closing properties. As a matter of fact, I closed onto properties personally last week. and there are still people buying rental units to cash flow despite what's going on in this world as we speak.

After all, you know, housing is an essential business, if you will, and people are always going to need a place to live. People always need a roof over their head. So why not buy a property so they can rent from you? And if you fall into this category and you aren't relying on a turnkey company to help you purchase your rental that automatically comes with property management, I decided to put a list together of five key questions you need to ask a property management company when you are hiring them. You know, you often hear me say on this podcast, property management is one of the most important aspects of real estate investing. I say this all the time because, I mean, the reality is the toughest part of my job is, one, finding a good deal and two, finding better and quality property management. I mean, you can have the most amazing property. It could be the prettiest house on the block or it could be the ugliest house on the block.

But the reality is, if you don't have a quality property management team placing a tenant in your property that could afford to pay that rent, your investment is pointless. So I drill it into our investors, our clients, our followers. Property management is key. So here are five Musk ask questions when hiring a property management team. Number one, ask, what is your tenant selection process? Find out how they screen tenants and tell them, walk me through the process of how you're going to find a tenant that's going to occupy my property. Now, I am a huge fan of word of mouth.

That is really important to me because if I have a quality tenant that is paying rent every single month and not giving me a whole lot of havoc, there's a very good chance they're going to refer a quality tenant to you, a quality referral to you. So find out what your property management does to seek tenants. Now, we personally have a taking care of tenant program. And what that just means is those tenants that pay rent every single month and that are seamless tenants, we hardly hear from them. They pay rent every first of the month. They call in with few maintenance requests. we reward them by allowing them to upgrade their property to a better property in our portfolio so long as they qualify for it. And part of their qualification process is the history that

they've had before. So it's really important that your property management team has something like that in place, whether it's a referral program or it's a taking care of your tenants program, something along those lines that will incentivize your tenants, your good-paying tenants, to stay with you and to renew their lease or to refer a family that could potentially copy and resemble the same performance that your quality tenant is displaying. You also want to find out what's their credit check like? Do they just do a soft pull or does your property management fully fully do a a full credit check. So do they run credit with all three bureaus? You want to know if they screen

for evictions. If there's a criminal history, you want to make sure they do a background check, a criminal check, and to verify their employment. Especially with this COVID-19 situation that we are currently plagued in, you certainly want to verify employment, even up until the day before they're about to move in. Granted, once the lease is signed and you've collected a deposit, if you verify employment and you find out that they've just been laid out, that is grounds for you to ask for further verification that will allow you to pull the lease if indeed, for whatever reason there to lose their job. Now, it's at your discretion, but you should have a property management team

that is on point with that entire checklist of renting your property to a potential tenant. Number two, what is your property management role? It is really important that you understand the role that the property management pays in your world. Setting exercise. Setting expectations from the get-go is super important. And you want to be crystal clear as to when property management collects rent. How do they collect rents? Do they still go over there and knock on their door and say rents do? Or is the tenant required to either send in a payment electronically or mail it? that is really important. It's equally important to understand when payments are considered late in some states, you are late if you don't pay rent by the third of the month. In other states,

you have until the fifth of the month. And there are a handful of states that will allow you until the seventh of month. So you want to be crystal clear as to when rents are paid and when they're due and when they're considered late. It is also important for you to understand when disbursements are made to you. When are you going to get your money after property management has collected their rents? In our case, we collect rents from the first through the fifth of the month and rents are dispersed to our clients between the 15th and the 20th of the month. That's just across the board. There are property management companies that will actually pay a month in the rears. So let's just say they collected rent on March 1st. You won't be seeing that rent until April 1st.

So be crystal crystal clear as to when rents are collected, when they are late, and when they are dispersed. Number three, what is the property management? fee? What is property management charging you every month to manage your property? Now, the typical management percentage, if you will, is anywhere from 8 to 12% across the board in the United States. However, some property management groups will charge you that 8 to 12% whether there is a tenant or not. it should be that you should not be charged property management fees unless property management collects rents. So be crystal clear as to what that amount is across the board for us, it's 10% of the rents collected. But indeed, there are property management companies out there that will charge you despite the fact whether there's a tenant or,

not. They are just charging you to manage your property despite the fact the property is performing or not. And also, be very clear as to what your management placement fee is. So what does that mean? When a tenant moves in, and let's just say rent is $1,200 a month, they have a placement fee for placing your tenant. In some cases, it is a flat fee. They might charge you $300, they might charge you $500. In many cases, property management companies can charge 50% of the rent and can charge up to the whole month's rent. For me, it's acceptable that property management teams charge 50% of the rent. So if your property is $1,200 a month, I believe it's fair to play property management $600, $600, 50% of that, because they went through the whole process of not only finding the tenant, but qualifying the tenant,

having the tenant sign the lease, and then placing the tenant. Believe it or not, it is a lot of work. And the last thing that you want to do is nickel and dime the property management team that is going to oversee your property whenever your property becomes vacant. Okay. Number four, what is your turnaround process like and how long does it take to place a tenant when I have a vacancy? This is very important simply because there are some property management teams that will wait a whole month before they start getting the property wrench ready. and if it takes a property management team two to four weeks to make your property rent ready, you've lost two months of rent. So I want you to be very clear as to when a tenant leaves, how long is it going to take them to get the property rent ready?

Now, let's be real. There are rent readies and there are rent ready. Sometimes a tenant will leave your property almost impeccable to the point where all you may have to do is just paint. There are other times where a tenant, perhaps a tenant that has been living in your property for five years. Well, you might have to paint, you might have to redo the carpets, you might have to change the floors, and you might have to do some plumbing or electrical work to the property, which may mean that it might be take you anywhere from two to four weeks to get that property rent ready. So you want to be very clear as to what the process is. And do they advertise the property while they're getting your property rent

ready? You want to understand do they wait until the property is rent ready? For example, one of the things that we do is most of our rent readies are very similar. So we share the photos of the previous rent ready of the property. And we say this was the previous rent ready. However, the property that we're advertising will be available in about four days. And this is what it's going to look like, if not even better. So we start to advertise the property the moment that the tenant leaves and even before we start to get the property rent ready. Time is of the essence, my friend, when you are looking for a tenant. So I do not want to waste one precious day on looking for a tenant. As a matter of fact, several of my property management teams, the moment that we get a notice of vacancy, in other words, when the tenant is informing us that they are going to be leaving in 30, days, we immediately start to advertise the property and we say coming soon. We don't commit to a date

until the tenant has already left so that we'll have a better idea as to when it will become available. My friend, it will change your life if you start to practice the efficiency of placing or of looking for a tenant when you receive a 30-day notice from your existing tenant. And finally, number five, ask your property management, walk me through your eviction process, and will I have to go to court if I've ever plagued with an eviction? You want to be very, very clear as to what the eviction process and time will you be. line what it looks like in the state of where you own your passive income rental. There are some states where you can literally evict someone in 14 days.

The fastest eviction that I have ever seen and processed has been 21 days. But there are some states that you can do it in 14 days. And there are some states that it could take up to three months. So not only do you want to get a clear picture of what the eviction process is like in your state, but you also want to be on top of it if this was to ever happen to you. Now, we have less than a 1% eviction. So eviction happens very little. Trust me, nobody likes to evict.

We don't like to do it. Nobody likes to be evicted, I'm sure. However, we try to avoid eviction like the plague. And one of the things that we do for our problematic tenants is we offer something called cash for keys. You want to understand what your property management offers, how they remedy a sticky situation, and how they work with a tenant. that is showing signs of potentially having a struggle of paying their rents. Now, I will preface this in saying that at the moment, we are experiencing these unprecedented times of COVID-19.

And this does not apply to now. As of the moment, there is a mandate of which we are not allowed to evict and under the circumstances, nor would we'd want to. However, that does not mean that a tenant is not required to pay rent. So we have requested from our tenants that if there is a financial hardship, we have requested that they contact our office to work out a payment plan. So not under these circumstances, under normal circumstances of the normal operating world, if there is an eviction, there are ways to go around it.

But despite all of that, you still want to be very familiar with the process that your property management team utilizes to evict a tenant. I truly hope this is helpful. And if you have any questions about any of this, ask your property management team currently And trust me, when I say every contract is negotiable. And trust me when I say that your property management team is very interested in collecting your rents. So remember, they are here to serve you, not the other way around. However, they're also people too.

So they might have processes. They might have systems in place. but the one thing that sets apart a really good property management team from a great property management team is that touch of human element, meaning that individual that reaches out to make a difference. This will truly make a difference to your bottom line. That's it for today. If you need help or any pointers on property management, don't hesitate to reach out to myself or any of our cash flow savvy consultants, go to cashflow savvy.com, click on the contact us, and connect with any of us as we're here to help you create passive income in your world.

Until next week, have an epic week. Your portfolio has seen better days. But this two shall pass. And the best for you is yet to come. Together, we'll get you there faster. And we'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival. Go to cashflow savvy.com. More building, less weighting.

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