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The Ultimate Property Management Masterclass

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Property management can be one of the more complex decisions when it comes to investing. Do you save money and ensure the job is done exactly how you want it by self-managing, or do you invest in someone with experience and save yourself time, energy, and headspace? Today’s guest, Karen Lane, breaks down property management in bite-size chunks, so whether you’re deciding between property management vs. self-management or hoping to pursue property management already, this episode is perfect for you.

Karen has been in property management for commercial real estate for most of her career, so she’s seen it all—including a dead deer carcass in the middle of a shopping center parking lot. She’s worked with private investors on both coasts and internationally. Karen’s abundant experience has made her a wealth of knowledge and the perfect person to learn from. While she has thrived in the property management space, she now hopes to beat analysis paralysis and find her first investment. 

Karen goes over what it means to be a property manager and how to become one. She also talks about the nuances of juggling the different relationships you need to maintain as a property manager. Today’s episode is the free property management masterclass you don’t want to miss.

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Ashley:
This is Real Estate Rookie episode 203.

Karen:
I believe that the property manager needs to be seen, but I’m also the type of person that I’m a hands-on property manager. Years ago, I’d go up on the roof, and go in the basements and who knows where, but my point being that you’re much more involved, and you get much more of the actual detail when you’re there on site when something’s happening. I’m a firm believer that the property manager needs to be out on the property, not in the office.

Ashley:
My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.

Tony:
Welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the stories, inspiration, and information you need to kickstart your investing journey. Part of what we do on this show is we ask our loyal listeners to leave us honest rating and reviews. Ashley always gives me a hard time when I say honest, because some of you are more honest than others. I just want to read a review we got in recently that gave us a good laugh. You can give a title for your review. The title for this one says boring.

Tony:
This is a one-star review from Missael_Emm. “Most of the guests that they have on the show seem like interesting people, but can’t help to not acknowledge how boring Tony/Ashley make the conversation. They should really know how to ask better questions.” I guess we got to focus on our banter, Ashley, and our ability to ask good questions. Something for us to work on.

Ashley:
You know what, there’s always a room for improvement. We can take constructive criticism. I would just rather you DM it to me, and not publicly put an honest review.

Tony:
Well, now onto our boring banter.

Ashley:
What’s new with you?

Tony:
I’m actually going back to Las Vegas tomorrow morning. Good friends of mine, they’re getting married in September, and their bachelor and bachelorette party is this weekend, so taking off again to Vegas, and spend the next few days out there. Ash, I know you’re going to be in Coeur d’Alene, but if for whatever reason you feel another Vegas pool party, just know you’re more than welcome to join us.

Ashley:
I’ll fly my kids out to Coeur d’Alene, leave them there for a day, drop them off.

Tony:
Leave them there. Exactly.

Ashley:
I’ll trust them with Ryan Murdoch to babysit.

Tony:
Sounds like a good time.

Ashley:
Just us traveling a lot. It’s been really cool to just be with other investors. I don’t know about you, Tony, but in your small cow town of Ontario, California, are there a lot of investors near you that you can actually network with and hang out besides going to the big meetups that you put on?

Tony:
I actually do have a few friends that live nearby that invest in real estate. But like you said, we’ve been doing our own totally free meetup. So if you guys want to know about those, just follow me on Instagram at TonyJRobinson. We’ve done two of them now. We’re planning to do them every month. We’ve had about 200 people show up to each one of the meetup. That’s been really cool, because it’s cool to be the person creating the community. I know there are a lot of folks that don’t have that connection, so to be the one facilitating, that’s been pretty cool.

Ashley:
If you don’t have that connection, do what Tony is doing, and create your own meetup.

Tony:
Do it yourself.

Ashley:
You don’t have to have a following or a platform. You can post it on biggerpockets.com. In the forums, there is a place specific for hosting events and meetups in there. The one that I go to in Buffalo every once in a while, that one, I mean, just started out with maybe two or three people showing up, but he consistently did it, Eric, every single month. I think it’s been going on maybe three, four years now, and huge, great turnout now. So, stay consistent, and then you can use that meetup to your advantage and opportunities for yourself.

Ashley:
So, “Oh, you want to learn about private money. Who wants to be a speaker at my event, and talk about private money?” Then bring them in.

Tony:
Totally.

Ashley:
Today, we actually are talking about project management, so we are bringing on Karen who works for a professional property management company. She is not an investor herself yet. So at the end, we try to give her some advice and help her get started in her journey, but we thought it would be interesting instead of bringing on an investor who is a property manager, bring on somebody who works at a property management company, and get some insight as to what to look for in a property management company, fees, and everything you need to know about the management agreement too.

Tony:
I mean, this was a masterclass on property management. If we go back to our episodes with James Denard about flipping houses and scope of works, this is equivalent but for property management. It’s that good level of information that she gives out about how to vet property managers, how to be a good property manager, as an owner, what you should look for. Just so many, so many, so many, so many good pieces throughout this entire conversation.

Ashley:
If you want to learn even more about property management, there is going to be a new, BiggerPockets bootcamp release this fall that is specific on property management. So maybe you took the rookie bootcamp with me, and you got your first deal, and now you need to know how to manage it. This bootcamp is for you. It’ll be hosted by myself. I’m in the middle of creating the course structure and all of the content for that, but I’m really excited about it. So if you guys want to check that out, you can go to biggerpockets.com/bootcamps.

Ashley:
Welcome to the show, Karen. Thank you so much for joining us. Can you start off with telling us a little bit about yourself and how you got started in real estate?

Karen:
Well, unfortunately I’ve been in property management commercials specifically for longer than I care to admit to. I started long ago and far away as a leasing assistant, and then from there moved up and became a property manager. I’ve been trapped in that ever since, but I’ve had a really good career. I’ve worked for a lot of different types of investors from private investors all the way up to REITs. I’ve traveled the world. I’ve actually worked on both coasts of the United States as well. I’ve worked internationally, including Dubai.

Tony:
Man. Well, your property management adventure seemed much more exciting than Ashley’s. I don’t know. Have yours taken you to Dubai, Ashley?

Ashley:
I mean, mine took me to a small, tiny little office with no windows, no air conditioning. It had its own bathroom attached.

Karen:
Hey, that’s better than what I had. I had one that was like a pie shaped cut between elevator shaft and a garbage compactor.

Tony:
Well, Karen, I mean, your story’s unique, and this is why we wanted to bring you on is because you haven’t started investing yourself in real estate, but you have this tremendous amount of experience dealing with everything related to real estate, right?

Karen:
Right.

Tony:
You have experience working with investors. You have experience dealing with tenants and managing the properties, but now, you’re ready to take that leap and start investing yourself. So before we get into your journey about the investing side, we really just wanted to be able to pick your brain for our listeners about property management. I think, there are so many rookies who are listening right now that have this desire to become a real estate investor, but the idea of managing tenants, and dealing with the issues that comes along with that has them stuck a little bit.

Tony:
We’re hoping that with you and your wealth of knowledge and experience can ease the fears, or maybe reinforce some of those fears, but at least give them some solutions when it comes to property management. I think the first thing that we want to start with, Karen, is in your own definition, what does it mean to be a property manager?

Karen:
I would have to say that you’re basically a firefighter, because you’re putting out crises or perceived crises constantly. You’re answering to different factions. You’ve got owners. You’ve got your contractors and your vendors, and then of course, you’ve got your tenants. You’re always juggling.

Tony:
You said perceived crises. I think that’s a really telling word. Can you elaborate on that? What does that part mean, the perceived crises?

Karen:
Well, I think that you’ve got tenants that. In their mind, it’s a crisis. It’s the end of the world, say for instance if their air conditioning breaks. Whereas those of us that deal with it on a daily basis, and Ashley, I’m sure you know, it’s like, “Okay, we know the steps. We have to call the vendor. We have to get somebody out there. We have to assess it.” That’s pretty much what I mean by perceived crises. I mean, I’ve had actual crises, but to me, most of them, it’s just a matter of perception.

Ashley:
Karen, let’s talk about the relationship you have with the property owner. So, the property manager, they deal with the tenants, but they also deal with the property owner. Can you talk about how that is set up? What does that relationship look like between a property owner and a property manager?

Karen:
Well, it varies, but I would say a lot of it is dependent on the owner. I would want someone that’s looking for the same goals as the owner. That’s going to take a pride of ownership, and really be transparent and tell them, “This is what I can do. This is what I can’t do.” A lot of that is just that rapport, building that rapport with them to say, “What do you want to see with this property? Do you want to see the aesthetics improved? Do you want to see the leasing improved? How is it that you see this particular investment of yours prospering?” Then take what that owner wants, and create a plan to do that.

Ashley:
Before we go any further, because I think as we get into talking about property management, there might be some people that are intrigued by it, and either thinking they want to do it for their own properties, or that they want to go out and manage other people’s properties. Can anybody be a property manager, or how do you become one?

Karen:
That’s one of the things that I would like to stress is not anyone can be a property manager. A lot of the states have licensing requirements, and even your cities and your counties have business licensing requirements. It’s also not as easy as people think it is. Once you get into the day to day, because you’ve got a lot of financial accounting, and you’ve got to be able to analyze, say, a budget and create a budget versus knowing where you’re going to have to make repairs.

Karen:
You’re going to need a basic mechanical knowledge, and then you’re also going to have to know how to read a lease, and read a management agreement.

Tony:
Karen, you talked about a lot of different aspects of property management. Is the property manager the one person that does everything? Say that I’m the owner, and there’s an issue. There’s a leak at the property. Is the property manager the one that’s actually going out there to fix the leak? If a unit needs to be turned, are they the one that’s turning the unit? I guess what is… Are they the ones that are writing and creating the lease documents? How much of it falls on the PM themselves, or how much is outsourced to other folks?

Karen:
Well, the PM is basically the responsible party, and it’s up to them to see to it that they’ve got people in place. For instance, if there’s a maintenance issue or something, that they’ve got the people in place to call, to get that taken care of. As far as the leases go, we always recommend that the leases are drafted by an attorney, because as real estate brokers, we’re not allowed to draft legal documents, and that they’re reviewed and approved by the owner as well.

Tony:
Interesting. The PM is like the quarterback, and they’re running in place for the rest of the team to make sure that the property’s being taken care of.

Karen:
Correct. We have to be the buck stops with us. I mean, there’s been times when I’ve actually had to be out there on the property at 2:00 in the morning just to make sure that everything was handled.

Tony:
Was that a perceived issue or a real issue, that 2:00 in the morning call?

Karen:
No, that one was a real issue. That was a 18-inch water main break.

Tony:
I guess that’s an issue. I guess that’s an issue.

Karen:
Especially when you’ve got all your electrical equipment in the basement of the building.

Ashley:
Karen, so there are some things that you need to know if you are going to be a property manager. For somebody that’s an investor, what do they need to ask? How do they vet? How do they find a property manager, and make sure that they’re going to do everything correctly, and follow some of the rules and regulations? You talk to… Find out that they’re licensed and that they can actually manage the property, from your perspective, what’s some advice you can give that they can use to vet a property manager?

Karen:
I would say, one, your property manager should have some references so that they could talk to other clients of that property manager, and know how they’re handling the property for other investors. As far as licensing goes, you can look that up on the state’s websites. You can also look up and see if they’ve ever been disciplined by the real estate commission. The other thing I would say is as an investor, I would ask that… Like I said earlier, you want to tell them, “This is what my vision is, and so what do you think I can do to accomplish that vision?”

Karen:
Then listen and see what they come back with. You want somebody that’s going to really take the time to understand your vision as an investor, but also understand what the limitations of the particular property may be. You may have a property that’s out in the tertiary market, and they want sales to increase 100%, or they want leasing in six months. It may not be possible, and you want somebody that’s going to be honest and tell you, “No, I can’t do this, but I can do this.”

Karen:
I think, building that rapport, and having that conversation and a lot of discussion before actually saying, “This is who I’m going to sign with.” I think the other thing too, as an investor is you need to be aware of what the limitations of the property manager are as well as what your limitations as an owner are.

Tony:
Karen, what a eloquently, laid out response to that question. Man, I feel like I’m learning a lot about PMs right now as well. You talked about them having the references, the licenses, being able to share in your vision, understanding the market, the local marketing, and what’s possible, and what’s not, but I also want to go back to the point that you brought up about you being at the property at 2:00 in the morning when this water main line burst. Why do you feel it’s important for a property manager to show up for the tenants?

Karen:
I believe that the property manager needs to be seen, but I’m also the type of person that I’m a hands-on property manager. Years ago, I’d go up on the roof, and go in the basements and who knows where, but my point being that you’re much more involved, and you get much more of the actual detail when you’re there on site when something’s happening. I’m a firm believer that the property manager needs to be out on the property, not in the office.

Ashley:
Karen, I have a question about that. So as the owner, is that costing them any extra on top of the percentage that they’re paying for you to go out of the office, and go to the building? The property management company I use now, they have the property manager, and then they have maintenance and maintenance charges and hourly rate. Well, anything that needs to be done at the facility. Say maybe an appraiser needs to be met. They have one of the maintenance guys, so they can charge that hourly rate.

Ashley:
How does it work for you, and what do you see that’s standard? Would you be the one that actually goes out, and is there an additional fee usually for the property manager to come to the property, or do you think that should be included in that percentage that is paid?

Karen:
I think it should be included. I know from a commercial point of view, it’s usually included. You’re basically on call 24/7. Unless there’s something out of the ordinary that’s an expense for the property, you don’t bill for emergencies and after hour stuff. Now with maintenance, depending on what route you go, whether you have in-house maintenance or you contract out, then that’s going to determine whether the property is going to be billed additionally or not.

Ashley:
You mentioned that you like to go to the properties to show your face to the tenants, and show that you’re involved, and you can see for yourself. That keeps a good line of, would you say, respect with the tenants that you are actually putting an effort to come to the property?

Karen:
Well, I find that it’s not only respect but communication, because I can tell you probably every time I go out to a property, and I go visit tenants, and I ask, “Hey, how’s everything going? Do you need anything?” They’ll give me something that a roof leak or something. Whereas if I wait for them to call me, and tell me that they’ve got a roof leak, nine times out of 10, it won’t happen.

Ashley:
More damage is probably already done because [inaudible 00:19:13].

Karen:
Oh no.

Ashley:
How are you keeping that happy medium, and walking that fine line of keeping the landlord, the owner happy, and also keeping the tenant happy? For instance, I had this tenant that there was a water leak because there was something wrong with the roof. She had her insurance to cover personal items, and the owner didn’t want to pay for her personal items to be replaced, because she’s supposed to have insurance on it. How are you dealing with issues like that, where the tenant may want something done or something covered, and the landlord is saying no? How do you keep both happy? Is it just standing by the lease, and staying strict to that? How do you keep a good relationship with both?

Karen:
I would say that the lease definitely is the Bible. We… It’s [crosstalk 00:20:05].

Ashley:
Blame everything on the lease.

Karen:
Blame everything on the lease, but a lot of it too is you got to know the owner. I’ve got some owners that they’d rather get the rent late than not get it at all. Others that are like, “Charge late fees the minute that they’re late.” A lot of it has to do with just talking through and educating them. I think a lot of it, you have to educate the tenant, because they don’t read the leases. They sign them, but they don’t know what’s in them, and it… You got to basically say, “Look, I’m sorry, but per the lease, you are responsible for your personal belongings.”

Karen:
I run into it a lot because we have a lot of triple net leases, and we’ve got people in older buildings with air conditioners that go out. It’s like, they call us up, and they’re like, “Oh, the air conditioner has to be replaced.” I have to be the one to say, “Sorry, that’s your responsibility.” Now, sometimes they’ll come back, and we’ll talk to the owner, and maybe the owner might split the cost or something. But a lot of times, what most of my owners do is they’ll tie it to something.

Karen:
Say for instance they’ve got a $20,000 air conditioning unit that has to be replaced. The owner will throw in and say, “I’ll replace it, but I want you to extend your lease another three years.”

Tony:
Karen, I want to go back really quickly. You mentioned the word triple net lease. Can you define what that is, and how that’s different from a standard lease?

Karen:
Well, a standard lease is what we call gross. That basically means that all your expenses and everything, that’s included in the price that you’re paying. The triple net lease means that just about all of the operating expenses for the property are passed through to the tenants based on what we use as their pro rata share, which is basically the percentage of the total of the property that they occupied.

Tony:
What will be a good example of something that you would have to cover under a triple net lease that you wouldn’t have to under a gross lease? What are some things that you become responsible for under triple net lease?

Karen:
Well, under a triple net lease, you’re basically responsible for the four walls in, and the landlord is pretty much only responsible for the parking lot and the roof. So if your air conditioner goes out, you’re responsible for it. Roof leak, the landlord is responsible to fix the leak, but if it damages anything in your personal property, then it’s your responsibility to pay for that.

Ashley:
Just to add to that, another thing too is the maintenance and the inside, like Karen said, but also the property taxes. If it’s just a single commercial building, you could be responsible for all the property taxes there, which I think is a great advantage as the property owner, because as property taxes increase, that’s on the tenant and not you. Then also insurance, they usually have to cover a bigger insurance policy than just a renter’s insurance policy on the property too, which can significantly decrease the cost or the property owner too.

Ashley:
It’s usually the triple net leases, the maintenance, the property taxes, and the insurance added on that the owner no longer has to pay. If there is a building that has different units in it, it is prorated, like Karen said, that you’ll pay this percentage of the property taxes, because you have this much square footage of the building on that. That’s a triple net lease for you guys. So if you’re looking for commercial, learn about triple net leases, because they can be a great advantage.

Tony:
I don’t own any commercial real estate yet, but I’ve experienced triple net leases as the tenant. At my day job, we rented these big, massive 500,000 to a million square foot warehouses, and they were all triple net leases. I remember at one point we had this issue where there were these polished concrete floors. We have these forklifts and all this other industrial equipment that’s driving on it, and the floor started to crack. There were these pockets in the floor of the concrete. We tried to go back to the landlord to say, “Hey, the floor is crumbling,” and they tried to argue that it was, “It’s triple net lease. You guys have to do that yourself.”

Tony:
We tried to argue that it was technically the foundation that was wrong. Anyway. Triple net leases are great for landlords. Maybe a little less so for the tenants. Karen, I want to continue on. You’ve shared so much good information so far, but I want to dig into the relationship between the property manager and the owner. What is that? Is it just a handshake agreement, and you guys are buddies, and we’re just going to do this, because I trust you and you trust me, or there are some ways to solidify and legitimize this relationship between the owner and the property manager?

Karen:
Well, there’s usually always a management agreement, and it’s a contract between the owner and the property management company. Those are standard in our industry. As much as we love everybody, we can’t do anything on a handshake, because then it’s going to be, “Well, the way I heard it, you were offering me this.” One of the things that a management agreement will outline is it will outline what the responsibilities of the property manager are as well as what the responsibilities of the owner are.

Karen:
There are other fees that property managers can get, and those are spelled out usually in the management agreement, whether it’s leasing fees or project management fees or management fees themselves. The percentage of the management fees is always spelled out.

Tony:
I want to dig into the fees a little bit more. But before I do, you said a lease of fee. Maybe let’s do it this way. What are all those different fees you just listed? What’s a lease of fee? If you can define those for us, because I’m sure a lot of rookies listening maybe didn’t know that there were these additional fees you might have to pay.

Karen:
Well, first and foremost, you’ve got your management fee. That’s based on your gross income that you receive, or that the manager collects for the owner every month. Then you’ve got leasing fees, which are usually based on whether it’s a new lease or whether it’s a renewal of an existing lease. Those range anywhere from 2% for renewals to 6% for new leases. Then after that, you’ve got project management fees, which are usually based on a cost of, say, zero to $250,000, might be 6%, 250,000 to 500,000 might be 5% and down the line or something.

Karen:
Those are all spelled out, and that project management fees have to do with when you get owners that want to rehab a property, and they buy it, and say they want to replace the roofs. They want to redo the parking lot. That’s a fee that the property manager is entitled to, because they’re basically acting as a construction project manager, and overseeing that. They’re getting the bids on everything. They’re checking out the contractors, making sure they’re insured, and getting the contracts actually executed.

Tony:
There’s a lot that a property manager can do for an owner, which I think is good because I think a lot of new investors don’t realize, if you find the right property manager, how wide ranging of type of services they can offer to you as the owner. I want to drill in a little bit, Karen, into the compensation. But before I do, Ash, any thoughts on you on all these different things that property managers can do?

Ashley:
I just had one question on it. So with the property management fees, how can somebody as a landlord, the property owner, what are some things they should be looking for to know what the fees are upfront? Will they get usually an attached schedule with all the fees listed in there, and are there ways to hide fees that the property owner should be looking for?

Karen:
Well, I personally don’t think there’s too many ways to hide fees. If you’ve got an owner that actually goes through that management agreement, and you make sure everything’s spelled out, there’s always stuff, I guess, that could come up, but that would be one that owner would then talk to the property manager, and discuss it. As far as the fees go, they should all be on a schedule in the property management agreement. Like I said, they should be spelled out exactly, what they’re based on and how often they can be paid.

Karen:
Then what we always do is we include in our management agreement all of the things that we, as the property manager, are going to provide you as the owner. That’s not only site visits, but we have the accounting side of it, and financial reports and budgets, as well as the maintenance and the tenant relations.

Ashley:
I think understanding those fees is so important, because you can look at say, “Oh, a property manager, 6%,” and even using the BiggerPockets calculator reports or a lot of calculator analysis to analyze a deal. They have that property management fee. You talk to property managers. They say, “Oh, we charge 8%.” You plug in that 8%, but a lot of times, there’s going to be more fees than that included, so you want to bump up that percentage when you are analyzing your deals, because those things will come up. Those fees will come up. They will need to be factored in to your numbers.

Ashley:
I think that’s really important to know those upfront, and not just that base percentage that is being paid. Also, I think when you’re interviewing a property management company along with getting that schedule that you mentioned, Karen, is asking some questions as to what their process or their system is when they are interviewing them. So for example, you can ask what happens when a tenant calls for maintenance, or if they have a maintenance issue, how does the tenant even submit the maintenance request, and then what does the process look like until the maintenance is completed and finished?

Ashley:
I think understanding that process, if the landlord needs to put in money, because he wants to do a big rehab on it, how does that process work? Does he have to meet them with cash? Can he send it electronically? Asking all these processes, I think, is really important, and we’ll get you a good understanding of how smoothly the property management company actually works, and if it’s going to be a great experience for your tenant. Because if there’s not those systems in place, tenants are going to be very unhappy when they put in a maintenance request, and 48 hours later, they haven’t even received a phone call to schedule it.

Ashley:
That’s another thing that I would make sure that you’re understanding before you sign those management agreements too.

Karen:
That is so true, because you want to make sure that you’ve got somebody that’s going to respond to your tenants within 24 hours is basically the way I look at it. You can’t leave people hanging.

Ashley:
Even if you’re scheduling them, or even if you’re not coming to do the maintenance in 24 hours, at least that communication to say, “Hey, I have somebody that can come on Thursday at 1:00. Does that work for you?” I think that as long as they’re able to keep communicating, and not just wait like, “Oh, well, we don’t have anyone for another week, so we’re not even going to talk to the tenant for two weeks or something like that.”

Karen:
It’s having those work order systems, having the accounting systems, all the different systems. You need to have those in place. As an owner, like you said, Ashley, you want to see what it is that this property manager’s going to do and produce for you.

Ashley:
One thing I just thought of too is to ask along with the work orders, but what is the communication between departments too? Do you have the property manager? Do you have the leasing agent? Do you have the maintenance department? Do you have the maintenance coordinators? I had this apartment recently that was renovated, and some of the rehab was actually being done by somebody outside of the property management company. An email is sent to the maintenance saying, “I know you guys finished your part. We have another contractor. That part is finished. Please send it to leasing.”

Ashley:
It was never sent to leasing, and that apartment sat and was never listed until we were like, “Wait, what’s going on with this apartment?” Go back and look, and there’s not a listing online. There’s nothing. We reached out. They’re like, “Oh, sorry. It never got communicated between maintenance and leasing that it was ready to go.” I think that’s another big issue too to watch out for.

Karen:
Like your project management, you’ve got to have it phased in, and you got to know where in that process everything is at all times.

Tony:
Both of you have made some really great points, especially about the fees. I want to just drill into that before we move on to our next point here. Let me ask both of you a question. Ashley, what’s the going management fee percentage in the Buffalo area?

Ashley:
It’s about 10%, unless you have a large portfolio of properties. Right now, I’m paying 6%.

Tony:
Karen, what is it in… Sorry, I don’t think we stated it. Can you let us know what part of the country you’re in, and then what are the average management fees for single family, small multifamily in that area?

Karen:
I’m actually in the Charlotte market. I would say more so in the single family, multifamily, I’d probably say 6% to 10%, but I could be wrong only because I don’t really do a lot of multifamily. From a commercial standpoint, the standard is about 4%.

Tony:
So, different management fees and different marks, I think, is typical. If I’m an investor, and I’m looking at a potential property manager, how can I make sure that their fees are reasonable? What steps should I take, Karen? Ashley, I want to hear your opinion afterwards. But Karen, what steps should I take to make sure that the fees that I’m being charged are reasonable for that area?

Karen:
Well, I think, easily, you could just call several property management companies, and ask them what their fees are. But talking to other investors, you’ll also get feedback from them, not only recommendations of companies, but as well as, “Oh, this is what I’m paying.” I think that’s the easiest way to figure it out is just different networks.

Ashley:
I would say there’s… When you’re in the… You already have the property manager, so shopping around, just like Karen said, and seeing what other people are charging. But once you actually have the property manager, there still is going to be some oversight as to make sure those fees are allocated correctly. I’ve had… These are just human errors where I’ve had a property that sold, and I got charged their minimum $25 a month fee because there was no rental income because the property sold, but I was still charged that.

Ashley:
I just had to go and email and say, “Can you please remove that?” It was fine, but I did not realize, when I took on a property management company, how much asset management there still was. I have Daryl who helps me with this, and he oversees all of the maintenance, all of the rehabs. He had seen a quote to paint an apartment for a one bedroom. Then he saw a quote a two bedroom. He’s like, “Why is the one bedroom way more expensive than the two bedroom?” Then adding it up, the maintenance person that was working for them and quoting them was just throwing out numbers, no rhyme or reason as to quoting the paint.

Ashley:
It’s a growing property management company and large, so it’s not it’s that one person’s fault. It’s not the whole company as a whole. I understand how hard it is to micromanage and manage people and things like that, because I hate it myself. I think that not… When you sign that property management agreement, don’t think like, “I know my fees. I know everything. I’m good to go. I can walk away.” Maybe there are those perfect property management companies out there where you don’t have to have that oversight, and to find those mistakes.

Ashley:
I would say keep watching for those fees, and know what your fees are because there are human errors just like any kind of invoicing and billing. Just my advice would be to keep watching as you use the property manage company.

Karen:
It’s funny you say that, because I’ve always thought of it as the owner is the asset manager. They’re overseeing not only their debt and their property as a whole from higher up, but they’re overseeing the property manager as well.

Tony:
I think that’s a common misconception that a lot of people have is that once you hire a property manager, you can just forget about the properties all together. Really, there is still some active involvement from you as the owner to make sure that, a, property managers have the right and, I guess, the authority to make the right decisions, and that, b, that they’re doing everything that they’re supposed to do. I know I was a bottleneck for my property manager, because they would send me something.

Tony:
They would send me a quote for something like, “Hey, do you want to get this fixed?” It would take me weeks to get back to them, right? I’m the one that’s pissing off the tenant, because I haven’t responded to this quote from the property manager. So even as the owner, there’s still a little bit of, I guess, active work involved to make sure your property’s being run the right way.

Ashley:
That is such a great point, because that was me too, the bottleneck of like, “Oh my gosh, do I eat this email? I have to respond it. That’s why I have a Daryl taking care of all that.” That’s such a great point as it can go both ways too.

Tony:
Moral of the story is everyone needs a Daryl, right? We all got to find a Daryl.

Ashley:
I’m definitely going to make sure he never listens to this episode.

Karen:
To add to that, I would say though, also, back to the management agreement and the relationship is you can set out some parameters, and say, “Okay, you can authorize up to $1,000, let’s say, without me okaying it. Then anything over that, I got to know about it.” Then you take that bottleneck away a little bit.

Tony:
That’s fantastic.

Ashley:
That’s a great point. We had to do… I think we do up to $500, but then also any appliance that was broken, non-working, even if it was more than $500, then they could go ahead and take care of it, because for them to wait for me to respond to a fridge that is just completely shot, go ahead and replace it for the tenant. What am I going to say? No. Nope. I won’t replace it. We had to add that into our management agreement too, is that any appliance that cannot be fixed or repaired, at least within a timely manner would be replaced for the tenant without any authorization.

Tony:
Karen, I want to talk a little bit more about the reporting structure. We’re talking a lot about the property owner still being involved, and a lot of that involvement comes from the reports that the property manager prepares on behalf of the owner. I guess, just walk us through what is the regular cadence of reporting that a PM should be following, and what kind of information should that property manager be providing to the property owner?

Karen:
My feeling and my experience in all these years is you basically want to give them anything and everything. What we normally do is an overview, and depending on the management contract, we’ll either do it monthly or quarterly. One thing is to advise them of all the different facilities issues, any collections issues. We watch our tenants closely, and make sure they carry the right insurance. Then of course, we update them on what’s going on with the leasing. Then in that package, you’ve got the overview. Then you’ve got the current operating statement with the month or the quarter, depending on how you’re reporting and the year to date.

Karen:
Then you’ve also have a variance analysis, whereby you explain to the owner why something’s off from what you had budgeted, whether it was a major repair that wasn’t planned, or you’ve got a tenant that’s not paying, and you’re in the process of evicting them, things along that nature. We include the general ledger. We include a cash receipts ledger. We include a payable ledger, and we include the bank reconciliations. As much information as far as everything that we’ve got on that particular company or that owner in our accounting system that we have our hands in, we are constantly giving that information to the owner.

Ashley:
Karen, are you using any property management software at your company?

Karen:
We are currently using some software that was developed for my company. It’s proprietary, but we’re also looking at new software as well.

Ashley:
Because the property management company I use, they use Buildium, which I’ve used before, and also AppFolio. They had it so that the owner could just log into their portal anytime, and pull everything, all of those reports you listed, and see where their property stood at any current day. I think that’s just technology does make it so much easier for the property manager to get the information out, but also the owner to retrieve the information. Then each month, I get an owner statement emailed to me for each entity.

Ashley:
It just shows what the profit and loss was, the current balance sheet, and a breakdown of the transactions that happened that month. Then if I want to dig in even deeper, I can go in and log into my portal, and see what’s going on there, and then, of course, the beginning cash balance, and the ending cash balance, and the trust account they have for that entity.

Karen:
That’s good. That’s real good.

Tony:
First, let me make a statement. My property manager did not give me nearly as much documentation as what you just laid out, so maybe a good thing. I’m not doing the long terms anymore. I guess, one question to you, Ashley. Does your property manager do all of your accounting for those properties as well? They have their own QuickBooks account, or are you taking their reports, and then uploading that into your QuickBooks account?

Ashley:
They do a lot of the payables. I still pay all of the mortgage payments and a couple other bills. We just got a roof done on some properties, and I’m paying the roofer directly instead of just having the hassle of sending the money to the property management company, and then paying the builder. They do a lot of the payables, and so a lot of the property management software actually has bookkeeping built into it. So with Buildium, they just enter the transactions into there. They can send payments through Buildium. They can print checks out of it, so all of their transactions, a QuickBooks built into the software already.

Ashley:
Then I can just print my report, and then I add it into QuickBooks, and then it has any other transactions I did out of that entity into it. Then that’s what goes to the accountant at the end of the year. But I think there are property owners that don’t do any of the bookkeeping at all, and they just print off that final report, but I like to do the mortgages just to make sure that they stay paid. Most of those are on automatic withdrawal anyways.

Tony:
Karen, is it the same for you and your tenants?

Karen:
Well, no. Most of our owners, we pay the mortgage. We pay the insurance, and then we make a distribution at the end of each month based on how much the cash flow is. A lot of times, what we’ll do is send them a list of the properties that we have of theirs, and what that bottom cash flow is. Then they’ll tell us, “Send me X amount of dollars.” The other thing is that all of our accounting software is Peachtree and Yardi, and so we take whatever they need, and we can just give it to their accountant basically.

Ashley:
What about property taxes? Do you pay a lot of the property taxes? That’s one thing I still pay too, just because they get mailed to me, instead of sending them back to them.

Karen:
No. We pay all the property taxes, and we actually calculate it, because we are commercial. We’ve got a lot of retail. One of the things is one of our big anchor tenants, we have to send their pro rata share bill within 90 days of us receiving the bill. We have to be able to track that, and get it billed promptly so that that tenant will pay us back or pay the property back, I should say, within a timeframe that their lease says, because some of the leases will say, “If we don’t bill them within that timeframe, then they don’t have to pay it.”

Tony:
Karen, you’ve shared so much good information. I want to keep going along this thread here. We talked a lot about what to look for as the property owner in a property manager. You’ve shared… I mean, honestly, you set the bar pretty high for what a property manager should be doing. I think even people that are listening right now are going to go back and have some tough conversations with their PMs. But what are some other things that maybe we haven’t touched on yet that you feel it’s important as a real estate investor to look for when doing your due diligence on a potential property manager?

Karen:
Boy, I thought we covered a lot of it. I would just have to say that to me, the biggest and the most important thing is transparency. You want somebody that’s going to tell you anything and everything you ask. You don’t want somebody that’s going to feel like they can’t tell you if there’s a tenant that hasn’t paid in six months. I would say transparency and communication, those are the two biggest things that I see.

Tony:
Karen, one followup for me, and this is something that I always think about as well is that your property manager is your first line of defense when it comes to keeping your tenants happy, right? For me, when I had my long-term rentals, I didn’t even know what my tenants looked like, because I was investing from multiple states away. My PM did everything. I could literally walk past my tenant in the streets, and we wouldn’t even know who each other was, right? There’s really a lot of responsibility placed on the property manager to maintain that relationship.

Tony:
I guess, is tenant retention the property manager’s ability to keep tenants happy? I don’t know. I guess, is there a way to track that, and I guess how important is that as a property manager?

Karen:
Oh, I think it’s very important, because owners don’t necessarily realize every time that it’s a lot more expensive for a business to move out and to release a space, because you’re usually from commercial. You’ll have it vacant for six months, sometimes a year. I would say that you’ve got to work with them, and there are so many creative avenues to work with them that people don’t think about. If it’s much more expensive to turn over a space than it is to say, for instance, work with them and say, “They need a month’s free rent,” let’s say.

Karen:
Well, then renew for 13 months, so then the owner basically is still getting their return, and the tenant is getting something in exchange.

Ashley:
Well, Karen, thank you so much for sharing so much about property management with us.

Tony:
So many good things. I’ve learned a lot, so much. This has been a great conversation.

Ashley:
Tony’s changing his strategy, not to buy and hold. Karen, we also brought you onto the show today, because you want to start investing yourself. You are a wealth of knowledge, and you definitely have the tools and resources to start investing. But before we touch on that piece, I was just wondering if you have any tenant horror story or even property owner horror story, or something to share with us?

Karen:
Oh gosh. There’s so many. I can’t remember them all. It’s funny because our CFO in the company I work for now, she recently introduced our new controller, and basically told him, “See, I told you, write this stuff down. You can’t make it up.” I mean, that was… I was dealing with a dead deer carcass somebody had dropped in the shopping center parking lot-

Ashley:
Oh my God.

Karen:
… and it was decomposing. Do you know how hard it is to find somebody to haul off a dead deer carcass?

Tony:
I wouldn’t even know who to call. I’m like, “Who do you even call?”

Ashley:
I bought a property recently that actually had a dead deer half laying in the pond half out. So when I did my initial walkthrough of the property, it was there, so it was joked that it was the dead deer pond we called it, but it takes so long to close the New York State. So when we did our final walkthrough for closing, it was already decomposed, and it was just a pile of bones there.

Tony:
I don’t know what’s crazier, the fact that the owner didn’t get rid of the deer, or the fact that it takes so long to close a New York State that a deer can literally decompose during escrow. Those are both crazy things.

Ashley:
Tony, just watch out. You haven’t made it in Real Estate till you got a dead deer.

Tony:
I haven’t had my dead deer story.

Ashley:
You got to find one flowing in a hot tub at Joshua Creek. Well, Karen, let’s get into… Maybe we could help you somehow. We have a segment called the Rookie Exam, and we thought that we would actually twist it this time, and turn it around. Usually, we ask our guests some questions. We thought that maybe you could ask us some questions that you had about real estate investing, and how we could help you get started.

Karen:
Oh, well, thank you. I would say the first thing I need an answer to is how do you get over that fear of not being able to do it? I think I’ve caught myself in analysis paralysis more times than I care to admit.

Ashley:
What is your fear that’s going to happen?

Karen:
I think my biggest fear is not from the standpoint that anything’s going to happen so much as I just don’t know how to come up with the money to actually do it. Because all of my history is in commercial property, that’s what I tend to look at because I know it the best. It’s also going to be higher priced than if I went out and bought, say, a duplex or a quadruplex.

Ashley:
So, you would prefer the commercial investing, even if it does cost more.

Karen:
Yeah, because it’s what I know. It’s really what I know. I wouldn’t have to hire a property manager.

Ashley:
The first thing that I think off the top of my head is you are the property manager for all of these owners. I think the first thing you need to do is put a little bug in their ear that if they would ever like to sell, let you know, or if anybody else they know wants to sell, let them know. I think going for seller financing would be a huge advantage is asking for that seller financing, and saying, “As an investor, they’re used to receiving this monthly income, and use that as a pitching point is that they’d still get monthly income doing the seller financing, or taking on a partner.”

Ashley:
I mean, that’s how me and Tony pretty much got started was a partner too.

Karen:
I think that’s probably what I’m going to need to do is take on a partner. I guess, some advice on how to find someone might help me out a lot. Because even though I’m currently managing for a lot of private investors right now, I have an ethical dilemma, because I don’t want to be basically playing in the same sandbox I work in.

Tony:
I don’t think that that’s necessarily something that should stop you, Karen, right? I mean, I think as long as you’re agnostic in terms of how you treat all of the properties, so it doesn’t matter whether it’s yours or whether it’s one of your clients, as long as they’re all treated equally, and you can say that with a straight face to your property managers or to your property owners, I don’t think that should hold you back. If it really is a big sticking point for you, then don’t be afraid to maybe get out of that sandbox that you know, and maybe go a little bit further out or some other market where you can still take your expertise in your abilities, but maybe apply them in a new market that isn’t overlapping with where you work.

Tony:
You talked a little bit about potentially finding a partner, right? I think you are the ideal person to partner with another investor, because I know if I’m someone who’s listening to this podcast, and say I have the capital. I have the ability to get approved for a loan, but I don’t have the ability or the desire to actually manage the property once we close, I’m going to need somebody to work with. I would much rather work with someone that has wealth of knowledge and experience as someone that’s just getting started. I think for you, Karen, the challenge is how can you expose yourself and your expertise and your abilities to more and more people?

Tony:
So in my mind, that’s going to local real estate meetups. That’s getting active on BiggerPockets in the forums. That’s getting active in the real estate focused Facebook groups, the Real Estate Rookie Facebook groups. That’s going to events like BPCON. If every time someone posts a question in the forum about property management in Charlotte, if you’re the first person to answer, I guarantee over time, someone is going to reach out to you with some partnership opportunity.

Tony:
I think you just need to put your flag in the ground as care in the property manager expert of the Charlotte area. Eventually, you’re going to find the right person to work with.

Ashley:
I think that’s such a great point, Tony, is just putting yourself out there, and especially going to meetups and Facebook groups, because you have so many resources available to you, Karen, that a lot of other people starting out don’t have, and that is going to make you so much more valuable as a partner. We start off very similar, both being property managers. I found a partner who gave me the capital. He knows nothing about real estate investing, doesn’t care, but he knew that I did, and trusted me because I had experience in that market and managing properties.

Ashley:
As far as the deal analysis and having that analysis paralysis, you have seen so many properties, and you know in your market what is going to be a good property, what tenants are going to be looking for in the commercial space. I think you going and looking at a deal, you’ll have some insight that especially out-of-state investors won’t have, because you go to so many commercial properties in the area anyways, and you’ll have that unique expertise too.

Karen:
I appreciate that, Ashley, because I do pride myself on being able to spot discrepancies written, and ways to lower expenses and increase income, just looking at properties sometimes.

Ashley:
Well, Karen, thank you so much for sharing your wealth and knowledge, and hopefully that was a little bit of help to you. I bet you’ll have some people reaching out to you after this to potentially partner with you after hearing your expertise on property management. I just want to give a shout out before we close out today to today’s rookie rockstar. It is Kevin Christensen, who we’ve actually had on the podcast before way in the beginning. Kevin, you’ve made it. You’re the rookie rockstar. He just want to talk about the importance of buying right.

Ashley:
He picked up a property. It’s literally across the street from one of his other rentals, paid 105,000 for the house, did 55,000 rental, and it appraised for 210,000. This other house needs far less work. He made an offer of 50,000. It was accepted. He’s using hard money. Today at closing, he got a check back for $1,185, so essentially, got paid to purchase this house. He expects the rental to cost him 35,000 to 40,000 all in, and it should take about eight to 10 weeks. His point is to make your money on the purchase side, guys.

Ashley:
The seller called him. He did zero marketing, and will be all in for under 90K on this house. Awesome job, Kevin. Kevin was also on the Real Estate Rookie podcast, gave a wealth of knowledge about doing subject to deals. So if you guys are interested in that, go back and check them out. Well, Karen, thank you so much for joining us today. Can you let everyone know where they can reach out to you, and find out some more information?

Karen:
Sure. I’ve got a website. It’s allisonproperty.com. Then also, my company work site is Primaxproperties.com. My email is at [email protected] I also have a personal email of [email protected]

Ashley:
Well, thank you so much, Karen. We appreciated you taking the time to come on with us today. You guys, reach out to Karen if you have property management questions or if you want to partner with her in the Charlotte market.

Karen:
Thank you so much.

Ashley:
I’m Ashley at Wealth from Rentals. He’s Tony at Tony J Robinson on Instagram. You guys, slide into our DMS if you have questions, or you wanted to be featured as our rookie rockstar, and join our Facebook group, Real Estate Rookie. If you’re loving the show, please leave us a five-star review on your favorite podcast platform. We will be back on Saturday with a rookie reply.

Ashley:
[Singing 00:59:52]

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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