When you’re not sure where to go next, sometimes it helps to revisit where it all began.
My husband and I have covered a lot of ground since we launched our little real estate venture in 2008. I wrote a 9-part How It All Began series in this blog if you’re curious – start with this one: http://thisgingerjustsnapped.weebly.com/blog/how-it-all-began-part-1
I am truly amazed we’re still in business. Is there a mistake we haven’t made? I like to think each time we screw up we just get that much smarter, and that’s why we’re still here. And why we really are going to make it!
Rental Self-Management 2.0
We’ve decided to take back the management of our rental properties. This has nothing to do with the rental manager we were contracting – she was great and I’d recommend her to any investor who prefers to be hands-off. But that’s just it – after a year of trying to be hands-off, we figured out we would much rather be hands-on.
Steve and I decided to outsource our properties to a management company about a year ago today. There were several reasons for this decision – the main one being fear. One of our close associates had one of his units shut down by Wilkes-Barre’s One Strike Ordinance – a law, currently being challenged by the ACLU that allows the city’s code enforcement office to shut down a rental unit over the actions of a tenant. Having a property manager wouldn’t save us from One Strike, but I figured our chances were better if a professional were handling our rentals. I was scared and had lost a lot of confidence – I felt I was in over my head. I was also disgusted – I didn’t even want to live here anymore, and began making plans to pack up and go home to New England. Having a property manager would allow us to do that.
The other reason we thought outsourcing management was a good idea – all the real estate gurus said that’s the way it’s supposed to be done. They look down on self-managing landlords as somehow not being real investors. In Robert Kiyosaki’s Cash Flow Quadrant he puts people into four different groups depending on how their income is made: you’re an Employee if you work for someone else, Self-Employed if you have a business and do all (or any) of the actual work yourself. Self-managing landlords fall into that category. According to Kiyosaki, if you’re an Employee or Self-Employed, you are on the wrong side of the cash flow quadrant! The goal is to get to the right side – where your income rolls in from a Business – an entity you own and control but do not work in. I guess that means you’re sitting in the CEO’s office in the leather chair for a few hours every morning before you hit the golf course, not showing one of your own empty apartments or fixing a leaky toilet. The fourth category in the quadrant is Investor – the hands-off kind.
There’s something to that. It’s my goal to one day be the CEO in the leather chair. But after a year of paying other people to run the rental portion of our business, I realize my husband and I have to put more time and work in ourselves to build the business. It simply isn’t ready to be handed over yet.
In business, it’s all about Systems
I read Michael E. Gerber’s The E-Myth on a recommendation by one of the real estate gurus. Interesting stuff – it was written in the 1980s and holds up the franchise model as the gold standard. The “E” in E-Myth stands for entrepreneur. Gerber believes that most small businesses fail because they are started not by entrepreneurs but by “technicians” – people who love the work of the business themselves. And we get so caught up in doing the work that we can’t effectively run our business. Or we don’t have the business savvy to run it in the first place – we’re just worker bees who want to work for ourselves instead of somebody else. A little insulting if you ask me.
Still, Gerber made a few good points about Systems. Systems are how you replace yourself with employees as your business grows. You have to make sure there’s enough time in your day to work on building those systems – that means you can’t get so caught up working in your business that there’s no time or energy to work on it. Easier said than done. But necessary. Set aside a Sunday morning and do whatever you have to do to work on building those systems! Otherwise you’ll get stuck in the Suck Zone.
The Suck Zone – when your business requires more work than it can possibly bring in income
I have come to the conclusion that this is why most small businesses fail, and Gerber was right about this. The small business owners, doing all the work themselves, get burned out. The work is hard, the hours are long, life gets out of balance. And the money coming in goes right back out to cover the expenses of the business! There is little left over to compensate us for our hard work, and that is demoralizing. No wonder so many of us would-be entrepreneurs just want to chuck the whole thing!
Three years ago Steve and I were stuck in the Suck Zone with our business. We had to do something or it just wasn’t going to be worth doing. That’s when we started expanding beyond just doing rentals – Steve got into wholesaling properties to other investors. We flipped our first house. We tried some other ill-fated ventures and learned what didn’t work for us. Now we know what works: Wholesaling. Listing and selling properties as a licensed realtor. Flipping houses. And rentals.
The rentals will work better as an income stream if we take back management.
We’ll avoid the Suck Zone this time by implementing Systems.
Systems for a rental property business
There’s a system for preparing an empty apartment for rental
A system for advertising the unit
A system for showing the unit
A system for your tenant application and screening process
A system for signing the lease and communicating your house rules to a new tenant
A system for collecting rents
A system for dealing with non-paying tenants
A system for handling maintenance emergencies
A system for handling routine maintenance requests
A system for major improvements to a unit
A system for dealing with tenant complaints and disputes
A system for providing exemplary customer service to tenants
A system for maintaining curb appeal
A system for renewing (or not renewing) leases
A system for returning security deposits
A system for turning over a unit quickly when a tenant gives notice they’re leaving
A system for tracking expenses
A system for tracking business mileage on personal vehicles
A system for paying bills on time and keeping up with paperwork
Systemize the way you do the things you do – and improve upon those systems
There’s a certain way my husband and I like to do each of the above tasks involved in running the rentals. Every self-managing landlord has a certain way they do each of those tasks. The trick is to write it all out like an instruction manual. Because the goal is to one day hire someone to replace us in these roles, and we want them to do it our way- the way that works! And if what we are doing is not working, we need to change it. That’s the advantage of self-managing – we can find out personally what works and what doesn’t. In a year or two, when we’re handing our new hire the employee manual, the successful system will be written out in black and white as Policies & Procedures.
This is exciting. This is how a successful corporation starts! I can feel it!
Introducing our new LLC: Good Homes Rentals. Self-management 2.0. We learned from our past mistakes, and we’re going to do it right this time. We’re smarter now.