I’ve been getting a lot of feedback about this blog – there are actually people who read it every week, which blows my mind. People tell me they enjoy the stories I tell. They also tell me they don’t know how I could possibly do this to myself.
I’ve answered that question before: CASH FLOW. Even in the crappiest of months where we have empties, non-paying tenants and lots of repairs, there is a consistent level of cash flow. Some months are better than others, much better. But there is always something coming in. Since the other half of our business is flipping houses and waiting months for them to sell, the rental income is a comfort to say the least. We won’t get rich off it, at least not for awhile. But it’s there, sometimes when nothing else is.
That said, tenants can be a headache. Bad tenants will make you crazy. And maintenance people are an odd species of bird unto themselves.
The Reality of Rentals Lesson #4 – The buck stops with YOU
All the textbooks and overpriced real estate gurus will just say, “so get a Property Manager and forget about it!” WRONG ANSWER!
Yes get a Property Manager. It’s one of the key decisions we’ve made and it’s allowing us to finally begin growing our business out of the Ma & Pa Landlord phase. We had 23 units before we brought someone in to deal with the tenants, show empties and collect rents. We should have brought that person in when we bought the double-block that brought us to 18 units. 16 units seemed to be the number we could reasonably handle on our own.
The gurus will disagree with me, but I believe you should manage your own rentals when you first start, and I’m very glad we did. It prevented us from falling into the trap I see a lot of out-of-state landlords fall into. They give the keys over to a management company and walk away, expecting everything to be taken care of. But the reality is different.
We are on our third Property Manager. I love her, and I hope that it works out for all of us. She is a key member of our Success Team. But I am not naïve enough to believe I can walk away and leave the success of my business entirely up to her. I learned that from the first two Property Managers! The buck stops with me and my husband. We are ultimately responsible for the success or failure of the Good People Good Homes rental properties.
It’s all about Business Systems!
Here is my goal: I would like to build, with my Property Manager, a system that will reduce or eliminate bad tenant headaches and cut down on the number of evictions, vacancies, and the amount of property damage.
Here are the systems I would like to build or improve upon:
-Properly screening tenants
-Advertising and showing vacant units
-Promptly evicting non-paying tenants (or accepting reasonable, written payment arrangements with definite dates and amounts)
-Handling maintenance calls
-Quickly turning units over after a move-out to prepare for the next tenant
-Recovering damages after a destructive tenant
One would think a professional property management firm would have all these systems already in place. WRONG! In the bigger cities maybe they do, but not in Northeast PA, and probably not in a lot of areas similar to us.
When we were starting out, Steve took the IREM (Institute of Real Estate Management) courses online, and we went to one of their outings in Philadelphia. It was us, and a lot of people who managed multi-unit apartment buildings – 30, 50, 100 units apiece. Not exactly our world where a six unit building is considered a “complex!” The companies those managers worked for had all those systems in place. But none of them could give us much help with managing two 6-unit buildings and a bunch of double-blocks scattered around NEPA.
We’re kind of in the wild wild west here. There are very few property managers in the area. Some of them are building systems that, when perfected, will work well in NEPA. One that comes to mind is Realty World Rubbico in Plains. I wish them luck and when their systems are perfected, I will be wishing there were more companies like them.
Until that happens, we have decided to try to make our own system. When we perfect it, perhaps we’ll franchise it ourselves.
Back to the lesson: if you’re working with a Property Manager, the buck still stops with you. But be careful not to micromanage your Manager. Nobody likes that, and she’ll probably quit. There’s a fine line.
This is true about Northeast PA and it’s probably true about other areas – nobody has a good system for managing maintenance people! We have worked with three Property Managers – the first was just a friend of ours who had lived here all her life and knew a lot of locals. They’d work for awhile – and then there would be problems. They wouldn’t show up for work when they said they would. They would do substandard work. They’d work slow (this happened a lot with people who charged by the hour.)
Or we’d get a good one – and he’d move on. Understandable – we’re not big enough to offer anyone full-time work. We can only pay by the job, you look at the work, give us a reasonable quote, get the work done and you get a check.
We thought the solution to that would be to contract with another entrepreneur – someone who runs his own maintenance business. We would just be one of many clients. The first time we tried that was with a tenant who had started such a business (NEVER do business with your tenant!) It was a complete disaster, because he had the same problems managing the members of his crew that we described in the last two paragraphs. His business failed, he got behind on his rent and ended up working for Wal-Mart. (I’m happy to say he is still our tenant, and a good one, too. That could have ended a lot worse!)
We tried again, with a guy who talked a good game and seemed to have his head in a good entrepreneurial space. He did pretty well with some simple maintenance projects. So we gave him more – a lot more. We gave him several rehab projects. He took quite a bit of money from us for deposits. And he had problems with his crew. He fell behind. And we were left with a lot of unfinished projects and missing money.
After that experience, we went running to a professional, broker-run property management firm. They had their own maintenance solution. We thought our problems were over. WRONG!
Even the professional, broker-run property management company had the same issues with maintenance people. We’re no longer with this company, but we’re still dealing with the fall-out: their guy “forgot” to pull permits to build some back deck steps, and did not get them inspected by the city. The tenant moved out, and when we had the city inspector through to get the certificate of occupancy for the next tenant, he failed the unit. We have to rebuild the steps correctly, to city code, with the proper permits. Something you THINK would have been done under the supervision of a professional, broker-run management company!
So now we’re working with our third Property Manager, an entrepreneur like us. She also owns her own rental units. If she doesn’t work out, I’m not sure who would! But she has the same issues with maintenance people that we’ve been dealing with all along.
Now we’ve learned the lesson: the buck stops with us. We need to build a system to solve our problem with maintenance.
After a particularly trying week, I sent Steve to the Wyoming Valley Real Estate Investors meeting with one mission: network with other local landlords and come back with maintenance referrals. Aim for 12 referrals, don’t come home with less than 3. He came home with 3. Only 2 proved to be useful. But it’s a start!
Our Maintenance System is the most pressing issue. We – Steve, myself and our Manager – have to come up with a system that works for us, and perfect it.
Rental maintenance has a few parts. There’s the Emergency Handyman – heat goes out at 2am, a pipe’s leaking, a toilet is clogged – who do you call?
There are small jobs that aren’t emergencies, but that still need to be handled in a timely manner – a bedroom door won’t shut correctly. The tile in the kitchen is cracked. A long term tenant needs his place repainted. These are the jobs that fall through the cracks, and that’s bad for your business. Nothing pisses off a long-term, good tenant more than waiting and waiting and waiting for promised maintenance. Nothing gives a bad tenant more ammunition to try to screw you with in court when he doesn’t pay his rent and you evict him!
Then there are the big jobs – a bad tenant has just moved out and the place is trashed. Everything needs to be redone. Do you have reliable, skilled people who can do the job in a reasonable amount of time for a reasonable price?
If we can build a system to handle all this correctly, our rental business will thrive. I’ll feel confident taking on more units. Right now, I’m on the brink of wanting to sell off the ones I have! It’s so frustrating!
Then I think hard about Lesson #4 in the Reality of Rentals: The buck stops with me. And I don’t give up. I’m a problem solver. If our business fails, it won’t be because we didn’t try. Besides that, failure is not an option.