All right everyone. Welcome into today’s episode
of the Investing in Real Estate podcast. Today, we’re talking all
about property management, the ins and outs, the do’s and
don’ts, everything you wanted to find out about
property management. We’re going to get our hands
dirty today and dive in. I’m Clayton Morris. I’m Natali Morris. Go ahead, tell us. Oh, I was just going to
say, this is a live stream, but you may be listening
to the podcast version. In which case, you are listening
to a live episode, studio audience! That’s right. It’s beautiful outside, so we
decided to do this outside. And, well– And we have no studio audience. We have no studio– well,
we do have kids that are going to be running around. So thank you so much for
downloading and subscribing to the show. And we’re going to get into
the nitty gritty today. We’ve got a ton of questions
we’re going to get through on property management. Obviously, it’s one of the most
important parts of the process for real estate investing. If you’re new to
real estate investing and what we do at Morris Invest,
we buy homes, we renovate them, we place tenants in
those properties, and we try to have a seamless
process from beginning to end. Now, it’s real estate investing. Right So you’re dealing
with human beings. Yes. You can never put real
estate investing in a box, like a simple, little box. There’s always going
to be variables. There’s always
going to be issues. And things are going to
pop up from time to time. After all, it’s a
human being business, right, everything from the
tenants, to the contractors, to the property
management team– –the person selling it,
the person buying it. These are people
making decisions on a very personal level. You’re actually the
least personal part of the whole thing because
ideally, as an investor, this is just something that
you own and collect rent on. It’s not something that
you pick out paint colors and fall in love with. You want to have a good
relationship with the people that live there. But it’s not your
home to live in. It’s your investment to own. Right. And very often, it’s going
to be hands-off process. So I’ll visit some
of my property sometime when I’m in
town with my team, and I’ve had a property owner– I’ve had renters of my
properties come outside because I was actually
looking at renovating the house next door. And I had one of our renters
come out, and she said– How are you doing here? No, she didn’t. She said, Hi, can I help you? Because I was sort of in
the front yard almost. And she was looking
out for her property. And she said, can I help you? And I said, oh no, I’m just
looking at the house next door. I’m looking at renovating
the house next door. She said, oh, OK, great. Have a great day. She said, yeah, that
house would be great if you could renovate that. It would improve
the whole street. I said, great, nice to see you. And I didn’t say
anything about myself being the owner of the property
that she was walking out of. So you really–
it’s not a good idea to really dive deep into that
relationship with tenants. I guess, yeah, as a
general rule of thumb. If you’re managing
the property yourself, of course, then, you’ll
have those relationships. But if your hands off,
let that in the hands of the property management. That’s just our preference
about the whole thing. And I have my real
estate license. And I once represented
a client who was trying to sell his
house, and it was a triplex. Is that what you– a triple– Yeah, triplex, yeah –a triplet? And his family was living
in the other units. He wanted to sell it. And he didn’t charge
them any rent. So obviously, that’s the
worst case scenario, right, is that you’re not making any
money, they walk all over you, and you can’t– it just he didn’t
have the heart to say, maybe you should
pay me some rent, or maybe you should kick
in for the property taxes. So he was like,
well, I’m just going to sell since I’m paying
for everyone to live here. It was really heartbreaking. So that was on the other end
of the spectrum, too personal. Obviously, we don’t
want to be so impersonal that we don’t make
decisions that are in the best interest of
the people who live there. So you want to be empathetic
and heartfelt, but not overly, emotionally attached. Right. And that’s why you’re
doing a good renovation on your property, and
you’re giving your tenants a great place to live. But you want to– if you’re
using a property management team, which is what we’re
talking about today, you want to let
them do their job. So we’re going to dive into how
do you look for a good property management team? What are some of the
key things and takeaways you want to find when
you’re talking to them? And again, it’s
hands-off process. So they’re going to be
fielding phone calls when there’s a toilet that backs
up, or there’s a sewer line problem, or there’s a storm and
there’s branches on the roof. You’re not going to
field those phone calls, so it’s important that they
have the personal relationship with the tenants. And those are the
property management teams that we work with. They have a personal
relationship with the tenants. And they’ve developed that
one-on-one, face-to-face. And that’s always so important
in any business, I think. Right, yeah, exactly. But there is some baseline
things that you should expect, right? You should expect a
monthly statement, whether that comes to you in
the mail or in your email, whatever. You ask them what they prefer. In that monthly
statement, you should be able to read it
pretty clearly, like what did the tenant pay, what
did they take out of that, and what do you get in
your own bank account. That should be easy to read. There should be
itemized list of things that they either did
or charged you for. Maybe they visited
the tenant, and they had to put in a new toilet. The cost of the
toilet, maybe the cost of the plumber, those things
should be really, really clear. They shouldn’t just
say, well this– best case scenario, you get
really documented records of that. Right. Isn’t it starting to rain on us? Yeah, that’s fine. A little rain
never hurt anybody. Hey, this is live,
and we’re outside. So, I needed a shower anyway. Well, we’ll just– So yes– –sit in the rain –with the property
management statement, obviously they’re going to show
you what Natali talked about on that statement. Typical– so one of the
questions we had was about what is a typical amount
that should be taken out for property management? What should they charge you? Now, this can be
a different range depending on where
you are in the country and how busy they are. We have a small town
in Pennsylvania where in– it’s Nesquehoning,
Pennsylvania where we own a property– They just raised our rates. –the property management team– It was so cheap before. It was 8%, what, 6%? I want to say it was 8% or
$75, whichever one is higher. And they just raised
it by $25, which we got six months notice
that we intend to do this. And if you’d like to
change property managers, let us know, but this
will be the new rate. Please confirm. And I have no problem
with them making money because I want them
to stay in business. Because when that
toilet does break, I don’t want to drive two hours
to Nesquehoning, Pennsylvania. I want him to be there
to take care of that. Right. So 8%, and then they raised it. I don’t know if it
went to 9% or 10%. But 10% is pretty standard. Yeah. I once spoke to an
accountant on the phone who literally had no idea
what he was talking about. And he said, 10% for
property management? That’s really high. And I said, actually no. That’s pretty much the standard. 12% can be in some
places like California– Chicago, I’ve heard,
yeah, 15% even. So 10%. And it’s a pretty thankless job. At the end of the day,
property management teams aren’t swimming in
cash like doctor– like Scrooge McDuck
swimming through coins. If you think about
a $700 property, a $700-a-month property, then
when you have that property, that’s $70 a month
for that one property. And that can be– that’s not incredibly
lucrative because they’re also having to manage, advertise the
property, manage the property, go out and get cash flow,
take care of the property, drive by, do site
visits, manage crews. So it is not a terribly
lucrative business. But nevertheless, 10% is
a pretty average number for property management. And the way I think of
it is that most months, they won’t have to do much. But when you need them,
you want it there. That’s like paying your
insurance premium, right? Most of the time, you don’t
need that insurance company. But when you need them, you want
them to do an excellent job. So I feel very
comfortable paying into a business like this that
I have high expectations of. Now, I think Timothy here
in the chat said, how do you vet these property managers? You want to ask them, first of
all, how do they communicate. Some of them text you,
and some of them don’t. If they’re sort of a bigger
operation, they’ve got people. And they’re going to say, you’re
going to talk to so and so in the office and direct
all inquiries there. And then you know how do
you talk to so and so. But if it’s just one dude
who does it all himself– Like our guy in Pennsylvania. Right. Here’s one thing that I
learned in real estate school. They have to be licensed, a
licensed real estate agent. They don’t have to be
a broker, but they have to have a real estate license. Because in order to collect
money for real estate on behalf of somebody else,
you have to be licensed. I think there are probably
quite a few property managers out there who are not. I bet. The property management
teams that we work with are licensed brokers. So ask for their license because
otherwise it’s illegal for them to collect your
rent on your behalf. Right. So some of the other ways
you vet a property management company because that was
one of the questions we got. What do you look for in a team? And what qualifications
should they have? So most– if they’re a
property management company, and they’ve managed
a lot of properties, chances are they’re
going to be a broker, they’re going to be a
licensee, so that’s probably– that’s probably going to
be part of the process. No, not in these smaller towns. I think it’s– maybe smaller
towns, smaller shops, or smaller– even the person who
works in the office, like if you have a big condo, a
big association, and the person who runs the HOA, that person
has to be a licensee as well. So it doesn’t hurt to ask. So what other things
do you look for when you want to vet a property
management company? You do want to find out how
they communicate because some will, as Natali said, text you. Some will send
email, snail mail, to let you know updates
on your property. Some are a combination
of those things. Some use email, right? So there are certain
people in the offices that will handle certain things. So for instance, if you get
a health department violation letter in the mail, what
does that look like? Who does that go to? So in our Indiana property
management office, there’s a person designated
that handles that. She receives those
violation letters, whether it’s high grass
or those other things, branches on the roof,
rubbish in the yard. And then those can get
funneled to a maintenance team. Some other towns don’t even
have health departments to worry about, and
therefore there’s not a person in the office
designated for that. How do they background
check their tenants? This is important. So this is one thing
that’s important in all of our property management
companies that we work with. What sort of background checks
do they do on the tenant? Well, you want to find out
if they have employment, or they’re able to
pay their rent, so employment verification. Criminal background,
so they want to look at their
criminal background. And that’s something
that’s standard. They also want to verify
with previous landlords that they pay on time. So the property management
teams that we work with will check with
previous landlords when they can to
find out if they pay on time and
their rental history to see if they have any
evictions in their records and that sort of stuff. So that’s a good rule of thumb
for how to do vet and look at property management. Did you say credit? Yeah, check their
credit as well. You Another thing that
I find really important is I want to ask the– very often when you’re vetting– in whatever town you’re
in across the country, you’ll find that property
management companies that talk about their software first– I had this experience
where they’ll want to talk about the
software that they use, like the web interface,
you can log in and see your rental
history, that sort of stuff. They’re very proud of
the $60,000 that they spent on their software. But then when you ask
them the question, how long is your property vacant,
or what is your vacancy rate? Then they have a difficult
time answering that. We had a client that we took on. He had a property in Florida. And he was with a property
management company. His property sat vacant for six
months, which for us, that’s unheard of. If that ever happens, that’s
a mistake in the system, but six months vacancy rate. He said, well, they
kind of wooed me because they had some
bells and whistles in their software
and all this stuff. Well– Which is nice. I really like that
great software. Well, I know you like software. But here’s the thing– but
here’s my point on that– I understand what
we’re saying, but– But they didn’t have is
people going out advertising and collecting
rent on properties, focusing on cash flow. They were focused on the
software instead of the cash flow. Yes, I understand
what you’re saying. You want to ask them what’s
their average vacancy. They know this kind of thing. If they’re keeping
their books, they know that they don’t have– that
their average vacancy is just a few weeks, less
than a month, right? That’s usually pretty good. More than two months, you’re
like, what’s going on here? So I mean, it’s just
something to consider. You want to ask them– because if they use
a good software, then– we just got a question
in the chat about accounting. And if they use a really
some of these great software, it will show you what you made
this month, rent, and expenses, and management fees, and then
it’ll show you that per year as well. So then you don’t
have to keep track of, I spent $60 on a
toilet, and then $100 for this plumber
visit, and then i– like you’ve got it all. And you can hand that to
your accountant at the end of the year come tax time. And say, for one
to 123 Main Street, here is everything
that was spent. Now, that doesn’t
mean you don’t have to then keep track of other
expenses into your business. But just for each property,
then you can see all of that. If they’ve got a
portal where you can log in and see that, and
download your statements month to month, and keep them
there, I’m all for that. I like that. Right. And there are different– I’ve learned a lot about
this different software because when you talk to a
lot of different property management companies
that I have, you’re going to
find that there’s just variance on these software
programs, some of which cost like $60,000. I talked to one
company that bought it. And then they just– it just
was such a waste of money. And so they tried to get
their money back for it, and they actually hired
like two additional people in the office. This was in Michigan. So yes, that’s important. We have one property
management company that we work with in
Pennsylvania that mails us a statement every
month with our rent check as a check in the mail. And it’s actually handwritten. It’s handwritten. But you know what, again, I
don’t care because the property cash flows. It doesn’t have all the bells
and whistles of software. We get a monthly
statement that I give to you, that
goes into our records. We get the check. We get the phone out, and do the
digital deposit for our bank. Yeah OK, fine. And they don’t have–
they’re not spending $50,000 on software in order to– But Maybe they will. That’s the place that just
increased our premiums. Maybe they’re like,
we need to charge a little more so
that we don’t have to hand write these checks. Or maybe they’re going to hire
somebody else in the field to go out and show
properties to tenants. So I guess that’s the trade-off. It’s extremely tedious to keep
track of all of this stuff. They have to go to Home
Depot and buy the toilet, and keep track of that
receipt, and then later put that on your– so if they’ve got a program
that does that for them, that’s amazing. That’s great because otherwise
you don’t know if you’re– like did you pay for
the right toilet? Or that– you don’t know. And so it’s great that– the more organized, the better– Right. –clearly. So we had a question
in the chat. I don’t know if
you saw from Derek. Did you catch that one? I saw this question. I did not read it. Then we had somebody
else, a great question. But we both missed it
because we were talking. Ask the question again. Yeah, Derek, please ask
that question again, we’ll get to it. How did you say it was a
great question if you didn’t– Well, no I saw
somebody else say– Oh, someone else
said great question. Exactly. That’s not your editorializing. Welcome to the live edition of
the Investing in Real Estate show. We’re thinking on our feet. Exactly. So thanks to all of you, by
the way, for joining us today. It’s been great. And if you’re new to it, you
can please go to our YouTube channel and take care of it. So is it common practice for
the property management company to keep the security deposits? Yes. It’s totally common practice. Thank you, Derek, for
re-asking that question. Here’s why– and she can
get more into the legal tax implications of
that, but you do not want to be handling
people’s security deposits. In fact, we had one
company in North Carolina that wanted us to handle
the security deposit, right. And you said, why? I don’t want to handle that. Explain why you don’t want
to have the security deposit. Well, I don’t know if this is– if this applies to
all states, but I’m licensed here in New Jersey. And in New Jersey,
you’re not allowed to put that money in an
interest-bearing account. You’re not allowed to earn
interest on a security deposit. I’m not exactly sure why. That’s just the rule. And so then you
have to find a place to hold that that you
don’t earn interest on. I guess you could keep it
in your checking account because you don’t earn
interest on a checking account. But most savings accounts have
some kind of small interest. And some– and there’s a
lot of checking accounts now have small interest, too. Right. And so that’s just like– I don’t need that hassle. And I don’t have, otherwise,
an escrow account, like a formal escrow account. So I just don’t want
to deal with that. And then when they go–
and also then when they go and return that
security deposit, they know what they’re
taking out of that. I don’t want to be involved
in that accounting. So they should hold that. They have access to a
formal escrow account. I don’t want anything
to do with that. I’ve done that before. And then, especially
when I was just taking rent in my
own name, I only had one condo in San Francisco,
they’d send the security deposit, I put it in
my savings account, which, again, was
a mistake because I did an interest on it. And then later, I had to
remember this money’s not mine. Just don’t move it around. Don’t save it. That’s just– I don’t
want to deal with that. Right. So good question, thank
you, Derek, for that. What should you pay monthly,
and are there other fees? Now, we talked about the 10% a
month out of your monthly rent. So a lot of people will
ask the question, oh, am I going to pay
them up front for– am I going to pay them
upfront for the fee? That meaning, if the
property’s vacant, are you paying them the 10% fee? And of course not,
the answer is no. There’ll only going
to take 10% out once the property is rented. I think I’ve heard
of people doing that. You shouldn’t do it. Really? Yeah. That’s awful –that they charge you
even when there’s no– What’s the incentive for them to
get it rented if there is no– They make money when they
get the property rented, so it’s on them to get it
rented as quickly as possible. They don’t want a property
sitting there vacant. So that’s ridiculous. If someone– if a property
management company is charging you for management, and
the property is not rented, then you should ask
for your money back. That’s ridiculous. So 10% a month, and then you
want to make sure that that 10% a month, that’s coming out of
your monthly rent every month. Now very often, another fee
will be at lease up fee. And that’s different
depending on what property management
company you work with, what state you’re in. For instance, in Indiana,
we have a lease up fee at our property
management company. I think it’s a
$150 lease up fee. And that’s it. There are no other fees. And then in Michigan,
I think some of them will take first month’s rent. I’ve heard some
investors say they don’t like property
managers doing this because they think that
it gives them an incentive to turn over the property. I don’t necessarily
agree with that because it costs a lot of
money to advertise a property. And it also costs
time to vet tenants. And it costs time
to create a lease, and get that lease signed, and
have them come in the office and sign the lease. And so I’m actually
OK with that. And like I said, I know other
investors feel differently. If it’s a high lease up fee,
like hundreds of dollars, maybe I can see how a property
manager might do that. But if you’re just– keep that in mind. Like, oh, this person– if you have a
multi-family, and they keep turning over the
tenants, and you’re paying this lease up fee
a lot, then you’re like, I don’t like this. Then maybe you can interview
some other properties. But if you pay this once
every two or three years, that that bother me. So take it on a
case-by-case basis. And the property management–
property management companies we work with have it written
so that if, for instance, they rent the property up,
and you pay them first month’s rent, and the tenant moves
out three months later, that’s on them. And they’re not going to charge
you that first month’s rent to get a new tenant
in the property. Usually they have a 12-month
rule, so the term of the lease. That’s very, very common. They’ll be like,
oh, that was us. We got a bad apple. And you’re going
to have bad apples. If you own 30 properties, you’re
going to have an eviction. We’ve had evictions. You’re going to have
them from time to time. It just happens, right? It’s part of the process. You can vet them, but people can
have hardships in their family. People can lose their jobs. People can have a
death in the family. People can move. They have to move suddenly. A boyfriend has an
issue, and they’ve got to move across the country. It happens. They get transferred for
military purposes or otherwise. Not that that’s an
eviction, but you’re going to have people that
are going to have to leave, sometimes pretty quickly. And if that happens, the
property management company will then fill up
the property again, and they’ll waive that fee. They’ll typically
waive a lease up fee. And they’ll also waive that
first and last month’s rent fee. And that’s not going to come
out of your rent the next time. So I know that a lot of
the property management companies we work with do that. But look at your contract. Look at your contract with
your property manager. Now, someone in the
chat keeps asking if they offer bookkeeping. And not really,
like I said, you’ll get a bookkeeping
on your statement, and you can use your statement
for your own bookkeeping purposes. But they’re not going
to give you $500 rent check and say, OK, now, let’s
set aside $100 for taxes. And that’s why you
hire a bookkeeper. Talk about that. We hired a bookkeeper,
and they’re very cheap. A friend of ours had encouraged
us to hire a bookkeeper. And we kept putting it
off, and putting it off, because Natali was
like, I can do it. I can do it. And she’s great at
bookkeeping, but she’s also not because there
are so many things that a bookkeeper can do. It starts to get really
complicated after you got– we have now so many. And then, our
turnkey business now has its own expenses that
we don’t take expenses out of that for our own management
of our own personal portfolio. So it was just too much. And what they’re doing now,
they pay our contractors. They pay– and they go
through our credit cards. And they mark all expenses. And they categorize
the expenses properly. And that was something
that I was getting confused about because what
now is a business expense for our turnkey
company and what is a business expense for our own portfolio. So they just do all that. They know how to code properly. It’s awesome. And a bookkeeper is a write off. Right. And it’s cheap. A bookkeeper is not
expensive, right? It’s a couple hundred dollars A month? Yeah. It’s really not that
much so in comparison to what it was taking me
to learn these new skills and not do them properly. And then I had all
these spreadsheets, and I gave them to our tax guy
this year, and he was like, I’m not going through– this is not the formal way. And so he was like, I’ll wait
until your bookkeeper gives me her information. So it was like I was
spinning my wheels. I’m just not trained for that. You’ve got to leave
it to the pros. How do you get on the same
page about important issues? That was another
question we got. How do you get on the same
page about important issues with a property
management company? Look, like I said at the very
beginning of this video– or this episode, this
is a people business, and there are so many variables
when it comes to this business. And things pop up all the time. For instance, at one
of our properties recently, we had a
water main that broke. Well, that was on the
city to take care of. Well, the problem
is the tenant’s couldn’t get water while the
city was taking care of it. So what did the property
management team do? Well, in this situation,
our property management team in Indiana was fantastic. They put the tenants in a hotel
on their dime and ate the cost. Now, you’re not going to find
property management companies that are going to do
that all the time, so you need to be on the same page. Find out from the
property management team, OK, a water main broke, they
can’t get water, what do we do? And you might have to get some
sort of stipend from the city. The city may have to
rectify that or cover the cost of the hotel. That may be something
that you may even need to get involved with. But other times, I
don’t want phone calls about little petty stuff. So most of the time,
the little costs, the fixing of a toilet,
the replacement of a door handle that got
jimmied or broken, that’s going to be something
that the property management company will fix and
probably not call you. You may see it on your monthly
statement, in which case, it may then be taken out of
their security deposit and charged to the tenant. So those are things
that the beginning you can have discussions
with your property management company about. But also– you might
also want to keep in mind that if your tenant
has renter’s insurance, the renter’s
insurance would have paid for the displacement
of that tenant. So the insurance company would– there’s a line item on their
insurance policy that says, if you can’t live here for some
reason, for a temporary reason, we will pay the expenses of
wherever else you need to pay. Now obviously, you can’t
require that your tenants have renter’s insurance. But if you get a really awesome
tenant, and they have that, that would be great. And also Section 8
tenants, they will be covered under that as well. So that wouldn’t have fallen
to the tenant, or the owner, or the property manager at all. So there are some
circumstances that you don’t have to deal with that. Another thing is on
insurance, for you as the owner of
the property, we’ve been getting– lately we’ve got
an umbrella insurance policy, but we also have
insurance policies on our individual properties. One of the things that you
can get– it’s not required, and it’s totally up to you if
you want to add that expense in– is rent coverage in the case
of a vacancy or an eviction. Let’s say you’ve
got, for some reason, a three-month vacancy
on your property, or this water main
breaks, and now you’re obviously not collecting
rent from this tenant because they can’t
even get water, and they’re staying at
a hotel, so you’re not going to be collecting
rent from them. Right. So what do you do? Now you’re out
three months rent. Well, you can, under
insurance policies get rent retribution,
meaning that they’ll cover you and pay your
rent for you, basically, the insurance policy will. You just have to file a claim
with your insurance policy, and they’ll take care of it. But that is a claim. And once you do that, they can
raise your policy, your rent– your premium. So you– You want to weigh that. –want to think about it. If that’s worth it to you. Hard to say. And you ask your
insurance agent. I mean, if a tornado
knocks the house down, that’s when you’d probably
want to file that claim. Right. Yeah. But if it’s a month
and a half, that might be something that you eat. And your accounting–
we’ve talked about this several
times– you’re accounting for vacancy rate
of at least a few months. So hopefully you
can afford that. Another question here,
how often should you communicate with your
property management team? How often should you communicate
with your property management team? If you think about
it in the future, like you got a tenant in
there, they’re on a 2, 3 4, 5-year lease, and they
pay rent all the time, I never want to hear from them. I want to get that
statement in the mail. And that’s it. But then I also don’t like it
when sometimes I get a notice, and it’s like, oh, this
property has a new lease. And I’m like, what
happened to the old tenant? How come I didn’t know that? I want to know those things
when that person left, why, is everything OK? So you should only
really hear from them either if an issue arises,
and hopefully they’ve taken care of it in a
quick and prudent way, and then when it’s time to
either lease up that tenant, or get a new one. One thing I don’t
love, it when– because your leases are either a
year or two, and your insurance company wants to see
a copy of that lease, and I don’t like having
to chase down the leases. When a new lease comes
in, my property manager should tell me that. And I’ve almost never had– only once, only the management
company in San Francisco, they always sent
me the new leases. But most of the time they just
do it, and they don’t tell you. And I wish that was better. Yeah leases– and every
property management company’s going to have their
different system for leases. And sometime they think
that people don’t need them. I don’t know. Some people don’t even get
insurance on their property. So there are a lot
of people who don’t systems in place where they just
send the lease out as soon as– You need them. You need to have that. it’s illegal for the tenant
not to be able to contact you, you the owner. On your lease, it has to say
who owns this property, and what is their physical address,
and phone number because they need to be able to contact you. The property management company,
they can take off to Mozambique and never come back, right? They don’t own that
property, so they don’t have a legal obligation
to take care of this tenant. But you do. So the law states
that on your lease, it has to say the name
and address of the owner. So then you want to know who’s
got your name and address. Who lives in your property? What is their phone number? And what are the terms? What are the terms? Is it a year, two years? Those are the kinds
of things that– I don’t know how you could
justify not giving that to the owner. But a lot of times,
they just get swamped, and you have to
go looking for it. So set your calendar alerts. Like hey, did so-and-so
up their lease? Can I please see
it because I need to renew insurance as well. And then usually they’ll
get a copy of it. Sometimes it’ll
take 24, 48 hours. And they’ll send it out to you. Sometimes– and they usually
keep them under lock and key. Leases aren’t just laying
out on people’s desks. So allow them a little bit of
time to get you a copy of that. Sometimes it requires
them to get it from somebody who keeps
it under lock and key, scans it, sends it over to you. Under the law– Hopefully, they’ve
got it in a Dropbox. No, they’re not allowed to. A lot of times,
they’re not allowed to keep digital copies of it. They have to keep it on file. Depending on the
state, you’ll find that each state has
different laws about how they can keep privacy records. And so that’s
private information. They can’t just keep it on a
Dropbox, sometimes on a server. They have to keep it
in a filing cabinet, then it needs to be scanned,
and then e-mailed or sent electronically to the
person that’s requesting it. So just to allow them some time. Every state has different
laws with regards to leases. But to answer that
question, I don’t want to be communicated
with very much at all, just for major items, a tree
fell through my roof, there’s a sidewalk that
needed replacing in Michigan. There was, on one
of our properties– remember the city– there was an assessment
that needed to be done. And so the property management
team came to us and said, the city of Warren,
Michigan is requesting that you replace the
sidewalk, and this is what it’s going to
cost, $1,200 or something. You want to know
about that stuff. But most of the
time, we’re busy. We want to spend time
with our families. We’re creating passive income. I don’t want to be
called regularly and send e-mails nonstop
about my property. And maybe you can set
a threshold as well and say, don’t call me
for anything under $200, just fix it. Right. But if it’s going to
be more than that, then call me and let
me know because then maybe you have some
choices in the matter. Maybe you can say– for instance, we
got a property– we had a property
management team, and they had a Section 8
inspection from the city. And they said, OK, the
city wants this punch list. It was a one-page document
of all these things, fix this handrail, tighten
this screw, whatever. And they said, we’re going
to have our contractors do it for $7,000. We’re like, what,
mm, I don’t think so. And so we had our
own contractor do it. And it was a small
fraction of what. So I don’t know what they were
trying to pull with that, so thankfully. I mean, originally
they’re just like, here’s the bill, send it to us. And I was like, no, no, no– Well, because a lot of times– –scratch my head on that one. –well, here’s the secret. Property management companies
don’t make much money. And and the thing is property
management companies don’t– they don’t make much money,
and so that they will– by servicing out their
own maintenance team, they can make a little extra
money because they’re– Maybe. I don’t know what the
deal with that was. I don’t know. And I was like, no, I
don’t approve that charge. And we took care
of it on our own. And so we took care of it. There’s certain
things you want to– obviously, I’m not going to
choose the cheapest washer and dryer that’s
going to break on me, and is off-market
that you get in– I don’t know– off the black
market, or whatever, right? But I don’t want to– I don’t want to pick
out washers and dryers. I just want a
general budget, so. Yeah. You said there was a question. The question there
was about inspections. Do property managers do
inspections on a regular basis? And we– most of our
property managers do give us a yearly report. They have to because they’ll
go out and change air filters. So they’ll go out. And a lot of our
property management teams that we work with, work with our
crews, our maintenance crews, and our repair crews. So if after a storm, there’s
branches on the roof, there’s gutters down because
of a big snow storm, or a rain storm, they’ll
notify, and they’ll work to remedy that as
quickly as they can. Or if there’s
rubbish in the yard, kids after a basketball
game walking home threw a bag of McDonald’s
food in the yard, and the city wants
to fine you for it, they’ll take care of it, so. But yearly, they’ll do
air filter switches out on switch outs on the
furnaces, and so they’re going to go and check
on the property. Smoke detectors– Smoke detector. –that kind of thing. And you want them to do
it because a lot of times your insurance company’s
going to do it. They’re going to
come out and say, we don’t want to insure
this property that’s missing a handrail to the
steps, so get that fixed. Well, even better if the
property management team has already done that. And they should– it’s their
business in their city. They need to know what is code. Are the Banister rails
too close together? Well then, they
need to know that. They should know–
this is their city. It’s their business. I expect that. That’s what I’m paying for. Somebody asked about other fees. And it depends on the
city that you’re in. But sometimes, there’s a
landlord fee associated with being a landlord. And I know, like in Michigan,
there’s nothing like a $125 fee to be a landlord
from the city. And now, that’s something
that will have– basically, the property
management team will send you the
application, typically, to fill that out and get
that on file with the city. But it is, ultimately,
your responsibility, not the property
manager’s responsibility. But then in a lot of states,
there is no landlord fee. It’s just another way for the
bureaucracies to make money. But that’s not a fee that
the property manager– a lot of times, if there’s a fee, a
tax assessment or something, the property management
will say, we got this. We’re going to add it to
your bill and pay it for you. For instance, in one of
our properties in Reading, Pennsylvania, the
utility bills are sent to us, the property manager– the owner for some
reason, which bugs me. But our property
manager has some way that he gets all
bills from the city, even though it’s mailed to me. So a lot of times I’ll get
it, and I’ll say, hey, here’s the water bill. He’s like, I already
saw it because he filters through all that stuff. And he pays it, and he adds
it to the tenant’s rent. But we get it, we
just get a copy of it. I usually see it, and
I’m like, OK, great. I do look at it because,
for some reason, we had this tenant who was
exorbitant water charges. Was it $800 a month in water? It was crazy. And they’re like,
well, they have kids. I’m like, I have kids, too. What are they doing, creating
a pool in the living room? Right. But it was so weird. And I use cloth diapers,
so I’m washing my diapers, and I don’t have that
kind of water fee. And they’re like, well, I think
the sprinklers were broken, and they let it
go, or something. He’s like, I’ve been on
this renter for this. So I did look at it, but
I– now I don’t anymore. I just look at it, and I know
that he takes care of it. I don’t send it to
him all the time. So probably the– if you think
they haven’t seen this bill, then send it to them. I just prefer for them
to pay most things and then take it out of my rent. And finally, we will wrap
up with this question, unless there’s any
other questions. The importance of
property management, how it makes your
experience passive? That’s the ultimate reason
you use a property management company. At Morris Invest, what we do– when we work with a
client for the first time, one of the questions
we’ll ask is, what is your freedom number? And we have a free download,
if you haven’t downloaded it. It’s just go to our website,
MorrisInvest.com/freedom. You can download it. It’s three pages. And it’ll teach you your
monthly expenses, what you– how many rental
properties it will take for you to
cover those expenses. But it’s all about
passive income. And someone asked
earlier, in that formula, do you put in the property
management fee in that 40% that you take out for vacancy,
repairs, and expenses? And yes, we build in the
property management fee into that formula. So passive income, you’re– at the beginning
of this process, you’re realizing that I want
to build a passive income. So that number, the
return on investment that you’re making on a
property, if it’s 12%, or it’s 10%, or 11% ROI,
return on investment, that 10% for the property
management company is built into that. So that way you make
sure that you’ve got that information inside
of the property management– excuse me– inside
of that formula, so you’re covered
on passive income. All those numbers are
built into that, right? Yes. Did I make sense? So Yeah. Are you asking me a question? Well, I was just saying, if
you’re building passive income, people are like,
well, oh, so, I’m going to be making
this amount, but then, oh, I’ve got to pay
a property management company on top of that. So does that cut into my ROI? Not if you’re front loading
it and figuring it out. Right. So, anyway. Yeah. It’s just that– unless
you’re the kind of person who can really assemble every
type of Ikea furniture, and knows how to fix
plumbing and electricity, and do drywall, and all of this
stuff, this just not something you should be doing yourself. You’re investing in
real estate in order to build your portfolio. But if you think
that you have time, then to service several units
or homes, that’s one thing. But probably you don’t,
and you can’t do it well. And even– I didn’t
have a property manager at my home in San Francisco,
and I lived in New York City, so when something happened,
I would call Roto Rooter for the lady that lived there. And that was crazy. That’s dumb, right? I shouldn’t have to do that
because then I’d be like, OK she has a clogged toilet, can
you come here at 5 o’clock on Tuesday? OK, great. Now I’d have to call her back. Can you be there and let them
in at 5 o’clock on Tuesday? Or I even had,
so-and-so is going to fix this thing on Wednesday. Sounds miserable. And then they were like,
well, I don’t want them there without me. And I can’t be
there on Wednesday. OK, I’ll call back. And it was just– that was not a good
use of my time. I should have had a
property manager on that. And even once I had
my brother-in-law go and replace the
garbage disposal, and I got him a $100 gift
certificate to Ruth Chris. That’s how– I should have
paid him because he’s actually a very good property manager. Contractor. Well, now– Oh yeah, now he’s– He manages their own
properties because he’s an amazing contractor. That’s the kind of guy who
should be doing this, not me. Right. So I should have just
paid him a monthly fee to do that kind of stupid crap. But I didn’t because I
didn’t know any better. And because in
investing– and this is a topic for another
show– but because I was investing in such
an expensive market, I was losing money
on that anyway. So I really couldn’t afford it. I could barely afford the
$100 to Ruth Chris for him. Right. And that brings up the point
about the difference between A, B, and C neighborhoods. This property that
she was talking about was in an A neighborhood,
with an A-class tenant, and they are the worst. And so we’ve got
a whole podcast, whole videos here on the channel
are all about why we love C-class because– They weren’t all the worst. One of them still
my Facebook friend. But most of them were. But you end up having the most
problems is my bottom line point about that because
you’ve got garbage disposals. You’ve got all sorts
of things that you don’t have in C-class
properties, moving parts, and bells, and whistles. So check that out. All right, so– The storm’s coming, and
we’re going to leave you. You can probably see
the trees behind us are starting to turn up. So rather than
podcast in the rain, we’re going to say goodbye. And so again, if you’re watching
us on the live YouTube stream, thank you very much. If you’re listening
to this as a podcast, you need to know that we
have a YouTube show too, so check that out. Yeah, go to the MorrisInvest
YouTube channel. And if you are ready to
take action and pick up your first rental
property, our properties are in the $40,000
to $50,000 range. That’s pretty much the price
tag depending on the area. Our team will take
great care of you, so jump on the phone with us. Go to MorrisInvest.com. Just click on the
“Schedule a Consultation” button, and jump on the phone
for 30 minutes with our team. And we’ll get to know
your freedom number, find out what goals
you have financially, and we’ll try to
help you get there. So we hope you found
today’s video informative. There’s a lot of
moving parts when it comes to property management,
so thanks so much everyone. Now go out there, take action,
and become a real estate investor. Just don’t managed
properties yourself. See you everyone.

Property Management: The Ultimate Guide

42 thoughts on “Property Management: The Ultimate Guide

  • June 16, 2017 at 4:33 pm
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    Awesome video! One question, do they charge first month fee and last month fee when they get a new tennent?

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  • June 16, 2017 at 5:11 pm
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    Not all states require PMs to be real estate agents

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  • June 16, 2017 at 5:56 pm
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    you guys have a very good show I really enjoy it and I was wondering how many rental properties that you guys are going to get as your goal and stop

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  • June 16, 2017 at 8:32 pm
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    volume could be a little better . im struggling to hear this on my phone… great advice as always though

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  • June 17, 2017 at 7:20 am
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    Do you offer properties in NC through Morris Invest and if so what cities?

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  • June 17, 2017 at 8:47 pm
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    the security deposit is easy you simply open up a landlord tenant account …only you have control of the account but you must furnish the tenant the information pertaining to the location and account number

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  • June 18, 2017 at 7:09 am
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    Great sharing. Appreciate…

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  • June 18, 2017 at 3:52 pm
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    I am sure you have probably answered this but, "When did you decide you needed a property manager?"  How many properties do you think one should own before seeing the benefit of a PM?

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  • August 14, 2017 at 10:33 pm
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    My PM charge my to remove a lock box off the door.

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  • August 17, 2017 at 7:52 am
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    The problem with expensive software is that you often have to dedicate time and money to learning how to use it. Often the software is too complex and you will need to send someone off to take classes at the company.

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  • September 14, 2017 at 7:00 pm
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    You guys are great! Who do you use for PM in Indiana?

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  • September 21, 2017 at 12:38 pm
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    Who's responsible for things like cutting the lawn? General upkeep of the grounds. Is that the tenants responsibility or us the owners? And if its the owners responsibility, do you factor that in to the rent?

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  • September 24, 2017 at 4:46 am
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    if i have a $25 million dollars to invest in real estate,what should i do?

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  • September 24, 2017 at 6:16 pm
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    Always great information. Ty Sir. Also you have great taste. 🙂 Wife is very smart.

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  • October 5, 2017 at 3:40 pm
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    In NY if you only work for one owner you can manage all their properties, if you work for more than one owner you need a Real Estate License. At least that is what I've heard.

    Do you guys keep an account for repairs and misc items that the property managers can access?

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  • October 9, 2017 at 1:27 pm
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    I invest t in Pennsylvania probably same areas as you guys do. Schuylkill, Carbon, Berks County. Basically open to just about anything in that are surrounding area. I am not having luck finding a property manager in the area though. Would you be able to recommend something if I emailed you? Thanks

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  • October 23, 2017 at 6:45 pm
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    Can you suggest a great property management company in Indianapolis?

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  • October 28, 2017 at 2:25 am
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    Did you guys ever accept people with eviction? Like these guy claim to do? https://www.facebook.com/groups/secondchancerenters/

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  • October 31, 2017 at 6:32 am
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    What do I do with renters from hell? Single person rented my home, brought in three other tenants that were not approved, damaged the inside of home, doors missing, windows smashed, spray paint on walls, refused to pay rent for over four months. The state I live in, favors tenants. Every time I try to evict them for non payment of rent every month for the past five months, the government requires that I give them a thirty day notice, then they have to appear in court and they get another thirty days, after that you have to file again to evict them via the sheriff, he charges about another seven hundred and I have to pay for storage for all items and give the tenants another thirty days before the sale of their goods to collect rent arrears. Should I fail to do anything out of order, I have to start all over. There has to be something to get these people out of my house they are destroying.

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  • November 11, 2017 at 4:50 am
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    +morrisinvest Question. If I have a property manager and the house they are managing is vacant and then someone breaks into the house, is the property management company responcible for the damage?

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  • November 28, 2017 at 5:14 pm
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    Myself and my father own 5 rental properties in Connecticut. While he has been doing his own rehab and maintenance for years, I sure as heck don't want to deal with that much longer with how big I intend on expanding our business. Plus he isn't getting any younger and he's currently retired. How would I introduce the idea of hiring a property management team to someone like him who has been doing it himself since he was my age (mid 20's).

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  • December 5, 2017 at 2:24 pm
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    Thank you both for this sharing such information! We learn a lot from you guys! Goodluck and we wish you guys much success!

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  • December 18, 2017 at 7:44 am
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    What a FKN smart man ..! @ 14.00 he just shut the fk up

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  • January 23, 2018 at 7:27 pm
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    Hi Clayton, I hired a property management company in Houston. They charge 8% which is fine. However, I think they kind of overcharge for all the repairs. What can I do to deal with that. Thanks!

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  • January 30, 2018 at 5:37 am
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    Is it typical to receive receipts for repairs performed on the property from your property manager along with the monthly statements, or do you just have to trust that they aren’t charging you for things that weren’t actually done?

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  • February 7, 2018 at 12:02 am
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    Exorbitant water bill may be due to a faulty water heater. Once I got a $900 water bill and found out that water was gushing through the water heater. Excellent video btw!

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  • April 14, 2018 at 2:57 pm
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    As always excellent video. As a turnkey provider do you recomment the property management companies to the investors who purchase property from you guys?

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  • April 18, 2018 at 6:16 am
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    The tenant has to know where I live?

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  • April 24, 2018 at 9:14 pm
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    So do you go and see all your homes either before and/or after they are finished?

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  • May 24, 2018 at 12:14 pm
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    Why do your property managers not keep owners of property informed on what is going on? You managers are very bad at keeping in touch with owners.

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  • July 30, 2018 at 6:35 pm
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    How do you know if properties are vacant or not. Will the PM send you an email or call you or is it up to you to find out what’s going on.

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  • August 11, 2018 at 4:35 pm
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    Where do I get a black-market washing machine?
    I kid…
    I love all this advice you two give in this video and the others I've seen. Thank you very much for sharing your experience.

    Reply
  • September 17, 2018 at 6:29 pm
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    Maybe you could do a video about insurance companies and how to deal with them.

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  • September 17, 2018 at 7:32 pm
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    I am interested buying a property from you soon.

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  • October 8, 2018 at 11:06 pm
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    Do tenants provide there own water and electricity? And what happens if a tenant stops paying there bill and it goes to collection. Will the electric company or water company stop servicing that house till that debt is fulfilled even if its a new tenant?

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  • November 4, 2018 at 1:20 pm
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    First let me say that I love the content this channel produces! Next, I have a question; since you properties within NJ would you be able to recommend a management company in the Toms River area?

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  • January 15, 2019 at 9:58 pm
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    Another very helpful video, thank you.

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  • February 22, 2019 at 10:21 pm
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    Nice Job SUPER COUPLE!! Keep kicking butt!!

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  • May 11, 2019 at 5:09 am
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    Hello,
    I have a property management that only pay me only if I email to request the renters payment every month. Is that shady? I requested to automatically pay me but they refused to do so; but only if I email to request the payment. What are your thoughts???? Thanks in advance!

    Reply
  • July 19, 2019 at 3:39 pm
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    Any recommendations for a property manager in the Pittsburgh area? Specifically, McKees Rocks! I would greatly appreciate any recommendations.

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  • July 29, 2019 at 8:10 pm
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    I absolutely love that you use cloth diapers!

    Reply
  • August 13, 2019 at 1:35 pm
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    Great information. Thanks so much.

    Reply

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