EP #20 - Property Management 101: What New Investors Need to Know

In this episode of the Financial Freedom Fighters podcast, hosts Jacob Sandoval and Mike Magno explore the essentials of property management for real estate investors. They discuss the importance of choosing the right property manager and outline key questions to ask during the selection process. The conversation also touches on the significance of asset management and maintaining strong tenant retention for long-term success. Jacob and Mike share practical tips and insights to help investors effectively manage their rental properties and optimize their investment strategies.

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Transcript

Nancy: 0:00

This is the Financial Freedom Fighters Podcast

jacob: 0:13

financial freedom fighters podcast back with another episode today. I'm your host, Jacob Sandoval, AKA cashflow saga. I have with me, my wonderful co hosts, Michael Magno, AKA realtor, Michael Magno. How's it going, Mike? How you doing? It's been a while.

mike: 0:29

Yeah. Uh, you know, we're, we're very busy. still have two rehab projects going on. I'm still looking for my next one. you know, that's a, that's a numbers game, right? I got to look at a lot of deals before you actually get one. Things that you and I were talking about off air with the commercial development, that we'll talk about on a future episode, but, um, yeah, some, some cool stuff, man. It's cool stuff. how this can take you down a very winding road.

jacob: 0:50

real estate, never sleeps. Mike, we'll, we'll kind of transition. We have a great topic for the episode today. Uh, I have a lot of conversations with the hopeful investors, you know, the new investors. And one of the big pain points or questions that they have the most is around the topic of property management. And that's exactly what we're going to be talking about is property management 101. What is it? Why is it important? How to find a good property manager? What are the things to look out for? How, like, what can you expect when you're working with a property manager? for me, Property management is where the money is made, You obviously have to find a good market, obviously get a good realtor, identify good cash flowing property, but it's kind of all for not right. Mike, if you can't manage the thing, Cause real estate, the money's made in the buy and the hold, you have to hold it and you have to hold it for a very long time, but whilst holding it, you gotta be managing it well, this is where a lot of investors fail. And so. So stick with us through the whole episode. And you know, Mike and I are going to chat through all things, property management, but I'll turn it over to you, Mike. give us your kind of initial thoughts on, on just property management one on one.

mike: 1:55

Yeah. Property management is, you know, when I'm doing consultations with people, uh, when they're looking to get into investing or investors that are coming into Cleveland, um, I always tell them, you know, property management's honestly, it's probably the most, I mean, I don't want to say that I'm not the most important piece to the puzzle, but honestly, on, on the purchase side, obviously I'm the most important piece, but, um, on the, on the longterm piece of the puzzle, the property management is, you know, is going to make you or break you. Um, you know, It's a, it's a unique setup that you and I have, obviously you're long distance. So you have property managers. I'm local. So I, I keep my property management in house. I do it myself, at least for now, for now. Um, so we both have obviously different perspectives of it. Um, And as a matter of fact, my Florida house, we finally have bit the bullet and we've hired somebody to take over the management of the, of that short term rental for us. So, um, shout out to Tyler down there, uh, in, in Florida, um, you know, we're, we're going to farm that out and see if we can do better than we were doing self managing the property. but yeah, it's, it's, it's. Arguably the most important piece of the puzzle once, once you close on a property,

jacob: 3:11

a hundred percent. So let's just dive right in, Mike. Um, what, what is property management? So I'll start with kind of like a high level. Um, and you know, you can kind of build off of that. So property management is. very tactically, right? Your property manager is going to be managing the day to day operations of that property. For all intents and purposes, you shop and you know, Mike finds your property, you get through due diligence inspections, you move forward, you close on the property, Mike hands the keys over to your property manager. If we're talking about Cleveland, right? That's effectively what is happening. You then Are going to work with your property manager. For the most part, they're going to get the building rent ready. So if you have some work that needs to be done to get it rent ready, your property manager is going to oversee that they are going to place the tenants for you, right? So they're going to find who are is actually going to be renting your place. They're going to be managing the tenant communication. So you as an investor, you don't want to get calls about tenants. Uh, you don't want to get calls about toilets and. And trash and all that fun stuff and repairs and maintenance, that's not going to go to you. That's going to go to your property manager, right? And they are also going to be the local market experts if there's specific laws and, you know, rental permits and applications and different things like that, like we have lead clearances in Cleveland, and so they're going to help guide you and stuff through what you have to know from a local market knowledge. So they are effectively, again, managing your property so that you, the investor can focus on what you need to focus on. You know, that's partially probably going to be your day job, right? Cause you're full, you're probably not a full time real estate investor yet. And also you can focus on the skills of investing because property management is a completely different animal. It is a completely different beast. And if you don't want to be in the property management business, that's why I think you need to outsource it. But Michael, I'll turn it over to you. How do you view property management? The responsibilities of a property manager?

mike: 5:12

I mean, you, you hit it, you hit most of the, most of the, the most important factors, right? You're, they're managing your day to day operation, right? Uh, the investor's job is to manage their manager. You know, and it really just depends on each individual investor, how they do that. I mean, I wouldn't say that you need to be talking to your property manager every day or or even every week

jacob: 5:33

That wouldn't be good. That wouldn't be good if

mike: 5:35

you know, yeah, and that's the thing, right? I mean the the the You know to have to have a good property manager. They're probably managing at least three or four hundred doors So you have to understand that they're They're very busy people. I had to get a Google voice number for my rentals because, uh, you know, when, when you, when I put up a property of mine for rent, It's death to your phone. I mean, just forget it. Just forget it. I literally a couple years ago got a got a Google voice number to include in my listings instead of my personal, you know, instead of my personal slash business cell phone because like the calls are just nonstop. I mean, it's day and night. you know, that, that's where the tenants just, it is what it is, I guess, but you know, that's, that's a huge aspect of it. I mean, your, your property manager is getting bombarded by, by tenant communication, whether it's current tenants, hopeful tenants, applications, um, 24 seven. So I wouldn't say that they need to get bombarded by their, By their landlords either. you know, obviously you want to have a communication lines open with your property manager.

jacob: 6:41

yeah, yeah, definitely. No, that's a very important point. Mike, is that you have to. Understand the property management business a little bit, and we're going to dive into this more. Um, but Mike spoke a little bit about the scale that you need to operate to be making money in the property management business. It is a low margin business. So it is about accumulating as many units as possible to reach those economies of scale. And so property managers are managing. A very large portfolio. So unless you're an investor that has a lot of doors, you know, you're just kind of one client among many clients, And so that's just like good context for you to have it as investor. but also to Mike, you know, would love your thoughts on this, but property management is kind of a thankless job, right? Because at the end of the day, if nothing is going wrong with the property, that's kind of the baseline. That's kind of your expectation as an investor is that nothing is going to go wrong with the property. And you know, that's what you're, that's what you expect. But oftentimes property managers have to be the bearers of bad news, right? Because you're, you're a new investor, so you probably don't know this as well, but. Nothing ever goes according to plan in real estate. Nothing ever goes according to plan, especially that first year, especially that first year. You know, we had a podcast episode, Liam on a few, he talked about how his first Cincinnati deal was a nightmare deal. And that might scare you as an investor, but it's not that abnormal of a story, It's not that abnormal story. all of this to say is that property management is kind of a thankless job. They're incredibly busy. They have a lot of clients. And you have to kind of acknowledge that as the investor, and to Mike's point, be very respectful because you, you could not succeed without your property manager. If you're an out of state investor, because they are the ones that are shepherding, you know, probably the biggest purchase, the biggest investment that you've made. They're the ones trying to shepherd you to success. Now, now that I've said that though, I will also say, Mike, that a lot of property managers out there right now are not very good at their jobs. Not very good at their job. So it's kind of a double-edged sword is that like you have to be respectful as an investor and you have to kind of like understand that what they're doing is very difficult to property manager. But at the same time too, you have to know when to spot and how to spot a good property manager versus a bad property manager. And Mike, I'll turn it over to you, but I mean, like you probably heard the full gamut of things. You know, property managers stealing property managers just like negligence, like not filling units fast enough. you probably heard all of it, but. What are your kind of thoughts on that, Mike,

mike: 9:09

Yeah. I mean, I, I hear and see it all. Um, you know, I, I hate to bang on, uh, and then I'm, I won't name the property management firm, but like I recently listed and got a property under contract for, for, for a person, uh, he's a California based, he came to Ohio, low cost of entry, first time investor, um, didn't find me right away and he got duped, he got duped, he bought a property from a. Turnkey provider, right? Turnkey provider.

jacob: 9:40

there they go again, those turn, those damn turnkey companies,

mike: 9:43

Turnkey company, um, turnkey company came along, came with a property manager, right? And we found out later, uh, the property manager that was managing his property, Wasn't even licensed. Wasn't even a licensed property manager. So this particular client, I mean, he contacted me probably I'd have to go back and look at my CRM, but it's been at least a year and a half ago is when he originally contacted me about selling his property because that's how poorly it was going for him. but yeah, I think it was still, cause it was still, we were still under some COVID restrictions. Um, because what happened is he, he connected me with the property manager. Um, I, I told him that I needed to see the property, so I coordinated with the property manager to go visit and tour the property, which then, of course, made that the tenant very skittish and then the tenant stopped paying. Right, and then the judge wouldn't. you know, wouldn't evict her. And then the property manager was screwing it up cause she wasn't going to court. But I think the reason she wasn't going to court, cause she wasn't licensed, um, that would, she would, she would never, uh, she would never admit to the investor. Uh, it was, yeah, it was a mess. It was a mess. So then I did get him hooked up with a different property manager for, for his location. And they came very, very highly recommended. I had never worked with this property management company before, so I didn't know them. So I couldn't, I couldn't say good, bad or otherwise. And they helped him through a difficult time because they actually evicted, they actually got the tenant evicted. It took them like six months, but they got the tenant evicted. Um, they helped him then renovate the property because the tenant left the place trashed. And then on top of it, they then couldn't get it rented. Cause he had, cause he had called me a couple months back and said, Hey Mike, I think I'm going to give this one more go. And I respected his decision, right? Like I had put, I had poured a lot of time and energy into him, but I knew at the end of the day, like if he ever went to sell the property, likely I would be his call well, fast forward to about three weeks ago, the call comes, Mike, I'm just done. Um, they've had it listed for rent for like eight weeks and and nothing. So I Googled the address and that particular property manager doesn't use the MLS. So it was not in the MLS. They only had it on Zillow. They had it with like five really crappy pictures and the pictures Just it was terrible. It was terrible. And I felt really bad. So, but, um, needless to say, we, we, we actually got the property Professionally photographed even though it was a lower end property Listed for sale within two days of him calling me I got it listed for sale for him and then we were under contract the first weekend

jacob: 12:18

but that story, The property management side of that story is somewhat of a cautionary tale. He, first of the turnkey company and you know, we still have to do that episode on turn, turnkey teardown. But he had the property manager, wasn't even licensed, couldn't evict the tenant, which is a nightmare scenario. And then he found another property manager who at least helped him usher through the eviction process, getting it rent ready and things like that. But then they couldn't find a tenant, which is the core job of the property manager is helping you find a tenant. And, you know, if you are an investor who has made this investment and you're all the way in California. And you have that mortgage payment that's starting to hit, and you don't have any income coming in because your unit is vacant. That's when the anxiety sets in. That's when the doubt sets in. That's when the fear sets in. And if you can't have a property manager, that's going to perform, then you either got to fire them, find a new one, or you got to, I mean, unfortunately this, this person exited and I don't know if they're getting back into the real estate game, but that's, that's how. Much of a thin margin there is in like success with property managers, because I know that there could be some managers that would get that price rented out quick. You know what I mean? Like Cleveland, the rental market in Cleveland is healthy. It's strong. If you have a good, clean, affordable place in a good area, it should not take eight weeks to rent that place out. Absolutely not.

mike: 13:36

that house shouldn't have taken, it shouldn't, they, that it shouldn't have sat vacant. It was a nice enough house. They overpriced it. They overpriced it.

jacob: 13:43

Exactly. And so like all these, all these little decisions, right. The pricing where you're supposed to list it on, right. They should be putting it everywhere. The professional photos, right? Like this is all base level stuff. your property manager should know all these things. And you, when you're interviewing property managers, which will get in, how to, the questions that you need to ask, you need to suss out like, Hey, do I have confidence in this person? Because let me tell you my first property ever purchased. I've talked about this a lot. Is in Portland, Oregon. And I had no experience in real estate whatsoever. I didn't even really like understand the concept of real estate investing, you know, at a deeper level, you know, I bought a house that I was supposed to be my primary, turned it into a rental. And then I got a property manager. I didn't even do due diligence. I just got the property manager that my realtor recommended to me in Portland and they got the place rented out in like four days. One, I probably priced it too low, but they ran it out four days. They did everything right. They got the place rent ready. They found, they found the tenant. They, I saw the pictures that they put up. It was like really nice. I saw the listing. I saw, I checked a bunch of places and they got it right on four days. that's when it really all clicked for me. at that point in time, I was just operating as a retail home buyer, but the second that I had a successful engagement with the property management firm, which was just by dumb luck, that's when it clicked for me that you can do this, you know, you can do this and you can be out of state and you could buy these properties and you don't really necessarily have to be. A local market expert is just, if you had the right team. Now I got lucky and the, the property management firm that my realtor in Portland recommended to me ended up being a pretty good one. but there are so many bad ones as well. There are so many bad ones as well. And that's what Mike and I want to accomplish with the episode today is like, let's just arm you with a little bit of knowledge so that when you do interview these property managers, you can, you know, Know what to ask and know what to kind of look for. Right. So Mike, let's just be tactical about this. Let's talk a little bit about how much property management costs to the investor, and let's talk about why we think that for long term rentals, at least that it's definitely well worth the cost,

mike: 15:38

Yeah. So, you know, in our market, nine, 10 percent is, is pretty typical of the gross rent. So if you're a thousand dollar property, you're going to pay a hundred dollars a month in, in property management fees. Um, there are some, you know, there are a lot of fees out there. Um, if they have to, you know, post a three day notice, there might be a fee for that. If if the tenant hasn't paid their rent, um, if they have to do an eviction, there's fees for that. Um, when they, when they place a tenant, they typically will take depending on the property manager. Once again, I'm not going to speak specifics, but it could be anywhere from half of the 1st month's rent to the full 1st month's rent. Uh, in a, in a lease up fee, um, there can be renewal fees. Uh, you know, I, I know it seems like a lot of fees. I've looked into starting my own property management company. It's not that lucrative. It's really not unless you've got 10, 000 doors and you're doing it at such a scale. And even then it's still not that lucrative because the amount of staff it requires to manage a portfolio that large. Is unbelievable. So, uh, you know, so for those out there who hear me talk about these fees, I, I don't want you to think you're going to get feed to death, but just understand that it's not, it's not the easiest job in the world. I mean, Jacob, you mentioned at the beginning, it's probably the most thankless piece of the equation when it comes to real estate investing is the property management piece.

jacob: 17:11

to kind of like highlight, the big, like what Mike said, the big thing is obviously the main kind of management fee, which is that 8 to 10%. it's 10 percent in Cleveland that I pay it's 6 percent in Portland,

mike: 17:22

That's that's going to be very market specific. Um, the higher cost living areas charge a lower percentage because they're getting a larger chunk of the change. Right? you know, a lot of people I've gotten. I've had a conversation like, uh, 1 time with a lady in Atlanta. And she's like, Oh, I only pay 6%. And I go, yeah, but what's your average rent? 2, 000. I'm like, well, 6 percent of 2000. Well, that's 120 bucks. 10 percent of the average rent in Cleveland at 1, 200 is 120 bucks. So like, you know, that, that's why it's a percentage and not, you know, uh, and it's going to vary wildly depending on the part of the country that you're in.

jacob: 17:58

Yup. So you have that, that piece of the fee, which is obviously kind of like the main revenue driver for the property manager. And it is the main kind of cost center for you, the investor. And that's why when you have rental property calculators like mine, you plug in a percentage for property management and that's where you typically plug in that kind of 10%. Mike said the leasing fee, that's a, that's a really big one that that's one that you might not know, but it obviously takes work to place the tenant and you compensate the property manager by paying them a leasing fee. And Mike said, sometimes that's a flat fee. Sometimes that's half the rent. Sometimes that's, the full first full month's rent. But it's very important for you as an investor to know that because when you finally place a tenant, it's like, well, who you celebrate. And you're like, Oh, nevermind. I got to pay that first full month to the property manager. So you're eating that, that kind of mortgage expense as well. even when you do place that tenant. So that's an important thing for you to know. And then the one to me that stood out, but it's pretty normal is the Whenever they coordinate maintenance and repairs, which they will do a lot, they tack on margin on top of that. So what does that mean? Right? if they have a 20 percent margin on maintenance and repairs, that means that if they have like a 500 repair that they have to do, right? Maybe they have to go fix something or paint something or whatever. It's 500 bucks. They're going to tack on 20 percent on top of that. So they're going to get a hundred bucks on top of whatever the cost of that is. Okay. And that's just their margin because sometimes things go on according to plan. Or, you know, sometimes they just need to make money in other ways, because like Mike said, it is not a lucrative business. So for me, I've, you know, interviewed a lot of different property managers and those are kind of the core ones. There's always going to be like little things here and there. Um, but those are kind of like the big, big cost drivers is the maintenance margin, the leasing fee, and then the actual fee, but 1000%, I say this all the time, 1000 percent property management is worth it, For a good property manager, it's worth it because you do not want to be in the business of property management. You do not want to have your phone blowing up, um, in the middle of the night or in the middle of winter in Cleveland when, you know, things are going wrong with the property. You just don't want that. And also if you really think about it, 10 percent of your gross monthly rent for the amount of work and headache that it saves you as an investor, it's nonsensical to think that like saving the 120 bucks or even saving the 200 bucks is, is going to be worthwhile to you. so it's 1000 percent worth it, worth it, but that's what, you know, we want to arm you with is like the knowledge of the fees. Those are normal. Now there is a point where the fees can be really excessive, and that's where you have to kind of compare across different property managers of like, Hey, what is all this stuff? And that's where you have to really be armed with the knowledge to have the questions to ask, you know, Hey, what does this fee for, does it make sense? Is it justified? But anyway, those are kind of the big three. We'll kind of move on to the next question that I have here, Mike, which in Europe, in your view, at what point. Should the investor be trying to find and work with a property manager, right? Cause let's say you found Mike, And you're talking to Mike and you don't have a property on the contract, and you are hunting for deals and things like that. Property managers are incredibly busy in my view. I don't think a property manager necessarily wants to waste time on someone that hasn't even landed a property yet, because. They're busy with a bunch of people that do have properties already. Right. So I guess in, in, in your view, what is the right rules of engagement here to be respectful of property managers time, but also at the same time a property manager, that's helping you with the acquisition piece is massively, massively helpful. So Mike, what do you, what do you think about

mike: 21:21

So it depends, you, you want to engage them sooner rather than later. Um, I would say somewhere between the time we start making offers to the time. I mean, obviously by the time you close, but, you know, sometime, sometime after you're making offers and then before you close, you know, you really need to have that lined up and the reason being is if you get lined up with the right people, You know, they may even be able to help you, and help us through the, you know, through the escrow process to, good example would be, you know, if a property manager would be willing to look at the property inspection report, right? maybe there's some stuff in there that I can't really give you a good idea of what it's going to take to fix it. That's where, if you have a good relationship with a property manager, the property manager might be able to step in and say, Hey, I'm going to give you a range of what it's going to cost me, and this is what it would look like.

jacob: 22:11

Yeah. And so I I've had the fortunate, um, scenario where, you know, Mike, Hooked me up with a property manager and I had the counsel of both Mike and of a property manager as we're hunting for properties. And as I'm thinking about putting offers on places, I have the opinions of both Mike and the property manager. Both people have expert local market knowledge, but also different sides of the coin in terms of opinion. Mike is like, you know, this is a great area. The property manager has even more granular information about like the rental demand in that area, the rental rates, they maybe have a bunch of units in that area already. And they're like, Hey, these units are doing great. And like Mike said, they can give very granular estimates on, Hey, we think that to do flooring, it's this, you know, to do paint, it's this and different things like that. So they're, you're going to be able to get better cost estimates as you're doing your underwriting. When you're acquiring the property with Mike, and then you're saying, Oh, what is that repairs and maintenance rent ready line item that I need to input there? Your property manager couldn't inform that now. And we'll say it's not always guaranteed that a property manager is going to give you the time of day. If you don't even have like a property, if they don't know how serious you are. Right. So there's also like you, the investor, it's, it's, it behooves you. To be educated in the sense, right? Cause they, they need to know that you're serious. They need to know that you are actually going to acquire this property because they want your business, obviously. But if you're just a tire kicker and you're trying to get them to do free work for you, then you're not, it's, they're not going to respond well to that. So we'll kind of round out to the next question here though, Mike, which is how do you find a good property manager? We already kind of outlined like when and how, and I'll say the first and the easiest thing, and I'll, I'll steal your thunder here, but a good investor friendly agent is worth their salt is going to have a Rolodex of people that they can refer to you.

mike: 24:16

yeah. I mean, I've got, you know, I've got three or four different property managers that I've worked with on different sections of, of Northeast Ohio here in my, in my area, and I'm, I'm fairly confident in those, Those people's abilities to help, help my clients out. Um, now it doesn't always go a hundred percent, right. Um, I've had clients who didn't get the performance out of, you know, maybe one or, or, or of them and have switched. And, you know, once again, I also tell people upfront, like I'm not affiliated with these people directly, right. So I'm going to make the introduction. You know, I hope it obviously I want it to work out because I want you to continue to buy properties here, you know, I'll do everything I can to help you along the way, you know, and I, I try to, you know, I try to set people up for, for success, you know, right away, right by, And you've talked about it, uh, before Jacob, you know, me, me being Mr. Negative. you know, I get a lot of people who will, they'll, they'll, they'll see a property and be like, Oh my God, look, what's look what rentometer says the rent is. And I'll be like, uh, I have no idea how they came up with that. And I know it's supposed to be from like real data on renometer, but where, like, I don't, I don't see it. I don't see it. Um, now once again, not, not all land, a very small percentage of landlords and property managers use the MLS for data, but that's all the data that I have right is, is when it comes to rentals is the MLS we're going on to Zillow and checking out what's actually for rent, you never know what it actually rented for on Zillow. So I like to be a little bit more conservative, probably in my, in my rental estimates. You know what I mean?

jacob: 26:12

this is a, this is a really big one. the, the tool that most people use. to estimate rent, which is one I use as well, is called a rentometer. you basically plug in an address, you plug in the bedroom count, the bathroom count, and it'll basically pull a bunch of similar properties in the area and it'll draw like a radius within like, I don't know, a one mile, two mile, three mile radius. You can kind of select that as well, and it'll give you basically the average, the median, the 75th percentile, the 25th percentile, and then it'll give you a report and that is really helpful. but at the same time too, as with most data tools, it's not always perfect. You can't always just trust the thing that rentometer spits out or the equivalent for Airbnb is air DNA. You can't just trust what those tools are spitting out. You need to then match it with what the local market knowledge is. And that is where your realtor is going to come in. That is where your property manager is going to come in. So to kind of round it out. I would start with your realtor. Obviously they, they are going to be the best source of information, not just for property managers, but contractors and your lenders and everything. So everything starts with the investor friendly agent. If they don't have, property manager contacts, I would find a different agent. No, I'm just kidding. you can also talk to other investors in the market, I've talked to a bunch of different investors and the biggest source for a lot of their property managers came from investor referrals, And so. That's another good source too. If you go on the bigger pockets forums, or you just know other people that are investing in that market, I would speak to them because a realtor is going to have a perspective, but an investor who was an actually a customer or a former customer of a property manager is going to have a completely different perspective. They might have different things to say, right? A lot. There are some investors that have bad experiences with property managers and you want to talk to all of them. So I would say investor referrals is another good one. And then lastly, if you don't have that, then just go to. The good old Google, you want to have a property manager that at least has like somewhat of a track record and somewhat of a presence online and good reviews and things like that. So common sense. Um, so either a realtor, investor referrals or Google, I think that that is perfectly useful. Now to keep it moving, Mike, if you're interviewing a property manager, what questions should they be asking the property manager?

mike: 28:16

you know, I would ask them, Hey, is this the type of properties that you typically would take on? uh, you know, neighborhood to like ask them their opinion of a neighborhood. cause you want the property manager to want your property, right? Um, cause if you, if you hire them and then they, they really don't want your property, then they're not going to put probably a whole lot of time and energy into the property. So, you know, It goes hand in hand. I mean, that's why I tend to be a little bit more forceful now and in my career with people that, you know, find these 50, 000 properties on Zillow and want to invest in those properties here in Cleveland. And I tell them, you know, those are those are places that I don't drive through without my Kevlar. You know, and, uh, you know, once I tell them that they're usually like, Oh, really? I'm like, yeah, really. Um, cause I mean, here's the thing, right? Like, yeah, you can buy 50, 000 properties here all day long. What? That's not a spreadsheet. You know, this is not, it's, it's the sports analogy, right? We don't play the games on paper. Right. You know, we don't, we don't play the games on paper. We don't, we don't play the, we don't play the real estate investing game on paper. Um, it's real life and I've got more stories about bad things happening to, to good investors by investing in really bad areas because they got bad property management. And if it's a bad area with bad property managers, what's the tenant pool going to be? Right? Like we can do some standard, we can do some standard deduction here of what's going to happen in that neighborhood. So.

jacob: 29:39

You're either going to get no tenants or you're going to get the tenants that you don't want.

mike: 29:41

Yeah, or, or really bad, you know, get the tenants. You don't want the ones that broke in and squatted. Right. So, but yeah, that's, I mean, that's the biggest thing I, you know, you, you need to, you need to build rapport with the property manager. Um, and then also finding out, you know, are they in a position to even take you on as a client? Right. Like, you don't, you know, you don't know.

jacob: 29:58

So some of the questions that I like, um, and a lot of these are going to be common sense, but it's good to kind of like talk, speak about it. It's like, you know, how long have you been in business? And a lot of these property managers have been in the game a long time, but that's not necessarily the case. And that's not necessarily a bad thing. I actually don't think it's a negative thing for somebody to be a new kind of up and coming property manager. If they have the hunger and they have the grit and they have like the knowledge, because, you know, to be honest, a lot of these property managers have been doing it for a really long time. Their, uh, their tools and their systems and their processes are all outdated, right? And, and they're kind of like moving dinosaurs. And. There is a lot of, um, you know, new technology in the property management space that is super helpful. So I don't think it's a bad thing, but you should know how long have you been in business? How many units do you manage? Right? Like Mike said, to actually be profitable in this business, you have to meet, have like 300 plus units. If this property manager has like 50, are they even making money? Are they just trying to like take any client that they can, you know what I mean? So like you should have a sense of the scale of the operation. How big is it? How big is the team? Is it a one man band? Right. Is it a one man band and they're doing everything and they're running around like a chicken with their head cut off and they like barely are staying above water. Is that the operation that you want to be a part of? Or is it a whole team that has a leasing department, a maintenance department, an accounting department? You have all of this stuff, right? You should know that you should know that. I'm not saying it's bad to be a part of a one man band necessarily, but it's all things that you should know. How, like, how big is your scope of market that you foresee? Right? Like, is it all of Cleveland? Is it a specific part of Cleveland? Do you also do Akron? Like how far do you go? Right. Because that is a, another, their span of control also is really important because maybe they do take on something in Akron, but you're the only one that's in Akron. They don't have the team down there. They don't have like the contacts, the resources, the infrastructure down there. And you might be just like in no man's land and it might take forever to get your tenant. Did your, your, your units rented out your units fixed up and everything like that. So you have to know these things. Obviously we talked about the fee. So understand their fee structure, which you'll outline in the property management agreement. Um, how do you handle maintenance and repairs? Right. are they a full service property manager where they'll take a property that needs 20, 30, 000 of worth of work before you actually need to get it rent ready, you know, so are they, are they willing to take that on, or do they have a cap of like, oh, I'm only, they only do cosmetic repairs, right? If they only do cosmetic repairs, then you can't be buying a fixer and handing it over to your property manager. They're going to be like, we're not going to take that on. And lastly, what, what tools and software and what reporting can I expect that as an investor, you know, that your property manager should be sending you monthly reports. They should be keeping track of receipts. They should be sending pictures when renovations is done. There should be a minimum threshold where you need to approve, like for mine, it's 500 bucks. If anything costs more than 500 bucks, I need to approve it. Anything less, use your best judgment. But you need to understand the rules of engagement with the property manager. Um, now that I've kind of riffed on that, any, anything else, Mike, that you're kind of, you're kind of, that comes to your mind?

mike: 32:59

I would also throw in though, buying a fixer is probably not the greatest idea on your first, on your first go around. And then two it's pro you know, the, the property manager is not going to be the most effective person to do that for you. They're a property manager, right? They're not a project manager. Like they're not a general contractor. So I always caution people that want to do these, you know, heavy rehabs and, and use the property manager, uh, because it's just, it's super difficult,

jacob: 33:25

absolutely. Absolutely. And so we do got to get out of here. Um, kind of have a hard stop today. So we'll have to wrap this episode a little bit short, but the last thing that I kind of want to impart on you, the listener is just because you have a property manager, doesn't mean your job is done, right? There's this concept called asset management in real estate investing. And that means that you are not the property manager, But you're the asset manager, which means that you have to manage that manager and you should be reviewing all your statements. I look at all my statements religiously every single month because I want to make sure that I understand how the property is performing. If I have 1, 000 of receipts from Home Depot, I got to know what did I spend 1, 000 on? Right? I know we had a unit turn. Is a thousand dollars reasonable to spend a Home Depot for a unit turn? I don't know. I need to talk to my property manager about that. Right. If you're seeing expenses pop up, you have to hold your property manager accountable and say, Hey, I think we spent too much money on this unit turn. And, and, and you have to let them defend the reasons why they made the, the, the kind of elections that they made, but you have to hold your property manager accountable for performance. If you have turnover after turnover right here, here's another insight. If your tenants are leaving every single year. Right. They're not renewing their leases. You're not going to succeed in the real estate investing space. You need long term tenant retention. You need the tenants to stay there minimum three years. And that's when things start to get fun in real estate is when you don't have turnover after turnover, after turnover, you know, and I've just got through a season of a lot of turnover, you know, in the past couple of years, and now I'm, I'm, I'm reaching my stride with tenant retention. You need to partner with your property manager to make sure you can achieve long term tenant retention. And so you need to be strategic. One thing Mike that I've been doing, I don't know if it's controversial or not, but I actually like the two year lease. I like the two year lease because you kind of get a tenant that's a little bit more settled. it's a good deal for them. Cause the rent's not increasing for two years in a row. It's a good deal for you because you know, you're not going to have that turnover after year one, which sucks. And if it, especially if it's happening all at the same time, you're And, but maybe your property manager would advise against that, but you have to have those strategic conversations with the property manager, right? When's the right time to, to upgrade the unit, you know, we had, uh, old carpet and underneath we had nice hardwood floors that need to be refinished. It was going to cost like 3000 bucks to refinish the hardwood. But, you know, I was talking to my property manager. He said, I think we're going to be able to get a lot of, uh, a lot more increased rent because nice refinished hardwood floors or, Really attractive in the market. And so we did, and we were able to get the rent a lot higher, even than, than we initially thought. So like, those are the strategic conversations you have to have with your property manager, but that all comes down to asset management. Another piece of asset management is like the boring bookkeeping. You know, I was an accounting major. I kind of like bookkeeping because I like keeping things in order. And I like understanding. In detail, the financial performance of my property. And if you don't like that, then you have to have a bookkeeper, but you have to be keeping your books every single month. You have to know what is my revenue? What is my expenses? What is my cashflow? I cannot tell you Mike, how many real estate investors I meet that don't do their bookkeeping for the rental properties until tax season. And the whole time they're flying in the dark. And to me, that's crazy. You have to know how your properties are performing because you, you can't know if you need to pivot, you can't know if you need to fire your property manager, right? You can't know any of these things unless you know specifically what the cashflow is. And so that's like the last thing that I want to impart on the listeners. Mike, uh, we have about a couple of minutes left. Do you have kind of parting thoughts on property management one on one?

mike: 36:56

yeah, I mean, you hit a lot of the, the, the great points, um, something that I emphasize with people all the time is the killer of cash flow is turnover period period. It's not 1 month's vacancy when you 1st, buy the property. Okay. Um, and, you know, I, I tell this to people all the time, you know, if you're, you know, you come to me and you want to buy a single, you know, let's just say we start with the very basic single family. Rental 120, 000, right? You're going to put 20, 25 percent down or whatever. If you can't float that 800 mortgage payment for a month, two months tops, while you get yours, you get yourself set up. This is probably not the game for you. You know what I mean? it shouldn't, it shouldn't take that long. It really, it really shouldn't. but what I'm getting at is you want the right tenant,

jacob: 37:41

Yeah, a hundred percent. It's it's not rocket science, but it is incredibly incredibly important Find a good property manager You know, don't be afraid to fire one if you have a bad one because good ones do exist You just need to do a little bit more work to find them Um, I think that's the episode for today, Mike. I'm Jacob Sandoval, your host. You can find me on all socials at cashflow saga. He is Mike Magno. You can find him on all socials at realtor, Michael Magno. We are the financial freedom fighters podcast. We will see you in the next episode. Peace.

mike: 38:10

see ya.

Nancy: 38:11

Goodbye