investment property manager interviewing techniques

Investment property manager Jason Cox and professional real estate investor David Campbell share their thoughts in part four of this four part interview series.

David: When people are interviewing a residential investment property manager, it’s kind of like interviewing for a business partner or a date. You’re deciding, on the first date, which is your interview, is this someone you want to jump into a long-term committed relationship with? You’re not quite getting married, but you’re deciding if it’s a good idea to move into together and start sharing toothbrushes. It’s that kind of a personal relationship. What are some of the key questions that would be important for people to ask an investment property manager?

investment property manager real estateJason: You definitely want to meet the broker. That is the person that is ultimately responsible for the property management company and how they perform. Being a member of National Association of Residential Property Managers (NARPM) is important. That will tell you how legitimate the company is. Being on the MLS—it’s not inexpensive, but that’s going to let you know that your property is being marketed in the most effective way possible, at least in our area in Texas.

David: If the broker is not a member of the MLS, then your property is not going to be exposed on the MLS, and in some areas that’s a really big deal for rentals. If you go to, the only way to get a property there is to have it in the MLS. And that’s not cheap. So if your property manager doesn’t pay for that service, you’re not going to get that benefit.  So here are some great questions to ask your manager. These days technology is such an important part of the management experience. I would focus a lot of my questions around how the manager is implementing technology to make his job easier, which makes my job easier as well. Some of the key points to ask, how many units do you have under management, and what is the vacancy in their overall portfolio, and the types of units that make up their portfolio. I want my units to be consistent with the makeup of that investment property manager portfolio. For example, let’s say the manager says, “I’m very experienced, I have 150 units under management.” That’s enough to create a full-time income for an investment property manager. But what kinds of units are they? “Well, they’re all C-class ghetto properties.” I’ve got a brand-new luxury house on the other side of town. That’s a different type of customer service experience and vendor expectation. I want to make sure that I’m going to ask the manager leading questions, like “If you were going to buy a property in this area, what kind of property would you like to manage?” How many times have people asked that question?

Jason: You’re the only person that’s ever asked me that. But that’s a great question to ask your potential residential investment property manager.

David: The answer that comes out could be all over the map. They might say, “I really enjoy cleaning human hair out of toilets so give me the ugliest, dirtiest property possible.” Or they might say “I really like four-bedroom homes because families live there, and I like working with families because they tend to be longer term.” And as a investment property manager, there’s an interesting paradigm shift to break. Do you make more money spending a lot of time leasing a property and making 50-60% of the first month’s rent, or doing nothing, and getting 8-10% of the month’s rent?

Jason: Doing nothing and getting 8-10%.

David: Your investment property manager does a lot of work finding the right tenant for you, and once that tenant’s in the property, the manager’s goal is that the tenant pays their rent on time and they don’t call and ask for repairs.  Your manager basically does not do a whole lot and they get paid 8-10% of the rent. The reason you have the manager is because when your tenant does call, your manager puts in so much more work than what that 8-10% pays. Maybe you’ve got a $500/month rental, and the manager’s fee is $50/month, or 10%. You’re hoping that tenant doesn’t call, but when they do call, it’s probably going to take you 3 or 4 hours to fix that problem, and then you’re only making $12 or $15 an hour, and the property manager wants to make more than that, so they want to set you up for success, by getting that residual income for both of you. Talk about what your company does to ensure that your clients have a good management experience. What kinds of questions would you want people to ask you so you can show off what a good job you do?

Jason: We definitely want the proper expectations set up front so everyone understands what’s expected from each other. I would definitely want potential clients to ask me what steps we take to find their tenant and make sure that we’re doing everything possible to place a good tenant in that property. It’s very important to put tenants through a screening process, to look at their background and their income. Put them under a microscope. It’s your property manager’s job to treat your investment as if it were their own. That’s our policy, and that should be every property manager’s policy. If you start out with a tenant on the right foot, you’re more likely to be set up for success with that tenant. Nobody has a crystal ball, but there are things that you can do, or ask of your property manager, to put yourself in the best possible position for success with any particular tenant.

David: The questions we have on the slide seem like they should obvious but they aren’t. Not all residential investment property managers have after-hours emergency response. Not all managers have a privacy policy for your essential documents. Your property manager has your social security number, because they have to file a tax form for you, and they have tax-reporting obligations. They’ve also got your tenants’ personal information. They have copies of your keys. Do they have a good policy to separate the keys from the address that goes with those keys?  So if someone were to break into the property manager’s office and steal their box of keys would that thief have instant access to your property? There are a lot of best practices that go into property management, and I think that it’s the hardest job in real estate. I will look at investing heavier into a market when I find a good manager that I want to expand my relationship with. Unfortunately, not all property managers do a good job. Some property managers are unethical, and it’s really unfortunate that in business there are people who do it ethically and people who don’t. When you’re new at investing, it’s easy to be taken advantage of by your tenant and your property manager. Sometimes your property manager takes advantage of you ethically by not meeting your expectations. If the manager doesn’t know what your investment goals are, and you haven’t had a conversation about what your metrics of success are, sometimes the manager could very innocently think they’re helping, but simultaneously hurting. My A/C broke down, and my manager spent $100 fixing it, and that was good, but what I didn’t communicate to my manager was, “This A/C is on its last legs anyway. The next time it breaks down, I want you to replace it. Don’t patch it.” It was my error that I hadn’t communicated that to the manager. The manager’s error was not understanding what my objectives were with that property, not understanding what I wanted from that property and what my policy on expenses were. That was not necessarily an unethical situation, but it was a mismatch and a bad residential investment property management relationship. The manager didn’t do a bad job, but the relationship wasn’t working because we hadn’t gone through those questions and answers.

But sometimes, I’ve had a manager that was not doing a good job, just a terrible manager. These are big red flags that you need to get some help or dig into your manager to see what’s going on. Some ways that managers steal from you, they can give a rent credit to the tenant for fixing a repair, and then bill the owner for that same repair. It’s one bill and two payments, and people who are not good at accounting aren’t going to necessarily recognize that the rent was debited and there was an expense as well.

The manager can duplicate expenses on multiple months. Here’s a legitimate invoice for an expense in September, and then in November, here’s that same invoice again, taking it out of your rent for two different months. It could be that’s an innocent mistake, or it could be a way for a manager to steal money from you and you not knowing it. The manager could be collecting a management fee on a tenant’s security deposit. This has happened to me and I pitched a fit. Their accounting department saw revenue, and they put a management fee on that entire revenue, but it’s not all the same. The security deposit is not income, and there’s no management fee on that deposit because I have an obligation to pay it back to the tenant.

In my position as a real estate investment counselor, I get people telling me all the horror stories about investing. Not all investing has to be horrible. Some people have stamina for this, they just laugh. Some people, it affects them emotionally, and I steer them towards more commercial tenants or triple-net tenants, or real estate syndications, or having a partnership where one person deals with the money and the other deals with the management of the asset. I’ve heard stories where the manager collects rent and they tell the owner it’s vacant, or they fudge the move-out date. They moved out on the first, but the manager says they moved out a week earlier, and the manager gets to pocket that extra rent.

Here’s a really big one that is straight up illegal that a lot of brokers don’t actually know: co-mingling funds in a broker’s trust account. Your money that comes from the tenant, but it belongs to you, goes into the broker’s trust account. If the broker makes some money in his own portfolio, or he gets a commission, they’re not legally allowed to put those funds in the same bank account, because they’re mixing their personal funds with your funds. I would ask what their policy is on maintaining their broker trust account. If they just look at you glassy-eyed, that’s a clue they might not have the experience you want.

Sometimes a broker will collect the deposit at move-in, and then when the tenant moves out, the broker says to the owner, “You have the deposit, because we gave it to you when the tenant moved in, and now we’re going to deduct it from your rent.” That’s a sneaky one, because sometimes people forget, because the lease sometimes doesn’t say. The lease might say the deposit is $1000, but the lease doesn’t say who’s holding it. This is a sneaky one and sometimes it can be innocent and sometimes it can be malicious. You want to know very clearly who’s holding the deposit. I like when I see the security deposit on my management statements, on a monthly basis, just remind everyone whether the broker is holding the deposit on that tenant. And if the broker is balancing their trust account, then it’s going to be obvious who’s holding the deposit.

I just showed you the dishonest tricks that a residential investment property manager could use. Here are some red flags that those tricks are being used against you. Sometimes property managers bill owners for repairs that didn’t happen. If the manager’s using the same service company for every repair, that’s a red flag. The same company that does your HVAC should not also do plumbing, painting, carpeting, window repair, and landscaping. Those are different skills. You want an invoice from each of those companies. If you’re not getting those invoices, that’s a red flag. Your property manager should be giving you those invoices, or maybe having an online drop-box where they put those invoices so you can go look at them when you want.

If the income and expense statements are vague or illegible. If you don’t understand your income/expense statement, call your manager and have them explain it to you. If they can’t explain it to you, it’s a big red flag. Sometimes, when your property is vacant, you’re going to have utility and landscaping expenses. If you’ve got 30 days’ vacancy, and you never see the utility bill or the landscaping bill, that’s an interesting red flag because maybe your property isn’t really vacant. Maybe there’s a tenant paying rent there, and your manager’s just pocketing the rent, because if the tenant’s still in the property, the utility’s going to be in their name, and they’re going to be paying for the landscaping.

It’s a big red flag if you’re getting notices from neighbors, city, HOA, etc. Sometimes when I own a property, I’ll communicate with the neighbors and say, “I’m the property owner, here’s the business card for my manager. If you have a problem, call my manager. If you can’t reach my manager, I’ve written my number on the back of the card” as a courtesy to the neighbor so they feel empowered that if there’s a problem there’s someone they can talk to. Talk about best practices. Do you think that’s a good idea to be in communication with your neighbors or not?

Jason: I think that’s great. The neighbors, especially if they’re owners or if they have a mortgage, tend to feel higher up in the hierarchy, when in reality we’re all running from somebody unless you’ve completely paid for your house. They’re going to watch your property like a hawk if you give them that sense of empowerment. And they’re there 24/7. That is a great tool, having two or three neighbors watching that property at any given time and calling you. Sometimes it could be bothersome because you could get that nosy neighbor, but it’s better to have too much information than none at all.

David: For example, one time I had a water leak in one of my properties and the tenant was out of town, and the water was running down the street. And the neighbor called me, and said, “I just wanted to let you know there’s water coming out of your front door.” Thank you very much for calling! Then I could call my property manager, and say “The neighbor called me and let me know this is a problem,” and the manager went out and fixed the problem. That kind of eyes on the property can be very helpful.

Your investment property manager should be giving you before and after photos of the property. And if they tell me that it’s inconvenient for them to do so, they are not the right manager for me. It’s so easy today with smart phones for the manager to take their smart phone, take a picture and email or text it to me. It doesn’t have to be a big fancy presentation; it can literally be a text message with a photo of the property. I’ve been very impressed when a manager had a service person go take care of the HVAC at the property, the cooling condenser unit needed some servicing, and when they went into the property, they just took a few pictures, not of the air conditioner, but just of the general condition of the property. Then they provided those to me as the owner. That was really above and beyond service; that was really awesome. I got a look into my property just as a baseline.

You are entitled to have a signed copy of the lease agreement and any kind of renewals or extensions. If you don’t have those, I really encourage you to get them. In most states, the tenant signs the lease, and the property manager counter-signs. And that’s a scary thought, because your property manager has entered into a binding legal contract on your behalf as the owner. And I want to know what my residential investment property manager committed me to, because they literally committed me to do something, and that thing that they’ve committed me to is in the lease. I want a written management agreement and a copy of their lease template, because that spells out what the manager is authorized to do on my behalf.

The broker license thing is really interesting. In every state that I’m aware of, to manage real estate for other people for a fee, you need to have a real estate broker’s license—not just a salesperson’s license, not a real estate agent’s license, but a real estate broker’s license. And the difference between a broker and a nurse is like the difference between a doctor and a nurse. A nurse can practice medicine under the supervision of a doctor. But if the nurse wants to just open their own medical practice and start doing their own things, that’s not usually allowed, and it’s the same idea with a real estate license.

Whenever your tenants move in or out of the property, there’s an inspection form, or there should be, and your manager should be giving you a copy of it. I make sure that I keep my copy of that inspection report in case I need it in the future. I wish my manager, Jason, a very long and happy healthy life, but if for some reason he had an unexpected departure from planet earth, I want to know where all my documents are so I can transition smoothly to a new residential investment property manager.

When there are irregular distribution dates of your money, that means your manager doesn’t really have organizational procedures, they don’t know what they’re doing on certain days of the month or how to run their business. That’s a red flag to me, if one day I get my money on the 10th, the next it’s the 20th, the next it’s the 15th, the next it’s the 12th. It should be fairly regular when you get your money. If your tenants pay late, your manager should let you know. Usually an email is sufficient for me. “Hey, your tenant’s running late.” I want my manager to recognize that there’s a problem and that they’re on top.

Fair housing practices: this is such a big one. The laws change from state to state, and one of the reasons I really like investing in Texas, is Texas is a much more landlord-friendly state than California, where I live. California’s very landlord-unfriendly. How as a manager do you comply with fair housing in the state of Texas?

Jason: Here in Texas—it’s like this in other places as well—we cannot discriminate against race, religion, familial status, things like that. If we did, that could bring about liability not only to us but to our owners. We take continuing education just to stay up on the fair housing laws so that our owners don’t have to worry about that. It’s a very big deal and can potentially cause a lot of problems. Fair housing can come in and shut our entire company down, pull the broker’s license, and then everybody’s without a manager. Compliance with fair housing law is a huge deal.

David: Let me give you some very innocent examples of why fair housing is so tricky and why it’s so important to have a professional managing your property. I’m going to be the bad landlord/manager and you get to be the innocent tenant who’s out to sue me. “Jason, would you like to live here because it’s right next door to the Catholic church?” That’s a problem!  “Jason, are you going to be living here with your wife and kids?”

Jason: You can’t say that. That’s a no-no.

David: How about, “Oh, you’re going to love living here because you’re Hispanic and this is a really Hispanic neighborhood.”

Jason: You’re going to lose your company. Those are big no-nos.

David: Very innocently, you can violate fair housing and not know it. A residential investment property manager takes continuing education and they’re very hypersensitive to frame their words in such a way as to comply with fair housing.

Other signs that your investment property manager is not a good one, they stretch the truth when it doesn’t matter. If I said, “Hey, is my property rent-ready? Is it ready to go, is it marketed?” and if the manager says yes, and they really meant it’s going to be ready tomorrow, that’s a problem with me. I wouldn’t care if they said it’s going to be done today or it’s going to be done tomorrow, but if they tell me it’s done today, I expect it to be done today. I fired a manager because I said, “A week ago I asked you to remove some debris from the front yard, is it done?” and they said, “Yeah, it’s done.” And I said, “I’m standing in the yard right now and I see the debris that you were supposed to remove. Are you still going to tell me you’ve removed it?” And they said “Yes, I’ve removed it.” Well, I’m looking at the debris. Not that the debris was a problem, but it was an honesty problem, they couldn’t just say “I was about to get to it” or “I forgot.” Residential investment property managers aren’t perfect. Don’t expect your manager to be perfect. I just want them to have personal accountability when there’s an error. And if your manager never gives you bad news, that’s problematic.  Every property will eventually have bad news and you want your manager to be honest with you when it happens. 

Do’s and Don’ts of firing your property manager: the big one is find a new manager first!  You don’t want to fire your manager without having a plan for who is taking over.  Give your manager written notice that you’re leaving and check your management agreement to see how you handle that transition—sometimes there’s a fee for departing, sometimes there isn’t. Take responsibility that the person you’re firing is the person you hired, so you as an owner can’t put all the blame on the manager. It’s partly your fault for hiring a bad manager in the first place.

Things that you don’t want to do: don’t badmouth your old manager to your new manager, because your new manager’s going to think that you’re a pain to work with. One thing that you could do is to say, “One thing that really didn’t work in my last property management relationship was that my statement never came on the tenth of the month, and I’m looking for a manager who can deliver their payment and the statements on the tenth of the month. Is that something that you can do?” So in that context, I shared what I didn’t like about the old manager, but by spinning it into a positive saying, “I’ve got an expectation that I’d like you to meet.” Whatever you tell your tenant, your tenant’s going to tell your old manager and your new manager, so be mindful what you tell your tenant.

We’ve got four property management secrets: Be a good owner so that your manager will go the extra mile for you. Jason, I know you’d love to say that you treat all your owners exactly the same, but I’m guessing that’s impossible.

Jason: I would love to say that I don’t have favorites, but I do, and it’s because of how they treat me.

David: The cheapest brain surgeon, the cheapest residential investment property manager doesn’t save you money. When I’m looking for a manager, I want to make sure they are very good and that they are earning enough money that they’re going to take care of their property. And when they have to choose how to allocate their time, are they going to put time into my portfolio, or someone else’s portfolio? It comes down to how well do I treat them? Do I respect them? Do I treat them like a peer rather than a servant? A lot of people look at their property managers as servants because sometimes they do very hands-on work, and that’s a bad attitude towards your team member who is your number one asset. Treat your manager like gold and they’ll treat you well.

Whatever market you choose to buy a property in, make sure it has a lot of management choices. When I was a new investor, I bought a property in a very small town and there were only two property management firms. One of them I didn’t like. The second one I hired and had a conflict and I fired them, and then I was stuck. There were only two managers, and I didn’t like them both, and what do I do now? That’s one reason I gravitate toward larger towns. A town like Dallas-Fort Worth has thousands and thousands of quality property managers. Jason’s the best, but if for some reason we ever got into a disagreement, I’m sure that within a number of days I could find another super high quality manager. That keeps me honest and it keeps Jason honest. He’s going to do a great job for me because he knows I have several management choices.

I like to use residential investment property managers to help me find property to buy. Whenever I’m looking at a new property in Dallas, or when I’m going to try to develop something, I’ll send my manager the address and say, “What do you think of this property? Tell me what kind of rent you think you could get. Do you think this is a good property area that would attract a lot of tenants? Would you like to own this property?  Can you get me access to off-market deals?”

Jason: We have several property owners with our company. There’s a misconception that every investor is a bazillionaire, and they’re not, they’re normal Joes, most of them. Sometimes they get over their head in a property, and we had one particular client who is in that situation, and she reached out to me and said “Here’s my property. We have a tenant in it, and if I could just get what I owe on this property, I’d get rid of it.” So here we have a property that the owner’s willing to sell well below market. Those come along all the time, because our owners aren’t all wealthy people; they just made an investment that got the best of them.

David: Sometimes the problem isn’t the property, it’s the owner. I had one client who was telling me their property was such a problem. I said, “It’s positive cash flow every month, what’s the problem?” “Well, I lost my job, so I take all the rent money and I spend it to live on.” The problem isn’t the property, the problem is you! If you paid the mortgage, you’d have money left over. People make mistakes and the first person to know about it is usually the residential investment property manager. It’s a great secret: work with your property management to help you find and evaluate deals.

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Here is a link to the video version of this investment property manager interview.

residential investment property manager secrets

Part Three of an interview with professional property manager Jason Cox and real estate investor David Campbell

When I was a new investor, and even now, I have very high expectations but want to make sure I’m being a reasonable owner. Share some of your thoughts about working with unreasonable property owners, and what makes them unreasonable.

Jason: Wanting your rent to be paid on the first of every month—it’s impossible, just through the dynamics of the transaction. The tenant has to mail their rent, or do an ACH transfer. There’s a timeline in there, and that’s why our goal is to get it to you by the tenth of every month. That allows for tenants to pay at different times, and for the different financial institutions or the postal service to get it to us, and for it to clear our bank. The rent paid directly to the owner would just be an accounting nightmare. There would be no way to track that.

David: Here’s why it would be a nightmare… my property manager’s job is to get the rent from the tenant, and if the tenant doesn’t pay, I want my property manager to notice, not me. And if the rent goes to me, I would have to call the manager, and say, “I didn’t get the rent from the tenant, go do something about it.” And what an extra unnecessary step that would be. So a lot of what makes an owner an unreasonable owner, is where the owner is stepping in to do parts of the residential investment property manager’s job for them. It’s like saying to a car mechanic, “I would like to hold the wrench and have you turn it.” That’s just cumbersome. Why not just let the mechanic do his job?  Some unreasonable things new investors come up with are from lack of experience, like “I want my property inspected every thirty days!” But what an annoyance to the tenant. It’s not that the property manager’s unwilling to look at the property. If every 30 days a stranger came into my home and looked around, I wouldn’t want to live there very long. Tenants want their privacy. The property manager’s job is to look for signs that maybe there is a need to look inside. Looking at the exteriors is a clue of how the inside looks. If the rent starts being slow, that’s a clue that there might be something going on in the property—maybe a loss of a job or something like that.  A lot of landlords want to meet every tenant, and I think that’s a terrible idea. I never want to know who my tenant is. It’s kind of a cold way to think about it, but my tenants are people, and my property is a business. It’s really tough to try to separate yourself. I’m a very compassionate person, and if I had a tenant call and say, “I lost my job, and my child passed away, and I really need more time paying the rent,” that’s just a terrible, terrible situation to be in, because as a human being, I would want to say “Of course! What a horrible situation, I would never want that, I can only imagine how terrible you feel, take your time.” But my job is not to provide welfare for this person. I can be empathic, but it isn’t my job to pay their bills and to be their source of personal income. And so, by separating myself from the humanness of who the tenant is, then the professional property manager gets to say, “I’m sorry, your problem is unfortunate, but I’m just a messenger, and my job is to enforce the lease. And we have an agreement, you pay the rent, or you move out. If you need some help moving, perhaps we can arrange to locate a property you can afford, or work out some kind of a payment plan.” By removing myself from that personal connection with the tenant, it allows you to 1) scale larger, and 2) make your investments hassle-free.   Tenants are the messy part of investing; it’s unfortunate that tenants have messy lives, and I just want to remove myself from their messy lives as much as possible.

Jason: Owners should never meet their tenants. That is absolutely what the residential investment property manager is for, is to take the human aspect out of the equation, as cold as that sounds. You cannot effectively run your business—synonymous with your property—if you throw the human equation in there and become sympathetic to whatever they throw at you. What’s sad is a lot of owners will get played, for lack of a better word. We’ve had tenants that I didn’t know you could have that many grandmothers pass away in one year. It’s just a bad plan for an owner to have direct contact with their tenant.

David: When I was a brand new investor and I was managing my own property, I had a particular tenant that went six months without paying their rent. It was my own fault; I just was slow to start the eviction process. And when we finally evicted that tenant, she had nicer furniture and newer clothes and newer everything than I did. And I thought, “This is crazy, I’ve been paying this woman’s housing for the past six months, and she’s got all of this nice stuff.” It’s key just to stick to the lease and then it’s a business agreement …. don’t make it personal.

The residential investment property manager is the most important person on my team. I like when I go to a new market to start my due diligence with the property manager. More important than the property itself is the person available to meet and greet my tenants, to help me avoid lawsuits, to help my properties stay in compliance with code. I own properties that I have not been to in five years, and the only person who’s been there is my manager. I’m comfortable with that because I keep on top of my managers and have good relationships with my managers. The manager’s job is to isolate the owner from hassle, to allow me economies of scale or leverage with my time. My job is to run my business, and my manager’s job is to manage my properties.

Jason: I couldn’t have said it better. That’s absolutely what we’re here for, is to take the load off of the owner, and do our job, so that owning property does become as hassle-free as possible.

Click here to read the rest of this interview.

What are the qualities of a good property manager?

Part 2 of an interview between professional investor David Campbell and professional property manager Jason Cox.

What are the qualities of a good property manager?  How do we quantify what a good property manager is? It’s easy to say I want a great manager, but what does that look like? Let’s ask professional property manager Jason Cox about some of the nuts and bolts of what you should expect from a good property manager.  

David:  When someone has a professional residential manager in place, how quickly should they expect to get their money from the rent?

Jason: Typically, They should expect it no later than the 10th of the month, provided they don’t have a crazy month with a holiday weekend at the very beginning.

David: So when we’re working with our residential investment property manager, if you know that I expect my money by the tenth, and it doesn’t come in by the 15th, am I going to be a happy customer?

Jason: No, you’re not.

David: So the idea is if Jason knows what I expect, he can deliver on that. If for some reason I was expecting to get my rent by the 5th of the month and Jason was happy that he got it to me by the 10th, there is a disconnect in our relationship, where I’m expecting something that he didn’t know and because he didn’t know he didn’t deliver on that expectation, and then that becomes a conflict.

So what we’ll be talking about today is adjusting your expectations of a good property manager, making sure that your property manager communicates with you on what they can reasonably provide. What is reasonable? How do you communicate with a new owner on what the metrics of success would look like?

Jason: I believe that you should sit down with each of your owners and go over how you run your business as a property manager. Once they have that information, it’s ultimately up to them, if they feel based on what you told them, whether you’re the right property manager for them.

David: So when I went to hire Jason as my property manager, I said “it’s important to me that I can read and understand your report. So before I make a decision to hire you, please send me your property management reports, so I can see what I’m going to get.” That created an expectation to Jason. He knows that I’m going to read what he sends me, and that it better be legible and in a way I can understand, otherwise he won’t keep my business.  I want my properties full 100% of the time. But that isn’t reasonable. So I build into my performance a vacancy loss assumption. Is it reasonable that my property would be rented at the market rate of occupancy? How would you figure out what the rental rate would be?

Jason: In order to figure out the market rental rate, we would run your property or run that particular area on multiple listing sites and see what the other properties within the past six months have rented for, comparing apples to apples. From that we would be able to determine what that property should rent for and how long it should take it to rent.

David: So the important part… I asked Jason, “How would you answer this question?” And he gave me his metrics of success. He told me how he would solve that answer, so at any time I can call him up and say, “Using the methodology that you explained, collecting and comparing market data, tell me if we are or are not achieving our metrics of success, which is hitting a certain occupancy rate.” So Jason and I created a checklist between him as my manager and me as the owner. These are the things that we can check off to see if Jason is doing a good job. This checklist is going to be different for you and your manager.  So when we’re setting our management relationship up for success, I believe the residential investment property manager’s job is to educate me as the owner on how my property can perform. Once the manager and I understand what success looks like, and we’ve quantified that, I want the manager to help me stay in touch with the market. Can you give us some thoughts on that?

Jason: Any time a  property is at the beginning stages, as we discussed before, it’s vacant, it’s just been turned over, we use the Multiple Listing Services (MLS) to determine what the best rate of rent should be, and then we put it on the market for that. But moving further down the line, when the tenant is up for renewal, you don’t want to just renew them at the same rate. A good manager is going to pull up the MLS again, or whatever they use in their area, and take another look at the market because a lot can change over the course of a year or a six-month lease. And then determine if a rent increase needs to be put in place.

David: Or potentially a rent decrease…  I would love it if rents always went up, but sometimes they don’t, for whatever the reason.  And so by being in touch with my manager, I can empower Jason to set the market rent. The place where a lot of investors get in trouble is they say, “My mortgage is $1000, so I need you to rent it for $1100.” You don’t even know what the property is like. The rent might be $800 or $1500. For the owner to base the rent on their need is false economy. The market sets the rent range. A good property manager can help you determine what that rent range should be.

Click here for part three of this interview.

Keyword: good property manager

Keys to Successful Residential Investment Property Management

Keys to Successful Residential Investment Property Management

Interview with professional real estate investor David Campbell and veteran property manager Jason Cox

The very important points we’re going to cover in this series of blog posts on residential investment property management are: the metrics of success for management—how do you know your manager is doing a good job?  We’re going to talk about why your residential investment property manager is the very number one most important person on your investing team. We’ll talk about what’s reasonable and not reasonable to expect your property manager to do for you. We’ll show you some warning signs that may be a clue that your property manager is not doing a great job for you. We’ll talk about how to interview for a property manager. And we’ll talk about what to do if for some reason you get into a property management relationship that didn’t work out and you need to fire your property manager, how do you handle that situation?  In this series of blog posts, we’ll give you four property management secrets to make you more money as an investor.

Residential Investment Property ManagementA little about myself, I am David Campbell, the founder of Hassle-Free Cash Flow Investing. I’m a real estate investor, developer, and broker.  Today I am interviewing Jason and Melinda Cox who are the owners and managers of Cox Premier Properties from Dallas, Texas. They do a great job managing residential investment property.  One of the big clues that a manager does a good job, or that they take their job seriously is that they are a member of the National Association of Residential Property Managers (NARPM). Cox Premier Properties is a member.

Here’s a really brief life cycle on how we make money as a residential investment property investor. You start with the property and you lease the property. Then your tenant goes to work and your tenant makes money. Your tenant pays you the money. Then you use some of that money to pay the expenses, like your taxes and your insurance, and you pay your bank, and then you get to keep the money that’s left over. That’s that part we like best.

When your tenant disappears, or stops paying, or loses their job, one of the parts of this life cycle is broken—unfortunately, as the landlord, your expenses and your mortgage keep going. So it’s really important that we figure out how to maintain this healthy life cycle of collecting money from rents which keeps the landlord happy.

One of the fundamental questions in keeping this lifecycle healthy is choosing the type of tenant that matches your goals.  What kind of tenant are you after? I have Fortune 500 companies as my tenants. I would love to get more federal government tenants.  I also have properties like the sloppy house you see here. The magic of being a landlord is that you get to guesstimate what your tenants will be by the property that you choose to buy. The reason that investing has such high returns, but you hear horror stories of people saying “Oh my goodness, I bought a residential investment property and it went so badly,” is because they didn’t really have the idea that real estate investing is both a business and an investment. Businesses produce income and investments produces income. Businesses have expenses, but an investment doesn’t have an expense. If you bought Apple stock as an investment, Apple the company has expenses, but your stock in that company doesn’t have expenses.  Real estate has expenses. And what we’re trying to show with this picture here is that real estate is both. Real estate is an investment and a business. The question is, can real estate be hassle-free? Can I have it be passive? Do I need to interact with people? Do I have to invest a lot of time? The answer is maybe.

The business aspect of real estate requires—time, interaction with people, specialized skills in tenant and landlord law, understanding how to fix toilets and things like that— however if you outsource all of these things to a professional residential investment property manager, then your investment can be passive and hassle-free. Real estate by itself is not necessarily hassle-free; it’s actually a pain in the neck. But it can be passive and hassle-free if you have the right investment teams, and if you’re buying the right property that will attract the right tenants that will appeal to you and appeal to your personal investment philosophy.

One of the first metrics of success is creating alignment of vision between your expectations and reality. If you’re expecting to rent to a happy pretty family, but  you buy something in a low-income, blue-collar  neighborhood, you might not get a pretty happy family as your tenant. Or if you buy a studio apartment, you’re probably going to get a lot of single or itinerant people. If you buy a commercial property, you’ve got a commercial tenant, which can be a great thing if it is easier to manage.

CLICK HERE for a continuation of this interview: Keys to Successful Residential Investment Property Management

Keyword: Residential Investment Property Management