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- INTRO PART 4 – Getting From Where You Are To Where You Want to Be
- INTRO PART 5 – Taking The Hassle Out Of Your Real Estate Investing
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- INTRO PART 7 – Understanding Leverage Ratio
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- INTRO PART 9 – Increasing Arbitrage Spread Magnifies ROI
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- INTRO Part 13 – Are Passive Investments in Real Estate Right for You?
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- Lesson 6 – Calculating Interest Rate
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- Why Do Hassle-Free Cashflow Investors Love Texas Real Estate
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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.
Keyword: good property manager