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How To Effectively Manage Rental Properties Remotely
Joe: Hey, it’s Joe Crump. Got another question here. This one is from Nadine Andre. She says, “My burning question is a compound question with many parts. So you can synthesize it any way you wish, if you choose to address it, which I hope you do. How can you effectively manage rental properties from afar in terms of repair, tenant screening, payments, et cetera.? Is there some automated way? How do you effectively hold on to some keeper properties from afar and manage property managers if you choose to keep them?’
Joe: All right. Let me answer that first, and then I’ll read the rest of the question. I use property managers. I always hire people that have license. I want property managers typically, I don’t get property managers that have hundreds and hundreds of properties. I like property managers that are a little bit smaller where the owner is involved in the process. Now, I’ve worked with some property managers, I have properties in multiple states, and I have some property managers that have been doing it for a long time and their business has grown from the time when I originally started working with them until now.
Joe: And so, but they’ve been able to keep things and maintain them as they’ve grown. So those haven’t been a problem. But I feel that when I first get started with a new property manager I like to be able to have a conversation with them. I like to ask them, “How are you going to make your payments to me? How often do you make them? How are you going to do your reporting? Will you work with my bookkeeper so that she can ask you questions and make all this come together whenever there’s repairs to be made? Will you contact me if it reaches a, you know, if it goes over $250, let us know, and get permission to spend that extra money? How long does it take you typically to fill those properties?”
Joe: I want to know all those things and make sure that it’s within the guidelines of what I do with my other properties and kind of get a feel for those if they have vacancies and those types of things. Now, if they screw it up, I get rid of them quickly and I get somebody new. And I’ve been fortunate enough to find some really good property managers where I have a lot of properties that I haven’t been to in more than a decade and I’ve never, you know, that I haven’t even seen in more than a decade. And I get reports and I get, every once in a while I get pictures of them and I’ll get mostly financials, that I see that money come in every month and we look over that, I look over that with my bookkeeper.
Joe: She goes on with her question here, “I live in the Bronx and my first property I bought it sight unseen over the phone for $6,400 in cash, was in Marion, Indiana,” which is close to me, “I’m holding onto it using property managers that I know do not always have my best interest at heart. Maybe that’s a question you can answer as some of us want to buy and hold a few houses as a longer term investment strategy.”
Joe: When you buy a property outside your area, and you’re working with somebody who’s just selling those properties and really doesn’t have an interest in them you have to make sure that the property manager you get is going to be a good one. Property management is vital to this whole process. Now, when you buy a $6,400 property, even in Marion, which is a cheap area, you can buy properties on average you know, for $30K, $40K, so this may be a good deal or it may be in terrible condition. Maybe you bought it for $6,400 and they put $20K of work into it and it’s a nice property. Maybe you bought it for $6,400 and it’s a really rough property. It’s very difficult to rent rough properties and keep good tenants and be able to get money coming in all the time.
Joe: So it might make more sense for you if you’re not going to fix up a property, to sell it on a land contract so that they make payments to you and it doesn’t have to be habitable. Because if it’s not habitable and you have tenants move into it and then they complain to the judge, the judge may go, they may make you make it habitable. And that’s not a good situation to be in. The better your properties are, and you can have really nice properties for $30K, $40K, $50K in some areas and even, I’ve bought properties, I mean, I’ve gotten properties for free, but, you know, like a $,2500 property, or $6,000 property, where we’ll go in and we’ll spend ten grand or twenty, or thirty or even forty thousand to bring the value up and completely redo the property.
Joe: When you do that, you’re going to get a much nicer tenant. You know, people that want to live in nice houses, they’re typically going to take better care of it. And you’re going to be able to get better tenants that qualify better for those properties than somebody who wants to live in a trashed out $6,400 property.
Joe: Now I don’t know that that’s what you’ve got here, but if you’ve put the work into it I doubt that you’ve gotten it into too great a shape unless you put a ton of money into it and fixed it up. And if that’s the case, then you can get better tenants. And you can get better property managers to handle that property.
Joe: My property managers don’t really want to be slumlords. I don’t want to be a slumlord. So don’t buy properties like this where it looks like on the surface, oh, I can get this for $6,400, it’s going to rent for $650 a month, you know, it’s going to cost me $150 in taxes, insurance and property management, so I’m going to have $500 a month cashflow, it’s going to pay for itself in, you know, in a year. And that looks attractive, but is it really going to happen that way, you know, is that going to be the case?
Joe: Now, you might be able to pull that off if you turn it into a land contract and ask for $200 a month and charge them 10% interest and charge it over a ten-year period or something like that. And then as they pay it off, you’ll eventually get your money back and it’ll be a nice deal that way. So there’s a couple of ways you can do it. Don’t be a slumlord, you know, respect your tenants, respect the fact that they’re people and they need and deserve a good place to live and that most of the time you can keep good tenants in a property that you won’t have to evict over time.
Joe: Now, when you’re in cheaper areas, those people are more likely to lose their jobs that they had when they signed up and that would put them into a stress and the possibility for eviction. So, we have that problem, too. Typically, we have a 3% vacancy rate on my portfolio, and sometimes the market comes along and then screws that up, too, so you’ll have, you know, when 2007, 2008 came along, we had 20% vacancy on my properties. And that wasn’t because we didn’t know how to find tenants, or that we didn’t have good tenants before.
Joe: But those tenants that we had lost their jobs and that was just the economy. There’s nothing that could have been done about that. So they had to move out and we had to get new people in and we did that and we got the thing stabilized over time. But it took about a year and my income on those properties dropped pretty dramatically because of that and that’s very frustrating when that happens.
Joe: So, I think that when you’re in this situation you want to find somebody who’s going to do this property right, manage it right, when you buy a property like this know that you’re going to have to put some money into it and don’t buy a piece of junk.
Joe: Anyway. I hope that helps. Marion’s not a bad area, and there can be other good opportunities there. If you an find somebody good to work with there you could buy lots of properties there and do really well.
Joe: All right. Thanks a lot. Good luck.