All Forum Posts by: Greg Weik

$600 negative cashflow is certainly a significant number.  

My question for you would be if you've run any projections on getting that -$600 closer to $0 or even positive.  

What rental rate do you need to break even?  

Is it possible that some condition improvements could get you closer to where you need to be? 

If interest rates fall below your locked-in level and rental rates continue to climb, what is the timeframe to break even?

A lot of people here would probably scream, "Sell, sell, sell." I suspect you understand that you are building wealth while losing money each month, so the calculation is not really so straightforward.  $600 X 12 months = $7200.  I'm guessing appreciation and mortgage paydown combine to give you greater wealth building than this $7200/year loss.  So that's the real math.

Even though you don't have room in your budget for property management services, I'd be happy to help you if possible. 

Quote from @Mohan Deep:

I must provide them a statement within 21 days of anything that I am holding from their security deposit but the bill won't be generated for another 35 days. I can ask for a "final bill" to be generated. there is a fee of $75 to generate that and I don't know if I can pass it along to the tenant. Hence I came here asking for opinions. 

 Your state law requirement of 21 days for the security deposit disposition is strict.  My suggestion would be to send the security deposit claim for the anticipated refund minus what you anticipate the bill will be (historical average plus some padding).  Explain in your security deposit claim that once you receive the final water bill showing it is paid in full, the withheld balance will be refunded to the former tenant in a separate payment.  

When you get the final bill, send the 2nd payment to the tenant (minus any amount for the water utility pro-ration) and a revised security deposit claim form. 

Your future leases should include that this is your process.  It seems to me that the 21-day period in Wisconsin is half-baked, given that water is a utility that often runs with a property and not the lease term.  If outlined in your lease clearly, my method should prove effective; if a tenant complains about wrongful withholding of the security deposit for an unknown water bill, that withholding dispute will be resolved before it can go anywhere. 

Your only other recourse is to include the water bill with the rent. 

Hi @Ted Usatynski - the best path forward here if you want to manage property for others is to work at a local PMC (learn the ropes) and get your real estate broker's license. 

There is a shocking amount of information you need to know, to do PM correctly.  And I say that as someone who has been doing this for nearly 16 years now and, before that, law school.  You can't wing it in this industry. 

Hi @Sequaisa Mcphearson, most people won't want to share trade secrets like this, because they are afraid their local competition will see the tricks and get more doors...

But hey, I'm here to help, so here goes:

-First, don't assume your market positioning is correct. You need to know what your competitors are charging and what they are offering. If you're the new kid on the block, you need to be competitive, and you need a hook (something you can offer that the other ones can't/won't.) 

-Next, you have to hit landlords where it hurts.  Vacant properties.  A vacancy makes a landlord squirm and seek out a professional to help them.  Contact FRBO owners on Zillow.  Create a compelling template, possibly offering them a discount if they sign by "X" date. 

-Adding doors in PM is not easy.  There is a lot of competition.  Build rapport with Realtors who handle sales only.  These people interact with investors and landlords regularly, and if these Realtors trust you are good at PM, and that you only do PM, they will be likely to refer you business.  If you have a leasing fee you intend to charge, offer half to the Realtor each time they refer you a client (paid when the property gets rented.) 

-Join a social networking group, such as a BNI.  Build relationships with people in fields adjacent to PM. 

-Ultimately, I can't stress this enough, do not "small time" yourself.  Most landlords do not want to hire a "one person show", so you have to exude confidence and competence.  You have to have processes in place and CRM.  You have to appear to have done this all before. You have to know your stuff.  You need to be able to prove you're an expert on property condition, rental rates, ESAs, Service Animals, Landlord/Tenant legislation, etc.  If you're not an expert, start studying, because you will need to be. 

Hi @Kay Nemen, the bottom line is that you probably won't know if you made a good decision when hiring a PMC until it's too late. If you end up getting good tenants quickly and if there are no repairs, you may be lulled into  false sense of security.  It's when things go wrong or get complicated or challenging, that you will realize you made a good decision or not. 

We acquire doors from competitor PMCs every week.  Owners who are making the switch always have the same complaints and the same reasons to cancel with their current PMC and hire RES:

1) Poor communication.  You are unlikely to find out if a PMC you are interviewing has solid communication unless you ask them specifically how they communicate, when they communicate, and what you should reasonably expect as a client for turnaround time on an email or a voicemail.  It's shocking how poorly most PMCs communicate.  Even during the transition to RES, we see PMCs routinely ignore emails, answer half the questions, answer with poor etiquette and low professionalism, etc.  This will matter when you're in a business relationship with your PMC.

2) Poor accounting/ability to explain accounting.  How your owner statements look, how easy it is to follow the money, when you will be paid, how you will be paid, how/when a PMC will communicate with you if there's a major repair coming down the pike or if your tenants have said they won't be paying rent until X date, etc.  Most PMCs are very siloed and they will "transfer you to accounting" where your voicemail will go into the void, never to be returned.  We see this all the time with competitors.  Everything that involves money in/money out should be explainable by the person picking up the phone, and it should be articulated clearly.  This is the number 2 reason we see clients switch from other PMCs to RES. 

Best of luck, but also I would ignore this "Start by going towww.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics."  <--- this is pasted here in BP constantly and it's untrue.  NARPM is just like the BBB in that anyone can pay a fee and join, use the logo on their marketing materials, etc.  You won't find us on that site and I would argue we are the most competent and professional PMC in Denver. 

The answer here really depends on you. 

I never worked for another PMC before I started Real Estate Solutions.  I paid close attention to what the other companies did and innovated in the space to be more efficient and profitable than them. 

In the Denver market, we take PMI's lunch money on a regular basis.

There's a lot of money to be made in PM, and I do not believe most of the franchises available offer anything proprietary and worth paying for (certainly not that IFF and their royalty percentage.) 

When it comes to PM, your number 1 goal in the beginning is going to be adding doors.  

To be clear, clients do NOT hire brand recognition. This is the big myth of PM Franchises. That a landlord will hire PMI or Renter's Warehouse because they've heard of them. This almost never happens.

What you need: -Get your RE license. -Spend enough to build a great website.  -Systems for marketing to new clients/CRM. -PM Software (Propertyware or Appfolio). -Templates for email and text.  

If you're efficiency and logistics/systems-driven, you will pick it up quickly and continuously improve. 

Another anecdote: I was going down the road of selling franchises, but decided instead to continue my expansion in Colorado while buying other PMCs for sale. I've seen a shocking number of PMI franchises for sale, which tells me quite a bit.

The data set I'm working with is 15 years and thousands of properties managed, including my own portfolio of homes.  

High credit means this is someone who pays their debts.  They take seriously any borrowing commitments.  They also do not want anyone coming after them based on damage to the home (this is the turnover part of the analysis).  

Income is not relevant in this analysis. 

I've seen plenty of high-income tenants with wrecked credit, because they are irresponsible.  If they ever squeak through our process, they are consistently riskier tenants in terms of default and damage. 

I'll take someone on a tight budget who is "a Lannister" any day of the week.  That's a Game of Thrones reference, but the idea is solid - you want someone above all else, who always pays their debts. 

I checked out your listing and read what you're doing to attract PTs (prospective tenants) and pre-screen them, and here are my takeaways:

-No offense intended, but your marketing photos could be better.  You have paint and other items in one of the photos near the entrance. None of the photos are zoomed out (or you're using an outdated phone camera).  Marketing matters.  Notice the haze around the photos; you must wipe the lens on your camera before shooting.  If you're using an iPhone, edit each photo's brilliance and brightness a bit to make the photos more crips. 

-Your property suffers from "exterior obsolescence."  When you have a property in an area with low demand and demographic challenges (low credit scores, low income), you've got to get all the other details right.

-You might consider lowering your income requirement to 2x the rent.  This became the law in Colorado recently, and as terrifying as it is, you need to cast a wide net in your situation.  I would suggest lowering the income requirement before lowering the credit requirement. 

-Next time, use a brighter paint color.  I suggest SW 7015 (Repose Gray) vs. the dark color you chose.  Make the space feel larger, but don't paint the walls white (too stark.) 

-Your template is good for PTs (Prospective Tenants), but I would suggest asking them questions: What's your credit score?  What's your monthly gross income? Do you have pets, if so tell me about them?  When do you plan to start a new lease?  Don't announce qualifications and hope the PTs will read these and show up qualified.  No one reads. 

-Finally, go with the highest credit score possible. Nothing is more important when it comes to tenant selection.  In the Denver market, we have the luxury of requiring a 700 minimum score, but I imagine you could get a 700+ credit applicant with a few improvements. 

@Joseph Weisenbloom, sorry to hear about your situation. 

@Nathan Gesner has a good process and it's similar to ours, but here's what I propose you do moving forward (you've already gotten some good advice on how to handle this specific situation). 

When someone is approved to rent a property, they have to pay a "holding fee."  Define the holding fee in your application language.  The way we do it:  The moment you pay the holding fee (the dollar amount is one month's rent), $500 of it is non-refundable if you back out and fail to enter into a lease, take possession, etc.  After 72 hours, the full holding fee is forfeited if you back out. 

Why calling it a holding fee matters:  Security deposits are subject to state laws regarding their disposition.  If you call it a security deposit, you have to treat it like a security deposit.  If it's a holding fee, however, it's a quid-pro-quo and it makes more sense.  Approved applicant pays the HF, you pull the listing for them and the applicant already has agreed (in their signed application) that a lease must begin no more than two weeks from the property's availability date. 

Using this method, you'll never wonder if a property is actually rented. If someone pays the HF, they have rented the property. If they back out, they have a lot to lose and you can put the property back on the market without losing money. 

We do hundreds of a leases a year and this process has proven to be very successful.  

In the case at hand, I think you need to consult a real estate attorney to find out if there is consideration.  I would venture there is consideration here, because there was value for value - you pulled the rental listing for this new tenant, thus exchanging something of value, and the lease should therefore be enforced.  You may be sweating waiting on this deposit, but hopefully, you have teeth in your lease in terms of what happens if the new tenant walks.  

Hey @Andrew Belz, I started my company back in 2008 but in the intervening years we have sold one of our satellite offices and nearly purchased a few other PMCs. We pumped the brakes before buying any other PMCs at this point because most of them had a reason to sell, which we found out through due diligence (this guy is 76, so that's a pretty good reason). 

To your specific questions - 
"Any advice on finances, purchasing a company, who I can get to help/hire, how to structure this, or any advice in general would be greatly appreciated."

I would start by determining the ratio of owners to doors.  If there are 45 doors, you need as close to 45 owners as possible to determine the valuation.  More doors per owner equals a lower valuation. 

Make sure the property management agreements are assignable. 

Find out how many of the units are on month to month leases vs. long term leases. 

The quality of doors/quality of tenants should largely drive the purchase price.  SFRs with long-term tenants who pay on time are worth a LOT, but multi-family, subsidized housing units are worth less than $0 in my experience.  The portfolio you are buying is everything. 

Reconcile the leases with the actual security deposit escrow account to ensure everything is as it should be.  Audits are often triggered with the sale of a PMC. 

As kind of a general point: the last PMC branch I sold had about 150 doors and the buyer didn't know what they were doing.  They reached out to me weekly for the first couple of years with issues based on their incompetence (I was happy to help, to a point, but it got old), and the purchasing company lost close to all the doors in the first 5 years due to poor service, poor systems, and not really understanding how to add value to the client.  

Bottom line: most people are not cut out for PM (I'm including existing PMCs in this), and most people don't make much money doing it.  

It's an amazing business and it's like printing money if it's done right, but you have to have systems and processes that are airtight all the way through the property life cycle. 

Hope this helps point you in the right direction, feel free to DM me with any other questions!