All Forum Posts by: Greg Weik

Do what @Nathan Gesner said, and please hire a professional for your next tenants. 

If your lease has a clause such as "tenant agrees to pay the security deposit," and you fail to enforce it, you're running into the legal concept of waiver. Accepting rent with a known lease violation is tacit acceptance of that lease violation. 

For future reference, the concept of waiver could include any lease violation, such as unauthorized pets at the property. Once you accept rent while knowing of a lease violation, the law will not look kindly on any future attempts to evict based on that lease violation. This is a concept many landlords fail to appreciate. 

Your only real recourse now is to terminate the tenancy.  Never let a tenant move in without a security deposit paid in full.  Do not agree on a payment arrangement, this is a point of non-negotiation. 

I thought I would share this, as I've seen a lot of posts recently about how to start a property management company.  As a 20-year industry veteran, I still see most sales agents fail to understand what I do (typically, they think they know). It seems that many people who are considering getting into the industry are also unclear about what to expect.  Here's my take:

Property Management is more closely related to automotive manufacturing than what people naturally think of when they hear "Real Estate."  

In property management, every property goes down the assembly line. I'm sure you've seen video clips of auto assembly.  The frame goes down the line, seats are added, wiring harnesses, doors, etc.  A lot of it is done by robots, and a lot of it still is done by people.  Imagine a new account being added to your property management company and making its way down that line instead of a car. 

The process:

The new rental house starts moving down the line... Someone enters data into the property management software from the PMA (Property Management Agreement... Someone takes photos... Someone lists the property across the sites...  Someone sets up showings... Someone processes application data... Someone decides (that carries significant consequences) whether an application is approved or not... Someone creates and sends a lease... Someone handles accounting to record management fees, pay vendors, and pay the client... Someone opens work orders for repairs... Someone handles lease issues or violations, which are often complicated and with serious legal ramifications... As the lease end date approaches, someone starts a REMOC (REnewal/Move Out Checklist), and someone works the REMOC depending on the direction the property goes (Lease extension of processing the move-out)...  Eventually, someone looks at the Move Out Documentation and decides the fate of a security deposit (again, with significant legal consequences) ...

There are hundreds of other steps along the line that all have to be executed perfectly. Airtight process procedures and checklists must be in place to ensure the steps are all followed the same way every time (scalability) and that the relevant parties are apprised of the process as it moves down the assembly line. A mistake early in the process will manifest itself later.  

Everyone who touches the property along the way has to do their job, or at the end of the line, you'll have a vehicle with missing pieces, wheels that have fallen off, a vehicle that cannot be trusted and a client who will be shopping for a new PMC.

The customer doesn't care if you did everything right except you forgot the steering wheel. Nor should they, because you're being paid to get it all right, every time, without exception. 

In addition to this pressure to get it right at each step, you have pressure to do it quickly. Your time is finite. You cannot spend too much time on any one door because you cannot charge beyond the market rate for any single door, so each door needs to follow the process efficiently and precisely. 

The process must also be continually improved as new technologies come online, laws change, bottlenecks are identified, etc. Your processes can never remain as they were yesterday or last year.  The fundamentals stay the same, but the process details continually shift. 

You want to establish a reputation for our properties going down the assembly line consistently. You'll lean on employees at some point to be experts along the assembly line.  But they typically won't last forever, and you'll need to scramble to keep things moving in their absence.  There will be missteps, but they should be few and something you can learn from—not repeat. 

If my description of property management sounds like something you'll be good at and enjoy doing, it's a good fit, and I say go for it.  If you enjoy logistics and efficiency, it's a great industry.  If you're not wired that way, you will need to partner with someone who is. 

The upside:  There is a lot of money to be made, potentially, and every door you add to your portfolio builds your company's value bigger and bigger (vs. sales, where it's a transaction and then it's over). PMCs can sell for 2x annual revenue if they have a good portfolio. It's a business with incredible value in terms of stable, predictable revenue and as a retirement asset. 

The downside:  It's hard.  It's hard.  The legislative climate in many states (like Colorado, where I operate) makes running a property management company akin to doing open-heart surgery on a row boat in the open sea with choppy water.  Some variables conspire to trip you up Even if you know what you're doing.  However, the fact that it's hard is exactly why there will always be a need for professional property management.  

Hey @Joe Fish, property management is a lot like insurance. 

When we take on a new door, our fee structure is essentially a guess and a "hedge" against future claims (against our time.)  If you have a lot of doors, any claims you're paying out (again, with your time spent dealing with issues) are generally offset by the premiums you're collecting from doors that don't require any or much attention.

The fee structure should be transparent and easy to understand, and it certainly should be on the PMCs radar to avoid "project management" when possible.  Project management is not property management, but people may define project management differently. Here's my take:

If my company has to get a couple of quotes for a new furnace, that means sending a few emails, packaging the information from the vendors intelligently, and relaying this information to the client in a way that adds value, usually with a recommendation based on experience and context.  Keep the tenants in the loop and set follow-up reminders to see it through. This is not project management. It's just part of what we do.  

On the other hand, if a client hires RES at the tail-end of an existing lease and knows full well that their rental property is falling apart and needs everything from paint, flooring, blinds, other repairs, landscaping, etc., we will not under any circumstances spearhead this project. We ask the client to get it done and come to us when it's ready to go—and only then we will list it and get to work.  

When you're starting out in PM, any door is a door you want - or so you think.  After about 20 years, we've learned to be very selective, both with the door and with the client.  I'll take marginal doors if I like the client, and I will fire clients with beautiful doors if I think they are a PITA to work with or if they suck too much of our time (I will warn them first, and if they don't adhere to the warning, I politely show them the exit.)  

Hope this helps!

Brand recognition is not really something landlords hire when they hire a PMC. 

A franchise is only "worth it" to the degree their systems are outstanding and can guide you through the process of acquiring and managing the doors.  

I compete with the major PMC franchises in Denver: Real Property Management, KeyRenter, Renters Warehouse, etc.  We take their lunch money every year because clients ultimately don't care about the brand - it's the systems, training, communication, and people that can keep clients happy (or not.) 

I agree with the sentiment of "you must be highly organized."  This business is not "real estate" as many think it is.  This business is more closely related to manufacturing, if I had to guess.  Every property goes down the assembly line and everyone has to do their job perfectly or at the end of the line the wheels fall off and the car bursts into flames. 

It's not an easy business, but it's incredibly profitable and rewarding if done right.  Good luck!

$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. 

 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.