All Forum Posts by: Joe Semifero

Quote from @Account Closed:

I'm trying to find a good program/app to manage collecting residential rents. I have only 3 doors now but I'm getting more soon.

Some one mentioned REI Hub so I'm looking for some user reviews and other suggestions that you may have experience with.

I downloaded the free 30 day trial of REI Hub but I think it will take more time to set up than the help it will provide.

I started using REI Hub this year and it has been fantastic. Having a system tailored to real estate investing and doing everything I would want a bookkeeping system to do has made the financial information I have much more accurate and timely. Also, after learning the system, setting up rules, and learning how to address my specific special situations, I spend about an hour a week managing the books for 35 doors. 

The biggest asset of the system is the REI Hub support. I have had a number of questions (how to handle land contract payments, how to set up security deposit refunds, etc.) and between their online support and responses to my questions via email, I have yet to run into a situation I couldn't address. 

If you want double entry accounting, flexibility, and solid support, REI will allow you to manage your rentals on your own. 

Originally posted by @Tushar P.:

Originally posted by @Joe Semifero:

That's my situation, Will. I manage 35 SFHs in about 10 hours a week. I guess we're doing something right. 

That’s awesome! Do you think the owners will want to do it themselves if you tell them that you take more than 50% of their profits with no skin in the game, or the hours you spent, or the $/hr you make?

I am trying to find out if there is a market for a PM like myself (I am only managing my own properties now), wondering if I can duplicate my success for other investors. I am also not sure a PM takes 50% of the profits from an investor. Personally, if an investment meets my objectives and I can be less hands on (i.e., turnkey properties where I am passive) then I would definitely buy that investment. What if the PM cost is only 10% or 20% of the profits? Does that make it better? What about someone that doesn't want to manage a property but cannot financially exit without a large loss? In that case, does it make sense for them to give up 100% of their profits? I have talked to people with this perspective.

There are many situations. Yours and mine are different. It sounds like contracting for PM is not right for you, if I am reading your post correctly. 

Originally posted by @Matthew Olszak:

Agreed 100%. But property class also makes a huge difference. Managing 30 class A properties probably takes 10x less time/effort than a single 30 unit C- property. Both definitely take time and proper systems to run profitably though. 

We do not have class A properties. (I wish I did have 35 class A properties!) We have high cash flow SFH properties bought for between $25K and $60K. I would call them class C+, with rents about 1.5%-2% of price.

I think class C properties would, on average, take more time than class A (maybe not 10x), but I don't know for certain. If we assume that is true, back to the question: Why are property management fees based on a percentage of rents, when the lower rent properties presumably take more work than the high rent properties? 

That's my situation, Will. I manage 35 SFHs in about 10 hours a week. I guess we're doing something right. 

Looking forward to the comments, Chris! Hope you have a very Merry Christmas!

@Bradley Chapple - I agree with what you are saying. I really am trying to understand the business model. There has to be a profit or companies would not be in the business. That, and I know there have been many businesses that have not done a good job or have folded up shop around here with a similar fee structure, so it would seem property management is not where people are making an excessive profit off of investors.

I think the other thing that is difficult for investors is they are, almost by definition, self starters that do things on their own. I'm sure lots of people look up and say, "How hard can that be? Get a tenant, collect a fee for placing them, and then just collect the rent every month for a fee." What could go wrong? 

People are amazed when I tell them I manage over 30 rentals and work a full time job. I think I am OK at doing the PM thing, but again, they are my properties. No one cares about your properties more than you, right? And our model is to over-deliver, under-promise, and keep tenants happy. Or motto on repairs and renovations are that we don't want to come back for 10 years on an item, so we try to put in decent quality and do it right. We expect good communication, and we aren't slow to address issues that are a problem, be it repairs, rental payments, or things as mundane as parking issues. 

I don't know if what my business partner and I do is scalable, but I would like to find out a bit more about the business side of property management. I consider myself an amateur (even though I do make money at it) and I would love to hear more from the professionals. 

@Chris Clothier @Soh Tanaka  @Filipe Pereira, 

I am very interested in property management as I do my own and have considered starting to do property management in the nearby areas of my local rentals. I have some questions about the fees and would appreciate your honest and informed feedback.

As discussed, it appears the main costs for a property owner are the monthly fee collected as part of the rent, potentially mark up on repairs, and lease/re-lease which could be a fee or percentage. 

- What is the rationale for a percentage of the rent? I have to assume it doesn't cost more to manage a more expensive home. Is this not true? I would guess it would actually be less expensive or the same cost to manage the higher priced homes, but maybe this isn't the case. I have heard of companies charging a flat rate per property, and with lower rents, this seems like it would do a better job covering actual costs of managing a property than a percentage of rent, which could be very low. 

- What part of the business is covered by the monthly fee assessed against the rent? Is it something other than the monthly collection of the rent, regular bookkeeping, and answering questions from residents? I'm trying to make sure I am not skipping over some expense. Also, it doesn't appear this covers the costs of maintenance or leasing as these services are charged for separately. Is this the cost to, "keep the lights on," and have the staff, office, etc., in place? 

- For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost? I just had to repair a furnace with a $400 part, and the labor was an hour. It seems counterintuitive that the same one hour repair with a $10 part would be (at 15%) $1.50 versus the $60 for the $400 part. Again, wouldn't it make more sense to make sure the associated costs of the repair and follow up, etc., are covered with a flat fee, instead of leaving it to the price of the service to determine the cost? It also seems like this would not necessarily encourage the issue to be, "fixed right the first time," or might encourage the use of inside maintenance people. (Hopefully inside maintenance people would be more reasonable on price, though, for labor and repairs.) 

- How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both? 

- On the lease side, I have seen one month rent to place, one-half month rent, and a flat or minimum fee for placement. I have also seen the same for re-leases, although not a full month from anyone on a re-lease.  Same question: Why is it relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house? My experience has been the lower rent houses have been more work, not less. For instance, let's say you simply said you were going to charge $1000 for a lease placement, regardless of rent. Wouldn't that encourage higher rent properties, potentially in nicer areas with better tenants?

I would love to hear back from you and your experiences and how your business has been affected by these different areas of the property management business. Thanks.  

I received an email regarding the class action lawsuit on eRentPayment. eRentPayment is putting in $200,000 and the eCheck company they used is putting in $250,000. After 27% to lawyers and other legal costs, the proposed payout is about 11% of the amount owed with the remaining $300K+. So, by my math, 89% of the money went elsewhere, meaning someone made about $2 million off this deal. 

So, do you take the 11 cents on the dollar or tell them to pound sand? If enough people opt out, the settlement won't happen. I have no idea what happens in that case.
 

@Account Closed - I have used MySmartMove, Cozy, and ApplyConnect, for background and credit checks on applicants and all seem to have pretty good results. 

For these services, you sign up and then you put in the applicants' info. They receive an email stating you wish to access their info. They log into the site, pay the fee, and then send their report to you. You do not have to collect their social security number or other personally identifiable info and they pay the fee directly to the company, not you. (Both of these things make the management and accounting of this process easier.) 

Once they pay, you get an email and can log into the site, review the reports, download copies for your records (again, things like SSN are not included for their protection and yours), send approvals or denials, and when denied, they generally help with the required denial letter. 

The sites are very easy to use and sign up to get access. Most offer rent payment and other services, as well. (We use Cozy for rent payment.) I would recommend any of them, but we use ApplyConnect for credit/background check as it is the cheapest for the applicant (I think $29-$30) and we use Cozy for rent payment because there is no charge to the tenant (as long as they use a bank account to pay) or us.

There are a number of other threads on BP on these services. 

@Cindy Schneider - A book I would recommend very much is Landlord on Autopilot. I learned a lot from the discussion on finding the right tenant. I think you are on the right track and there are some good thoughts in the other comments. Our process: 

- First, have your criteria in writing. Literally, write (or type) it out and have printed copies. If anyone asks, you can provide the criteria. You have to be willing to go by the criteria, also. We have set criteria (e.g., minimum income related to rent, minimum credit score) and we have exceptions (e.g., lower credit score with higher income). Let your applicants know what the criteria is for the rental up front. Never tell anyone they cannot apply. 

- Agree 100% on the set one day / time to show the property. After you let everyone know the minimum criteria, you'll weed out a lot of the people that didn't even read the listing for your rental to see if they could afford it, etc. We generally do not take an application fee until it comes time to pull a credit report, but some people do and it keeps non-serious applicants from applying.  

- We follow the review of the application in the book I mentioned. You can always return an application to someone for more info, areas of the application not completed, or other items needed. 

- After we "pre-qualify" someone, we tell other applicants (current and new) that we have an application pending. We then contact previous landlords (two ago more important than current landlord that might want to get rid of a trouble tenant) and verify other items. If still ok, we use ApplyConnect, MySmartMove, or Cozy to send a background/credit report check email. Once the applicant pays the service and sends the access for the report to you, review against your criteria. 

Get a process in place and follow it - that is the most important thing. Never tell anyone you won't take an application. A good example is Section 8 / USDA Housing vouchers. We never say, "We don't take Section 8," because in some cases we do and we have. We simply say, "This home isn't approved for housing vouchers," when it isn't. We also insist on a minimum income versus the rent, typically 3x rent. For a housing voucher, we'll include the value of the voucher as "income," but the overall income requirement is still needed. We treat everyone the same, which you should try to do. 

On the ESA, that can be problematic. I know Michigan is working on a law that would put some of the requirement for proof on an applicant and penalize the scammers (MI HB 4910 and 4911, if you want to look them up for some interesting criteria and what looks like it would be an effective law), but at this time it is an item which has to be addressed and generally allowed. It does sound like you have an exception since you live in the house, as @Kyle J. and @John Lyszczyk mentioned. It's a good thing to think about how to handle in the future, and something to ask your local legislator about introducing legislation similar to the proposed MI law if something similar isn't already on the books in WI. 

I cannot recommend Landlording on Autopilot enough! It is a little pricey, but it is pricey for a reason because it is one of those books that is super helpful. If I ever get on a BP podcast, that is my real estate book to recommend!

Good luck!!!