All Forum Posts by: Steve Rozenberg

Hi Patrick,

I would want to know what is their business model and mind set, I would also ask if they focus on specifically property management or try to be all over the map doing things like flip, rehabs, short sales etc... I have found that most people can not do all of these things great.

I can say from my experience that when we tried to do other things besides managing and protecting peoples investments, we noticed that our level of service was declining and we very quickly decided to not do anything but property management. 50-60% of our clients do not live locally or in the country so we are very familiar with what out of town clients want and need.

Below are a few questions I would ask if it were me, and if you like feel free to send me your email I can certainly help you anyway I can.

Questions to Ask prospective management companies

• What are your average days on market for vacant homes?
• What is your average rent amount for all properties managed?
• What is your average work order cost for the owner?
• What is your average make ready cost for the owner?
• Are all my invoices uploaded to my owner portal?
• How do you advertise your vacant units?
• Do I receive video of my pre and post make ready?
• Do you have a setup fee?
• Do you upcharge on maintenance?
• When do you make owner payments? How often?
• Are you a Certified Property Manager?
• Are you a member of NARPM?
• What is your Guarantee?

I would agree with @Steve Vaughan I kind of straddle the fence since I am an active investor and also own a property management company. I have learned that there are alot of things that you can do wrong that can be financially fatal. The biggest reason and problem is that most investors ( I was included in this when I started) do not take the time to create a solid business plan for their rental property business. They do not create policies or procedures to ensure their success. Remember if you own 1 property or you own 50 you are a business. IRS, Fair Housing , Discrimination laws all say you are. The number one reason people fail in this business is they do not treat their rentals like a business (and yes I was on the verge myself).

Either create a successful business model that your are not only going to follow but enforce or partner with a property management company that can help guide you. If the difference of a property owner is $3-$4 dollars per day to spend on property management then maybe the acquisition price should be lower to factor that in for then next purchase.

How much should you spend on a Make Ready. Most owners would like to have a good ball park number, depending on the property they are buying. Everybody obviously has different opinions or thoughts of what they should do in a make ready. Remember it is a business and you are not living in the property, make sure that as much money you are putting into the property, you’re going to receive the same in return. If you are going to put $10,000 - $40,000 into a property are you going to want get that much money back out of it. It should be based on making the property clean and functional, and making the property fit the area. You want to make sure that the house you are buying is going to fit with the rest of the neighborhood. You don’t want the ugliest house on the street and you don’t want the most updated on the street, because that will not fit and if you should ever want to sell the property that could come back to affect you.

All trash should be removed from the inside and outside of the house. If the house needs any type of paint you’re better off just repainting house. Paint and the carpet are the best things that sell. If you don’t think you could clean the carpet, you’re probably better off just replacing the carpet..

Landscaping is very inexpensive. It is the first thing that people see when they drive up to the house, make it very colorful and very inviting. You can go to the local home improvement store and pick up some mulch and colorful plants that will go a long way when they drive up.

Make sure the house is very clean. People do not like to see dirt in the house when they are imagining their stuff in it. If you follow those rules and you make sure that it’s painted or the paint looks good, make sure the carpet is clean or replaced, never show up with dirty carpets, and fix the landscaping in the front so when they do come up to the property it looks very inviting, it will go a long way. When you are getting bids from vendors to do jobs, I would get at least a minimum of three bids to make sure that you are getting competitive pricing. If you are going go through several vendors, you are going to get different pricing and you want to make sure that what you are thinking, what you are envisioning matches what they are thinking.

Whoever you are using you should definitely get their license and insurance information. The last thing you want is to get the cheapest bidder only to find out that they don’t have insurance. Then one of their guys slips and falls in your house and now the guy’s family cannot eat because he is not working, that will come back to you. So we have learned that cheaper is not always better, spend a little bit extra money in getting the professionals because if it should ever happen that a person should slip and fall or something should happen to them in your property, it’s not worth the liability. And you have to remember, it is a business and with a business you have certain expenses, this is just one of those expenses.

HI Yishi,

Funny me and my business partner started out  very similar to you, we owned a portfolio of SF homes and a couple of  larger MF complexes. We started a management company simply to manage our own portfolio and put some structure in place because we were making every mistake in the book and knew it.  After we followed our own policies and procedures our properties started to run like a business model that produced income and we had other investors approach us to manage their homes. Since we were investors and very mindful of cashflow we did not want to 'Rip off' fellow investors and we charged a very low flat fee of $50 per month. 

The positive was that we grew exponentially for the first year with everyone throwing their properties at us because they loved the fact that we were investors walking the walk with our own properties and managing other properties just like our own. The negative was that we basically made no money and probably lost money on this business model. As we matured as a business we were told by many people and even our clients that if we did not raise our prices we would  be  out of business. We were probably the biggest chickens and we had every reason why we should not do it. 

Finally we raised our prices to the industry average, and we lost zero clients because we kept them at that rate but anyone new was the higher price. To our surprise not one person flinched at that. In fact we realized that the clients that were on the old cheaper price actually we worse clients then the ones that paid the higher price. As time went on we realized it actually has nothing to do with the price, infact we manage properties 3 -4 times the rent amount and still charge the industry standard and we dont budge. They may ask but we say no, and explain the value of what we bring to the table, and if you would rather pay $3 per day as opposed to $4 or $5 per day then they may not be a client you want. We actually grade our clients now A-D and we try to bring the D's up to C's or we exit them from our company. The bad owners will take up too much of your valuable time and you will not be able to give the service you want to the A owners.

It is amazing how we were the biggest barrier to being a profitable company, we now manage over 400 homes in Houston and we have the most google reviews by owners, tenants, and vendors of anyone in the city, and we don't discount.

I am not sure if you have ever heard of NARPM, it is a great association for property managers. We have learned amaizing information on how to grow our business by learning thru them. My business partner is the president of the Houston Chapter, If you want to know more information about how we grew or NARPM please message me and I would be happy to share with you.

@Greg H. Greg, Thanks that is good insight and while I understand and agree with your thoughts in theory. My experience is that as you grow your portfolio every time you make an "Exception" and try to do the tenant favors has not always had it worked in my favor. It has a few times but not always. 

The problem is that as I have grown my business mode and I have a staff of 12 people managing over 400 homes. To give exceptions and the ability to negotiate and them to decide "when not to be nice" to me is not a scalable business model and opens the door to potential discrimination / fair housing violations along with lawsuits. My job is to run the properties like a business and if they do not abide by the agreement and I do not enforce the lease then I am actually breaching the contract as well. 

My portfolio as well as all the owner s that we manage for are trusting me to abide by the law, run their properties and take care of their problems. Your thoughts and your opinion may work great with your business model but I could find a way to scale that to my plan of owning and managing 600 homes by next year.

We have found that being extremely careful on the front end with strict criteria and being very upfront and open with the tenant what will happen to them if they do not abide by the agreement has actually been the best remedy for us and has allowed us to have 2% eviction rate over the past year. Again it just works for us to be proactive on the front end instead of dealing with it on the backend... 

The end result I think you will agree is to have quality people in the property paying rent, producing revenue.

How to avoid the problem tenant and the inevitable eviction. First always make sure that you have strict policies and procedures on screening your tenants. And more importantly make sure that you follow them.

Always do a background check on your tenant, no matter what they tell you don’t do anyone a favor, go by the background. If they do not fit your WRITTEN criteria then do not take them. You are running a business, and if they don’t fit the qualifications do not put them in your property. If you see a problem past, you are almost guaranteed to see a problem future.

Leases are legal documents, once it is signed your job is to enforce the contract, meaning if it says they are supposed to pay on the 1st and late on the 3rd, late fees should start and the eviction process begins on the 4th PERIOD! They are obligated to abide by their side of the agreement just as much as you are to enforce it.

Always stick to your written policies & procedures. Never deviate and never bend. Once you do you are setting a precedent for the future problems. If you have a problem tenant, after one month it’s no longer a problem tenant, it’s a problem landlord by not sticking to your business model.

If you have 1 house or if you have 50 houses you own a business. And if you don’t have a successful business model and you do not have a business plan for that business, chances are you probably will fail. Remember, the IRS, Texas Real Estate Commission, Fair Housing and Texas Property code all say you’re a business. The person that normally doesn’t think it’s a business is normally the actual owner of the property.

Just because someone has the financial ability to buy a home does not mean they have the financial education to run that business. Spend the time and get educated and talk with people that have been down that path already to avoid potential disaster.

@Joe Fairless 

 thanks guys for the information. Joe appreciate your help, I am an investor and I also own a property management company here in Houston Tx, we manage a little over 400 SF homes and I get asked to speak to different real estate groups that are wanting to invest in Houston because the returns seem to be a little better and lower acquisition costs. So when I speak in other cities like LA or Calgary I like to have as much current facts as I can regarding the area I am in. My biz partner is the President of Houston NARPM and they have access to a lot of information but not much for statistical data.

I will try this route for my next speaking event, Thanks again

@MONICA WATSON Hi Monica, since we are a full brokerage and management company as well as investors we found to use the standard TREC forms with a bunch of addendums to protect the owner and ourselves. If you needed some help as to what you want to make sure is in your lease I would be happy to help you. We do about 30-40 leases per month and we have a 2% eviction rate on over 400 single family homes, we think we have a good working model based on our data we track. 

A lot of things we put in our addendum's for your lease could be very valuable should you ever be standing in front of the judge defending your position. If you like PM me and I would be more then happy to share stuff we have.

HI Josh, 

Good question the 7 Classes are as follows:

•Race

•Color

•Religion

•National Origin

•Sex

•Disability

•Familial Status

The one that is possibly coming down the pipeline we were told at the last Fair Housing informative session is "Financial Status". Basically what they told us is they are deciding whether or not to make it illegal to discriminate on someone based on where there income comes from. Meaning that if they get government subsidy and it meets your financial qualification you can not turn them down based on that fact... In plain english what the person told us is you can not say 'No Section 8', based soley on that fact. Whether that will become a law is anyones guess but they are definitely looking at it. 

Just passing on what we were told.

     It seems like a lot of landlords have certain certain messes that they made fixed and most of the time we are able to help them untangle their messes. Some of the of things that I’ve seen over the years boil down into a small handful of issues, where if they had taken the proper steps, a lot of these things could have been avoided.

The number one thing I would say why invertors fail is they do not treat their properties like a business. I will always tell an investor/owner, while you own properties or you are buying properties you own a business. And whether it’s one property or fifty properties you are viewed as a business. There are a lot of legal entities that are watching you to make sure that you are treating it like a business. IRS, Fair Housing, Discrimination, and here in Texas we have the Texas Real Estate Commission and the Texas Property Code. If you do not have policies and procedures not only in place but followed, chances are your business will fail and it’s not just a matter of if but a matter of when.

Some of the other things that I’ve seen are a lot of these investors don’t actually know what the laws are. There are Tenant’s Rights and Property Code Laws, certain things that need to be fixed in a certain amount of time. A lot of investors come to us and think that no matter what, tenants should pay and that’s the tenant’s responsibility. Unfortunately, that is not always the case and that is not the law. During that situation they can be putting themselves in a very precarious position. They are actually violating the law without even knowing it. So, a lot of times we need to educate the owner and let them know that there are certain things that legally they are responsible for and very simply if they are making the house unsafe or inhabitable by not fixing something, they could be possibly in violation of the tenant’s rights and the property code.

Lastly, I have seen owners that violate Fair Housing Laws. There are seven protective classes, soon to be another one added, but right now there are seven. The real estate owner is the highest sued in Real Estate of all the different real estate entities. Normally it’s because they don’t know what the protective classes are and they sometimes would ask questions that violate those laws and maybe don’t listen to people that are in the protected class while not understanding they have rights. The other thing is maybe they do violate the law while the tenant is living in the property. I always explain to owner that tenants are very smart and educated, so you want to make sure that you are more educated than your tenant. It should be part of your business model to know these laws and make sure that you don’t mistakenly break these laws.