PODCAST EDUCATION

What Does a Property Manager Do for Your Rental

Episode 030

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys explain the ins and outs of what property managers do for your rental and how they contribute to your life as well as your bottom line.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello everyone, welcome back to another episode of the Real Estate Cowboys. Glad to have you tuning in this week. Uh, this week we are going to be talking about, you know, what does a property manager actually do for your rental? Uh, we’ve had quite a few episodes about property management, but I believe it’s so important. So I like to continue to put information out there about what a property management company can do for you to ensure that you’re going to have as passive experience as possible, uh, when it comes to owning rental properties because, you know, like I said many times on the show, rental properties, really they can be anything but passive just with the possible vacancies that you have from time to time, the repairs that are needed, um, emergency repairs, sometimes that can pop up. You know, if a storm comes in and wrecks your roof and makes the house unlivable for your tenant, you have to let your tenant out. 

You have to go through the insurance company, you get repairs done when the property is vacant and you’re paying utility bills, you’re paying your taxes, you’re paying principal and interest payment out of pocket instead of the tenant paying that stuff through the rental income. So I, myself being a landlord and working with many landlords have many investors, you know, we’ve had a lot of conversations where we’re talking about, hey, you know, there’s so many great things about rentals, um, you know, but at the end of the day they, they can be a little bit troublesome from time to time where it doesn’t really create a very solid passive income experience for you as an investor. But if you have a really good property manager, and we’ve done an episode where I talked about up to 89 questions you should ask every property manager before you hire them; and you don’t necessarily have to ask them all 89, but it’s a good report to read and it’s a good show to listen to just so you have those questions in your arsenal when you’re out there vetting out any potential property management companies to look after your properties. 

Because I will tell you what. Even with a property manager, things cannot be as passive as you would like. But imagine if you’re managing all your properties yourself, talk about a second job, if not–I can see it taking over, you know, my number one job, which is dealing with tenants, dealing with the cities and the municipalities and state laws and just making sure you’re up to code and you know, all the things that go in with property management, property goes vacant, you need to get it released, you got to market it for a tenant, you have to screen tenants, you know, screen applications. It’s just a lot, a lot of work. I will tell you that. So what does a property manager do for my rental? You know, that is what we’re talking about today on this show and you know, some examples of where things have gone wrong and things have gone right when self-managing a property or using a property management company. 

What kind of prompted me to have this show and talk about this topic? Actually a woman who just started working with me. You know, when she came in, she was just, you know, I was training her on what we do here at American Real Estate and she said that she had a property, it was her own personal residence. She got a new home. She decided to keep the old home as a rental. She decided she was gonna manage it herself. It was right nearby where she lives, too. And you know, she ended up having a terrible experience. She just placed the wrong tenants. Tenants really damaged the property. They were doing a lot of things in the property that they shouldn’t have been doing and the home was in a good neighborhood, you know, and she felt like the tenants, they were pretty decent tenants. 

They had owned a restaurant. Um, but then they were doing some commercial cooking in her house and stuff like that. So it ended up being a very high cost turnover. I think she eventually had to evict them and that’s just a lot of work for one person to have to do. And like I said, it put a bad taste in her mouth off of, you know, that one rental property because it was just so much work and she really didn’t know what she was getting herself into. And so I feel like a lot of investors out there who haven’t taken the leap of faith and started investing in rentals, they don’t really know what a property manager does for them. So they’re out there looking, where can I get the cheapest fees, basically looking for a budget property management company. And I don’t think that that’s a good place to start. 

Um, this should not be a fee related decision. Um, this should be who’s going to be the most professional person who, knows the most about the market, who knows most about the laws, who has the best proven track record? That kind of stuff is where you’re going to really want to make a determination on that. The property manager I want to hire for this property, not who has the cheapest fee structure. Because I’ll tell you what, if you end up going with the guy that has the cheapest fee structure, then you’re probably gonna end up having a bad experience. I’ll say that right now. So myself, you know, I use property management companies to manage my properties. I’m also, we own a property management company in Texas and Missouri, so the properties that we own there and I own there, we use our management solution obviously to manage those. 

And overall it’s a pretty good experience. Now, there’s still some things that are gonna pop up that my property manager can’t really help. You know, emergency maintenance situation, you know, the tenant stops paying rent and we have to go through eviction. Things like that happen. Tenants lose their jobs, hardship in life, whatever happens with the tenant, just can’t afford the rent anymore. Now here we are. They either have to just leave and skip and turn the keys in or they make us go through the eviction process. That’s stuff I don’t want to deal with. And so, you know, even my properties back in Michigan, my hometown, uh, you know, I’m from Metro Detroit; I have my friends manage my houses there. So my company, American Real PM is not up in Michigan. So, you know, I still have real estate agent friends, real estate professionals in Michigan that I’m close friends with and they manage my properties for me and they do an excellent job. 

Um, but also, you know, we’re good, good bodies and you know, I know where they live, so they make sure that they, uh, do a good job managing my properties. And they do. And my experience up in Michigan has been great as well because I have the right team in place. And so it just really comes down to, a good property manager for your rental is gonna make the difference between the passive income experience and a second job. That’s right there, black and white. And the key being, the key is, you know, you need to hire a quality property manager. And so, like I said, you can reference the episode that we had on the 89 questions to ask the property manager before hiring them. If you ask these property managers most of those questions, even if you want to have some all those questions, you should get a good indication after hearing their answers to those questions if you’re going to be working with a good team or not. 

So, you know, what does the property manager actually do for the rental? Let’s go through that. Number one, they’re going to recommend rental rates for you, okay? So if you’re someone that’s buying a property in a different city, um, let’s say you live in the same state and you’re buying the property in the same state, but you’re just not that familiar with the city that you’re buying the rental and maybe where you live personally doesn’t make sense to buy a rental property because the values are higher. Um, and obviously they’re just not going to rent for as much to where it makes sense for cash flow in property. So you’re looking to buy and maybe some more middle class, maybe lower middle class, entry level, middle class neighborhoods. It doesn’t mean that you’re going to know the ins and outs of that area, though. You’re not necessarily going to know what are rents going, you know, what are properties renting for? What’s, you know, “Hey Jim, what’s a 3/1, 1000 square foot with no basement renting for over there in uh, you know, Waxahatchee?” if you don’t live there, you’ve never been there, you’re not going to know, you know. But your property manager who’s familiar with that neighborhood is going to know. They’re familiar with that city. They will know. They should probably be able to tell you what it’s going to rent for, or a range just off a phone call. And so that’s one thing that the property manager is going to do to help you. They should be an expert in the rental market. And so one of their main services is going to be to recommend an appropriate rental rate based on the properties, features and condition, as well as the local rental markets. So you know, any good property manager who knows an area should say, “Yeah, it should rent for 900 to 1100, but it’s obviously going to depend on the finish out. I’m going to have to send somebody over to go see it or I’m going to go look at it personally before I can give you an exact rate.” But then after checking out the house and seeing it and getting their hands on it, they should know what they’re going to be able to exactly rent this property for. And you know, how did they get this information? Well there’s statistical reports out there, there’s software out there that can pull these reports and pull indicators on what a property should rent for. Personal experience is probably going to be the main one, industry standards. And so if they’re doing it the right way, the property should consistently rent quickly and efficiently. If you put a property on the market way overpriced, you know it’s just going to sit there. You’re not going to get any tenants, you know. So that’s why it’s very, very important to have realistic expectations on what your property is going to rent for and your property manager should be able to give you those realistic expectations so you can get the property leased because it’s not going to do any good sitting on the market vacant because you have it priced too high because you think you can get that rate, or someone told you, that’s not an expert in that market, can get that rate, you know, and it’s really hard. Like I said, we have a lot of investors from California, from New York, from uh, many other states across the US. They don’t know what a property in some of these suburbs of Dallas is going to rent for. They rely on us to give them that information. You’ve got to also keep in mind as well, you know, I’ve ran into situations where you have some old timer landlords; they’ve owned a portfolio for 10, 15 years and they just really haven’t increased the rent ever. You’re renting it for $1,200. These properties are renting for $1300, $1400 in this market today. I ran into a lot of instances where some just old landlords, they’ve owned properties for a long time. They just want to keep them leased. The tenant says, yeah, I’ll renew if you keep it at the same rate and they just keep doing that year after year. They’re leaving money on the table. Because in growing markets like Dallas, where you have 400 people moving on a daily basis, there’s an opportunity to increase rents in this market. Property values are going up, which means rents should go up. The median income in this market has been going up year over year. That should be a sign that you can increase rents in a lot of these middle class neighborhoods. So a property manager should be able to advise you, a good one, should be able to advise you on when to increase rent and how much rent you can increase. Otherwise. Like I said, you’re leaving money on the table. If you’re out in California or New York and you’re trying to manage this property in Dallas and have no idea that you can increase rents. Some of these markets you’re probably more apt to just kinda keep it where it is, so that’s a really good, good thing that a property manager is going to do for you and that’s recommend rental rates. 

Next would be to vet potential tenants and execute leases. This is a lot of work people, you know, going through, sifting through applications, vetting out tenants, especially if these properties are not in your own backyard. You can’t even meet these tenants face to face. It’s, it’s, it’s a difficult thing to do. How do you know you’re putting the right person in? You know, there’s a lot of work that goes into vetting tenants. So when these applicants are responding to the property managers, marketing efforts, your property managers going to vet out the candidate for you. You know, this can be very tedious for an owner. Trust me, I’ve done it myself, do self-managing. In order to properly vet attendant, you need to perform background checks. You need to pull credit checks, you need to find rental history. So call previous landlords, you need to verify employment and their salary. And you also have to have a non-biased judgment to the suitability of certain candidates because you don’t want to violate any fair housing laws. And so by hiring a property manager to do things, these things for you, you’ll never have to sift through applications or interview anyone for your rental. That would be extremely difficult, like I said, if you’re out of state. So once a good candidate is found for your rental property, the property manager executes the lease for you and obtains all the appropriate signatures. There’s a lot of work. What I’m trying to get at, there’s a lot of work that goes into managing homes. There’s a lot of things that need to be tracked. There’s a lot of t’s that need to be crossed eyes that need to be dotted and it’s a lot of heavy lifting and legwork that you know, the everyday person, you know, someone just thinking about getting into owning rentals doesn’t see. So I’m trying to bring that to light in this podcast this week. 

The next thing the property manager’s going to do for you, and I think that this is a very important one and something that a lot of people oversee as well, and that’s they ensure legal compliance. Property managers and good ones stay up to date on rental property legal regulations in the state of your rental property and not just the state, but it can also vary based on the city or municipality of the property where the property’s located. So, you know, I’ve worked in a lot of different major metros across the US. I’ve flipped houses, I’ve done rentals, so have my partners. We’ve actually operated in 12 different markets and I can tell you some markets are easier to operate in than others and you know, you wouldn’t know this. Just investing in Ohio and you’ve never been to Ohio, don’t live in Ohio, he wouldn’t really know what their regulations and rules are for owning a rental and what kind of code you need to be up to and what type of occupancy inspections you need to pass. These things can also change from year to year. So if you’re not living in these markets and you’re not really in depth with what’s going on and what changes are being made, it’s going to be very difficult to adapt to these changes and make sure that your properties up to code, like I said, so that’s just another thing that you really need to take into consideration and you know that’s what your property manager’s responsible for. And so good property managers should be ensuring that you and themselves are in total legal compliance, and this is going to protect you down the road against claims from the tenants or whoever, and also government legal action against you. You know, if you’re operating a rental without a past occupancy with the city it’s located in, you could be getting in trouble for that. So that’s where your property manager is going to make sure that you’re up to code, you know, and you’re following all the rules. 

That’s a very, very important thing. From there, the property managers also obviously going to collect rent for you and they’re going to raise rents when necessary. Going back to the number one where we talked about recommending rental rates, so when you collect, you know, collecting the rent each month, I’ll tell you, it can be a pain, especially if you have a tenant that always has an excuse about why the rent is late and trust me, there are tenants out there that are like that, every month at some new story. Do you really want to deal with that or would you prefer your property manager does? I prefer to have somebody in the middle who’s taking care of that stuff for me and you know, with a good property manager, they should have a local office in the area where they’re managing homes so it can make it easy for tenants that want to pay in person. 

You know, I have 10 and still to this day that come to our office and hand off of physical check for the rent each month. And so I think that that’s very important. You see some of these conglomerate property management companies that are headquartered in some state and then managing properties nationwide and there’s no physical office for tenants to go and drop off checks. You know, some people are just old school. Some people want to pay by check. You need to make that easy on them, but then you also need to be keeping up with the times and you need to make sure that your property manager and if you’re managing yourself, you’re not going to have an online portal. You might not have a way to take payments over the phone or whatever it may be. You just say, yes, send me a check through the mail or wire me the rent or pay me through Chase Quickpay or whatever it is. 

But property managers, not only will they have a local office, good property managers, but they’re also going to make it easy for the tenants to pay over the phone or through an online portal. And self-managing, you’re not going to have an online portal for these tenants to go to and pay. So you know, you want to make it as easy on these people to pay as possible. An online portal means that the tenants can pay from their computer or their cell phone. Everybody has a smartphone now, so a great way to make sure that you make it easy on your tenants to collect rent is to have that online portal. So that’s another main thing that obviously the property manager’s in charge of is collecting rent and make it easy on the tenants to get their rents. 

If rent is late, the property manager is the one that’s going to follow up with the tenant, not you. And they’re all going to take the necessary steps and action needed such as filing for an eviction. If the tenant does not pay, they’re going to be the ones that go out and put that eviction notice on the door on the third or fourth or fifth when run hasn’t been collected. You know, letting them know, if I don’t receive rent here immediately, we’re going to have to file for eviction. That usually scares tenants into getting you the money together to avoid an eviction. But if you’re managing from out of state, you’re not going to be the one that’s going to be able to go there and plant that notice on the, on the front door, which a property manager will. 

If the lease is up or coming up to renewal, uh, the property manager’s going to determine if a rent increase is valid. Like the first example I gave you, when we were talking about how the property manager recommends rental rates. If you’re just a landlord managing yourself, like I said, you’re not going to be really that in tune with the market. You’re not going to know that, “Oh wow, rents went up in this area $100 per month.” But your property manager will know that — he should, if he’s a good property manager, property manager should always strive to get increases in rents when it’s, when necessary or when the opportunity is there. That’s what good property managers do. But, you know, at the end of the day, the property manager is going to be the one that makes sure you get paid each month. And that is the most important thing. 

From there, uh, another way that a property manager is is uh, what they do for you and what they do for your rental, is they act as a buffer. I sit directly next door to the property management team that deals with the tenants on a day to day basis. And I’ll tell you what, I would not want to deal with their job. Uh, you know, some of these tenants can just be unrealistic. They just want to call and complain about something and you don’t want to have to be dealing with that, trust me. And so your property manager acts as a liaison between you and the tenant. This Is very important, trust me. This really helps with making things passive. And so whenever you want to communicate with your tenant or vice versa, the property manager is going to speak for each of you. And trust me, this works out best for both parties. I know other landlords that have direct communication with their tenants and some of the tenants bug them all the time and it’s just so irritating. So you know, even sometimes they’ll get a text or a call from their tenant that’s about the most petty, irrelevant thing that you could think of. And so you just don’t want to have to deal with this as a landlord, especially if you’re investing in real estate for a passive experience, you’re not going to want to deal with it. 

And so at our company we never give out any of our owner’s contact information and believe me, tenants sometimes ask for it, but we force them to communicate through the property manager. The property manager acts as a solid buffer that shelters you from all phone calls, letters, maintenance requests, comments or nuisances that a tenant may initiate. We’re going to take a quick commercial break. When we come back and we’ll talk more about what a property manager does for your rental. 

Welcome back from the commercial break. This is John Larson with the Real Estate Cowboys. We are talking this week about what a property manager actually does for your rental. Um, we’ve already got through a few, um, but let’s get back into it. Another thing that the property manager is going to handle for your rental is they’re going to operate an efficient communication hub and so with a property manager in place, message handling among the tenant, landlord and property management company is going to be efficient and reliable. 

When messages are received, the property manager relays only the relevant information to the landlord or the tenant. It takes care of the rest. This way, maintenance requests are not sent to the landlord only to be forwarded to the property management company. They’re going to directly to the property manager, right? Rent payment confirmation request from the landlord don’t go straight to the tenant. They go through the property manager who gives the landlord the requested information. Like I said, the property management company is going to operate as an efficient communication hub that makes everyone feel their emails and phone calls are being paid attention to and acted upon, and I think that that is very important as well. And that’s one thing that I believe is kind of not appreciated as much as it should be. Your property manager’s also going to keep records of communication. Communication records are an important aspect of any business, obviously, and that’s going to include the business of owning rentals. The property manager maintains that accurate and thorough record of all communication regarding your rental property. There’s a record of every phone call, email, and letter that would have to do with your rental investment. This is important for tax purposes for any possible future legal actions as well as keeping track of how responsive your property manager is. This can also help you in the case of any disputes from the tenant. You know, you can run into situations where a tenant says, “Oh, you promised me this, or oh, this and that.” It’s like, no, we didn’t. We have all this communication housed and safe. And trust me, that could come back to you to help you. So it’s good to have an extra set of people watching your back on your investment. 

Another thing is providing annual and monthly reporting, so in addition to the communication record keeping, your property manager also provides annual and/or monthly reports. These reports include detailed accounting of rents, received expenses, receipts, lease records, vacancy reports, inspection reports, and sometimes more than that. Uh, you can access these reports if the property manager has an online portal, that stuff should be housed on there, or most of that stuff should be housed on there, or you can have them email or mail the, uh, information that you have needed, but all this stuff should be housed with the property management company to keep everything in order and everything in tact and make sure you have all the necessary documents stored. Um, this will be invaluable for you as you prepare a list for tax deductions on your rental property, right? And so at our company, we have all this information on our online portal or most of it and make it easy for owners to track the performance of their property. 

From here, also, maintenance. Property manager is going to perform routine maintenance on your property. Depending on the lease terms the routine maintenance may include things like lawn cutting, weeding, trimming, lawn treatments, changing filters, furnace filters, among other things. And in some cases, in most cases the tenant is responsible for these things while the property is occupied. But you know, we hold our tenants accountable for this routine maintenance while the homes are occupied, and know that, uh, in the case of, you know, in the case of your home is vacant, then we start to take that maintenance over for you. Obviously there’s no tenant in the property to perform this routine maintenance, but then at that point, the charge for this routine maintenance is going to now go onto the actual owner, but at least the property manager’s ensuring that that stuff is getting done. You don’t want to start receiving violations from the city because your grass is growing too high and so on and so forth. So we make sure while the properties are vacant, we’re performing that routine maintenance for the owner. 

Emergency repairs. This is a big one. Uh, this is probably one of the main reasons I use a property manager myself. Not only because I want a passive experience and I don’t want to deal with tenants and I don’t want to deal with complaining and calling my cell phone all the time about this broke that broke. There’s a problem with this. The neighbor next door is loud, so on and so forth. Think about an emergency repair in the middle of the night, a pipe burst in the middle of winter. Like I said, I own properties in some cold weather states as well. Pipes can burst, things like that can happen. Um, a storm could happen. Emergency repairs are needed. That’s where the property manager is going to come in and save the day. So you know just when you think everything’s going great, you can never predict an emergency repair and you must remember that these are homes and with homes things break. Sometimes the repairs are much more severe than others and in the case of an emergency repair, it usually is a pretty costly fix and can result in a pretty costly fix. The important thing is to have a property manager or someone who can get there quickly to remedy the situation before it creates even more damage, right? So a leak and things like that. If you don’t get on that stuff right away, it can cause more and more damage and the cost can get higher and higher and if you’re managing your property out of state, that’s something that you’re not going to be able to get on top of right away. Whereas if you have a good property management solution, they’re going to be on top of that. And although the repair might be costly, they could definitely drastically cut the cost down by getting there immediately and remedying the situation. You know, the example is you have pipe bursting, toilet overflows, roof leaks, you know, that’s when the property manager is going to step up to the plate and emergency repairs are taken care of, you know, quickly, uh, to preserve the integrity of the property. And also we want to keep the tenants happy as well. Tenants will also understand things are going to go wrong. They can’t predict an emergency repair. No one can. But the property manager’s job is to get there, fix the situation, make sure the tenant’s okay, make sure the tenant’s happy and you know, at the end of the day, that could be the difference between having a very upset tenant and losing that tenant and keeping that tenant when it comes to renewal time. So you know, no one wants to get a midnight phone call and have to deal with stuff like this. So, you know, that’s where the property manager really comes in and steps it. 

Um, the next thing that I would say the property manager really helps you with is another unfortunate part of owning rentals. It can happen from time to time. We prefer to do higher end rentals in nicer neighborhoods so we can avoid things like this, but evictions. And this is not fun. And along with dealing with tenants directly and the chance of emergency repair, eviction is right up there with the things that I would like to avoid as a landlord. And so this is something where a property manager really comes in and helps, and it really matters to have a property manager, a no one wants to have to deal with an eviction court. It’s an ugly scene depending on where you own the property. Uh, it can be tougher to evict tenants. And so in the unfortunate case of unnecessary eviction, the property manager is going to handle it in accordance with the national and state laws. So all notifications and legal paperwork filings will be done by the property management company. You’re not going to have to handle that. Trust me, it’s something you don’t want to handle. And also, if you’re investing out of state, you don’t necessarily know what those state laws are. We’re getting back to that, right? So you know when necessary, even court appearances can be done by the property manager and as the landlord, you’ll be notified of the situation, but you won’t have to personally be involved. And like I said, depending on the state that your property is located in, evictions can be very time consuming. They can take a really long time to get done and they can result in high costs for the investor as well as having a long period of time where you’re not collecting any income. And that’s what we’re trying to avoid. So having a professional be able to step in and facilitate that eviction is worth its weight in gold. Trust me. And so I personally recommend avoiding states where the laws favor the tenants, and some of those states; Michigan’s kind of like that. California’s for sure like that, New York I’ve heard is like that. So there are states out there where the laws really side with the tenant and the eviction process can be very lengthy and costly. So definitely do your due diligence on, you know, landlord friendly and tenant friendly states and avoid the tenant friendly states at all costs in my opinion, because if you do have to go through an eviction, it can be a real long nightmare. 

That’s it for this week’s episode. I hope that you found this information enlightening, uh, and found some stuff that maybe you didn’t know. Uh, what a property manager actually does when it comes to managing your rental property, and if you liked what you heard on this episode, we have other past episodes you can subscribe to us on iTunes and many other podcast outlets out there. You can also go back on our website RealEstateCowboysDFW.com, and listen to all past episodes from that website. There’s also our passive income starter kit on that website that you can download. There’s my book, the Passive Income Guide: What’s Your Return on Life. You can get a copy of that book on that website and if you’re interested in learning more about how to get started in passive income, real estate investment options, there’s information there. RealEstateCowboysDFW.com. Also AREIUSA.com. We have great options. Rental Properties obviously, which we’re talking about today. We have an in-house property management solution that manages our rental properties for our investors. Also, we have private lending opportunities to where our investors can play the bank on safe, secure development opportunities in DFW or Houston. So if you want more information on that, go to either one of those websites that I just named. Put your information in and a member of our team will reach out with more information on how to get started. But until next time, this is John Larson signing off with the Real Estate Cowboys. Remember everyone, what’s your return on life? Have a great week. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.