HIGHLIGHTS FROM THE PODCAST:
0:17 – Introduction
2:59 –Â #1: Rental number
6:24 –Â #2: Rent
10:26 –Â #3: Inspections
14:03 –Â #4: Guarantees
19:48 –Â #5: Maintenance
FULL TRANSCRIPT OF THE PODCAST AUDIO:
Spencer Sutton:
To me, everybody’s biggest fear is, “What if I get a bad resident that tears up my property? What happens if they don’t pay rent? What if you have to evict them?” I mean, typically, the worst-case scenarios are swirling in people’s mind, and so they’re asking questions. Well, I think this is a great question.
Spencer Sutton:
Hey, everybody. Welcome back to another episode of the Birmingham Real Estate Investor Podcast. I am your host, Spencer Sutton, and today, I’m flying solo. No Matthew Whitaker. We’re going to get right into it. I want to talk today about just how many owners that we get who call us and ask us questions. We have owners from all over the country, and a lot of times, they’re asking us questions, but they’re also talking to other property managers. We think that, hey, that’s a smart thing to do, so what I wanted to do today was really lay out what I believe are the top five questions that you should be asking a property manager when you interview them.
Spencer Sutton:
Now, this is beyond the pricing question, right? This is beyond pricing question and fees, anything like that. That’s an obvious one that everybody wants to know. When you go to look at a property manager, hopefully, you’re able to find those fees on their website. They should be super obvious. I know on our page at evernest.co, for each market that we serve, for each market that we manage rental properties in, we’ve got fees listed under the market names, so you can find them there. But what should you be asking when you’re in the market for a property manager? I was just thinking about all the different questions I get asked when I talk to investors from around the country.
Spencer Sutton:
Now, also, not only are we going to, I’m going to skip the pricing question, but I’m also going to skip the questions that have to deal with specific properties, right? A lot of times people will call us and they’ll ask us, “Hey, what will this property rent for? I’m really interested in a rental report on this property. What about this area?” I think those are wise questions to ask as well.
Spencer Sutton:
The great thing about an investor calling us or someone calling us and asking us about a property and should they purchase the property or our thoughts about a certain area of town is that we’re able to give really just some straight advice to you. We don’t have any skin in the game, as it were, and we are just going to be able to tell you directly our experience in these areas, some positive things, and maybe some things that you should consider when renting in that area or owning rental property in that area, so it’s great to talk to investors from around the country.
Spencer Sutton:
At the end of the day, we want to manage rental properties and have a successful experience with an investor. Our interests are aligned, and so we’re going to tell you, “Hey, this is what you can expect from these certain.” But let’s get into the top five questions that you should be asking before you hire a property manager, okay?
Spencer Sutton:
Question number one that I think you should ask are: “How many rentals do you manage?” Why would I ask that, or why should you ask that? It’s because you want to get a gauge as to what size this property management company is, what kind of services you probably can expect with this property manager. What I mean by that is, okay, so when we started in 2008, we started with 30 rental houses, okay, so if you came and interviewed us in 2008 and said, “How many rental houses do you manage?” and we said “30,” and by the way, these 30 are all of our own, well, you may second-guess giving your rental properties to us back then, right? I mean, that just may be. You may think, “Well, I don’t know, they’re just managing their own rental houses. They don’t have any systems and processes in place. Are they going to care about my rental house when they’ve got their own rental houses and they’re really looking after them?”
Spencer Sutton:
Well, I’m thankful that in 2008, there were other people that we knew in the community that trusted us with their rental properties, and so we were able to grow that pretty quickly over the first couple of years, but here’s what you need to consider: If you ask this question and a property manager says, “We manage 200 houses,” well, that’s going to be a lot different than a manager that you interview and they say, “Well, we manage 1,000 houses or 1,000 properties in town,” right? What that’s going to do is give you an idea maybe of the level of service or the systems and processes that they have in place, and so this is what I mean by that: If you’re considering someone who’s managing just 200 properties in town, well, they’re what we would consider a “boutique property manager,” right, so there may be a level of service. You may be able to have their cell phone and get them on the phone right exactly when you need them. We call these “mom-and-pop property managers,” which are great. The country is full of mom-and-pop property managers.
Spencer Sutton:
Or if you have somebody who’s managing 1,000 rental properties will obviously they’re doing something right, right? They’ve been able to break through the barrier of the 200 to 400 properties. Now, they’re managing a thousand, so that probably means they have more systems and processes in place. It also may mean that there’s going to be some added economies of scale that you’re going to be able to take advantage of with a larger property manager. They may have access to things that you may need down the road that a smaller, more boutique property manager may not have access to.
Spencer Sutton:
We’ve been both of these, right? We manage a lot of properties. Right now, we manage around 4500 properties across all markets, so we definitely have systems and processes in place. There are some advantages we have with scale that maybe a smaller one doesn’t, but we’ve also been that smaller one with 200 and 300 and 400 properties. There were some advantages there as well. That is the first question, is just, “How many rental properties do you manage?” You’ll get a good sense of that.
Spencer Sutton:
Question number two is: “How do you determine my rent amount?” This is a question we get a lot because what the owner is really wanting to know, sometimes they’ll even say this is, “Do I get to determine my rental amount?” What I like to talk to owners about at that point is I like to ask them, “Is there a number that you have in mind?” A lot of times, they’ve already thought about it, and so they’ll throw out a number. That’s great; I don’t necessarily know. Truthfully, when I’m being interviewed, or when you’re asking this question, you need to know that the property manager is going to have probably a ballpark idea, but until they actually go in and see your property, it’s going to be very difficult to pinpoint that, right?
Spencer Sutton:
I’ve had this conversation so many different times. When I ask, “Do you have something in mind?” let’s just say they tell me, “Well, yes, Spencer. I was thinking of renting my property for $1900 a month,” and I think, “Okay.” Based on what I know about the property as far as bedrooms and bathrooms and things like that and the area of town it’s in, let’s just say, I think that the property is going to rent for $1700 a month. They’re thinking 1900, I’m thinking 1700. I’m not going to give a lot of pushback on that at this point.
Spencer Sutton:
I don’t mind. What I would always tell owners is, “I don’t mind starting off at $1900 if you believe that your property will rent for this, but ultimately, the market is going to tell us if this is the right number or not.” Then it’s also going to take us going out and looking at the property. I mean, they may have super, very nice finishes on the property. They may have done some work to the property that we weren’t expecting, and so that may command a higher price, so until we ultimately get inside that house, we’re not going to be able to say, “Hey, definitely.” I might come back and say, “Oh, man. This thing will rent for 1900 all day, or 1800.”
Spencer Sutton:
But ultimately, what I want to say is, “Hey, I’m fine at $1900 a month,” and we can let the market determine if the price is right because what happens is if it’s overpriced and we’re not going to get a lot of showings, that’s just the bottom line is we will not get a lot of showings, this is the market saying, “Hey, I’ve looked at all the houses, or I know all the houses in the area, and yours is too expensive.” Now, if we get a lot of showings, but we don’t get any applications filled out, then that more than likely is going to tell us that the price is right, but there’s something going on in the house, right? There’s something that needs to be changed in the house. Maybe it’s a funky layout, something you can’t really do anything about. Maybe the finishes are old or out of date, or maybe they just don’t like the lot, or maybe you have a steep driveway, whatever the case is.
Spencer Sutton:
This is a really good question to ask is just, “How will you determine my rent amount?” and so what we like to tell people is, “We want to do a rental analysis of the property, so we’re going to pull up comps in the area.” We’re going to look at bedrooms and bathrooms. We’re going to look at things that have been on the market and rented recently. Then we’re also going to pull from our own experience in that area, so we probably have rental properties in the area where your home is. We’re going to look at all of those and say, “Oh, man, this is what we believe,” so it really is, this is a joint effort. The owner, you’re going to probably have an idea of what you should rent it for, and we’re going to have an idea, and hopefully, we are going to be in line with this or very close.
Spencer Sutton:
The goal is to rent it as quickly as possible. I mean, at the end of the day, if you’ve said 1900, we say 1700, and it sits on the market at 1900 for 45 days or 60 days, then that’s a lot of money that we just lost. I mean, just think about if we would have just lowered it to 1800 or 1750 and rented it quicker. It makes financial sense to do that, so you need to be very, very realistic. Then I would say act fast, listened to your property manager, but definitely, a question you want to ask is, “Are you going to price my property?”
Spencer Sutton:
Okay, third question is: “Do you conduct property inspections?” This is very, very important. We’ve been all over the board, just from our personal experience. We’ve been all over the board with this before. We have done quarterly inspections, we’ve done annual inspections, we’ve done semi-annual inspections, we have done it all. But what you really want to know is, “Are they going to be out and go through my property?”
Spencer Sutton:
Now, the first thing that I would say is that every property manager should be doing, if your property is vacant or it’s about to be vacant, they should be doing this preliminary walkthrough. That is an inspection. They should be walking through that property. Somebody who is trained to look at everything and what they’re doing is there, what they want to know is: Is the property rent-ready, right? This is not a home inspector that is going to pick the property apart. What they’re looking for is: Is the property rent-ready? Is it safe? Is it habitable? Are there any glaring recommendations that we need to have? Is a room painted hot pink? Maybe we would suggest you painted a neutral color. It may rent quicker, it may rent for more money, but you do want to know.
Spencer Sutton:
Initial property inspection’s a must if the property is vacant. Then secondly, at least one inspection per year. The property manager that you choose should be doing at least one. What we found was when we were doing quarterly property inspections was it was just too much. I know the owners loved it because we changed the filters in the air conditioner, we checked batteries in smoke detectors, we took pictures throughout the house, we created a report, we sent it to the owner, and told the owner, “Hey, this is exactly how the resident is taking care of your property.” They love that. Who didn’t love it were the residents because they felt like we were just in their property way too much. They wanted privacy. The vast majority of the time, I mean, there’s nothing going on that we’re pointing out, nothing that the owner should be alarmed about.
Spencer Sutton:
There’s got to be a balance there. I would say one to two times a year is enough. Right now, currently, as we are today, we are doing annual inspections. Now, we may be in the property more than that, and simply because a resident has a maintenance request, then we’re going to be out there at the property. We’re going to be walking through the property, we’re going to be checking things out, so if there’s anything that we notice that needs to be taken care of, we’re going to contact the owner. Yeah, definitely, you want to make sure that the property manager is at least going to do a property inspection, definitely initial, and then at least once a year. I would say if they’re doing it four times a year, our experience based on doing this thousands and thousands of times, it gets to be a scheduling nightmare and the residents are not super happy about that.
Spencer Sutton:
What you want to do is you want to keep your resident in the home, right, so you want them happy, especially a good resident. If you have a good resident in the house, you don’t want to be bothering them all the time. They don’t want to be hearing from the property manager if you have a good resident. They want to be left alone and that is great. If we leave someone alone, if we’re in their house once a year for five to six years, just doing an inspection, they’re paying rent on time every time. That is a great scenario for you, the owner.
Spencer Sutton:
All right, so let’s move on to the fourth question. What’s the fourth question you should ask a property manager before you hire them? The fourth question I would say is: “Do you have any guarantees? Do you have any guarantees?” I think in today’s world, people want to be reassured. They want to have guarantees. What are some of these guarantees? Because what we have found is that when owners, especially first-time rental house owners, whether you’re a new investor and you’re looking to build a huge portfolio or you’re a homeowner who maybe you’re what we call the “accidental landlord,” right?Maybe you’re moving out of town and you have to rent your home. You don’t want to sell it, so you’re going to rent it. It’s a one-house, one-owner type of thing.
Spencer Sutton:
To me, everybody’s biggest fear is, “What if I get a bad resident that tears up my property? What happens if they don’t pay rent? What if you have to evict them?” I mean, typically, the worst-case scenarios are swirling in people’s mind, and so they’re asking questions. Well, I think this is a great question to ask a potential property manager that you’re going to hire is: “Do you offer any guarantees?”
Spencer Sutton:
Now, I’ve seen all kinds of guarantees. We’ve got a friend out in San Antonio and his company, my goodness, I think he’s got like seven or eight guarantees. Some of them are, I mean, they’re fine, but what are the guarantees? I know that we offer several guarantees and it’s just a way to give the owner a peace of mind, just a peace of mind in knowing that, “Hey, if I turn my property over to these people, then they’re going to stand behind their services.”
Spencer Sutton:
The first one that we have that we offer all new owners that come to us, now, this is not something that is an ongoing guarantee that every owner gets every single time they rent their property, but it’s for all new owners that come on board is we have a 21-day lease guarantee. All that is is, hey, we’re going to rent your property within 21 days, or we’ll give you your first two months of management free. That’s for all new owners. What that is communicating to the owner is, “Hey, we believe in our leasing process.” Right now, as I’m recording this podcast, I mean, our leasing process is dialed in. We are renting properties as fast as we ever have before. That guarantee is one.
Spencer Sutton:
Another one that we have is just we call it the “happiness guarantee.” We’ve had this one for forever. All that means is you can cancel at any time. You are not locked into a contract. Even though you’re signing a management agreement, if you’re not happy for some reason, you can cancel. There’s no cancellation fee, no penalty calls, nothing like that. I mean, ultimately, we want you to be happy and if you’re not happy, then we are not going to lock you into some agreement.
Spencer Sutton:
Another guarantee that we have is a resident eviction guarantee. What that guarantee states is, “Hey, if we have to evict your resident within the first 12 months, we will replace that resident and not charge you a leasing fee.” Just like I said, our leasing process dialed in, it’s very fast, we are renting properties quickly, we are also renting properties to great residents. Our leasing process and how dialed in it is and how careful we are with our screening process, our underwriting process, it’s the best it’s ever been, and so we stand behind the residents we put in these homes, low to moderate-income housing, all the way up to super nice properties, so it’s really saying, “Hey, for some reason, we have to evict the resident within the first 12 months, we’ll replace them without charging the leasing fee.”
Spencer Sutton:
Now, think about this for a second: Why is that guarantee important? Because you could be saying, “Well, of course, you want to put a great resident of the property,” and we do, but you also have to understand that life circumstances happen, right? COVID, just think about COVID. In 2020, what happened? We still had this guarantee, and now there was an eviction moratorium on, right, so we couldn’t do that, not that we were trying to go out and evict people, but the whole point is life happens. Some people get laid off from jobs, some people have personal struggles, and they’re not able to pay rent for some reason, and sometimes residents have to be evicted. That’s just part of the risk of owning rental property. We don’t like it. Nobody likes it. The resident doesn’t like it, the owners don’t like it, but it is what it is. That guarantee is just in there to help an owner feel more at peace, like we are standing behind the residents that we put in these properties.
Spencer Sutton:
Then the last guarantee we have is our maintenance guarantee. This is something that sets us apart from other property managers is that most everything is in-house maintenance. We’re not hiring a bunch of vendors out, we have our people. We found that we can control the quality of the work. It’s much better. We know that all of our people are licensed and insured. Then the maintenance guarantee is just saying, “We’re warrantying our work for 12 months,” so if we fix a faucet and that faucet starts leaking eight months later again, that was what you called us out for, then we’re going to go and take care of that at our expense. We’re not going to charge you for that. We warranty that work. This is a really good question to ask, “Do you have any guarantees?” I would just suggest you probably want to go with a company that does have some guarantees. Then you want to know exactly what those are.
Spencer Sutton:
Then last question we’re going to talk about today, number five is: “How does maintenance work? How does maintenance work and are there any markups?” This is a great question because whether you want to believe it or not, your property is going to have maintenance issues. Now, if you have a brand new build, you’re going to have less maintenance than anybody else, but most of the houses and the properties that we manage are not brand new builds. Now, if your home has just been rehabbed, let’s say you bought a property and we rehabbed it for you, then yes, you should expect less maintenance issues. But for most property owners, there’s going to be maintenance issues at the property. That’s just a part of owning a rental property, and so the question you want to ask is just, “How does maintenance work?” You need to know that.
Spencer Sutton:
I would say there’s a few things to be aware of at this point, but you want to know about the reserve fund. Most property managers are going to require a reserve fund: We need you to keep this amount of money in your account, it’s your money, and we will only use it for repairs. I mean, different property managers are going to be different. I know that ours has been anywhere from 250, currently, it’s at 500. All this does is allow a property manager to take care of issues without calling you or without calling you for money and holding up the issue because the resident is not going to be super happy if it takes you days and days and days to get that money to your property manager, so it allows a property manager to take care of issues without them paying for it, right? They don’t want to go out and buy the materials and pay for the labor. Really, most of the time, most property managers don’t have in-house maintenance like we do, and so they are paying a third-party vendor.
Spencer Sutton:
If you are interviewing a property manager that is using a third-party vendor, what you want to know is, “What are your markups? Do you have any markups on their service?” Most of them do. I mean, that’s very typical, I would say, just because they’re going to manage that vendor. They’re going to make sure the vendor gets the work done and handles everything, gets you a report, and takes care of that for you. As of this recording, we have a 10% markup for any third-party maintenance. Again, vast majority of our work is all in-house, and so it’s just based on an hourly rate that we charge plus materials. That’s the way we do it.
Spencer Sutton:
Again, like I said, our reserve fund is $500, but other companies are going to be all over the board. But you really want to know, how are they going to handle that? Are they going to get you an estimate? Are they going to call you every single time something happens with the property? Are you going to? See, some owners want to be alerted every single time something goes on, like I mentioned, that faucet earlier: “Hey, a faucet’s leaking. We have to go out there. No, no, the owner wants to be communicated with.”
Spencer Sutton:
I’ll tell you, my thought on that is I think that’s just a little too much. You need to let a property manager do their job and you’re going to see what that looks like on your statement every single month if they went out and fixed that faucet, but if you’re requiring a property manager to contact you every single time before you give an approval of a $100 fix, then that is going to slow everything up. The resident is not going to be extremely happy probably with the service, and more than likely, you’re going to have a short-term resident on your hand. I would just say you want to know what the threshold is. Unless you are actually doing the work yourself, if you live in town and you have a brother-in-law who is the handyman and you want them to do the work, then yeah, they’re going to pass all of those work orders on to you. But you do want to get very, very clear about that part of the business, how maintenance works because that is going to be a part of you owning rental property for however long you own it.
Spencer Sutton:
That’s it. Those are the five questions other than the pricing and fee question, which everybody has. Then just again, the specific area, specific house questions. Listen, these are good questions. There may be more that you have that you want to ask. I know we have had people call up and ask us. I want to say I’ve had people ask me 15 questions. I’ve had people send me a list, a document in an email with 20 to 30 questions. I can’t tell you how painful some of that is to answer. Some of it is valid, but some of it is very, very situational, very, very niche, but these are good, five questions are a great starting point that you can ask when hiring a property manager.
Spencer Sutton:
I hope that helps. As always, guys and girls, we would love for you to leave us a review on Apple iTunes. Give us a five-star if you find the information valuable and then leave a review, give your opinion. We’d love to read it and then we’d love for other people to read it as well. We’ll be back next week with another episode of the Birmingham Real Estate Investor Podcast. Talk to you then.
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