Posted Tuesday, December 5th, 2023 by Enterprise Property Management
Mastering Property Management: Your Guide to Rental Success
In this final part to our investment rental property buying guide, we explore the intricate realm of property management with seasoned Realtor and Property Manager Aaron Ivey. In this enlightening episode, Aaron delves into the critical decision of hiring professional property managers versus self-management. He offers invaluable insights while discussing the significance of a property manager’s role, how to initiate the relationship, and the top questions to ask when interviewing a new property managemer. From property evaluation strategies to tenant screening processes, he unveils the key elements that lead to successful real estate investments. Gain a wealth of knowledge and elevate your property investment game.
Richard
0:00:06 – In today’s episode, we’re going to talk specifically about property management, kind of the post-purchase of your first rental property. Let’s talk about that for a minute. Should they hire a professional property management company, or is this something that they can do themselves?
Aaron
0:00:35 – Great question. As a realtor and professional property manager, recommend that someone always have a professional property manager. Memphis has a very, very vibrant property management industry. There are hundreds of property management companies that are out there, anywhere from a 20 property management portfolio, all the way up to a 3,500 unit property portfolio. And those management companies are a benefit most of the time to the owner of those properties. So I would say, unless you are a skilled investor who shows a history of being able to manage properties from a distance, I would advise that you not try to take that challenge on because what you’ll find is that you’re putting yourself at greater risk of expenses, of financial mistakes, of lack of oversight. I would say hire a property manager.
Richard
0:01:27 – And how would that relationship start?
Aaron
0:01:29 – Well, I think it starts by listening. You know, you’re listening to our podcast, so you’re curious about it and you’re curious about property management. I would say the very first thing you need to do is to pick up the phone and call me, and you can call me at 901-207-8702. We’ll repeat that at the end of the podcast. Call me. If not me, and it’s a different city, go online, look at the Google reviews. You can look at my Google reviews. Be careful, there’s another company in California that has my same name, so make sure that you’re looking at the right state. But Enterprise Property Management in Memphis, Tennessee. You can go to my Google, check me out. I’ve had a ton of investors that have come to me and said, Aaron, I’m working with you because I can hear myself and the reviews of these other people. My reviewers, when you read through them, you’ll notice that a lot of times they present challenges that they had and they talk about how Enterprise Property Management helped them get through those challenges or even redeem an investment that they were very dissatisfied with previously because it operates differently when it comes to us. So check out those reviews. Call the people that have positive reviews. If there’s a name of a property manager that’s listed as being like, they were great, they helped me this and that, call that company, ask for that person by name. Try to figure out what makes that company good and then start these questions, start the interview. Second point, back at your question, is that the books that are out there, the podcasts, the websites, BiggerPockets, these entities, whether it be a podcast, a seminar, a website, they all have a list of questions that you should ask your property manager. If you wanna call me with a boilerplate, 15 questions that I’ve answered thousands of times, for you, I will answer them again. I will let you know what’s changed, what’s good, what I recommend, I’ll ask you a lot of questions. So conversation, also incredibly important with a property manager. Everybody that works has worked with me up until this point knows that I’ll spend an hour on the phone with you if you need it and then we could follow up with email. I’ll give you as much of my time as I can to help you feel comfortable with us as your property manager.
Richard
0:03:32 – Let’s put bigger pockets to one side for a minute. What would Aaron Ivy recommend as the three top questions to ask?
Aaron
0:03:37 – That’s great. I’m going to go through these very quickly and we can cover them more later. The first one is tell me about your company. I want to tell investors about Enterprise, who we are, that we are a family company, how we got started, what our values are, things like that. I want to be able to convey that I consider us to be a relatively small company on the grand scale, right, and why I maintain that size. I’ll talk to you about the type of properties that we manage, I’ll talk to you about the concepts of slum lording and how we are not a slum lord. That’s almost slang, guys, at this point, I hate that word. But the point is, there are property managers that aren’t proactive, and then there are property managers like us who are proactive. I think you should ask about fees. Guys, this is about money, and property management isn’t free, so you need to ask me about my fees. We’ve got a great website, it’s got a fee page, and it’s a general overview of our fees. But let’s get specific. Investors, if you’re buying multiple properties and you want to negotiate on some fees, please call me. I love to negotiate. Ask me anything. Where can you save me money? I’ll tell you once we get into a range where it’s no longer profitable for me and I’ll let you make your own decision as to whether or not you want to work with me. And then I think the third, probably most popular question is what are the properties that I want to manage? Now that’s a very me-focused question, but there are 10,000 property managers across the country. Ask them what they want to do. Like where do you shine? What do you enjoy? Where would you buy? You know, ask them their opinions about what to do. Now don’t, I wouldn’t say believe everything they say as if it’s factual, but at least it’s their opinion. So that’d be top three.
Richard
0:05:15 – So let’s talk about establishing what you think we could get for my property. You know, what’s the rental comps gonna look like? How do you establish those?
Aaron
0:05:23 – That’s a great question. This is something I can do in my sleep. We have a multi-stage rent projection process. Let’s say that we’re considering a property that you have no previous history with, you’ve never owned before, and let’s say that the property is vacant. We’re going to try to consider this property for what it eventually will be, all right? So a lot of value-add property, they’re not in move-in ready condition. They need work, they need to be cleaned up, they need to be properly advertised, the applicants need to be vetted, right, like so many things that go into making a property, occupied and cash-flowing. So all of those things aside, the question is what exactly it is that you are willing to put into that property if the property has needs. So once we have the address, let’s say it’s 123 Main Street anywhere USA, we look at the comps around the property, we look at the actual value and any kind of list price for properties that have been purchased in that area over the last year. We want to look at what the rental situation is. So we have access to about unlimited number of rental websites that are out there that tell us the price, the going price. What’s a unit in an apartment building next door worth? Well it’s right there, it’s public information. So we look and we try to see what other properties are renting for within about a mile radius to that property and then we get a little closer to a half mile and we maybe even a quarter mile and we try to get really granular. What is the competition getting for their properties? And then we compile them into a report and send them over to our homeowners and our homeowners are able to see, okay, in a bad economy, I can expect this price. In a great economy, I can expect this price. And then I’ll even go as far as to project one, two, and three years out what I think the properties are going to be worth in the current economic condition. Obviously, I can’t predict when economic conditions change. Nobody wanted these interest rates, for instance, right? Nobody wanted this. But we also couldn’t believe that it was 2% or 2.5% interest rates when they were that low. Nobody could have predicted either the high or the low. So yeah, I love to give projections. And then once you have that information from me, I want you to be able to process that, digest it, put it in your own cash flow spreadsheet to help you come to the conclusion yourself that you’ve made whether or not a property is going to work for you with my projections.
Richard
0:07:32 – One of the things I’ve seen you do in the past is you collect all this information but then you’ll say you know I don’t think that’s quite right because we have homes in this area and we’re renting them for 150, 200 more than that a month so that’s where you’ll set the rent.
Aaron
0:07:52 – It is funny that you should bring that up very recently there’s an investor that we’re working with who is moving a package of seven properties full disclosure this is crazy as we were coming up to this particular recording, I sent a potential buyer that package. And what I did for the buyer and for the seller is I took all of the properties in that package, I listed what they were sold for when they were sold, which was a couple of years ago, what Zillow says that the projected value is, what my private CMA reports, comparative market analysis report, said that those properties were worth, what the projected rents were, and then what the rents are right now, the actual rents are. Well that investor bought that package of properties off of another investor and he hasn’t had the opportunity to renew those leases and raise those rents. So the market range for the actual rents is very low in comparison to the projected rents. They’re literally at 60% of the projected value upon renewal. What I want to do with this guy, if he could keep the portfolio, would be to raise those rents one by one over the course of a year to where he has at least improved his cash flow by 30%, 40%.
Richard
0:09:03 – So let’s talk about the initial tenant screening. Obviously people who bring existing properties to you may already have a tenant in situ, but what’s your screening process? How does that work?
Aaron
0:09:15 – So it’s pretty easy, I’ll try to keep it basic. It’s a three-legged stool. We’re looking for three main things. The first is income. That’s the most basic thing, right? You gotta have income. If you’re trying to rent a property and you don’t make any money, there’s gotta be some other sort of means of income. So you gotta have income. The second thing is you’ve gotta have a good rental history. Memphis is a city where the rate of eviction is higher than in the rest of the country. It’s not terrible guys, it’s not the end of the world, it’s just that there are more evictions in Memphis statistically than there are in the rest of the country. It’s just a fact. I’m looking for those evictions. I’m going through the application process, I’m looking into the court reports for several different things, for personal crimes that may have been committed, for bankruptcies, but I’m also looking for evictions. If they’ve been evicted, I turned a lady down yesterday because she was coming out of an eviction to move into one of my houses. I declined her application. I just said, I’m so sorry. We can’t take you from that situation and put you into a full faith and credit situation with one of our rental properties. Alright, so rental history has got to be good. We talked about court reports and public data. We searched through all of that. Our credit report, which is the third leg to the stool, is run through a local collection agency. This collection agency has got access to skip tracing, to garnishment information, to public record and they send us back over four reports, including a criminal offense report, which includes sexual crimes type reports. And so we get to see everything about this person. And we use all of that information to make a decision, you know, on whether or not this person is creditworthy. Several factors, Richard, it is complicated. But as I’ve said previously, we have about a 99% rate of success. Every now and again something goes wrong, what’s the tenant’s been to the property? It’s a rare occasion, but it can happen.
Richard
0:11:06 – And as a homeowner, I can still say no, even if someone’s passed all these tests?
Aaron
0:11:11 – You can say no as long as we’re not discriminating with the no.
Richard
0:11:17 – I think one of the benefits to me about hiring a property management company is regulations and compliance. How as a property management company do you help people stay in line?
Aaron
0:11:25 – With a great reputation. After 22 years in this business our reputation means so much. Local rules and regulations, to me that falls into three different particular categories. And let me list them out. Please help me remember these points, okay? One would be code enforcement. One would be legal expectations of us as a property management company. So that would be our local court. The third would be not only best practices and how we implement our lease, but also neighborhood and local community associations. Being mindful of where our houses are and what those local organizations require of those houses. Because if you’re renting a house, let’s say in a condominium association, which has a very specific set of rules, that condominium association is not going to care if you’re a tenant or a homeowner. You have to abide within those rules. As a realtor, it’s our responsibility to know what rules are there, to convey those to the tenant, and if the condominium association says that the tenant broke a rule then it’s our responsibility to go to the tenant and say hey as a reminder this is a rule and if there’s a fine then we relay that fine from the association back to the tenant. Good reputation means that that condominium association can call me because they know enterprises that we’re good people and they’re gonna say hey and this has happened trust me guys happens about once a month hey Mr. Ivy you’ve got a house over here in this neighborhood with this tenant, and we are seeing this. We need to correct this. We’ve sent a letter to the tenant. Would you like a copy? Or we’ve sent a letter to the homeowner. Would you like a copy? And then we say yes, of course. And then we help them cure that situation. That is a value of having a property manager. That’s not all on you. Let me go to the first point. Code enforcement is backed up by a court called environmental court. If a tenant is behaving in a junky way, they got a lot of junk in the yard, or if there’s a maintenance issue that we may not know about that’s been happening, then we get a notice from code inspection and the environmental court. In those situations, they give us an opportunity to cure the situation. They say, you have a violation at this property and this is what you need to do to cure it. All of the inspectors in code enforcement know us. They know enterprise property management. We’ve got advocates there and they say, look, I know you’re good people, but you gotta fix this problem. And then what do we do? We fix the problem. So there’s that. And then the courts. We’ve got a great relationship with the General Sessions Court. In fact, this is funny, some of the judges have met all of my children because I’ve had to go to court. We’ve had a childcare situation. So I bring my son or one of my daughters in there with me, and they sit on the bench. They’re very quiet, and the judges meet them. And what’s funny is years and years later, they still ask me about how my kids are doing.
Richard
0:14:12 – That’s brilliant.
Aaron
0:14:13 – It’s such a huge benefit of being in a smaller town to have judges that remember my name. They see me doing good stuff, and the way that we hold on to that good reputation is because we don’t lose a case. Our practices are best practices. Our lease is legal. The way we interact with our tenants is humane. That’s all the courts want to see is that you’re doing right by the resident. We’ve never lost a case. I don’t even have to knock on anything. I’ve got great attorneys and I’ve got a lot of great experience. So I don’t expect to lose a case anytime soon.
Richard
0:14:41 – I mean speaking of attorney and legalese, let’s talk about the lease agreement. You know, it’s a very important document that needs to take into consideration federal, state, and local laws. And it’s essentially the playbook of how a tenant is going to behave during this transaction, how you as the property management and landlord is going to behave in this transaction. How do you protect a homeowner through the lease agreement?
Aaron
0:15:08 – I think the majority of people listening to this podcast are investors or they want to be investors. So that’s who I’m speaking to right now. The lease is written in your favor. Okay, my job is to make sure that our contract with the public is in your favor and that it protects you first. Similar to your insurance policy, it should protect you first, but then also have some protections for the other people that are involved in that relationship. So my lease protects my homeowners. I believe that proper execution of the lease protects us and also protects the tenant because a lease itself is kind of like, it’s a list of rules that everybody is agreeing to abide inside of. I love that you brought up our lease. We recently invested about $3,000 in legal advice to our current corporate attorney so that he could go through the lease as a means of best practices and determine that the lease is fully legally enforceable and also apply any sort of updates from the Landlord Tenant Act to our lease. It was a good investment Richard because now I know that our own attorney who’s going to defend that lease has read over it and says yep it looks good and he also knows our lease and he’s going to be able to call us and tell us when we need to make changes. That’s rare, but it can happen.
Richard
0:16:27 – I think that alone holds value for hiring a property management company. If you’ve been managing alone and hadn’t kept up on tenant laws, your lease quite possibly could go to court and just fall flat on its face.
Aaron
0:16:37 – I’ve seen that happen in court. Verbal leases, which obviously we would never do. A verbal lease, you’re asking for so much trouble. It’s about as much use as the paper it’s not written on. Exactly and it leaves the judge exasperated. I’d love for you to come to court with me someday and like watch a judge lose their cool on people. Landlords that are bad landlords, oh man, they cannot leave that courtroom without feeling ashamed or at least an attempt at shaming them for inhumane actions or overly burdensome requirements. Like we don’t do any of that. Going back to the application process, we vet people who are capable of doing what’s in the lease. Everything is fair and everybody’s capable. If you get that mix, you’re rarely in court. In fact, here’s a quick point. I almost always only go to court on people that I’ve inherited from the seller, right? So like my buyer bought a package, let’s say of five properties, four of them were occupied. So I’ve inherited those leases. I didn’t vet those people and so with these people that we’re bringing on They don’t know our release. They haven’t signed our lease They haven’t had an interaction with us So the expectation that they have of me and that they think I have of them is from the last guy and if that guy was A jerk, they’re gonna expect me to be a jerk if that guy was Neglectful, they’re gonna expect me to be neglectful, dude We do everything within our power to say we’re here we care we’re coming into your house, we want to see what’s going on, and we want to make repairs and treat you reasonably, fairly, right? Like that’s what we’re gonna do.
Richard
0:18:08 – In a previous episode we talked in great detail about the eviction process. What are the benefits from having a property management company to manage that process?
Aaron
0:18:16 – Relationship with the attorney is key. There are huge companies here in town that have relationships with huge attorney groups and law firms, and there’s little to no relationship there. It’s more of a boilerplate, wash, rinse, repeat. I mean, like that’s how they do each eviction. These larger firms, they’re not taking the tenant into account. They’re not considering their needs. They’re not flexible with the tenant. So where there’s no relationship, I don’t think things can be very reasonable, right? It’s just processed, and people get chewed up in that process and that’s not what we want to do. We don’t want to cause harm to anybody. We don’t want anybody to be harmed because they did business with us. Let’s say that there’s a tenant, it’s a hopeless eviction case, they’re never going to be able to catch up, all right? In those situations we actually have a consultation with the tenant and we say, look, we’re gonna have to get this property back, which means we’re gonna have to set you out. But you can leave voluntarily. If you go rent a truck, my set-out crew will load your truck with your stuff, and they’ll do that without charging you. Like, we don’t want your family to be caused harm, but you can’t stay here anymore. Right? So that’s our attitude. Treat people respectfully.
Richard
0:19:33 – Let’s talk about rent collection, the process of rent collection and then rent dispersions. How does that work within enterprise and what should be the expectation of a property management company?
Aaron
0:19:41 – Yeah, I’m actually going to combine your question about rent collection with financial reporting and accounting. We have a full-time collections agent that works for us five days a week. She’s always going over the notes, the ledgers, she’s making sure that everybody is being notified if there are delays in rent payment. She notifies homeowners as soon as the rent is late she notifies the homeowners and she also reaches out to the tenant and says here I am at this telephone number please call me your rent is not yet paid and we need to understand your plan to pay the rent that’s rent collection and she’s excellent she will talk to me and let me know when she thinks that a tenant is no longer going to be able to maintain their obligation and in that situation she’ll say Aaron you know this is one that I think you should recommend to the homeowner to file for eviction. And then a member of our team will reach out to the homeowner and say, this is how the eviction process works. We don’t believe that your tenant is going to be able to recover, and we advise that you file for their eviction. At that point, it goes to our attorney and our private process server. Once the decision is made, we are usually in court within 10 to 14 days. And if the tenant either shows up and conveys to the court that yes, they do owe the money, or if the tenant shows up and says, I’m gonna move out voluntarily, or if the tenant doesn’t show up, then we get the property 10 days from that court date. All in, best case scenario, from the day that we file for eviction, we can have the tenant out in three weeks. Best case scenario. Worst case scenario, there are states here in the United States, on the coast especially, where it may take three to six months to evict a tenant. Worst case scenario, even if we have complications like bankruptcy, like tenant bankruptcy, worst case scenario we can usually have a tenant out in 45 days. I can’t take credit for that. We’ve trimmed it down as quickly as possible. Really that’s our city. If you’re going to invest in Memphis, we all go see the same judges. And our court system is one that expedites evictions in a fair manner. And so we benefit from that.
Richard
0:21:41 – So before we come back to financial reporting and accounting, let’s talk about home inspections and maintenance and repairs.
Aaron
0:21:45 – Let’s change the verbiage a little bit. We call them quarterly inspections, but it’s important that our homeowners know that this really what it is. It’s a maintenance snapshot or we call it a maintenance report card, right? Just like your kid, you get your report cards on your child anywhere from four to eight times a year. Is this commonplace for property management companies or is this fairly unique to you? It is fairly unique to us. Okay, so you do inspections as another way essentially to set eyes on the property I guess? Correct, and create documentation for the property condition. So the way that we do that is we have a couple of property maintenance systems that we use that are electronic. One that we work with is called PropertyMeld, M-E-L-D, and it is a fully collaborative system through which the tenant, the owner, the vendor, and the property manager all have the ability to communicate in several different strings on each work order. In that system, we are also able to upload photographs, reports, recommendations, estimates, and invoices. It’s a brilliant system. It cuts out a lot of the verbal communication because people can just log on and get that information in real time, obviously 24 hours a day, because maintenance doesn’t stop after five o’clock. We also have a maintenance team that works 24 hours a day to do intake, to understand if the situation is an emergency or not an emergency, and then to implement a proper strategy. Another crazy thing that’s, I think, somewhat unique to enterprise property management is homeowners can tell us exactly how they want maintenance to be performed. For instance, they can say, Aaron, I don’t care who you send, I know that you trust your people, just send whoever you trust, right? That’s one way. And that’s what most of our investors do. Another way is with a home warranty. There’s not one that I endorse, but if you want to talk to me further about my experience with home warranties, we can do that on a phone call. A home warranty is similar to property insurance in that you are committing to pay a premium for services which cover certain aspects of home maintenance in your home, and then when one of those services goes down or fails, then you pay a deductible, usually it’s $75, premiums are usually around $1,000. You pay a $75 deductible, more or less, to have a contractor that we didn’t hire, but that the home warranty company hired to go out and perform the maintenance. I don’t necessarily endorse home warranties just because I have, if you have a home warranty company that’s performing the maintenance, I lose a lot of the control that I have over how that maintenance is performed, the speed, the quality. So I don’t care for them, but investors do have them, and we will operate them without an additional charge. And then the third aspect of maintenance is I have tons of homeowners that have large portfolios, 10 to 30 houses, and they have their own maintenance crews, and they want me to use them. If that’s what you want me to do, absolutely. All I need is the information, how to communicate with them. We put that into the property mail system, and then it doesn’t matter who answers the call, the person that the homeowner designates for maintenance is going to perform that maintenance. Our home inspections actually go into property mail as well. So the inspector, and we have three inspectors that we work with, will visit the property on whatever basis the homeowner chooses. So the homeowner may choose a quarterly basis, so that would be four times a year. The homeowner may choose a semi-annual basis or they may choose an annual basis. Work with me on the math here because it can get a little confusing. We perform on a quarterly inspection program, we perform three inspections with one inspector and then once a year we have another inspector to go in and do the renewal inspection. That would be three quarterly inspections and one renewal. If it’s a semi-annual, then that means two inspections and a renewal, and if it’s an annual inspection, then that means it’s one non-renewal inspection and then a renewal inspection. I know that’s complicated, but the point is, even if you were to choose no inspections, your house is still going to be inspected upon lease renewal. That one inspection alone is more than the vast majority of property managers will ever do. So you can get one to four inspections annually. The findings of those inspections, the pictures, the notes, the estimates are going to be posted on PropertyMeld and then all of that information sent to the homeowner so that they can review it with one of my maintenance staff and determine what work, if any, needs to be done for maintenance and then it also tells our property managers whether or not there are lease infringements or ways in which the tenant is breaking the lease that need to be addressed by letter, by phone call, and potentially by eviction, which those are rare, but it’s good to have.
Richard
0:26:35 – Let’s talk again about financial reporting and accounting. We just talked about maintenance and inspections and presumably costs would be incurred as part of that process. So what do you detail in the financial reporting?
Aaron
0:26:51 – So our financial reporting and our bookkeeping system is based in another software called Property Boss. Property Boss is kind of like the great-grandfather of all of these new systems that are out there. A lot of investors work with something called Appfolio. That’s probably the biggest one. Another classic one is Yardy. So those are just two examples. Property Boss is very small. It’s server-based. It is QuickBooks compatible. And a lot of investors use QuickBooks and Excel to do their own personal accounting. So the cool thing, number one, about their reporting is that you can take that report, put it in your QuickBooks or your Excel, and have your own financial report. So there’s flexibility there. That’s kind of neat. The answer to your question about what’s included in the reporting is we include the tenant’s lease performance, when their rent has been paid, the amount of rent that they’ve paid. We are able to track through those statements if a tenant is having trouble paying rent or is struggling in some other way. The reporting also covers all expenses. So any sort of expenses that are incurred on the property are reported in 30-day blocks. Those are all in there. You can see what your cash did that month. And then if there are any extra services that we have to spend money on, let’s say legal fees for one, that would show up in the report. And we report every month from the 16th through the 15th. Disbursements and electronic reporting goes out of our office, it’s all electronic, nothing in the mail, on the 15th of every month.
Richard
0:28:22 – So I think that covers all the bases relative to the services that a property management company could offer someone, and anything that we’ve not covered probably is the minutiae where they need to speak to you or someone specifically about their own unique circumstances.
Aaron
0:28:36 – Absolutely. I think that the one main topic that we didn’t cover, which is kind of obvious in our podcast, is that we do sales as well. We help investors with acquisition and we help investors with liquidation, and there every now and again are super cool ways that we can join a buyer and a seller inside of our same brokerage and Help both of them meet their goals and we can talk about that in a future podcast But sales is a huge part of property management just because our name is property management doesn’t mean that we don’t do sales So whatever we can do for you and the way of real estate here in Memphis, Tennessee We ask that you just give us a call talk to me I can’t wait to speak with you talk about your goals and aspirations, and let you know how we can help you get where you wanna go.
Richard
0:29:18 – What’s that number again, Aaron?
Aaron
0:29:19 – The number is 901-207-8702.
Published in .
