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Protecting Your Real Estate Investments: Property Management, Expense Control, and Investor Relations · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this and you just don't know where to
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  start? It's okay. Are you someone that has invested,
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  but you feel stuck, you feel like you've lost
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  momentum, you don't know where to really head
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  from here? Are you a seasoned real estate investor
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  who is doing great, but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. One of the things I do
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  is you want to make sure that they're always
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  within 5 % of the budget. And that means they
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  give you a monthly report and they're 10%. That
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  doesn't mean it's a critical issue if it happens
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  once and you get together and you find out what
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  you can do to fix the problem. If you're consistently
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  5 plus percent over your budget, Well, what's
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  that mean? At the end of the year, you're going
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  to be 5 % plus over your total expenses, which
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  means you're 5 % lower on what you have to pay
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  out to your investors. So you always want to
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  be keeping a tab on that on a monthly basis.
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  Let's see invoices you want to make sure invoices
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  are getting into the system in a timely manner
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  Now that's in the reports that you just saw before
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  that was what was happening We were not they
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  they were not putting invoices in for well over
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  60 90 and more days So when we thought we had
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  expenses under control then all of a sudden we
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  got hit slammed with literally when we went to
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  to give this property manager notice, they gave
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  us a bill of $37 ,000 of past due bills that
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  they just didn't even have in the system. So
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  all this time when we were thinking our expenses
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  were under control, they weren't, because they
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  just weren't paying the bills. So unfortunately,
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  that's a little bit hard, but you want to have
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  language in there that if they don't put it in
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  there within a timely manner, that they own the
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  bill, that they're responsible for paying for
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  it if it's not in the system. You should always
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  have that you have the right to cancel a contract
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  within 30 days. And again, like I said, if you
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  have to bring in a new property manager, it's
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  worth your money to pay one property manager
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  for 30 days, even though they're gone and not
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  going to be managing the property anymore. You
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  want to make sure that you're getting your monthly
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  reports no less than 15 days after the close
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  of the month. If they aren't able to close the
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  books and try to write your report in essentially
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  two weeks, something's going on. Something's
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  going wrong. So that's definitely a red flag
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  if that's happening. You want to make sure that
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  your budget is approved and agreed to prior to
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  executing the deal. Because if you're going in
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  without a budget that everybody agrees to managing
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  to, then they can just do whatever they want.
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  And they basically are going to come back to
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  you and say, well, we didn't really have a budget.
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  Well, you want to make sure that people have
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  bought into the budget and they've signed off
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  on it. You want to keep your expenses in a smaller
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  property like the one that I'm talking about.
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  You want to have your expenses around, you know,
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  a thousand fifteen hundred dollars. Otherwise,
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  they have to at least let you know. It doesn't
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  mean you're not going to approve it. Obviously,
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  if an air conditioning unit breaks, those can
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  be $5 ,000, $6 ,000. You're not going to say
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  no, but you need to be aware of those situations
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  and the expenses that are coming in. I know a
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  lot of property managers will have in their contract
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  that it has to be over $10 ,000. Well, if you've
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  got a small property under 100 units and you
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  get hit slammed with a $10 ,000 bill that they
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  didn't even tell you about or a $9 ,500 bill
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  that they didn't tell you about, that's going
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  to kill your revenue for that. month. So you
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  really want to keep that number as low as possible.
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  Again, you're not going to say no, but you just
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  need to be made aware that there's a large expense
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  coming in. You want to make sure that if the
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  property management isn't meeting the key performing
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  indexes, I put KPIs in here so most of you probably
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  know what those are, but just in case you don't,
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  it's your key performing index, your criteria
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  for the property manager. If they're not meeting
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  them, you know, you don't want to give them three,
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  four, or five months, you know, give them two.
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  If they aren't starting to turn things around,
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  then you want to be replacing your property manager.
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  It doesn't mean you want to replace the property
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  management company necessarily, but you definitely
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  want to have a property manager that is able
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  to manage this property. And then it would be
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  great, especially in this day and age. The property
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  management company has an umbrella insurance
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  policy. Because I don't know about you guys,
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  but insurance is going through the roof these
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  days. So if there's a way for you to maximize
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  and be on somebody else's umbrella policy to
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  bring down the cost, that's always something
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  that's going to help you in the long run. Ultimately,
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  if your property manager is not willing to do
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  Most, if not all of these. And you can negotiate
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  the terms within some level of margin of error.
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  But if they're not willing to do this, that's
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  not a property manager you want. You are going
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  to end up regretting your decision. So I highly
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  recommend you take that. So every property doesn't
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  always run smoothly all the time. There's going
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  to be challenges. There's going to be difficulties,
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  without a doubt. There are very few to no problems
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  that are insurmountable. But what I want to advise
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  everybody, this is a team sport we're all in.
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  Especially in the beginning, until you grow your
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  business that you can hire your own asset managers,
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  hire your own investor relations people, you're
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  partnering with people. And you want, the goal
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  is to be partnering to work together to have
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  successful investments. So don't get yourselves
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  wrapped around the... pointing fingers. He said,
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  she said nasty crap. Excuse my French, that's
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  not too bad a word. But you know, don't be doing
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  that because it's only going to make the situation
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  ugly. You're not going to want to talk to each
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  other anymore. You're not going to want to work
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  together. And that serves nothing because you're
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  in this deal for three, five, seven years. And
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  that can be a painful three, five, seven years
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  if you all hate each other. So just don't get
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  involved. If you don't feel like you're being
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  heard or your questions aren't being answered,
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  pick the phone and call the person. Nobody should
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  feel, one, don't feel, allow yourself to feel
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  like you're not being heard. But if that is the
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  case, I don't think there's too many people that
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  do it deliberately. So just pick up the phone
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  and call them and let's work things out. But
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  once you get into that ugliness and the nasty
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  emails that will go back and forth, and God forbid,
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  Do not copy everybody and their brother on stuff.
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  If you've got a problem, iron it out. We're all
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  adults. Work it out. Come to a resolution. Nasty
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  emails that have everybody and their brother
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  copied on it just makes for really bad relationships.
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  And then, you know, once the problem will get
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  resolved, but what's not going to get resolved,
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  there's the anger, the hurt feelings and the
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  mistrust. And that's going to carry on for the
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  life of the, you know, the life of the property.
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  So let's all work together for successful. But
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  the most important thing is your investors. We
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  all are getting into this for ourselves and our
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  investors. And so you want to make sure you're
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  always communicating with your investors in a
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  timely manner. And by that, I mean, obviously,
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  you're not going to tell them on a daily basis
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  every problem that happened. But if you've got
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  a big problem, you want to, in the month end,
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  say, hey, investors, we just want to make you
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  aware of this situation, but you're telling them
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  the problem, but you bring them a solution. Don't
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  go to them and say, oh, we've got a problem.
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  because they're there with their money and they
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  want to make sure that they've put their money
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  in you, they've trusted you. So bring them the
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  problem, but also bring them the solution that
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  you're working toward to fix the problem. And
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  that will help you alleviate any mistrust or
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  anxiety that your investors have. They do understand
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  on occasion that distributions maybe can't get
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  paid out because of something, but what they
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  don't want to see is that it's happening consistently.
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  and they don't want to see that every time you
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  talk to them there's a problem but no solution
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  to fix the problem. So you know that's all you
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  know from me to you that's really what you want
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  to do you want to be hey Mr. Investor we really
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  appreciate your time and your money and we just
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  want to let you know what's going on on the property
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  you should have no less than a monthly email
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  to your investors to let them know what's going
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  on on the property. You don't have to go into
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  extensive reports, but you do want to let them
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  know what's going on at a minimum on a monthly
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  basis. And then maybe quarterly, you give them
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  some financial reports that they can read. And
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  then that's it everybody. So thank you for taking
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  the time to hear me, but Angel, there we go.
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  Awesome. So I will second so much of that. So
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  just going back with like hostile takeover type
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  situation, we have done both. And some people
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  are like, well, you've only got two properties,
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  but on the first property we had, we kept the
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  property manager and it just moved over. Well,
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  with the second one, we liked our property manager
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  from the first one. We like, we love our regional.
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  She's amazing. And so went in and When you hear
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  hostile takeover, it sounds way worse than it
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  actually is Most people are very professional
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  So on the day that we got the second property
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  and we got the keys walked in The current property
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  manager was there or their regional for her was
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  there and she Handed us a few items and then
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  left and the locks were immediately changed and
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  And that was it It's it's not a brawl it's there's
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  not there's not usually a bunch of fighting um
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  at least not that i've seen it was really pretty
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  pretty smooth um i would imagine that if you've
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  been having problems with the property manager
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  it might get a little uglier um and in those
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  cases like from what i've been told and what
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  i've heard is you do not warn them that you are
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  coming exactly you show up and you may have to
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  bring I think one girl was saying that they actually
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  had police come to escort the other the other
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  team off property so that it didn't have the
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  opportunity to get ugly but if they know you're
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  coming they might steal stuff they might break
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  stuff there's there's things that they might
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  do and so you don't want that team to know when
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  you're coming if you're coming you just come
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  in and that is more of like a takeover kind of
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  situation. But if you're worried about it being
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  ugly or getting difficult, you can ask the police
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  to come with you. So I've heard about kind of
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  those situations too. So it's not uncommon, but
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  it's not necessarily the norm either. So, but
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  we did have someone on site that wasn't that
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  wasn't entering invoices on time and like what
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  you said you can't just not have invoice center
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  because then you think that you're doing your
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  properties doing well and then all of a sudden
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  everything gets entered and you're not doing
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  so great um and that was taken care of by our
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  regional and it was fine we found out about it
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  like a week or two later that this particular
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  person had been replaced and this is why they
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  were replaced and um A replacement had already
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  been found and she would be starting in like
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  a week or two after that. So it was, that's kind
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  of like what you were saying. Like when you're
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  going to investors, don't just come with a problem.
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  Hey, the onsite person isn't entering invoices.
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  It was, you know, we had to replace the onsite
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  person because this was going on replacement
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  starts in a week or two. Um, so it was, yeah,
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  I mean, it was awesome. It wasn't awesome, but
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  the fact that it was taken care of quickly was
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  great. Um, It was really nice that it was just
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  taken care of. As far as the operating account,
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  again, we've had both situations. First property,
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  we can see it, but we can't maneuver anything
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  in it. Second property, we have control of the
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  account. Now, I don't think the property management
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  company likes that very much. But at the same
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  time, there's a little bit of a disconnect somewhere
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  because we keep being told that with certain
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  number of payments or whatever, that the general
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  ledger is going to be in the negative and we're
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  like, there's no way it can be because we're
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  looking at the account. We know what checks have
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  cleared. So it's a little confusing to us, but
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  one of the reasons why we needed to own that
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  operating account was because one of the things
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  we've noticed is if the property management company
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  thinks there's a lot of money in the account,
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  it gets spent. Yeah, it's amazing how that works,
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  how the expenses always seem to meet the income
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  as opposed to the budget. Yeah, but we've been
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  in both situations and I don't know which one
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  is better because there's problems with each.
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  So why I recommend the way that I did is with
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  my example that is my favorite example in life
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  so we've got a property management company that
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  had control of the bank accounts and We gave
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  them notice that we were replacing them well
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  then Because they had they literally took every
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  amount of money that we had in that account and
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  managed to again make the expenses meet and exceed
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  the amount of money that's in there. So now when
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  we've left, they've given us an invoice of money
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  owed, of which we're Basically, it hasn't been
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  done yet, so hopefully this will show up and
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  they won't see it until after the effect. But
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  we're going to be letting them know that, you
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  know, a forensic audit of their accounting might
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  be necessary if they pursue us paying them even
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  more money because they did not have stuff in
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  the system. They didn't have, you know, it wasn't
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  accounted for prior to, you know, their last
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  day, you know, on site that all of these expenses
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  materialized after the fact.