Hassle-Free Property Management

Dear Friend,
 

   I have divided my Real Estate ventures into two areas. The first is my Business. And the second deals with my Investments. Business and Investments.

   It's no more difficult than that. They are two separate and distinct ventures. The business side is my cash generation side. The other is my financial freedom side.

   The business side of Real Estate is the "buy and sell" side. It's where you and I can generate lump sums of cash.

   It requires our constant presence!

   If we don't work... the business comes to a grinding halt... plain and simple. For this reason, I call this side the Rat Race. If you have ever read any of Robert Kiyosaki's books, you know what I mean.

   On this side of the line, if you don't work you don't eat. On the flip side... the better business is the busier you become and the harder you have to run.

   The Rat Race is very dependent on YOU. If you get sick, everything shuts down. If you get busy, you just have to work that much harder to keep up.

   This side of the business, hopefully, is not permanent. You see... the whole idea is to generate enough cash over here in the Rat Race... to spend it wisely over on the other side, namely the investment side of Real Estate.

   The definition of Financial Freedom is when your passive income exceeds the cost of maintaining your lifestyle.

   In other words, to escape the Rat Race you have to use your cash wisely to help build up your passive income. Once your passive income exceeds the demands of your lifestyle then you don't have to get out of bed if you don't want to.

   You have it made.

   Your time is no longer eaten up by the rigors of the Rat Race. Your investments are working for you... generating passive income and providing for your needs.

   And with single family houses... it really doesn't take that many — if you can pay off the debt — to reach this point of Financial Freedom. In fact, I just spent a couple of days with a relatively late bloomer who's goal it was to own a dozen - three bedroom two bath houses — free and clear.

   He reached this goal much sooner than he projected and is now, by definition, financially free. Think about what kind of income you would have with this same portfolio of homes in your market. Would you consider yourself independently wealthy?

   I've owned single family homes for over 24 years. It has never been my goal to own 100 houses. Quite frankly, I just don't want to work that hard. Plus I don't think it's necessary. It's a bit of overkill if you ask me.

   I have found that working alone (as a one man band), I can comfortably own and manage up to 20 single family homes without going crazy.

   And, with the advent of inexpensive Personal Computers that will run sophisticated — yet affordable — property management software, the task of keeping up becomes even less time consuming.

   Yet, with all of this sophistication available to you and I today... at affordable prices... the key to owning a successful portfolio of homes is still good property management.

   Having a good Property Management System up and running will help insure your success as a wealth builder. Some people have been able to delegate this portion of their business with varying degrees of success, but for the individual investor, it becomes imperative to master this skill and learn to do it yourself.

   In fact, nobody is as interested in your money as you are. Truth of the matter is this: Nobody will do as good of a job with property management as you will.

   There are a lot of different elements to a good Property Management System. You need a solid management philosophy... a method of attracting good tenants... a system for qualifying prospective tenants... a reliable way to track and monitor maintenance... a solid, efficient collection system... a plan for continuing education so as to stay abreast of changing laws, as well as, any new developments in the management field... and a good record keeping system.

   In addition, you need rental applications, leases, inspection sheets, property profiles, addendum's, policy and procedure manuals, collection letters, and on and on.

   You need a lot of forms.

   And all of this needs to fit together flawlessly to form a complete Property Management System. We'll talk a little later about the quickest and easiest way to be up and running with your own complete system. But remember... the whole purpose is to increase your efficiency and property cash flow... freeing up your time... while adding value to your long term investments.

   Working with Tenants can sometimes be a love/hate relationship. When you get a Tenant that pays on time... occupies your house for years and years... and maintains your property like it was their own... you love them to death.

   On the other hand, when you get a Tenant who is always late with their rent payment (one you have to chase each month)... one who is constantly complaining about every little thing... and one who tears your property up in the short time they live there... then the word "hate" doesn't go far enough because these Tenants have caused you so much grief and money!

   Unfortunately, the second group (the bad Tenants) are the ones that most often shape our Management Philosophy. We have to be protective of our Investments, but we also need to treat people the way we would like to be treated.

   In my opinion, if you want to become a good Property Manager... maximizing your income while minimizing your expenses... and maintain the highest property values possible, then you have to have a combination of solid business procedures and people skills.

   What does this involve? Well, it involves selecting the right tenant for your property at the right rental rate (not too high and not too low)... maintaining and improving your property on a sensible basis while avoiding troublesome situations when dealing with your tenants, contractors, neighbors or a bureaucrat at any level.

   With the right business procedures and people skills, you can develop a "Hassle-Free" Property Management System. Your goal should be efficiency — getting more done with less time and effort — while still maintaining the high standards you set for yourself and your Tenants.

   You can and should set high standards for your Tenants, and then motivate them to meet or exceed your standards. You can not accomplish this if you are demeaning or degrading. You have to treat people with respect (while holding them to a higher standard). Don't just demand excellence... offer help, support and guidance.

   This is a long term proposition, isn't it? Sure it is. But so is the underlying Investment Strategy (the "Buy and Hold" Strategy). So, be in business for the long haul.

   Adopting the right Management Philosophy — coupled with solid business procedures and critical people skills — you can maintain your sanity and avoid "Burn-out" in your quest to become a "Hassle-Free" Property Manager.

   Of all the things involved in Property Management, I don't think there is anything more critical to your long term success than developing a good Tenant Selection system.

   Here in Jackson, Mississippi, as with most places around the country today, your phone will literally ring off the wall if you place a "For Rent" ad in the local paper. What this indicates to me is that demand is high for Rental Housing.

   So... the pool of potential Tenants is large.

   The key to selecting a good tenant is taking your time and qualifying your Tenant.

   There are people skills involved here. You should be friendly, open and treat people with respect. But, at the same time, you have to ask probing — and some times personal — questions.

   This is where having a Tenant Selection System is critical. In order to stay in conformity with Federal, State and Local guidelines, you cannot (and should not) discriminate against potential Tenants on the basis of race, sex, sexual preference, age, etc. Hopefully, you know this drill by now!

   But, you should be looking at your potential Tenant's ability to pay, along with their willingness to conform to your residency guidelines. This is where asking the right questions and performing your "due diligence" is so critical.

   First of all, you need to attract Tenants with your marketing. This can be done with a combination of classified ads, yard signs and referrals.

   As we discussed earlier... attracting Tenants isn't difficult right now. You might even want to use a qualifier in your marketing to cut down on the number of calls your receive (at some point, a high volume of calls is no longer desirable).

   Remember, the purpose of your marketing is to get people to pick up the phone and call. It's a two step process. You can inject qualifiers in your ad... such as deposit requirements or rental amounts... but your goal remains the same... to get the potential Tenant to pick up the phone and call you.

   I've kidded around for some time now about testing a local 900 or 976 toll number ($1.95 to $2.95 total charge) because of the high volume of calls I receive from my yard signs and classified ads.

   I would take these calls and drop them into a voice mail system where they could listen to an outgoing message describing a particular property or properties available. Of course, this outgoing message would add another layer of qualification and give those who are truly interested (and qualified) the next step in the system.

   I don't know what kind of heat this will generate, but I think I'm going to test it (primarily because I get so many phone calls). The volume is such now that it's hard to keep up. By the time I finish talking to one person, I have two messages waiting for me. This can be very frustrating.

   Back to our system.

   You may want to invest in the telephone company's product called Message Link. This is a telephone number with a voice mailbox attached. There is no land line. Thus my nickname... the "voice mailbox in the sky".

   These are fairly inexpensive and run about $12-15 per month each. If you have more than one property available, you could afford to have two or three of these numbers.

   The big advantage to a using Message Link services is that you can give the repetitive property feature information out and begin to loosely qualify your prospects without any time involvement on your part. Plus... this type of technology will handle multiple calls simultaneously thus avoiding the dreaded busy signal. A big plus!

   Ideally, you will want to put the most time intensive part of your marketing effort on automatic pilot. If you could somehow set up a system that would produce 3-5 loosely qualified prospect from which to choose... out of the 100 that call... you would have saved yourself a whole lot of time.

   How can you do this?

   Well, the Message Link service is a start. In your outgoing message describe the features of the property, as well as, any qualifications you would like to mention. Then give the prospective tenants directions on how to proceed.

   You could give them your direct line phone number to call if interested. Or, you could let them know where you are located and instruct them to come by to fill out an application. Or, and probably the best, is to give them the address of the property with directions on how to get there... and ask them to drive by and check out the property and the neighborhood... to insure it meets with their requirements.

   You could leave contact information at the property... or further instructions... or applications... or whatever. The point is: Your time investment up to this point is nil. How many people have rented a house without seeing it or checking out the neighborhood? Maybe some. But most want to take a look first.

   This is why yard signs are so effective. People are already looking and riding through the neighborhood. They are already comfortable with the area, or they wouldn't have seen your sign in the first place.

   In your outgoing voice mail message you could motivate them to follow your system... by telling them the property is available on a first come, first serve basis... and if they are interested they need to take action now (a sense of urgency).

   You could make them some sort of limited time offer, or offer them a FREE gift or rental amenity if they respond in a timely fashion.

   Or, you could tell them when you will be holding an Open House so they can see the inside and fill out an application. You could also offer the same incentives and motivators — as above — for those that respond to this method.

   Every Tenant, without exception, needs to fill out a Rental Application. This is where you gather information on the prospects current residency... his employment... the type of auto he drives... his bank and credit references, as well as, that of his or her spouse (if any).

   This is where the prospect also gives you permission to check into his references and investigate his credit files. By signing this application, the prospect attests to the accuracy of the information given and acknowledges that you will be relying on the accuracy of this information.

   We charge a non-refundable $20 application fee and will not process an application without it. This is a qualifier in itself, isn't it?

   The $20 covers the cost of pulling a credit report and verifying the information on their application. Plus, it gives the prospect an investment in us. Very important.

   There is a theory I want to introduce you to. It's called Convergence.

   Convergence is the intersection and availability of different thoughts, ideas, tools, technology, education, etc... and the opportunity that is created because of this unique intersection.

   For example, take the personal computer.

   Personal Computers just came into existence in the last 12-15 years. Right now... today... they are cheaper, more powerful, and easier to use than ever before. They are a tremendous tool for all of us.

   Then there is the Internet (which wasn't even in existence just a few years ago). Will this affect the way you do business? You better believe it will.

   What about Mobile Phones? Have they changed the way you do business yet? They have for me. They were just a pipe dream when I first entered this business. Now, they are an integral tool.

   The same goes for the ability to accept credit cards, bank drafts, utilizing new and improved software, taking advantage of the wonderful world of education available through weekend seminars, lower interest rates, cheaper airline tickets, improved and fast methods of communication like Email, and over-night delivery. The list goes on and on.

   But guess what?

   All of these tools and ideas have converged... right now... today! Never before in the history of the world have these items discussed been available for use at the same time. Most of them didn't even exist just a few years ago.

   They have all converged at this point in time. You gotta grasp the importance of this... or you'll be left behind... just like the dinosaurs.

   Right now today, the average cat has the horsepower available to him or her... to be more productive... operate on a higher level... and generate unbelievable amounts of income... without the crippling overhead or need for large sums of capital.

   It's called convergence. And it is so very powerful!

   Must have been a Sun storm or something. Onward...

   The point is: You could probably survive without a Personal Computer, but you could prosper with one. It's a tool that makes life easier and more productive.

   Property Management requires a lot of forms, documents, letters, accounting, record keeping and on and on. The Personal Computer was designed to keep up with things like this and give you instant access to the information.

   For example, we subscribe to TransUnion Credit Bureau. We have the ability — through the use of software and a personal computer with access to the Internet... to access a prospects credit files. Total time invested is approximately 5 minutes. Incredible!

   With a personal computer and a full featured accounting or property management software package you can also track rents rolls... late fees... maintenance... inventory... property pictures... lease expirations... evictions... vendors... contractors...etc.

   Utilizing this technology will make you more efficient and save you time. With this type of setup, one person can out perform a 5 person manual system operation... saving you both time and money.

   Once you have found the right potential Tenants and they have met your pre-qualification criteria, it's vitally important that you sit down and spend some time with them indoctrinating them to your rental program.

   This process could take as much as an hour or hour and a half, but it is so critical to your success and the hassle-free feature of your program.

   During this time, you need to go over all the paperwork in detail. If an item is important enough to have in your Rental Agreement, it's important enough to discuss. Take your time and make sure your Tenant understands everything and has all of their questions answered.

   Get the proper signatures and initials where necessary.

   This is where you negotiate peoples expectations. Tell them what benefits they can expect from you when they perform as agreed. Also, tell them what happens when they don't do what they have agreed to do.

   Offer them incentives to pay on or before the first of each month... such as Rental Discounts. Offer them incentives for taking care of the minor problems any home encounters. Offer them other perks and benefits for abiding by your agreements.

   And lastly, insure that you make all the proper disclosures (such as the lead base paint disclosures) to limit your liability and stay in compliance. No small task.

Best of Real Estate Success!


Scott Britton

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