Hey guys, it's Clint Coons here.
And in this video, I want to discuss how you select an out-of-state
property manager for your rental real estate.
Okay, let's get started.
Now, this one is near and dear to me, because when I first started investing,
I started buying in indie and I bought a few properties there.
And listen, I got screwed over by my PM.
They not only was it him, it was his kids.
This guy was collecting my rents, telling me that I wasn't making any money,
couldn't keep a tenant in the property, ends up dying.
Have to go out there, find out that the kids that lived in the parent's
house were collecting the rent checks and cashing them.
And I never received a dime.
Now, I don't want one of those horror stories to happen to you.
So I want you to think about
some of the things that I think are really important when it comes to selecting
an out-of-state property management company to manage your real estate.
Now, what is the first thing you got to interview, right?
You pick up the phone, you start finding some PMS,
you got to go out there, you got to call them.
And when you call them, start asking them questions about their processes,
how they handle things that I'm going to get to that
and will tell you what I think needs to be in a good property
management agreement that is going to protect your interest.
But you want to call them.
The second thing I always look at whenever I contact an out-of-state
property manager, how fast do they get back to me if I have to leave a message?
Because you don't want to be dealing
with a property manager that you call on a monday
and you don't hear back on until Thursday, a two weeks down the road.
You want someone who is going to be responsive.
Now what it also like to do is set up a couple of different calls with them
because I want to see whether or not they really, truly want my business.
So I'll say, all right, I want it. Send me some information.
I'm going to look it over some over your agreement.
Can we set up another call to discuss this?
And so I'm trying to suss out now their willingness to work with me.
If it's more of, hey, they were very short sighted, take it or leave it.
That's probably not the individual that or the company
that I am going to want to be working with on a long term basis.
The other thing that you should do is check with local REIA
groups or go out on the internet and other investor
associations like bigger pockets, places like that, and search for property
management companies in a certain area and learn from other investors
what their experiences have been like and who they might recommend
to be a great property manager for your real estate.
That's out of state.
And the other thing I would do is I would ask the property manager for referrals.
You want to find out, hey,
I want to talk to some of the people that are currently working with you
so I can get a sense for their experience in dealing with you.
And then I don't think it's unfair to even ask for the tenants
if they'll give you information on the tenants
and you interview the tenants, because at the end of the day,
you'd want to know from the tenant whether or not
this property manager is responsive,
and if they come out and they take care of the property
whenever the tenant requests something, if something is broken,
do they come out and fix it or are they just ignored
because that's going to reflect on how your rent is going to be collected.
Because as you can imagine, if I'm a tenant in a property
where I don't feel like the management company is doing their job,
well, then I'm not going to do my job, which is to pay.
So those are some of the things that I would look at in selecting it.
Now, what about the agreement?
Because this is ultimately where the rubber is going to hit the road
when you're dealing with the property manager first and foremost, you know, what
I'm going to hit on in that is the fees that the property management
company is going to charge you on a monthly basis.
Now, I've seen a lot of different contracts before, how they build in fees,
you know, maybe it's a percentage of the rent
every month, but then they also have in there
that when they lease out their property, they collect half that first month's lease
payment that goes in as well as a fee they're entitled to collect.
I've seen some that not only they get both of those,
but they also get a percentage on top of any work
that is going to be done on the property.
So if they have to call up a contractor to go out there and fix a plumbing issue,
and maybe that that bid that comes in is $3,000
and you decide to go with it, well, then they're going to collect 4%
on top of that.
And so a lot of these little fees can add up
when you're working with certain property managers.
So you want to go through that and make sure you truly understand
how much they're going to nickel and dime you when they're managing your property.
Now, the other thing I would want to look at is
how much are they going to hold back in my monthly rent for CapEx
or what we call repairs or improvements to the property?
A lot of property managers will hold back between 10%, sometimes 15%
that they'll hold in in a fund for you, like in a trust.
So that when things come up, they don't have to contact you.
They'll just go out and take care of the problem.
Now, it sounds like it's a great idea, but again,
how how much are you going to allow them to hold on to?
I mean, that account can grow rather large.
I know with one of the groups that I work with, 40 properties in Houston,
it's 10% a month.
And that account can get rather high.
But I've built in that when it reaches a certain level, then it stops
and it doesn't.
Then they start paying me out everything
and then if it needs to be refilled, then it will refill up to that level amount.
So you can build something like that in your lease.
You can hold back for CapEx up to 1500 dollars.
After 5000 dollars, you pay everything out to me
and if it drops below,
then we can start holding back again on that percentage basis.
Which brings up the next point.
Whenever there is a repair that needs to be made to your property,
you need to be going in requiring that they send you specific information.
So in the agreement, you should have it spelled out that if there's going to be
any work done, that you get receive pictures of the before and after.
Now I like to see video.
I want them to go out there and video what's actually
is the problem with the property.
And so I can see where the damage is and then I get the after is well video.
So I know that it's actually been repaired as late as they stated it would be.
Now video is also great with the unit itself.
Before they rent the property.
I want video of the property.
I want to see what condition that property is in prior to a tenant moving in.
And then when the tenant moves out and they're going to go in
and they're going to do a refresh on the property,
I want to know exactly what that the condition that property
looks like when the tenant left the property.
Now, why is that important to me?
Well, because then it goes down to whether or not my property
manager is selecting good tenants or not.
If they can then select tenants that are trashing my property,
then I know I have an issue there.
The other thing you want to be aware of is can you get out of this lease?
So the thing that that comes up a lot is property
managers will lock you into a year.
I've even seen two years where you got to stay with them.
And that's just plain old B.S.
If they're doing their job, you're going to stick with them.
But just think of this.
You got a property manager that states the fees are as follows Every time
I release the place, it's going to be a half month's rent.
Okay, I'm fine with that.
But in my agreement though, you only get that once every 12 months.
So if you put a bad tenant in there, you have to release it.
Three months later, you don't get another half month's worth of rent back.
That's all on you at that point in time to release it, because you screw it up,
but assume that your property manager keeps doing this
and making these mistakes for you and you're not making any money
in the property's getting trashed in between.
You should be able to get out of that and say, Hey, I've had six months of this,
no more. I'm switching property management company.
So you want to make sure that you have a good escape
clause, that you're not locked in to that lease for a year or two years.
So I would push for that as well.
I also brought up something there
that that I hope you caught on to is that when we're talking about fees,
that whenever they get a fee for a turn, that that fee should only be paid
at least once every 12, or they can only be eligible for one time
in a 12 month period.
So if they do screw up, as I stated in putting a bad tenant
in there, it's on them to get that property released.
And then the other thing that I think is
is really important is to know when you're going to receive your
monthly payment from your property manager and what that owner statement's
going to look like.
The level of detail that they provide with respect to your property,
do they break each one down, let you know all the expenses
associated with that property?
Are they just sending you one lump sum?
So make sure that you're aware of that.
And if you take all these
into consideration and there's many more that are out there, these are just
some of the things that I've come across in managing my own real estate remotely.
I think you're going to be better served when it comes to investing
outside of the state.
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