Welcome to Mentorship Monday guys. My name is Matt. This is Justin.
I'm pointing the wrong way, he's over here. That's awesome. Smash the subscribe button. Today's show
is awesome. Justin, what did you get from it? Man, what a great way. We talked about building
a property management company from nothing. What are the other things that you need to think about
in terms of staffing, scaling, software, all these things you have to factor in?
Stay tuned. You do not want to miss it. So, today's question is an email-in question
from Sateesh and Sateesh is getting started investing, but he also wants to start up
a property management company. And he has some questions around building a property
management company. He's thinking that he's going to start it... [Crosstalk 00:00:41]
Mm-hmm (affirmative). Thank you Sateesh, by the way, for your question.
... small, and grow it. First question is, if he's going to start a PM company, does he need
a real estate license or any other kind of license to do that?
Well, yes. Yes and no. There is no, in most areas. Now there may be a business owner's license. And
I can't speak for every municipality in the union and some states call for just to set up
a business to get a license in that. To set up any company, there may be a requirement for a license
and registration for that. Now, a PM company does not have its own licensure, that I know of,
that I've ever experienced in any state that I've ever been in. But what it does require
is in any state that I've ever been in and ever done business in, there is a requirement
to have a real estate license associated with their property management company. Meaning,
if Justin owns a property and he hires me, Matt Faircloth, the DeRosa Group, to manage that
property for him, I'm now acting as his agent. And it's the same way, if you think about it,
agency has to deal with... What is an agent? An agent's taking action on behalf of someone
else. If you ask me to go to the store and buy you groceries, I'm now your agent buying you
groceries and bringing it back to your house for you. Just like a real estate agent is someone that
you have hired to offer real estate or to buy real estate or to sell real estate for you.
The same happens with... And in management contracts, when I go and collect rent for you,
I am acting on behalf of you per the terms of your lease agreement, which says that the tenant
has to live at this address and pay you rent of this much money. I'm acting as your agent
in a real estate transaction when I collect rent for you, when I show the property, when I offer it
up for a certain price. It is the pricing part and the rent collection part of property management
that require a license. And the license required there is a real estate brokers license and the
agents are underneath that license as well. Yes, it requires a license, but maybe not the
license you're thinking of. It's not a property management license, it is a broker's license that
is required in the state that you are looking to operate in. Getting that license yourself
is going to be very hard to do because in most places, broker's license require a lot of time.
The education is not that bad, but the time investment is, meaning, they require that you
are an active owner for several years before you can get your broker's license. That you're
an active agent and you sold a certain amount of transactions and it is a tenured type of thing
and that. Getting your own broker's license is going to be hard to do Sateesh, but you could
get yourself a broker of record to represent your company and hire them or lease their
license from them, whatever it may look like. That addresses the licensure comment.
Thank you. Now he's thinking about software, keeping track of everything.
What software do you have experience with? Or if he's going to start small and grow, what are some
good softwares that he should look into? The software around real estate has come a
long way the last couple years. When I first got started in real estate,
everyone was using QuickBooks. There were classes you had to take on how to make
QuickBooks work for rental properties. You could go through a Sharia, they would host QuickBooks
for real estate classes. It was literally how you would dupe QuickBooks into managing real estate
and a lot of companies did it and then became the advent of other softwares is more and more,
just as landlording became more and more popular, and as software's become more customizable,
even QuickBooks developed a QuickBooks for real estate. They developed a QuickBooks for landlords,
but it was too late when they came up with that because by the time they came up with that,
there was already an AppFolio, there was already Rent Manager, Yardi, Buildium those and Cozy,
those softwares were already out there. So we, when we first got started, we started
using... We went from QuickBooks to Rent Manager. And Rent Manager was an enormous jump
going to Rent Manager because you could put individual tenants in, you could charge them rent,
you could handle transactions, you could print out checks. It was QuickBooks along with like a tenant
register/maintenance portal, all in one thing. The one thing that Rent Manager didn't have was
an online access, like a back door, that talked to a website, that tenants could log into because
it was Rent Manager was pre-web web 2.0, is what they... Web 1.0 was just information online. Web
2.0 is transact business online, like pay money for things interface with people, web 2.0 comes
along. And then that's really where AppFolio, Buildium, those guys really took off. So now
there is a plethora of different softwares you can use from like Cozy, which is, say one through 15
unit management like, I hate the term mom and pop because this has to be mom and pop. It could be
just smallish landlords, you want to run it small, right? Cozy is there for that. Next step up,
you get into the Appfolios, Buildiums, Yardi. Stessa, I believe is a newer entrance.
Hey, spell that. Stessa, S-T-E-S-S-A.
Stessa. And there is... So Yardi Voyager is what our big property managers use. Right?
But there's a smaller version of Yardi that you could look into. And we love Yardi because you
can customize it. One thing I like about AppFolio is you can't customize it. Their minimum price is
pretty high, meaning, what you have to pay as a bare minimum to use their software. Whereas if you
got 10 units, using AppFolio, is going to be very cost prohibitive. But if you have like 300 units,
using AppFolio there's no brainers, you only pay $3 a unit. That's great. But if you have 10 units,
you still pay $300 for access to AppFolio. And then the web 2.0 thing, where it works
is that tenants can now pay their rent online, they can ACA some money to you, at folio could
reach in their bank and take the money. They can pay their money in cash at like a
seven 11. They can turn in work orders online. It's very automated and the tenant can like put
their work order in and the work order immediately get assigned to the technician. And he gets up
in the bed out of bed in the morning. And his phone already has his work for the day
assigned to him the work order from the tenant. It's very, very, very clean, very cool, very,
very slick. And the way these things are set up. So those are the softwares you can consider.
Absolutely. And so I think Sateesh, as you grow your property management company,
you should expect that you probably will evolve through softwares, maybe starting with something
smaller and cheaper into something, a little more expensive. And then as you get larger and larger,
you know, you'll, your costs will get larger and larger,
but your reporting requirements will as well. That's one way to do it. You can start small.
You can start with like cozy or one of the off the shelf, small guys, I would propose to you Sateesh,
you can do it a different way to not to disagree with my man Justin, but I,
you could also do it another way, whereas you're not going to come out of the gate and manage
200 units, a... Or whatever. You're probably going to start a little smaller and work your
way into larger deals and larger portfolios and bigger management. So my suggestion to you Sateesh
would be that you act as if, and you go and invest in the bigger software that bigger clients would
be inclined to hear that you're using. Like, for me, if you come at me telling me you're
using QuickBooks, just because you imagine like hiring a property manager is still on QuickBooks,
or even an account manager at folio at our, at our size. We want to see Yardi, that's it. If
you're not using you already, we're probably not as interested because you already is what we can
interface with as we know how to use as owners. And I agree with what you're saying, Matt,
but realistically the cost I think would probably be out. They're probably going to be a huge
barrier for us to teach. So I, I think that maybe one or two steps before you already formed
True that true that maybe that Yardi, maybe at folio, maybe rent manager has
gotten a lot better. Rent manager was kind of behind the times, but I heard they've caught
up on their software. We've we left them a couple of years ago, but investigate those,
those middle of the road softwares. And that I probably wouldn't start with cozy cause most PM's
that I know of don't use it... cozy is really made for owner operators. Cause that's what it's
designed for. So softwares, any other advice you got for Sateesh for starting a PM company?
Or did he have a third leg to his question? Third leg of the question I think is the final
part is staffing. How does he staff maintenance guys? You know, who's going to handle that because
especially as he grows, right, let's say he's got 10 properties that he's managing.
I'm assuming he's not going to be able to pay for a full-time maintenance tech and
leasing agent and all of those other pieces. We did it at the Rosa group. We got to about 30
units that my wife and I managed ourselves. Like I would do showings maintenance calls, you know,
drop in and figure problems out and stuff like that's where I got a lot. I learned a lot of
my landlord lessons and a lot of my landlord legs. And a lot of it got a lot of my gray hair
in that and doing it myself. You know, probably have to do it yourself Sateesh,
up to about 30 units, then my first hire was replacing my wife who was keeping the books.
And so I started small, like part-time bookkeeper a couple hundred, a couple hundred bucks a month
to keep all of our financial books. And then I hired that. I'd use a person more and more
and more till I ended up hiring them. The next hire that we did was a tenant relations manager
who did the showings scheduled service visits, took maintenance calls, did rent, collections,
chase, delinquencies, that kind of thing. And then that person and my bookkeeper got me to
80 units. And then once I got to 80, then we hired in house. Before we got to an in-house technician,
what I did, wasn't this isn't going to cost you a ton to teach. It's just, you go from an expense
to a profit center when you hire in house. Here's how this works. When you hire out,
like you're going to hire Joey's air compressor and air compressor, or Joe's air conditioning
house, you're going to hire ABC plumbing company. And you're going to hire one, two, three electric
company. And they're going to come in and do your maintenance work well most importantly,
above all that, you're going to hire XYZ handyman company. And they're going to come
in and fix light switches and turn units and do all kinds of different stuff.
So you'll have to live with third-party vendors and negotiate good deals with them up until you've
got enough workflow that you can handle in house. Once you can handle in house, it becomes a profit
center that works like this. You've got to hire a guy, I think we were paying 25 bucks an hour for
like a guy with a truck that knew a lot about the knew how to do a lot of different things. It takes
a certain personality. It takes a certain skill set. It takes a certain knowledge set to become
the guy that just rides around in a pickup trucks and fix stuff, fix stuff. As they go pay them 25
bucks an hour, give or take. And then we charge 50 bucks an hour for him to the property. And
that became a profit center that handled a lot of in-house oversight of scheduling of maintenance,
was able to enable us to scale up and put a lot more maintenance support behind him
and coordinating it, scheduling and resources and stuff like that.
And that's really where you want to get the problem is, is that you're not going to have
enough work for somebody like that until you get to about 80 units under management.
So it doesn't make sense to hire somebody like that until you get to 80. The big thing you do
Sateesh is that you got to scale fast that if you want to be in property management,
you will make no money at all until you get North of a hundred units. And so you're going
to have to have enough bank roll to market and scale up and hire employees before you need them
so that you can scale and get yourself to over a hundred doors as fast as you can. Once you
do that, then it'll get a little bit easier and you're not going to become really profitable until
you get into the five or 600 unit rate. It makes a lot of sense, so much great,
actionable advice. And I would just end with talk to people that have done it
just like anything, right? Talk to people who have built property management companies
go find those guys and network with them. And if you're, if that's the path you want to go down,
then find the people that have done it and they will give you all kinds of great
advice and tips. And that's just a general life lesson Tom's gone where you want to go. Very
actual information. Thank you for asking, Sateesh, thank you for your question.
HelpMe@DeRosaGroup.com guys send an email in, and we'll happily answer your question right
here on the air. Thanks for watching and have another great and profitable week.