2291: Inside Property Management- 26 Years of Gritty Real Estate Wisdom, Tenant Screening Secrets, Avoiding Evictions and Finding Quality Renters

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Hey Jason, this is Scott Crook. I was on the Empowered Investor zoom call last night and just so thankful for the value that's created inside that group. And you know, you just consistently bring subjects that are so important and relevant to what I'm needing and I believe other investors need. So thank you so much. I appreciate you and all that you've done for helping us become better investors. Thanks men.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Greetings empowered investors and welcome to episode 2291. Today I have a very special gritty show for you because I am talking with Kimberly who is my aunt Joan's property manager. Now maybe some of you have met my Aunt Joni. She has lots of properties, a big portfolio and I was privileged to grow up seeing her manage them and see Kimberly manage them for the last 26 years, right?

Yes, that's right.

Fantastic. So we're going to get some inside scoop on self management. Okay. We're going to talk about some tricks of the trade. We are doing the real in person thing here. You can see we are in the property management office and we're coming to you from Sacramento. By the way, if you didn't do it yet, be sure to get your tickets for Empowered Investor Live. And you know, while we're at it, before we get into the topic, let me just make a couple of housekeeping announcements for Empowered Investor Live. We start Friday at 1pm sharp. Registration, be down there by 12:30, no later than 12:30 in the hotel registration area. That will become very apparent because there'll be signs all over the beautiful hotel where we are in Irvine, California. And we will see you Friday and the rest of the schedule. We start Friday at 1pm we go to about 6pm Then we have a dinner break. We have a cocktail party that night. You're going to get to meet almost all of our great speakers on Friday. And then Saturday, we start at 8:30am if you're a VIP ticket holder, 8am for breakfast in the green room with the speakers on Saturday morning. And then Saturday, we go to about 6pm and VIP ticket holders will have lunch in the green room as well. The rest of you, we've arranged a nice lunch in the hotel restaurant if you want to take advantage of that. And we'll go to about 6pm on Saturday. And then Saturday evening, we will have a wonderful cocktail party with food and everything. So your dinner will be taken care of Saturday night and cocktails and networking. It's going to be a really, really fun time in a beautiful atmosphere. Sunday morning, we start again at 8:30am for the conference, but VIPs in the green room for breakfast at 8am and then we will go to about 6pm on Sunday evening. It's going to be an awesome weekend. We look forward to seeing you at Empowered Investor Live. We still have tickets available@empowered investorlive.com. kimberly, thank you so much for agreeing to do this. I know, I know. I had to twist your arm.

So, you know, this is what I do. I just put people on the spot and I say, hey, you got to come on the show right now. So thank you for cooperating with that. So, property management, you've been working for my aunt Joni for 26 years.

Yes.

Did you do property management before that?

No.

Yep. That was the start.

Yep.

And isn't it fun?

It is fun. She gave me a career. I never knew what I wanted to be.

Really? Oh, fantastic.

Yeah, I enjoy it.

Good stuff. And then besides Joni's properties, you have a bunch of properties on your side business as well?

Yes, I do.

And so you're managing 100 properties, right? Yeah. Fantastic. A lot. Tell us some of the tricks of the trade and let's kind of maybe go in order of the process. Right. So the first thing is finding a tenant.

Yes.

You know, you're advertising online and so forth. What do you guys do to procure tenants? What are your best practices there?

Most of the time, we start showing the property before the tenants move out, depending on what the house looks like.

Okay.

And as you know, we collect as many applications as possible. We run credit reports, call references. I collect pay stubs, of course, and go through the process of the application. And once they're approved, we sit down, sign a lease. Our lease is pretty Extensive.

Yeah. And I know you have some house rules on your lease too. Right.

Which I have on my own business as well. It's a good practice. A lot of people that have never lived in a house before, you know, they really don't know how to take.

Care of a house if they're from an apartment normally. Right, yeah, yeah.

So having those house rules, we go over them with the tenant, we don't just hand it to them.

Right.

So we kind of go over how to take care of the house.

Good, Good stuff.

Yeah, it helps a lot.

So, Kimberly, one of the really interesting things that you said to me is that you show the properties before they're vacant. Yes. Almost nobody does that. How do you do that? I mean, you've probably got it in the lease. I'm guessing that the tenant has to cooperate with showings.

Definitely.

And you don't show it if the house looks really bad. Right.

We've had a few instances where probably wouldn't have been a good idea to show the house.

Right.

And we make sure to tell the tenant. When we do have a tenant living in a house and we are showing it, we only take in one set of people at a time through the house. We don't just take a bunch of people in. They have to stay with us throughout the tour of the house. No one can go walking in other rooms by themselves. So, you know, we try to make them fill it ease when we are there. Showing it.

The tenants? Yes, the existing tenants. And for those existing tenants or current tenants, do you have to kind of buy their cooperation? Anyway, in the past I've given them like a little discount on the rent, you know, $150 off that last month or something to enlist their cooperation. But you don't do that?

No, we don't offer anything like that. But I do try to make them feel okay about us going through the house.

Right.

That no one's going to be looking in their private things. Yeah, no, good.

Good stuff. So you show the house before it's vacant. That's fantastic. So the tenant gives you notice and they've probably given you a 30 days notice.

I'm assuming 30 to 45 days.

30 to 45. And then right away, do you put the property on the market?

Well, we give ourselves 45 days to rent a house, so. Yeah.

Yeah.

And as long as the house looks nice and we've got it priced right. Of course, we usually will rent it within a week to two weeks.

Yeah. Fantastic. Any hot tips on getting people excited about the house? The Ad copy, the pictures, any of this marketing?

Well, the pictures are huge.

Yeah.

You know, we have a really good cameraman and he takes really, really nice pictures. Some with furniture. You know, if a house looks really nice, we go over and attend its house looks really nicely furnished. We'll have him go over and we'll get permission and take pictures.

Okay. Yeah, good, Good stuff. Any kind of special terms or incentives in the, in the copy, when you're writing the copy for the house?

Our Internet guy does that. And I think the more information they have online, the better.

Right.

You don't have any surprises?

Yeah, in some ways it's kind of the tenants disqualify themselves too, which is actually good because you're just dealing with fewer people.

Well, we kind of run through about five questions before we even make an appointment to show the house.

Oh, great. What are those?

We pre qualify them.

Tell us about pre qualifying.

So we ask who's going to be living in the house. We ask them if all adults have good credit, good references, make sure their income is going to be sufficient. We ask if anyone smokes and we ask about any animals.

Okay, great. Do you allow animals?

I do say animals. I never say pet anymore.

Oh, okay. Tell us the difference there.

Yesa. Dogs.

Right.

The service dogs, they typically call them animals. They don't refer to them as pets.

Right.

So if you ask somebody if they have a pet and they have a service animal, they'll say no. Oh, and then next you find out after they've moved in that they have an animal.

Right.

I've learned to say animal.

Okay. Oh, that's, that's good. That's a good. That's a good distinction. Thank you. Yeah. And they might have some weird animals. People have some exotic animals sometimes. Do you charge pet rent? We do. Okay. And how much is that?

Anywhere from 25 to 100.

Okay.

A month.

Oh, for one pet? A hundred a month. Wow, that's great. I love it. Wow. And what makes the difference in the amount?

I guess the breed.

Okay.

The size for a dog.

Yeah.

Typically now it's 50 to 100 bucks.

Wow, that's. That's pretty good. But you are in a more expensive market. Like what's your average rent?

Well, for two bedroom, one bath could be starting at maybe 22.

22.

Going up to 3,000.

Okay. And then three bedroom houses.

Three bedrooms, you're going to get up into the 3,000.

Okay. And all of your product is single family detached, right?

Yeah, well, we have some duplexes.

Right. Okay.

But other than that single family.

Yeah. Good, good stuff. Okay, so qualifying questions, anything more on that?

I have a good gut feeling about people, so I kind of go with my gut a lot.

Right.

Talking with them, getting together with them and showing them the house, going, walking through the house. If they're nitpicking everything, you know, do I want to deal with somebody that's high maintenance?

Right. Yeah. You know, and there might be two sides to that. Right. If they're, if they're picky and high maintenance, they might keep the home better.

That's true.

You know, but also there's going to.

Be a little more difficult change a light bulb. Yeah, exactly.

Well, actually that's a good point. Well, before we get to that, you know your house rules and things like that. I want to go over that for sure. In your lease document. Have you ever wondered how the top real estate investors consistently find the best deals before anybody else? Well, listen up because this can transform how you invest. I'm excited to share something that's revolutionizing the real estate game. It's called Connected Investors. This is a really cool platform that gives you access to all of the property records nationwide. Truly amazing. It's not just a platform though. It's a secret weapon. It does a whole bunch of things besides the property data. It's a social network as well. It's built by successful real estate investors. For real estate investors. Find off market deals instantly, access accurate ownership contact info, make smart data driven decisions and secure funding for your deals from a vast network of private and hard money lenders. Whether you're a beginner or a pro, Connected Investors is your go to tool for smarter, faster and more efficient Investing. Try a seven day free trial@JasonHartman.com Connected Again, that's JasonHartman.com Connected and let us know how much you love this software.

You said good credit. Some landlords kind of counterintuitively really don't favor tenants with great credit. They want tenants that are a little bit lesser than good credit because they're probably not likely to move and buy a house right away. You know, I know that's kind of counterintuitive for some, but what are your credit score requirements?

Well, anything over 700 is a good score.

Yeah, that's a great score.

Yeah.

But will you people in the low.

Sixes or what we don't want to see is collections a lot of late payments. You could pretty much tell on their credit report if they're consistently late paying certain bills.

Yeah.

So do we want to wait for the rent no.

Right. Okay. And how do you handle late payments and late fees and stuff like that? And. And then, you know, eventual evictions, if you have to.

Our rent is due on the third. Well, due on the first. It's late after the third.

Okay.

Most people give them till the fifth, we give them till the third. If they pay on the fourth, it's $50 late fee. If they pay on the fifth, add another $10 a day until it's paid.

Okay, so. Got it. Got it. And, you know, how often do you have to do evictions?

I've never done an eviction.

Really? In 26 years. That's a miracle. I mean, actually, you know, I would say the same thing. I had my very first property. I had an eviction when I was 20 years old. Okay. On my first property. But then I went probably two decades without an actual eviction. But I did have one recently, actually. I had to do. But. Yeah, but so. So why. What. What do you credit? So, I mean, you certainly have late people when you get close, right?

Yeah, but we were able to get them out of the house without going through the courts.

Okay. Yeah. And what do you do? Did you. Did you give them something to get them out, or did they just finally.

Agree the cash for keys.

Okay.

And a deal. But I've never gone through court. No.

Yeah. Okay. And then what about condition and walk through, you know, post. Move out?

My walkthroughs. We have a very good cleaner, and our house is completely clean. We clean everything. I have never handed over a dirty house.

Okay.

And that's the way I expect to get it back.

Yeah.

Probably about 90% of our tenants will allow us to use our own cleaners. And then we deduct from their deposit.

Right. Okay.

Cleaning is a lot different than just regular house.

Right, Right. That's like a deep cleaning. And what does that run here, about $350?

Yeah, 50 up to 400. 450.

Yeah.

Okay. Okay, good. Good to know. So the tenants in the property, now you've screened them, and what will you allow? I mean, do you have the unlawful detainer report? So, you know, if they had a prior eviction, would you let that person rent or would you just say no way?

We would say no way.

Yeah. Right. Okay. And then deposit practices.

Well, we used to collect one and a half times the monthly rent for a deposit.

Okay.

New California laws have gone into effect, and now we can only charge the amount of the rent.

Right. So one month is the actual law. California's tough. It's this is a very landlord unfriendly market.

They favor the tenants.

Yeah, yeah. Right, right. Most of our clients are not in markets that are landlord unfriendly. They're in the landlord friendly markets. But, you know, back in the old days when Aunt Joni started investing, you know, the idea was you'd invest near your home. But nowadays people do it all over the place.

Right.

But, you know, any. Any tips for dealing with those landlord unfriendly regulatory environments?

Well, on my little side business, Joni only takes care of her own properties. Right now I'm doing it on my own.

Yep.

And so I do have clients from all over and I. Oh, so you.

Have out of state clients that are not in this market. Okay, got it.

Right. And I have to explain to them, you know, the California new laws.

Right.

I've had a lot of clients, old time clients, that sold their properties because they didn't want to deal with them. California laws.

Yeah.

Like I said, they favor the tenant.

Right.

And what you used to be able to charge for a deposit or rent.

Increases or notice, you know? Yeah.

You can't do those things anymore.

Yeah.

You can't just say, I want to remodel my house, so I'm gonna kick you out, give this tenant 30 day notice, or, you know, can't do that anymore.

And when you're speaking of that, you mean after. In a period when they don't have a lease? Right. Of course.

You can't kick them out when they're there a year.

Yeah. Right.

You cannot, you know, you can't evict them just because you want to remodel your house.

Wow.

Yeah.

It's just amazing. So do you see how that anti capitalist socialist environment keeps people from fixing up houses? And then it makes the economy smaller because contractors don't have work that they would otherwise have. Right. Yeah. It's just amazing. It really is.

Yeah.

Okay, so let's talk about your lease document and your house rules. My aunt Joni has a whole list, and she talked about this at prior empowered investor live events where she has these couple pages of house rules that are attached to the lease.

Four pages.

Four pages. Okay. Not a couple. Four. Yeah, tell us about those.

So they're. They're all common sense. And it. You'd be surprised at who doesn't have common sense.

Right.

Some people just don't understand how to take care of a home.

Right, right. Do you get a lot of people that are moving from apartments to homes and so the service level is different, like in apartments they're sort of coddling you a bit. Right, Right. I remember an apartment I rented, they would change light bulbs, you know, believe it or not. Yeah. Really? Yeah. So. So everything. So here you sort of impart to them that there's more of a, like, homeowner almost responsibility level.

Yeah. Take all of our houses have original hardwood floors. If they've never lived in a house like that or taken care of a house like that, they don't know how to take care of the hardwood floors.

Yeah.

You can only refinish them so many times and, you know.

Right.

You're down to the nails. So we go over how to take care of those. Putting pads under their furniture, things like that. What not to put down a garbage disposal. You know, brush off the food before you put it in a dishwasher. You know, all these things that we would have to call in someone to repair because they just don't know what they're doing.

Sure, yeah, yeah, yeah, good point. Do they have air conditioning, the houses?

Central heating?

Oh, they do. Okay, so then there's air filters.

Yeah, we go over that.

Yeah. Okay.

And it's in our lease that they are to change them out every three to four months.

Okay. Oh, you're actually kind of easy. Some say every 30 days they got to change that. I mean, tenants don't do it, but, you know. Yeah. One of our clients actually subscribes to air filter services and just sends those to his tenants. And, you know, they're responsible, of course, for changing.

Well, with 60 properties, you know, Joanie would be in the air filter business.

Right.

If she had to buy for every one of those. So they are responsible to buy them and install them.

Yeah, yeah. Good, good. Okay. Okay. So tenant gives you notice. We're just kind of moving along the process. Tenant gives you notice. It's 45, 30, 45 days in advance. Then you tell them you're going to start marketing and showing the property. Right.

Yes.

How does that all go? Are there any kind of logistical things people should think about? Of course. The property's got to be good enough. Looking to show.

Sure.

Right.

Yeah. I'll use. I. I'll usually go over and kind of do a little walk through beforehand and, you know, if it looks nice. Yeah. And most of them don't mind. Yeah, we work with their schedule when we do the showings. If they want to be there, then we'll work with their schedule and we'll schedule showings when they're there. A lot of people don't want to be there. So they kind of give us a window of time.

Yeah. Okay, Good, good. With vacant properties, are you doing the. The showings directly or do you do any virtual. I'm guessing you don't do virtual showings and things like that. No. Yeah. Okay. Do you put them in the MLS with lock boxes and all of that, or do you strictly.

We have a lockbox, but we don't just allow people to go in without us there.

Yeah.

Yeah.

Okay. Okay, good. If you take one property, how much do you have to do over the course of a year on that one property? Do you maybe talk to the tenant, you know, every three or four months, or communicate with them? I mean, email, talk, text, whatever it is.

With my own properties, I check in with my tenants every now and then, maybe twice a year.

Yeah.

If I'm not hearing from them. Right, but usually you'll hear from a tenant sooner or later, within a few months, right? You know, to take care of something.

Yeah. Okay.

Yeah.

So it really doesn't involve like, that much effort once the tenant's in the property, Right.

I do once a year inspections.

Okay, so maybe a couple of communications throughout a whole year.

Right.

And then you'll do an inspection? Yes. Okay. And what do the inspections reveal for you? Like, what do you do when the inspection isn't positive?

Well, first of all, California, new law states that we're not allowed to do inspections unless we're checking smoke alarms. Smoke alarms are the only reason for going into a tenant's home.

Unbelievable. So, yeah, so you got to bring a pack of batteries, change the batteries, check the smoke alarm, and then by virtue of that, you're getting an inspection.

I'm getting in the house, and I'm able to kind of look around and ask if there's anything that needs to be done. Are you having problems with something? But typically I. If they don't have any problems, I will inspect the whole house, look under this, under the sinks, make sure nothing's leaking, check garbage disposals, pretty much just see how.

So you don't really rely on the tenant to tell you about the condition of the house that much then? I mean, you do, except for once a year, right, where you're just.

Yeah, that's just the once a year I go in. But other than that, I. I would expect them to call me if there's a problem with our house rules. We let them know that if they see any water intrusion or if there's any kind of problems, they need to contact us immediately.

Yeah. Yeah. Okay. Okay, good. So back to Anything? I didn't ask you. Anything you want people to know about real estate investing or property management in particular.

In California, if I were an investor, I would only buy single family.

Why is that?

Because multifamily properties have the Tenant Protection Act.

Oh, okay. So even if it's a duplex or triplex fourplex. Wow. Tell us about that.

If the owner is not living in one of the units, then it is tenant protection.

And what is tenant protection?

That means that they have a. No, no eviction just cause law. Unless they aren't paying their rent, you can't kick them out.

So in other words, if they break a covenant of the lease or they're just bad tenants, they're thrashing the property, you can't kick them out.

No. You have to have just cause.

Okay.

And you have the rent. I think it's 5%. You can raise it. There's a cap on rent increases.

Right, right. But that never went into effect. Look, I don't follow. California, okay? California is a mess. I hate it, you know, even though it's my home state where I live most of my life. So the rent control never went into effect on any single family or.

No. Unless it's owned by a corporation or something.

Okay, okay, got it. But there still are limits on the amount of rent increases you can do when. When a lease ends. And then you have to get very long notice too. Right.

If it's a single family home. And if it's. If you're increasing more than 10%, you have to give them, I think 60 days.

Yeah. Okay.

Yeah.

Okay. Interesting, interesting. Good stuff. So what do you think about real estate investing in general, not property management? You know, this is the gritty. This is where the rubber meets the road. It's so important. So thank you so much for sharing this with us.

No, I love the business because I love homes and I love fixing them up. Like a lot of my clients allow me to do not just repairs, but change out things, you know, real improvements. Yeah, real improvements. I love it. I mean, I would love to buy my own investment properties.

Yeah, yeah, yeah. It is the most historically proven asset class in the world.

You know, investing in properties.

Yeah, yeah. I couldn't agree more.

Yeah.

Income, property, the most historically proven asset class in the entire world is great. Yeah. Good, Good stuff.

And your aunt can assess to that?

She. She can certainly attest to that. Yeah, absolutely. Good stuff. Well, Kimberly, thank you so much. I really appreciate it and I hope that is helpful to all of you. Be sure to join us for empowered Investor Live. Go toempowered Investor live.com and we will look forward to seeing you there. Until next time, happy investing.

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