The Secrets Of Self Managing Real Estate

Washington's crazy, but Seattle's a different level of crazy. Unless you want new laws on a monthly basis, I would avoid that like the plague. Hello YouTube and welcome back. I'm Christian Osgood, joined again by the one and only Jesse Lee. Check him out on Instagram, The Jesse Lee, on Facebook, Jesse Lee. It's Jesse L-E. Really excited to have you back, man.

Yeah, thanks again for having me.

Absolutely. This week we're going to be talking about property management, self-managing, Specifically because we both do a lot of entry-level housing. Like, neither of us have multi-hundred-unit Class A assets with on-site staff. Like, it's self-managing your own portfolio as you're building is a huge task, especially when you have a bunch of other projects. You run your brokerage, you do a ton of rehab. I run my education company with Cody, and we are also all over the state doing rehab stuff. Um, it gets busy. It's hard to do. How long have you been self-managing your properties and what does your company look like today for how you are managing your universe?

So, I, you know, we're going kind of back and forth about what we want to do with property management as far as do we want to do it for other people, do we want to do it just for ourselves, do we want to keep doing self-managing our own, things like that. You know, as of right now, yeah, we're self-managing all of our rentals. I don't have quite as many tenants as you do, but I have enough where it's, it can be a little bit of a daunting task. You know, the biggest thing, the part that I struggle with the most is just doing the bookkeeping, and that's why we've got other software and the things we're subscribed to to help, but it's still something I'm just not very good at. And even though I've been starting to delegate some of these things, it's still kind of tough keeping that all up to date. Like, for me, dealing with the tenants directly and having and talking with them and then doing maintenance, that part's fairly simple at this point for me. But, you know, I came from flipping and then doing rehab, so, you know, when someone's light bulb— well, I don't change light bulbs— when someone's dishwasher breaks or something, it's not a big stretch for me to call one of the guys I have working somewhere and like, oh, go fix the dishwasher. But I think it's definitely a transition, right? I haven't been doing rentals that long. I think it's only been like maybe 3 or 4 years or so around there really where we started really holding on and then, you know, investing properly and actually keeping stuff. And that process is definitely made more interesting by the fact that the moratorium started basically when I started keeping rental property. And, you know, everything I buy, it's value-add, right? So that meant at the time that I'm going to go buy stuff with tenants who aren't paying, right? And I'm going to get a deep discount for it. But, you know, what am I going to get in exchange for that? It's going to be kind of a difficult task. I think I, I think we evicted like 19 people or so within a 12-month period. And these are not people that I had rented to. These are just a combination of tenants who had not been paying for a couple years and squatters and just people who'd show up and park in the yard and for some reason I have to evict that person. You know, stuff like that. So going through that and already having people destroy property because of it and, you know, who knows what, all kind of crazy stuff going on, right? Doing that and experiencing that right up front in the beginning. Now I feel like I'm pretty much prepared for whatever single-family or small multifamily renting and being a landlord can throw at me at this point. So, you know, I guess that prepared us well for it. But as far as self-managing, yeah, it's, it's getting to a point, it is a little bit of a juggling game to to manage the rental, manage rehab projects, because we're still doing those, you know, being a real estate broker and so forth and everything comes along with it. But, you know, my, my business partner puts in a really good analogy is a lot of people think any one of these things that we're doing, whether it's fix and flip or being a real estate broker or owning rental property all has to be something all separate, right? But really what they are are different lanes on the same highway. And the more lanes you add on this highway, then you get a wider stance in this and helps you be more recession-proof, right? When one lane's closed and has construction, there's still these 4 or 5 other lanes going on at one time. So the more lanes that we can add to this that are all going to the same destination, the better we're off we're going to be. And, you know, we want to add as many real estate lanes on our real estate highway as possible.

I absolutely love that analogy, and that's— I use a similar one of you have more, more legs on the chair. So if your whole business is reliant on one thing, if that leg goes, you're down. If you have a few different branches, so like in your case, You're an investor, so you have rental income. You're— you do some flipping, say flipping income. You have the brokerage and you add property management, which is stable monthly fees. That's a pretty good engine. And you keep a lot of the stuff in-house, give you some control over your universe. I love that model. For those who don't know, by the way, we both invest in Washington State. It's notoriously hard to evict. I have a hard time on the other side of the mountains where it's a little bit easier. Not a lot, but a little bit. What have you had to deal with to actually get 19 people out in a county that is notoriously, uh, super difficult to work with?

You know, it's funny, the, uh, the attorney I work with sent me a gift basket last Christmas, actually, and I think it's because we had a few of these going on at any given time. But, you know, it's, it's been difficult. You know, I, I feel like, uh, I don't think— like, the longest one was like they were there 2 years. That's not normal. Even where we live, it's not normal. And that's all— like, we can blame COVID for that. And a lot of people will sit there and tell me, oh, well, you got— even the tenants, like, you're getting paid by the county, whatever. I didn't get paid anywhere near what I've spent with that property and the damage that they caused, right? And the time and the holding costs and all that. Like, I think the worst case, I had a place that I paid a mortgage on, $3,000 a month for almost, it's more than 2 years. 2 years, $3,000 a month, I have no rent from this person. I got $20,000 and change from one of these COVID programs to pay back rent. But part of that was you can't go after them for anything else, right? So, you know, $36,000 a year times 2, then a $50,000-$60,000 rehab that one of them I did in the beginning because I thought this person just needs a leg up or a helping hand. I'm going to make it nice, they're going to take care of it. Well, that was completely stupid of me because they didn't do that, right? So I rehabbed the house twice. It's, uh, $50,000-$60,000 both times. It's, it's $70,000-$80,000 of interest payments. They left me, even after they're gone, I still had a $5,000 water bill for some reason that I'm going to have to be responsible for, that I am responsible for. So no, that's nowhere near what I've spent on doing that. Now, provided I did get a good price on the house, but, you know, I think a lot of that— and if I hadn't, if I hadn't bought that house properly, then this thing could have been a huge financial loss at this point, right? So, you know, the fact that we're still going to come up, you know, on top. You know, not, not what we normally would or should, but the fact that we're not going to take a loss, it's just a testament to what you probably tell people a lot, is you have to really analyze and buy something properly. So, but no, I think the majority of these people who I had to do evictions on were in one place. The most of them, they were at a small mobile home park I had, let me see, 1, 2, 3, 4, 5, I had like 7, 8 units there. One of them was an actual legitimate tenant, but he started taking advantage of it because he stopped paying, you know, whatever. But we bought this place and got under contract when these people were basically taking advantage of the owner. At this point I can look back and that's really what they were doing, is just taking advantage of the owner. And we came in, took over, and started the eviction process as soon as we could, right? So, now I tried to bribe people to leave, you know, a couple of them did, but the issue there was once one person walks out the door, like I had one where I gave her money to go out and there was literally someone walks off the street as I'm standing right there in front of the building and tries to walk in. Right? Like he's next in line. So, and I'm like, I don't know who the fuck you are, but you gotta get the hell out of here. But it's, this was a place where, I mean, and some of them were kind of crazy. Like they had weapons there. There was someone who parked a camper just in the middle of the yard. And for some reason I have to evict this person's camper. It's just, it was nuts. And you know, a lot of people don't want to invest in our area because of stuff like this. Again, I dealt with this kind of early on in this property management career or property management lane that I'm on, and now I guess it kind of prepares you for whatever else can happen. I can't imagine it's going to be much worse than people trying to kick the door down. I put one of my own guys in one of the units to keep people out, and they're trying to kick the door down at like 2 in the morning. I don't know if it's going to ever be any worse than that. Hopefully it's not, but we've already gone through that, we've already gone through these things, so it can't be much worse or much harder than that.

Yeah, that's up there. I think one of our worst, it's not our very worst, but one of the worst is we had a tenant who mowed a lawn for us at another property we own, proceeded to break into that property damaged the entire interior of our vacant unit. When we went to evict her, uh, she invoiced us for renovation on the unit that she broke into and vandalized and then told the, uh, the DRC who protects the tenants, hey, they have unpaid bills to me, that's why I stopped paying rent. I'm like, you gotta be kidding me. Subsequently, she goes on the roof, shovels snow off, which is just completely dangerous and not allowed, shovels snow off our flat roof, damaged the roof and caused a leak in like 5 units. Moral of the story here is property management is not easy. And so if you're looking to self-manage, it is— I saw a post recently, Cody actually showed it to me, but someone's like, remember when you hire a property manager, you're giving them half of your profit. It's like, well, no, you're either— profit's the bottom line. You're either spending the time and money and doing it yourself or you're paying another property manager. There's two ways to do it. Our main reason that we do it ourselves is I want the control. We had a bad experience with the property manager where they ended up stealing a bunch of security deposits and fleeing the state. Yeah, that is not ideal to have to cover. Now, we ended up suing. Most of the money came back, but it's expensive, time-consuming, and you have to float all that negative. So we made the decision to control the cash. Which brings me to my next question. You mentioned that accounting is not your forte. You've added some systems to your business. What systems are you using that made that easier for those like me? I'm not inherently good at accounting. We had to add a lot of systems and people to do that.

We are on AppFolio, which is a property management software that is really, really— I don't want to say over the top, but you can really dial in everything on there. And I'm not quite at a level where everything is absolutely dialed in, but It's definitely helped with at least just keeping track of rent and collecting rent through, through Appfolio has been really easy. Now, this is something you need 50 units or more for, but there's other alternatives that are similar. I think Buildium was one that I used to be on too. But having these things available where the tenants can pay through an online portal rather than like in the beginning, they used to Cash App me or Zelle me or whatever it is, right? But I don't want to be I don't want to have it available where they could just send me a dollar and say I paid part of the rent and then now, you know, timelines start over for evictions and pay or vacates and all that. I know this is, you know, some of these things are pretty specific to our area, but, you know, that I want the rents paid through the same place, everyone pays it the same way, it makes it that much easier and I don't have to— there was places I was going before, I'd go collect cash and I'd have, you how much cash at the end of the day, right? And, you know, I don't want— we also live in an area where, you know, someone knows I'm collecting rent that day, they're gonna go follow me and then maybe mug me before I get home, for example. So, you know, I don't want to be in that position either.

That's awesome. You said you were considering third party. Is that something that you anticipate launching? And if you do, like, what is the geography that you're gonna operate in?

You know, it's just, it's something that we've talked about a lot. Again, going back to that highway analogy, property management is something that it can be, I think you said already too, a steady source of revenue every month. And, you know, as far as everything else that we do is, I mean, it's, it's income comes in regularly, but there's times when maybe you won't be Maybe I won't have a flip project done every month. I probably won't, right? But if we're managing property, if we're just basically doing for other people what we're already doing for ourselves, right? And that was my thought process in the beginning. Then, you know, we can be paid for doing that. We're already doing it anyway. What is it really to add somebody else on what we've already got? It can't be that hard. Well, that was foolish of me to think that, but You know, it is something that I think we want to build out, you know, just again, right back to that highway analogy again. It is another lane I want to add on to the highway, and, you know, whether we end up doing it for other people or not, I'm not 100% sure on yet. We're still kind of going back and forth on details, but I think eventually it is something that we'll probably end up doing.

That's awesome. Well, everybody keep a lookout for that. If you're looking for a property management company in Central Washington, I volunteer, kenchopm.com, check it out. We started doing third party a while back and we built it a lot like you're building it. It's like learn your systems because you, if you're going to self-manage your stuff, like you have to get contractors in place. You have to build your teams. You have to get accounting. We also use Appfolio. And as you build it out and you're like, well, once this is a smooth running machine, it doesn't cost you a lot of extra to plug other people into the machine. We started with friends and family and we're starting to expand in Grant County specifically.

Okay, I think we'd probably be like North Pierce, South King ideally. I don't like— it's not likely we'll want to do many management in the city of Seattle, but I think around Seattle, south of Seattle, is probably what we'd be focusing on.

That is my recommendation. Washington's crazy, but Seattle's a different level of crazy unless you want to look at new laws on a monthly basis. It's just, I would avoid that like the plague. South King, Pierce County, awesome places. We manage a couple properties down there, but it's like, that's your territory, man. That's— you guys are established. You guys are a lot bigger down there than we are. But dude, that's awesome. I'm excited to see that take off. Let us know if you do bring on third party. We'll bring you back on the channel and we'll talk about your systems and processes and how you're doing that. Anyone else wants to find Jesse, ask us more questions about property management, you can always reach out to me. I'm @ChristianOsgood on Instagram. He's @TheJesseLee on Instagram, Jesse Lee on Facebook. Anywhere else people need to be looking for you?

I think really that's mostly it. Yeah, I'm not, uh, I can't really keep up with all these avenues of social media, but those are the main two right there.

There we go. Well, thanks for watching everyone. We'll have one more episode in the series with Jesse and Cody. We'll see you all next Monday for the last episode.