How to Self-Manage Your Properties | PREI 027
In this episode we discuss the considerations and process for self-managing your rental properties. Can it be done? Many people self-manage – even from thousands of miles away.
Our guest is Lucas Hall, the Chief Landlordologist at Cozy, and the founder of Landlordology.com. He has been a successful landlord for over 10 years, self-managing dozens of happy tenants.
Some of the topics we discuss include:
- Why did you choose to self-manage over hiring a professional manager?
- How should an investor decide whether to self-manage or hire a property manager?
- What are the pros and cons?
- What is your management process?
- How can the free tool at Cozy.co help a landlord?
- What tips can you share for self-managing landlords?
If you missed our last episode, be sure to listen to Property Management Secrets with Brenton Hayden.
Enjoy the show!
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How to Self-Manage Your Properties
Today’s show is about self-managing your properties and how do you go about doing that. Most of our clients manage their properties through a professional property management company that we have in every market that we have properties in. Often, we’ll have two to three professional management companies that work with us through our referral network. However, there are some investors that prefer to manage their own properties. Last week, I had an episode about managing properties through professional management. I had Brenton Hayden from Renters Warehouse on. That was a great episode. There was a lot of good information covered in that one. That was centered around using a professional manager.
This week, I wanted to bring on a guest who is the Chief Landlordologist at a company called Cozy. He’s also the founder of a website known as Landlordology.com. That website is a community of real estate investors who self-manage. It’s chock-full of great information that covers everything from qualifying and screening tenants to finding tenants, to evictions and whatnot. I brought on Lucas who is the founder of Landlordology to talk about how he goes about self-managing and going through the process. I asked him various questions to try and get into some tactical items and the how-to’s, not just what to look for but how to actually do it.
Hopefully, you’ll appreciate this episode and get a lot out of it. If you have any questions about what we cover, don’t hesitate to reach out to Lucas. He’s a very, very nice guy. This is what he does all day long. He answers questions about self-managing property and how to do it, what tools are out there and he blogs about it.
It’s my pleasure to welcome Lucas Hall to the show. Lucas is the Chief Landlordologist at Cozy and the founder of Landlordology.com. He has been a successful landlord for over ten years, self-managing dozens of happy tenants. Lucas, welcome to the show.
Thanks for having me.
To give people a sense of geography, why don’t you tell them where you’re located?
I’m located at the DC Metro region in Northern Virginia.
That’s a pretty pricey real estate market there, isn’t it?
It is. As a real estate investor, it does make it somewhat difficult just to pick up properties on a weekend. I have to put in a little more planning.
I know you self-manage all your properties which is what the topic of the show is about. Are all your properties located locally or are they out of state?
Both, I should say. They’re located in Northern Virginia, DC. I have one in Colorado.
Just briefly tell us how you got started in real estate investing because a lot of people who invest, either invest in their backyard and manage themselves, or as our clients do, they build a portfolio that is typically out of state and they hire professional property managers. How did you get into real estate investing? Then we’ll start talking about the self-management side of things.
I actually bought my first property as a way to try to impress a girl that I liked. This was a girl that I saw once a week. One time, I just asked her, “How was your week? Did you do anything neat?” She goes, “I bought a house.” I looked at her and said, “What do you mean? How’s that possible?” She goes, “I just bought a house and I’m going to find a bunch of roommates to live with me in that house. I’m going to rent out those bedrooms. I’ve figured it out so that those bedrooms will pay for my mortgage.” I thought she’s smart and pretty. I thought I could impress her. I hired her sister who is actually a real estate agent in the area and I said, “Go find me a house in her neighborhood that’s bigger than hers.” Sure enough, I did. I was eight blocks away. I found a six-bedroom house on Capitol Hill in DC. Hers was a five-bedroom. I did the exact same thing. I found a bunch of friends on Craigslist that I didn’t know. They moved in. They paid my mortgage.
At the time, I was young. I think I was only about 25. I was living in this house that I owned that was well-worth $600,000 or $700,000. They were paying my mortgage and I was living for about $300 or $400 a month, including food. It was just incredible. Doing so, it let me saved up basically all of my income for my full-time job as a consultant. I could then dump that into the next property. That’s how I got started. I would buy a property, move into it, get a primary mortgage on it, then when it came time, either refinance and then move out, or take equity out and buy another one, or save up. I just kept doing that process until I am where I am today. I have a wife and a daughter. It’s a little harder to just move houses now. We’ve done it ever since then.
Some people refer to that process as house hacking. You buy it, live in it, and then rent it out, or live in it and have a duplex, fourplex, rent out the other units, and then eventually move it out, keep it is a rental and then buy the next out, and do it all over again. Your story is pretty funny because I’ve heard of the accidental landlord, accidental millionaire, but to get into real estate investing because a girlfriend impressed you is pretty funny.
The best part of the story is that it worked. I tried to impress her and she fell for it. We got married a couple of years later and have a daughter. We’ve been married for about six years now.
You’ve built up a portfolio. Last I heard, it was about ten units. Do you manage all those yourself?
I do. I have some a la carte help that I have for my property in Colorado. I don’t have ten units, I have almost twenty tenants but have about five units right now. I’m experimenting with a vacation home-style, second home property where it’s done with weekly rentals. That’s the only property that I don’t fully manage myself. I actually have someone on the ground helping me do some of that just because I’m not there.
Tell us about Landlordology.com, we’ll leave Cozy.co to the end because that’s really more of a tool, but Landlordology.com is just chock-full of great information for landlords that want to do property management and other things. Tell us about that and then we’ll get into more of the tactical stuff.
After a couple of years of managing properties myself and trying to scour the Internet for information to help me do that, I really found myself very flustered with the lack of quality resources. I certainly find the gurus out there that would charge $1,000 for some landlording course. Or I found outdated information that wasn’t practical anymore or the laws have changed or whatever. I just thought, “I’ve got a little bit of a web design background. I have some time. Let’s see what I can do.” What I decided to do is build a website that would let me dump what I was learning back out into the Internet and let me blog and pour my heart into this, I could talk about best practices for property management and landlording, and trying to build a community of other self-managing landlords or small property managers. We could just go through this process together. We would encourage each other and hopefully help each other succeed. That was the premise for Landlordology, the study of landlording.
Since then, about three years ago, after about a year of doing that and just dumping all of the information I had learned and read about into this website, it became very popular. It was exceeding my expectations by far. I was approached by a company called Cozy. They said, “We love what you’re doing. You’re helping to raise that quality of landlord and helping to make the rental relationship and the rental industry just better. We’re doing that through software. Let’s talk about partnering up and doing an acquisition and then we can all just do this together.” I thought, “That sounds great.” Landlordology is part of Cozy, but it’s still its own brand. It’s still something that is built and free. It’s designed to be a complete resource for people who want to try to learn how to manage properties better and more ethical and more profitable.
Our audience knows that I’m a big proponent of professional property management. I don’t usually recommend investors manage their own properties even if it’s in their backyard. Number one, most people don’t’ have the time. Even if they did have the time, it’s a thankless job. You really have to understand marketing. You have to understand the state and local laws. You have to have great people skills in dealing with tenants. You have to know how to properly screen and qualify them. If an issue comes up, you’re the one taking the call. You have to know how to get things repaired or turned over. You have to take the time to show it. It all comes down to time and knowledge and expertise. This is why 95% of our clients, professional property management is really the only way to go. But that doesn’t mean I’m completely opposed to self-managing if it makes sense. This is why I wanted to bring you on the show. Tell us why you chose to self-manage over hiring a professional property manager. Then we’re going to drill down into some detail.
For me, being 25, I didn’t have a lot of money. I didn’t actually know how my first property was going to produce. I hadn’t been trained in landlording and I didn’t really know how to analyze properties. I was using just rules of thumb when it came to figuring out the finances for this purchase. It was really a shot in the dark. Luckily, it paid off. I think renting out rooms, especially if you’re in there or if you have a multifamily property and live in one of them. I think that’s a great way to cushion yourself if you want to get into the business. You can oftentimes get a single primary mortgage. Then you can increase the revenue and the profit because you’re renting out individual spaces in that whole unit. For me, it was just out of necessity. I couldn’t give up 10%. I was young and had a lot of energy and I was up for the challenge. I think that was how I got started and that’s how I made that decision.
You were house hacking and you had the time. How should an investor decide whether they should self-manage or hire a property manager? What are the pros and cons of each be?
There are really only two things that you need to ask yourself, that is, are you willing to give it a try? Do you want to bother with it? There are some people who just say, “I don’t want to have to deal with tenants.” “You probably shouldn’t manage it.” You have to have the willingness to give it a shot. You have to have the tools to make it happen. As long as you’re willing and have the accessories to handle it, which that is the easy part. The tools are out there. They’re free. A lot of them are free. It’s not hard. Put those two things together. If you’re willing to, then give it a shot. What I tell people is if you’re not sure, try it for one property. Try it for one unit. Self-manage it yourself. If it goes well, if you like it, you can do that with your other units, if you want to. But if you don’t like it, you can always hire a property manager later.
Are you talking about landlords that live within a driving distance of their property? Are you talking in general, anybody, regardless of the location of the property?
It’s certainly easier if you are within, I would say, 30 to 50 miles of a property, for you to self-manage it for sure. That makes everything a whole lot easier if there is a level of difficulty that gets raised when the property is not close. If you don’t already have a couple of local ones, I wouldn’t suggest managing something that’s far away as your first property. I would certainly turn that over to a property manager. Get your feet wet with something that’s local and then decide what you want to take on. For me, I was managing four properties before I even bought something in a different state.
That’s easier said than done because for a lot of people, they can’t invest in their backyard. They can’t invest within a two-three hour radius of where they live because the numbers don’t make sense. You take coastal markets, particularly California and up the coast, New York, New Jersey. To some degree, even some of these cyclical or hybrid markets, like Phoenix. You get to a point where property values have gone up so much that not only is the affordability very low, but the rent-to-value ratio is so low that the rate of return doesn’t make sense. Those are not markets that we would ever recommend.
What we find often is clients from the coastal states, in Hawaii and what not, they’re purchasing in the Midwest down through Texas, Birmingham, Alabama, Atlanta, Memphis, Jacksonville, Florida. These properties could be 3,000 miles away. That’s where they’re going to get the greatest returns, the best cashflows, good deals in good markets and good neighborhoods. It’s not practical for them to find an investment in their backyard. That’s our typical client. They’re out of state, out of country. I guess you could do it either way. I break down the management process into four main categories, at least in my mind.
It starts off with marketing. You have to find prospective tenants or applicants. There’s the screening process. You qualify them. Third would be the collection process. You want to collect rent every month. If there’s an issue, of course, you have to collect late payments and whatnot. The last phase or part of that process is the turnover. Eventually, that tenant will move out. You need to refresh that property, maybe do some repairs or painting and carpet cleaning, just to turn it over. It goes back full circle to the marketing, where you have to get new applicants. What I’d like to do is break those down individually with you and if you could just walk us through with your process how you do each of those as a self-managing landlord.
You’re absolutely right. Those are the four big buckets that everyone needs to be familiar with if they’re even going to have a shot at managing their own rentals. Let’s start with marketing. I can speak from my perspective and from dealing and working with thousands of landlords on Landlordology every month, just seeing the problems that they go through. One of the hardest parts about marketing is trying to finding that sweet spot for your property, what the real price of that and then who is your target audience?
I realized that there needs to be no discrimination. You have to be open to everybody and you set your own criteria. You keep that criteria for every applicant that comes in. Realistically, there is a certain target renter that will be attracted to your property. I have a couple of properties that I rent them as group houses. They’re all under one lease. It just is such that groups of five or six people usually right after college, they tend to like living in community together. They will rent the house under one lease and they’ll each put up their bedrooms and figure out how much each one’s paying. They’ll just share the house together.
For those ones, I like renting to those types of people because they typically produce higher revenue for me. That house will produce more because they can each afford $700 or $800, and produce $5,000 in rent, instead of me trying to rent it to a single family that might only be able to afford $2,200 because that’s for a dual income or whatever. I think you’ve got to understand who your target rent audience is. If your property is near hospital, maybe there are people that are going to be moving and working at the hospital. If it’s near a military base or if it’s near a lake and there are different types of vacation rentals there, you just understand what it is. That’s the foundation. From there, I’ll figure out what the price point I should set it at. I’ll use all kinds of data. Craigslist is a great way to look at it. You don’t really know if they’re actually renting for the prices that are being advertised. It’ll give you a good fire hose of information in terms of what the market is asking.
Is that where you find your rental rates?
That’s definitely a baseline that I use. But there are a number of other tools that I’ve gotten a look at. I look at all the other listing sites and see what was happening. My good rule of thumb is that if I don’t get about three to five inquiries within about three days, then I probably got it priced too high. Something’s wrong. It doesn’t mean I’m going to get a tenant within three to five days, it’s just I need some buzz. I need some responses. That’ll help me figure out if I need to lower it a little bit.
Two, I also decide to market it about 60 days prior to the end of my existing lease. I find that that 60-day window is the sweet spot. That’s where tenants who might be looking to move around the time that my lease is expiring, they’ll start looking about 60 days out. I’ll catch them if I’m marketing about that time. If I wait until 30 days, this people typically have already have their eye on a place, and maybe even signed a lease already and considering a deposit. Probably that 30 to 60-day window is really critical. You want to start early. That’s another key part about marketing. Starting early, making sure you get really great pictures out there, have professional pictures taken, and just build the best listing you can, and then syndicate it to every site that you can imagine using a couple of tools. Just getting it out there and just wait and sit back. I believe that the most success I’ve had with marketing has always come through online listings rather than yard signs or fliers or anything else that might be physical.
It’s the internet age. A comment about photos, I can’t tell you how important good photos are. I constantly butt my head with some of the providers that we work with in local markets telling them to send us really good photos. We want a good set of photos, especially a good exterior photo because that’s the first thing people see. The numbers might be attractive. It might be a great property in a good neighborhood, but if it looks like a dog from the picture, even if it isn’t, but if it looks that way, it’s so easy to just skip over it because a picture’s worth a thousand words. You’re sifting. It’s a process of elimination. You’re trying to get rid of all the ones you don’t want in order to make a decision on properties that you do want. That’s a big, big factor is having good photos. As far as marketing, is Craigslist your number one source or do you use Postlets or other tools out there?
I do get about 90%, I would say, from Craigslist. It’s really popular in the DC Metro area. I realized that it’s not as popular in some parts of the country. It really depends on what the location of the property is. For me, it works well, but I still use Postlets because it gets it out to Trulia and Zillow and a bunch of other sites. I’ll still get inquiries from them as well. Between those two, that’s how I syndicate my listings. However, one thing that I started doing recently is that I’ll actually create a web page for the property. That web page will have all the best pictures. They’ll have everything about what I’m asking, the lease details, and the price and the deposit. That little web page is just a one-pager. That page will be linked from whatever ads I put out there. It’s a great way to siphon them in, and show them that you’re a professional.
As a small landlord, I am competing with all the professional property managers that you recommend and that you talk with every day. I need to look that professional in order to be considered. I think that, small landlords who just write listings as if it were an old fashioned paper ad or they’re minimizing words and making it two lines. They don’t even have a chance. I use a web page. That web page is actually a built-in rental application. It streamlines all process. People can go and look at more information about the property. If they want, they can apply right there on the web page. I’ll get their application. It’s easy. It’s all online. They don’t even have to worry about filling up paperwork. It’s just really easy.
That’s optional. That’s not mandatory. You can still market your property for lease using Craigslist or Postlets and maybe some other avenues like yard signs or whatnot. You’ve got a bunch of applicants. You are now basically going into a screening process. Do you charge them for that application? I know a lot of landlords use that as a profit center. They’ll charge $25-$50. It might only cost them $12 or $15 to run a credit check and other reports. How does that work with you?
With me, I don’t charge an application fee. What I mean by that is I don’t actually collect any money from the applicant. I think that that is a hurdle to prevent people from applying. I’d rather have them apply and get interested and have some sort of vested feeling in the property that they took time to apply and it just gets sucked in a little bit more. I don’t have an obligation fee. I know that some landlords do and there’s a profit center for them. My argument is always that unless you really have a hundred or a thousand units, the $2 or $3 you might make on a credit report is nominal. It’s not going to affect anything. If you only have ten units, what do you do? Go buy yourself a Starbucks coffee. After all that, then you have to deal with the application, the money that I might give you right there.
Instead, what I do is I require a credit report and a background check as part of the application. I use a tool through Cozy that just lets me require that when they submit it as part of filling out all the information they go through a whole experience and identity check. They get asked all kinds of questions and they can actually get a copy of their credit report and background check at the same time. That is instantly shared with me at the same time the application is submitted. That costs them about $20 for each one of those things. It just makes it easy because they get a copy of it. I get a copy of it. It’s from a third party. I know it’s not altered at all. I never have to touch any money or any checks or anything. That’s how I do it.
You pull a credit report, an eviction report. I know some people look at a criminal record background check. I’ve heard mixed comments about that. Some people put a lot of weight in that. Other people put no weight in that. I would think that the eviction record is probably the most important thing. Even for me, I don’t think the credit report really shows all that much other than maybe some responsibility. If they have a 600 FICO score, who cares? That’s probably why they’re renting in the first place.
That’s true. I definitely look at the credit score. But I’m more interested in the credit report. I’m more interested in where the money is going and what type of debt that they have. For me, it’s more important. I would certainly accept an applicant who has $300,000 in mortgage debt than somebody who has $30,000 in credit card debt because that’s just a different type of debt. Their monthly payment is likely a lot higher actually. It also shows where their priorities are. I think that someone who racks up $50,000 or $100,000 in credit card debt probably can’t be trusted with money. I wouldn’t trust them to pay rent on time because they’re also battling Visa or Mastercard. I think from a credit standpoint, you look at the credit score and I typically shoot for anything over 650, is just fine with me. I do want to see what type of debt they have. They could have a million dollars in debt but it may be because they’ve broke their back in a car accident and they had a medical debt. Maybe there are some payments on it. That stuff matters to me. I look at that and I check it out.
From a background check perspective, I do think evictions are the worst thing that you could find on there. I think evictions, not because it’s criminal or anything, but just an eviction is actually a judgment. If someone has an eviction on their record, it’s because a judge has listened to a case where the tenant was involved and he was being evicted and the judge ruled against the tenant and said, “I believe the landlord is correct in the situation and you are wrong to withhold rent or whatever you were trying to do.” Then, it gets marked as an eviction. That shows a willing defiance against the landlord’s authority. It wouldn’t be a big deal if the tenant was right. In this case, a judge actually said, “No, you were wrong. You didn’t do this right.” I think that I don’t want to deal with people who feel like they will fight me in situations where they are wrong. Maybe it was a misunderstanding, but chances are they just were wrong.
It’s a breach of contract. That’s problem number one. There was intent there to actually do that. If they’ve done it once, they’ll do it again and then likely to keep doing it. That’s why I think that carries the most weight. Just going back to the credit report for a second, are you actually looking at their debt-to-income ratio?
Yes. We certainly do. We look at debt-to-income. I don’t have a marker or a criteria for a certain amount because I do weight the types of debt more. I look at their monthly payments. I like to break it down a little bit more than just a credit score and a debt-income ratio.
What about their income? Do you look for three times their income compared to the rent?
I do. That’s critical. The industry standard is two to three times the monthly household income. I typically do three times, but I set the criteria in the beginning and then I judge all my applicants equally for that property at the same time. I do three times the rent of their household gross income. I think that’s critical. However, if they have things on there that are taken out, like child support, for example. If they show me a pay stub and it shows that half of their monthly income goes to child support, then I do take that off the gross because I think that they’re never going to see that.
What else do you do for screening, if anything?
I look at the background check again. I look at convictions, anything that might show up on a national or county level. I typically want the people to be clean, of no convictions in the last two years. I definitely don’t mess with anybody who has a violent or armed crime, somebody that hurt somebody else and it’s deemed a violent crime. I don’t want to be the landlord on the other side of the door knocking with a tenant who’s had a violent history. That’s a red flag and immediate rejection.
Back to the credit report, with the credit card debt that they might have, that’s a big one for me. I want to see as low as they possibly can have on credit cards, especially store credit cards. I don’t want $50,000 on a Gap credit card. That just shows that they just can’t control their spending and just gives a better picture for what they spend their money on. That’s what I do for tenant screening with credit reports and background checks. There’s a lot of other things with screening that I think really help a landlord or property manager figure out who they might be renting to.
What I typically do is I conduct an interview. I do an initial interview oftentimes when the inquiry first comes in and I’ll ask them, “You sound great. You want to talk on the phone for fifteen minutes?” I’ll just talk to him there and I’ll tell him about the property. I’ll tell him what the general requirements are. I’ll even go as far as saying, “My standard is a 650 credit score. Do you have that?” Oftentimes, they’ll just say “no” straight up. That’s the end of the conversation.
If everything sounds right, then we’ll set up a showing. We’ll set up a time where they can come see the property. That also gives me or my representative a chance to meet the person. They want to see the property. They’re interested in meeting me because they’re going to be giving me rent checks. Do they show up on time? Do they represent themselves well? Did they come disheveled? Were they rude? I’ve even seen applicants who come by and they whip out a handkerchief every time they touch something. I don’t know what type of disabilities they may have. It’s none of my business. If you see somebody who’s every time he touches a door knob and he grabs that handkerchief to touch it, it just shows that he’s just maybe slightly hypochondriac and might give me problems later on where he accuses me of having mold in my house when there’s really no mold because he’s having the sniffles. Things like that or these soft inquiries, soft questions that you can look for. They really help you figure out who this person might be.
One of my favorite things that I do is called the trunk junk. It’s where I show the property to someone and as they leave, I say, “I’ll walk you to your car.” They usually think “That’s great. It’s wonderful. We can keep talking.” When we finally get to their car, as I’m shaking their hand or as we’re walking there, I’ll quickly just glance into their car, through the windows. It’s not obvious. It’s just an eyeball, look really quickly and it’s not an invasion of privacy because it’s open for the world to see. What I’m looking for is any red flags that might be in their car. For example, if they have piles of hamburger wrappers piled up to the ceiling in their back seat, that’s probably how they’re going to keep your house. Multiple times, actually, I have advertised a unit that has a no-pet policy. I get to her car and it’s clear that there’s white hair from her Great Pyrenees all over the backseat. You just have to have ask, “Do you have a dog?” They’re like, “Yeah. His name is Buddy.” You’re like, “You realize that this is a no-pet policy house.” They’re like, “Yeah, I was just hoping you’d make an exception.”
I think it’s a good tactic to try and catch prospective tenants in a lie because if they’re going to be dishonest right from the beginning, you know they’re going to be dishonest with you down the road. I guess one technique is asking them how much they make, and then later asking them for pay stubs and seeing if those match. If they don’t, clearly they lie to you from the beginning in order to try and qualify. Now they’ve just proven to you that they don’t actually make what they said they did.
I can probably count like ten or eleven different times after screening a couple of hundred applicants. Maybe about 8% to 10% of my applicants have put a different salary amount on the application than what was actually on their pay stub. It’s just so easy for them to up that $10,000 or $15,000 to make it seem better. It is critical that you check out the pay stubs for sure.
I don’t understand why they would lie about something like that. They must understand that at some point, you’re going to have to show or prove of your income because you have to qualify.
Tenants who have dealt with independent landlords, they maybe have never had to do that. I think that they just assumed you’re not going to ask or maybe you’ll never look at it, or maybe you’ll be invested in them by the time that they submit their pay stub. They just don’t think about it.
You had mentioned observing what’s in their car or how they handle themselves while you’re showing the property. The thing is a lot of investors are out of state or even out of the country. They may want to self-manage but they can’t be there to show the property to every applicant. Do you have any suggestions or recommendations on how you go about doing that from a distance so you could live in one state and manage in another?
I have two suggestions. You’re absolutely right. It’s nearly impossible to handle that because it’s not practical to fly out to your property and deal with it just for every showing. It’s just not worth it. The two things that I suggest when managing something from a far and still wanting to be involved is you have to have someone on the ground. The times where you really need somebody to participate during showings and at the end of the lease when you’re getting over the next tenant. If you can handle showings and you can handle move-in, move-out with somebody on the ground, then that’s really all you would need somebody there for. The things that I’ve recommended are, and what I’ve done, you can find property managers. They’re in every state. They’re not in the full service spectrum, but you can find the property manager on an a la carte menu.
Even if it’s not marketed that way, you can often go to them and say, “I love your business. I love your company. But I really just need somebody to handle showings.” They may say “no thanks” or they also may say “Great. How about $200 a showing?” You can decide if that’s worth it to you or you could try somebody else or you could assign it. You would get a professional there to handle those showings. You could either submit these people to them. You could say, “I’ll get the contacts. I’ll send them over to you. Then you can show them the house and let me know.” Or you could even let them do their whole application process. Once that person’s moved in and starting to pay rent, you could use a variety of other tools to do it yourself and not have to pay them a regular monthly fee.
If I may ask you, you did say a property management company using an a la carte service. That’s what you said?
That is what I said.
Your other suggestion?
My other suggestion would be to use the tenants that you do have. One tactic that’s worked surprisingly well for me is that I will tell my current tenants, “I’d like to start showing the place to new prospective applicants. Your lease is ending and I was wondering if you would like to work with me on this? If you keep the place clean and when I send people over or when I get inquiries, I will set up a showing. If you can be there to let the person in and answer any questions and just show them the place, then I’ll pay you.” I think what I’ve done in the past is I said “I’ll pay you $25 a showing. If that person signs a lease, then I’ll give you $100 extra.” What that does is it not only pays them for just being at their house anyway because they’re probably oftentimes just hanging out at home. It keeps the place clean. They have every incentive to try the represent the property well. They talk about how great the location is. They answer initial questions. If that person signs the lease, they get $100. That’s worked well for me. I usually just say, “If the applicant has any questions about the lease or any terms or anything, just tell them to talk to me. You don’t have to deal with that.” They’re usually pretty comfortable. That won’t get you your first tenant, but if you have back-to-back tenants and you’re trying to avoid a vacancy, that’s a really great way to do it.
Those are all great ideas. I’m sure you have a ton more on Landlordology.com. The next area or process, at least how I break it up, is collecting rents, just the collection process. Maybe this is a good time for you to tell our audience about Cozy.co. All I know about it is it’s a free resource for landlords. It was funded by Google, wasn’t it? Tell us about that.
Landlordology is part of the Cozy family. Cozy is a company that got its original seed money from Google. Our founder went to Google and said, “We want to improve the rental industry.” They loved the pitch. They loved the idea. They said, “That’s awesome. Go conquer the world and here’s a bunch of money to do it.” We went out and tried to rethink the rental process and said, “This is a business that hasn’t really changed for hundreds of years, if not thousands of years. It’s been relatively handled the same.” Really, in the last, I’d say ten to fifteen years, as technology come to the point where now the rental industry can use it, whether it’s electronic payment processing or tenant screening or tracking everything that’s not in a spreadsheet, they’re tracking it a different way. All that has now come to a point where we can embrace it.
That’s what we decided to do, is be a full end-to-end property management software that can be used by not only independent landlords, but full-time property managers that manage other people’s properties. We thought the best way to do that would be to provide the best-in-class product, but also to make it free. That’s where we are.
Cozy is trusted by a hundred thousand people. Every single month, they handle their rent and we process hundreds of millions of dollars. It’s just really great. I use it for my own properties. It makes it really easy to go through that whole application to move out. It lets me track everything. Check it out, it’s Cozy.co.
There’s practically every tool you want to use as a remote landlord on Cozy with the exception of what?
With the exception of super advanced accounting. If you are a numbers guy and you want to analyze investment profit and you want to analyze your entire bank portfolio, you can’t do that through Cozy. But if you’re looking at tracking leases and tenants and making sure that you get high-quality tenants through screening reports and tools that we offer, making sure that they can pay online directly from their bank account or to your bank account, or even with a credit card, you can do that through Cozy.
Rent collection is automated and it’s all done online, monthly payments directly to your account?
That’s correct. The tenants can decide how they want to pay and when they want to pay. You’ve got your rules set up in your lease as renters do and all that’s handled. What we like to advertise is that we are really selling peace of mind. It’s like Home Depot. You can do it and we can help. It’s the same thing with rentals. Here are the tools that you actually would need if you wanted to do this professionally, but you can do it. That’s where we come in.
Let’s talk about evictions and turnover. How are evictions and turnovers handled? Obviously, an online tool like Cozy might be able to help, and you not being in the local market definitely won’t help. Who do you turn to or who do you hire in order to turn the property, get it cleaned and ready for the next tenant and what about evictions? Let’s talk about both of those.
For turnover, the process of having tenants move out, get it cleaned, fix up anything and then get somebody else to move in with keys. That whole process, you absolutely need someone on the ground. That’s where you could hire a handyman. It’s often times good to have a general or super, somebody who lives in the area that you trust and can rely on, and you could actually give the keys to and have that person on call. That would be the same person that would need to go over if there’s any massive emergency or to handle these turnovers. You could pay that person per move-in, move-out and per turnover and give them a thousand dollars or whatever it might be to deal with that. If you do have a property manager that offers a la carte services, that would be something that you could pay them for. You could keep it in the same family if they’re doing the initial showings and at the end they’re also doing turnovers. You really just need someone there to oversee any cleanup and repairs.
The key there is to have a reliable property management company that you can call on an as-needed basis, and possibly a handyman or a contractor of some type that you can call on to do maintenance and repairs if something were to come up.
Correct. Somebody that you trust on site. That could be a neighbor or could be somebody else in the building that you’ve befriended and somebody that you trust. It’s possible. To your other question about evictions, that’s where it gets tricky. I would hope that what I’m trying to accomplish on Landlordology and what we’re doing with Cozy would avoid having a tenant who just skips out on rent or just honkers down and doesn’t want to move.
It’s all in tenant screening. If you can pick the best quality tenant, you can eliminate a good portion of any potential evictions. You’re certainly not going to get them all. When that bad day comes where you’ve realized that you’re probably going to have to evict somebody, I’d say if you don’t have a full-time property manager that you’re working with anyway, then the best choice of action is to call a local landlord attorney in that area to pay them for that, because they’re going to be able to handle way better than you ever will be able to. You’ve got the distance against you as well. Go ahead at that point. Get an attorney involved and just pay them their fee.
If you have to do an eviction, do you use that website? I can’t remember what it’s called but they handle the eviction process. Do you know what I’m talking about?
I do. I actually never used it because I pride myself on not having evictions. It’s called ClickNotices.com. What they do is they have built a platform where they have a network of attorneys in a lot of different states. You create a login with their website. You give all the details about who it is you’re trying to evict and your property address, and then submit it and pay your fee. You pay them a small fee. They will syndicate it to a trusted attorney that they know that’s in that area. That attorney will not only represent you in court, but he’ll also either go over the property and deal with that in person, what’s required by that county or hire somebody, hire a service person to do it. It just seems like a full service method of doing an eviction online. I really am intrigued by this company called ClickNotices. Next time I have to deal with an eviction, I will certainly give that a try, just because I think it’s a fascinating way. It’s a new technology way to do it. Definitely check them out.
Anything else you want to add to the process? I know you have a very specific process that you follow. Is there anything that I didn’t ask you about that that you want to add?
I just want to encourage folks that do want to try to manage it themselves. I think it is certainly possible. I’ve been doing it successfully. I have a profitable rental income, a rental portfolio with happy tenants. It’s one thing to have money but it’s another thing to actually have money. Tenants are willing to give it to you. I think that whether it’s automated rent collection or easy tenant screening. One trick we didn’t talk about was during turnover, one of the things that I like to do is I set and move out times in my lease. That’s a neat little trick in the lease, you can say, “This lease expires at [10:00] on the last day of the lease.” The new lease that you might start doesn’t actually begin until about [2:00] the next day. Lease ends on the 30th and the new one starts on the first. You have about 28 hours or so between leases where you can do repairs, clean up. You get cleaners in there. You can replace blinds. You can do whatever you need to.
As long as you have somebody on the ground looking and they’re overseeing of that, I think you can hire people out to individually do things, whether it’s through a lockbox or that handyman who might have a key. You can get a lot done in 28 hours if you plan ahead. I think that turnover period is probably the scariest thing that you might encounter as a long-distance landlord trying to do it yourself. It’s not as hard once you do it once or twice and you set up the right processes. I just want to encourage people.
You made me think of a question I didn’t think to ask you before. What is the biggest pitfall that remote investors fall into when they’re looking at managing their properties on their own or maybe just getting started? What’s the biggest pitfall?
The biggest pitfall to managing property from a distance is really not having your finger around the pulse of the property. I think that it is critical to have somebody that you can call if you need to and just say, “Let me know how things are going over there.” If you have to pay them every time they go do a drive-by or every time that they do an inspection, you can set up quarterly inspections with the tenants. I think it’s worth it because the real expense comes when you don’t know what’s happening and the year or two have gone by and no one has gone over that house to check on it. The next time you do it, you realize there’s a leaky roof that’s been leaking for six months, and the tenants just didn’t care enough to tell you. Now, you have a $40,000 bill. I think it’s just a matter of staying on top of it and inspecting the property once a quarter at the minimum and making sure that it’s being kept up.
We’re going to have a guest in the future show here that provides a service in virtually every city, where they will go out for a small fee and actually check up on or spy on your property or the condition of it. It’s a low-cost way for someone to be your eyes, hands and ears on the ground for something that you just can’t do yourself. I don’t know what episode that’s going to be. It’s an upcoming episode, I’ll just say that.
I’ve actually been trying to talk with a company called Digital Globe. I’ve a friend who works over there. What they do is they take real time satellite photos. They provide that data to Google and Microsoft. They’re the people that actually own the satellites. I’ve been trying to figure out how I can get their data for a reasonable amount of money and then offer that as some service, so that a long-distance landlord could get a daily aerial photograph of the property, because wouldn’t that be amazing if you start to realize there are twelve cars parked in your yard? You’d want to know that.
Lucas, is there anything that you’d like to share with our audience or anything else that you’d like to add, like a frequently asked question that I didn’t ask you before?
No. This has been so fantastic and thanks for giving me an opportunity to talk about Landlordology and Cozy. I just want to say that if you’re out there and you’re trying to manage a property yourself, you’re not alone. There are tons of people out there that are doing it too. They’re interested in building that community. That’s what Landlordology is all about. I’m here to help just make you feel not alone, trying to answer any questions you might have as best as I can, without actually being legal advice. I think as a community, we’ll all succeed.
I would even suggest that our audience go to Landlordology and check it out, even if they don’t ever plan to manage their properties on their own. Because if they just learn how property management works and what to look for and the things that make it work better, and just understand the whole process, even if it’s through the eyes of their own property manager, they’re going to have better conversations with their property manager. They’re going to know what to look for, what to ask. I think they’ll just be better educated. Education is everything. It’s a valuable resource, whether you manage or you don’t manage your own property. Lucas, tell our audience how they can find you, your websites, any other contact information you want to provide?
You can mostly find me on Landlordology.com. I hang out there 90% of my day answering questions, building community and just trying to help build better content for landlords and property managers. Also at Cozy. It’s Cozy.co. You can reach me, if you want at [email protected]. That’s my email address. Feel free to contact me directly.
Lucas, it’s been great having you on the show. I’m sure we’ll have you back at some future date.
Thanks, Marco. I appreciate it.
Talk to you soon.
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