Month: September 2016

Your Property Manager is Charging You a Percentage of the Monthly Rent? That is so 1990


Matthew Whitaker - Friday, September 30, 2016

vector illustration of hand holding money to invest in own house in sketch style

The real estate game is changing quickly. Much like the internet has changed many industries, real estate is undergoing a change to a “new normal” that will leave a great number of property management professionals out of the game.

You are already seeing it in the real estate sales industry.

The internet has provided, previously unavailable, transparency to potential buyers and sellers of homes. In the “olden days” if you were interested in purchasing a home you would be required to find an Agent to find out what was even on the market. Your Agent would disappear and come back with a list of homes that met your criteria and you would spend all day Saturday driving around looking at them. All this, not knowing till you arrived at the home that the kitchen was two kinds of ugly and there is no way you would move to a home built on the side of a cliff.

As you well know that is no longer. We have the ability to peruse thousands of homes for sale at our fingertips and typically we know more about the home before we see it than the Agent does.

My how times have changed.

Today you hand the Agent a list of properties you’ve already prescreened and want to see. The Agent makes the arrangements and you spend less than half a Saturday looking at properties and the rest of the day reliving the two you really liked in pictures and virtual tours on the internet.

The management industry, albeit much smaller and much slower to move, is undergoing a shift that will have as huge of an impact on those of us who manage homes.

In the past, it was standard for the property manager to charge a percentage of the monthly rent as a management fee.

And we did the same thing!

It wasn’t until recently that we took a step back and asked the question, “Why?”.

To better explain it, I want to tell you a story about a newlywed couple who lived out of town from their family who was celebrating Thanksgiving for the first time – just the two of them. The wife was busy making dinner, when before she put the ham in the oven, she cut the end of the ham off.

The newlywed husband thought that was odd, since he had never seen his mother do that and (because he was newlywed and didn’t know any better) decided to ask her, “Why?”.

Truth is the new wife didn’t know the answer to that question, but thought that there must be a plausible reason, because her mother had always done it. So, they decided to get to the bottom of it and call home to find out the answer to their riddle.

Everyone was over at the mother’s house for Thanksgiving, so they were excited the newlywed couple called. After talking with the whole family, the wife got back on the phone with her mother and posed the question which had previously stumped her . . . Why do we cut the end of the ham off before we put it in the oven?

To her amazement, her mother didn’t know the answer either. In fact, she had just always done it and never really thought about it . . . because that is what HER mother had always done.

Since it was Thanksgiving, her mother was also present. So she put down the phone and went and posed the question to her mother.

This time she did get an answer.

What was the reason? The grandmother’s oven was too small to fit the whole ham, so she would cut the end of the ham off to fit it in the oven.

And that is the reason managers charge a percentage of the monthly rent . . . it is because managers have always charged a percentage of the monthly rent. That is the answer.

What most managers will attempt to tell you is that it takes longer to manage a more expensive home.

That has not been our experience after managing almost 1300 homes. In fact we believe that the time spent to manage a home is a little more like a bell shaped curve.

If the home rents for very little or a whole bunch (bottom 10% or top 10%), then it requires more time. But, the other 80% take about the same amount of time, effort and energy to manage.

So, when one of our new team members (who wasn’t affected by the end of the ham being cut off) began asking the question, “Why?”; all of our senseless arguments of things we’d heard and learned over the years fell by the wayside when faced with the actual facts and data.

That is why, we’ve decided to move to a flat fee pricing model.

What’s so interesting is that for most, this will actually improve “the deal” for them. We have owners calling now who would have paid 10% in the past, now paying an effective 4-5% on higher end homes. That saves them hundreds of dollars and . . . this is perhaps the most important point . . . there is no drop in service.

That’s right . . . there is no drop in service.

The question I would ask me in this case is, “How can you afford to discount the price and still offer the same service?”

My answer is very easy, just like in my first example, the market is mispriced. Meaning we’ve been charging the same thing for so long, you, the consumer, don’t know any different.

That’s nothing against you. Heck, we didn’t realize it till someone who didn’t have a long history in the industry pointed it out to us. Sometimes it just takes some fresh eyes.

Think about this . . . Owners were paying the same amount for management services since before there was even computers. Property managers were manually posting a ledger by hand and sending out paper checks with a typewriter written statement.

Are you going to tell me that you should pay the same for management services as you would for something as manual as that?

Today we can click a few buttons, which produce hundreds of owner statements to their email and then pay them by dumping the money directly into their account.

Bottom line . . . don’t overpay for services in the new economy. Managing rental houses is not like it was in 1990, so why are you paying for it like it is?

Building a Property Management Team


Matthew Whitaker - Tuesday, September 27, 2016

business, people, cooperation and team work concept - close up of creative team sitting at table and holding hands on top of each other in office

There are no loan wolf successful people. One of my favorite quotes from John Maxwell is his response to people who say they are “self made”. He explains how sorry he is because if they are self made then they haven’t accomplished a whole lot and explains that great things are done with a team. Property management is no different.

Who is on our property management team?

1.  An eviction attorney – Yes, no matter how much we underwrite applications and look for the right tenant, situations do change and some tenants go from being great to being very poor tenants in need of eviction. Because the landlord-tenant laws are very specific, it is always best to turn it over to a legal professional to handle this process.

2. Third party application underwriter – We believe it is best to remove us from the equation when underwriting an application. We solicit the help of a company who does nothing but underwrite all of our applications according to a criteria we determine. That way, we aren’t subject to the whims and stories from tenants that some landlords fall so hard for.

3. Property management software provider – We use a number of different software applications to manage our properties. The most important is the management accounting software we use that is industry specific to single family rental homes. Our provider is a team member, because we are constantly calling them up and asking clarifying questions about how to handle certain situations in the software.

Building the right property management team will help you be much more successful as you navigate the waters of managing single family rental homes.

If you have specific questions about any of our providers, I hope you will reach out to us and ask us those questions. We’d love to help.

What is a 7 Day Eviction Notice in Alabama?


Matthew Whitaker - Saturday, September 10, 2016

Question mark drawn in chalk on a blackboard

Nobody wants to have to evict a tenant. The original intent of the lease is that you would provide them a place to live and they would take care of that place and pay you rent . . . monthly . . . the whole thing . . . and on time.

Somewhere your tenant forgot that they had to take care of the place or pay you rent or worse BOTH.

If you are like many people talk to in this business, you’re probably kicking yourself for letting this go on much longer than it ever should have. If it makes you feel any better, if you’ve been in this business for any measure of time, you’ve let a tenant carry on way too long.

So you need them out of your house?

The first step in evicting someone in Alabama is the 7 day notice. I’m going to cover some quick elements to make sure remember, but as always, I’m not an attorney, so I always suggest consulting one before making any legal moves.

There are really two reasons in Alabama to evict someone.

The first is for “nonpayment of rent”. This is fairly obvious why you are evicting them.

The second is for “material breach of lease”. This is a catch all phrase for everything else. Meaning they have violated some other portion of the lease document . . . this could mean destroying the house, having people living in the house other than who is on the lease, etc.

I break these two down, because it used to be a big difference in the type of notice that was posted. Previously, under the Uniform Residential Landlord Tenant Act in Alabama, you were required to post a 7 day notice for rent and a 14 day notice for material breach.

They updated the law a few years ago and this is no longer the case. You post a 7 day notice either way.

So that is where I get to my first tip . . . Have one notice that covers both.

Our notice has the heading:

NOTICE OF RENTAL AGREEMENT BREACH
DUE TO NONPAYMENT OF RENT AND/OR MATERIAL BREACH OF LEASE
 

And in the body, it goes on to include both of them again in the first paragraph:

You are hereby notified, pursuant to 35 -9A-421(b) Code of Alabama that you are in noncompliance with the terms of your rental agreement for failure to pay rent and or a material breach of the lease for the premises now occupied by you, being situated at_______________________________________________________________________________________________.

My second tip is that a 7 day notice doesn’t end on the 7th day . . . it ends on the 8th. Here is the language from our eviction notice:

Your rental agreement will terminate upon the expiration of seven (7) days after the receipt or posting of this written notice, if you fail to pay or cure the material lease breach prior to the expiration of the seventh (7th) day.

__________________________________________________________
_________________________________________________________
My third tip is that you can’t terminate the lease by posting the notice. The lease doesn’t actually get terminated until after the 7th day the tenant has not “cured” the breach. Meaning, they have not fixed the problem.

Here is the next paragraph from our notice laying this out:

If the full rent is not paid or material breach cured, Demand is made upon you to deliver possession of the premises at the time of termination of your rental agreement (7 days after receipt or posting of this notice), otherwise, an eviction action will be filed against you.

Your failure to surrender possession of the premises will be deemed a willful noncompliance of the rental agreement for which the Lessor will seek a judgment for possession of the premises and all damages allowable under Alabama Law.

Additional rent charges may continue to accrue as due and owing under the terms and conditions of the rental agreement.

Fourth tip, only take certified funds at this point. We actually tell them this in the notice.

ALL PAYMENTS MUST BE MADE BY CASHIER’S CHECK OR MONEY ORDER ONLY

Tip number 5, to cover your rear end, include debt collection language. Here is what we have:

**We will assume this debt to be valid, unless it is disputed within thirty days after you receive this letter. If you dispute this debt, or any portion thereof, we will obtain and mail to you a verification of the debt or a copy of any judgment, if you send us a written request within this thirty day period. Also, upon written request within this thirty day period, we will provide you with the name and address of the original creditor, if different from the current creditor. This NOTICE, however, may require you to take some action prior to the thirty days, OTHERWISE, unlawful detainer proceedings may be instituted AGAINST you. This letter is an attempt to collect a debt, and any information obtained will be used for that purpose. This communication is from a debt collector.

Lastly, to make it as official as possible, have the notice notarized.

The next thing we need to cover is how to serve it properly.

While posting a notice can feel like a really weird thing to do, when you put it on the door, you must make an attempt to get someone to the door and hand deliver it to them. There is no requirement for you to come back if nobody is there, but you must make a good faith attempt.

If nobody is home, you may post it on the door where they are most likely to enter and see it. This is typically the front door.

I also suggest you take a picture of it to prove that you were there and served it. It is crazy the things people will say when they are attempting to get out of paying you rent.

Properly posting the notice in our experience gets MOST tenants to pay and/or fix the issue. We have very few tenants who will take an eviction all the way from the 7 Day eviction notice to them being set out by the sheriff.