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Why Property Managers Are So Important

Why Property Managers Are So Important

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Jonathan Cook: On today's episode of The Investing Revolution, we are going to talk about why a property management partner is so important, what a property managers do, who needs a property manager? Spoiler, it's everybody that invests in real estate.

Announcer: This is the Investing Revolution, a podcast designed to help your real estate investment strategy. On this podcast will teach you the actionable steps to take in pitfalls to avoid so that your real estate investing can thrive.

Jonathan Cook: Announcer: Welcome to the Investing Revolution I am Jonathan Cook. Your host with me today is our co-host, Todd Ortscheid. How are you, Todd?

Todd Ortscheid: Hello, I'm doing good. How about you?

Jonathan Cook: I am excellent. I'm very excited today. We've got some really cool topics, so I want to, you know, preface this as saying. We want to talk about real estate investment for the most part. But one of the things that I think throughout every episode, the entire thread of, of everything we talk about, we come back to. And this is why a property management partner is so important to everything you're doing. If you're doing this, if you're doing these strategies, this is why a property manager is important. If you're doing that strategy, this is why a property manager and important and so I wanted to actually take some time and discuss with you in real estate investing why it's so important to have a property manager. Because I mean, I'll say it in some little line here and there. I mean, in future episodes, I'm sure I'm going to say it again because it just it just keeps coming up any time that we dive into any part of, you know, investing in real estate, this is how you start. This is how you build a team. And then after you've built a team like part of the team building is, Oh, you need a property manager, by the way. And like we, we cover so many roles as property managers. We do so many parts for investors. And like, I couldn't think of anybody else that I would want to actually discuss this with other than you. So. Do you think that you could, in a nutshell, try and describe? What all property managers get done for a real estate investor. I mean, I know that's impossible, but that's why we have a whole podcast to talk about it.

Todd Ortscheid: Yeah, I mean, that's quite the topic. I mean, if you look at our manuals and everything that we have, you know, our knowledge base, everything just goes on and on and on describing all the different things that we do. But you know, in a nutshell, it's we screen tenants. We place tenants. We collect the rent. We coordinate repairs. We are basically acting as the middleman between the tenant and the owner for everything that comes up, whether it's an HOA, a violation or, you know, rent, non payment or whatever. And then of course, we're there. If there's some crazy situation like an eviction or something that has to be done. So we're there for all of that.

Jonathan Cook: So one of the ways and you know, it makes our lives as property managers so easy when our clients never, ever talk to the tenants. Like we have this setup this way for a reason. Like, it's not just that we want to be the middleman. And like, Oh, we want a piece of the puzzle, let us. It's not just about like, Oh, this is a good spot for us. The protections that property management provide a real estate investor from something as simple as, you know, litigation with a tenant like, we don't have to argue that, oh, well, they said this. They said that. I mean, nope, like federal protections from what if you've said the wrong thing to a potential tenant? Yep. You know, not or co-mingling funds, if you're if you have enough properties that maybe you're not a property manager, but I I own this many properties and then you take a security deposit and do do you have to put that in an escrow account? Like, imagine trying to do this without the systems that we have in our office, like the number of systems, how many actual software systems do we use that interconnect?

Todd Ortscheid: Oh, it's it's I don't know the number of them, but it's basically an entire page of our profit and loss statement. If you look at that, I mean, it's one whole page just listing all of our different softwares and we and we connect all of them, so they all interact with each other, which is a whole task in itself.

Jonathan Cook: And can you explain a little bit why that's so important? I mean, because you and I have both talked to other property managers that don't have this level of software don't have this level of integration with systems. And yes, theoretically, it can be done with like a pen and a notepad. But to me, that sounds like absolute torture. Can you talk about why these systems connecting are so important to how we function as a business?

Todd Ortscheid: Well, yeah, I mean, it's so things don't slip through the cracks is basically what it is. I mean, all these things are talking to each other so that we can make sure that, you know, if the rent's not paid, you know, not only are we sending out the notice, but we're making sure that we're taking care of a cash for keys offer. We're getting an eviction notice sent out, we're getting an eviction filed. You know, all those things, if at any point during that process, something slips through the cracks, an investor can lose all kinds of money. So, you know, I mean, it's just a week's delay. I always tell everybody this fifty two weeks in a year, if you lose a week of income, you've basically lost two percent of your income for the year. I mean, that's oh, well, that's enormous. So I mean, you know, any time in the process where something isn't going as it should is money lost for the investor. And that's why this is so important.

Jonathan Cook: You know, I have worked. You know, in property management for a long time and not just with you here at Revolution. And I've seen several companies, you know, from and outside and some from an inside perspective and watched how how important it is to have the right people doing the right thing. And we are departmental sized company pretty pretty specifically for that reason that I just just made clear like there's a specific person that needs to handle these types of tasks. There's a specific type of person and it's like personalities. It's like when we talk about our culture index. Yep, we have a culture index for everyone on our team for a specific reason because the way that they operate themselves, the way that they are organized, the way that they handle crisis is geared towards handling maintenance calls or handling tenant calls or handling new business calls, whatever that is. And that's for a reason. Can you talk about why you decided that the culture index and how that personality and it's not really just a person? Can you explain culture index a little bit better?

Todd Ortscheid: Sure. So I mean, you know, a lot of companies, you know, especially the smaller boutique firms, they got one person who does everything. And the problem with that is, like you say, you know, a different personality is fit for different kinds of jobs. There's somebody who's really good at leasing, which involves going out to properties, doing moving and move out inspections, talking to applicants. That's one kind of person. And then another kind of person is someone who deals with accounting, and the person who likes dealing with accounting wants nothing to do with going out to a property and talking to a tenant about a property. But, you know, if you've got a company where it's portfolio based, you've got the same person doing all that stuff. That means something there. Whatever they don't like doing is going to suffer. So, you know, things are not going to work well for us. We use culture index to see, where do you fit? What is your best fit in the organization? Are you better in accounting or are you better in leasing? You better in client service? You know, where do you fit? And after we can figure that out, you can put that person in that role. And not only are they happy there, but they're very good at it. So, I mean, that's really why we do that.

Jonathan Cook: And that like as a whole, that's specifically about our company. But I think that that plays really well into this concept of, you know. As a real estate investor, that's our listener that's that's trying to build their investment empire, when you're thinking of how do I want to build this portfolio that I'm going to use to have ancillary income, I'm trying to grow my wealth as a as as an entrepreneur. And so I've got to build my team, I think. And in an earlier episode, when we were talking about how to start investing there, the big step that that Christine and I had discussed was about building that team, making sure that that is a really well put together team that they have experts, right? Like exactly what we're talking about here and discussing how. And I filled in the property management slot as just a property manager, and I did not go into and explain, which is why I wanted this episode to talk about all of this. I didn't explain how many moving parts there are in property management, and it just sounds so simple. Like if I just describe property management as, you know, we collect rent for you and market your property. And then when if stuff breaks, we go get it fixed. That sounds real simple, but also working in property management for years has shown me that. Hey, guess what? Day to day there's a million things happening with every single property. It's so much more than I've collected rent for this month. I don't have to worry about that address anymore. No, that's not even almost true. And if you're an investor trying to do this without a team or with a team, or if you've built your team and the property manager that you've chosen does not have this level of organization and knowledge in how all the pieces fit together, it's exactly what we're coming here.

Jonathan Cook: We you end up losing money, and that's why I think it's so important to hire not just any property management company. I mean, I mean, I think it's a big step to hire a property manager. I mean, it's like what we're talking about here, if you are an investor and guess what, maybe you're good at accounting, but you don't want to talk with people again. You need your property manager to handle this sort of thing. And I think when we are talking about. A proper choosing, the right property manager that has the right team members and in operates well, how much that makes you four as an investor, it's important to choose the right one because if you choose one that's not as organized, then that little piece of the puzzle is not optimized, right? That's right. So if you separate it out, all the team members and said this team member is responsible for this, much of the income and you just said they're all 10 percent, but each one of those things are their own version of this business, right? So like if the property management company that you've chosen is not the optimal property management company for whatever strategy or whatever investment you're trying to make, then that supposed to be 10 percent of this overall income. Like maybe seven, maybe eight. It's not maximized. You're not maximized. Know absolutely how this works.

Todd Ortscheid: Yeah, no. 100 percent. I mean, I know a lot of people listening aren't even going to be in our markets. They're looking in other places. So they're having to find who is the best property manager in this market where we aren't even there. So I mean, what you have to look for is that level of sophistication system, a system ization. You want a company that you know, is not that, you know, portfolio based, you want someone who's got it all nailed down. And you know, you can really tell that, you know, by looking at their website, talking to that property manager, you want to ask them a million questions about how they do everything they do. But you need to have that company that understands that, you know, we need to have all these pieces in place. It's not just one person who can handle all this stuff. We're just going to assign this person who was a real estate agent to your account and let them do everything that doesn't work. You know, you need to have people who love maintenance, doing maintenance, people who love leasing, doing leasing and so on and so forth. So you know, that's what you want to look for

Jonathan Cook: And want to. We we haven't really talked about it yet. We may have mentioned it previously, but I want to discuss the importance of not just any property manager because you just hit it with not just some real estate agent. Yeah, happens to be good at. I'll go collect the rent or whatever this month. Can we talk about in Arkham a little bit? Yeah, sure. And like both of our roles, especially in at least our chapter and what that's meant to us in terms of being able to grow and become better property managers that can serve our clients at a higher level because we have not just our own systems that we've put together, like when you built this, it's great that we have all the systems that we do, but that wasn't in a vacuum, right?

Todd Ortscheid: No, exactly. And I mean, I actually just came back yesterday from a conference that I attended and I attend these regularly through Nazem. And you know, that's part of what we do because we want to stay up on what everything that's going on. But I'm an officer in the Atlanta chapter of Navarre, which is the National Association of Residential Property Managers. That's kind of our big trade organization that represents property managers. And, you know, I'm there in that role. I'm also the legislative chair for the Atlanta chapter. I'm involved in the legislative work at the national level. I know you work in education. Yeah. So I mean, we're plugged in to this organization because it's important it keeps us up to date on everything. We get some of the best ideas from the best and brightest minds in the industry, and that keeps us on the forefront. A property manager who is not doing that is going to be perpetually behind because even us attending all these things and being this involved, it's stuff to stay up with everything. I mean, there's a lot of new things going on. So if you're not even doing that, you're going to be light years behind.

Jonathan Cook: It's crazy. And I think we noticed this occasionally when we take over a property from a previous company and they're like, Oh, it was managed professionally. And then we are like, OK, well, can I get the copy of that ledger? You have like the the maintenance work order history. Do you have like the move in and move out inspections? And I'm expecting, you know, an onsite prose report based, oh yeah, I'm expecting like a property mill to history of, like, here we go. And like, I'm expecting like property where and like. I'm expecting it to come across in such a easily digested package. And then we start getting like notes on like lined paper. And I'm like, what? Oh yeah, are we doing here? You'll get a

Todd Ortscheid: Spreadsheet, and sometimes you'll even get somebody who says, Well, we we didn't do a moving inspection. We just kind of we only have 20 properties or managers, so we just kind of know what it looked like. And, you know, you can't manage property that way. That's just not how we do this, but you see that stuff all the time.

Jonathan Cook: Well, and I'm not certain if you know, our listener recognizes the importance of all of the steps of that, right, like, OK, when we take over a property for an investor, if an investor is starting brand new, if our client calls me, let's say our listener calls me and says, Jonathan, I want to invest in some real estate. Cool. Let's go buy something in Griffin. Or Lagrange or make it wherever we end up finding some investment that fits whatever their strategy is. And like the onboarding process going from, I just bought this property. Now I've got to put a tenant and make and start making it make money. Like the steps of that from our company or any property management company, that onboarding is is probably one of the longest time frames, or it probably takes the longest out of any transitional spot during, like the life of a managed property. And that's it's because we have to not only make sure that the property is actually ready, we're going to have to go over there and make sure there's blinds on the wall or blinds on the windows because you don't want a tenant to try and hang up blinds because that's just that's just a mistake. But tenants want blinds, right? And so we have to make sure that it's actually clean.

Jonathan Cook: Make sure that there's not any damage anywhere. All right, great. This is a nice house. Somebody can have a respectable living here. All right, cool. Now we've got to take kind of a baseline inspection like a standardized let's let's get a benchmark here. This is what it is when we took it over. Now let's take the marketing pictures, which is a whole separate step. So we've got to have pretty pictures here, which is that's a different person's eye, in my opinion. Oh yeah. Like, I mean, I used to inspect properties when when I was working with investors down in Birmingham, I would go and look at 20 or 30 properties with. I think I was using the inspector at the time, but taking pictures of all the things. But then. After like, all right, here's the baseline standard, I was not the person that should have been taking marketing pictures for sake. I do not have a marketing photograph. I like, I'm bad at it and I just don't look pretty. But we had a whole separate person that could go take pretty pictures. And like, I know that that seems really small and petty. It seems like, Oh, well, that's not.

Jonathan Cook: You need two people. Let's talk about the time sink in actually getting that done. If I have to go and take the pictures of making sure that it's in good shape or whoever, right, making sure that it's rent ready, and then we have to send someone else to the same property that I'm already at to take pretty pictures and then put the lockbox on the door. And then we start letting people in there. Now it's marketed and it's just there's so many little steps that, oh, what's a forty five minute time frame here? It's an hour and 20 minutes there. It's, you know, forty five minutes like, you know, you bounce all those little things around just during the onboarding process. And yet if you're self managing, it seems like, oh, well, you got to do just take pictures with your cell phone and put it up on Zillow. But there's a reason that we do things the way that we do, because it's pretty apparent that when a resident is looking for a property to rent like the default is to hopefully look for one that it's managed professionally because they know that we can get a different level of service than a self-managed property, right? Oh, and

Todd Ortscheid: It makes all the difference. I mean, I listen to another podcast and another another company was putting on and they were bragging about their 30 day day on market. No. And I listen to that and I said, Well, why are you bragging about that? We do that nine days. Yeah, so you know, I mean, that's you know, that's the difference that putting the right systems in place and having the right people in place because that twenty one day difference, you know, as I said, that's six percent that that investor lost that year. Yeah, that's when you and I'm sure you're talking about cap rates and everything else and cash on cash return and everything else during this podcast. Yeah, losing six percent of your income for a year is that's basically, you know, that could be a year's profits. Yeah. So, you know, I mean, that's a huge deal. So people really need to understand, you know, having these people in place to, like you say, get photos and get the utilities connected and all these things, that's important. It's not just little things. These actually matter.

Jonathan Cook: It's so I like to refer to owning a rental property as like, you now own a small business. Congratulations, you're a small business owner. Well, guess what you need to have. You need to have employees or people to run that business. And if you aren't going to quit whatever your other job is and run this full time, then you probably aren't doing it as well as we can because we are basically. And that's the whole idea of a property manager. It's like, I'm buying this small business, and I don't want to do that business though, right? Yeah.

Todd Ortscheid: Oh yeah. So I would go further.

Jonathan Cook: I already do that business.

Todd Ortscheid: It's not just being able to do it full time, it's also having years of experience. That's true. So I mean, because I would say the first couple of years I was doing this, I probably wouldn't have hired me because I was still learning, you know, at this point, you know, we've got many years of experience. We got decades upon decades of experience in this office. And that matters because you've seen a million different things and you know what to look for. And you know what the red flags are with tenants. There's a million different things that go into that. So even if you have the time to be full time in this, I would still say you need that property management partner for your first few years, just so you can learn everything that you need to learn. You need to be a professional in this, and you know, it's

Jonathan Cook: It's a lot of stuff. Well, OK. So when I'm working with a new client, a new real estate investor, and I discuss something as simple as, Oh yeah, all property management companies are going to screen tenants really well, because that's kind of like, that's kind of all of our bread and butter. And I mean, we do I think we do a fantastic job. But I mean, I think all of our friends that are in this industry, I think most of them do a pretty fantastic job of it. But because our group experience here, we've also recognized that screening them on the front end isn't always quite enough. Maybe we should also continue to screen them or not screen them, but maybe at least score them? Yeah. Throughout the entire lease process. And that's why we, you know, built our little system and it runs into renewals, basically. But it's that's one of those. It becomes one of the larger selling points when I'm discussing with a new investor why they should choose us for a property management company. You know, I discuss how. The TPP works, and that is an acronym that we use for it stands for tenant and Property Performance Report. And so it's integrated inside all of our systems during the workflow process, and I always try to explain. How a efficient workflow process through things like the way our process street and the way our systems and stuff work, that just ping the right person at the right time to do the right like. And it all seems so simple when we when you separate them out and just do one thing at a time, right? Everything. We have a lockbox that lets you in, you know, whenever you need to go, Oh, that's all you guys have. No, it's just one of the four hundred thousand things that we do like, right? Because every one of these individual things seems so simplistic, but that's because we have streamlined it that way, right?

Todd Ortscheid: No, that's exactly right. I mean, we we use software called Zapier that some people might have heard of to kind of automate a lot of these things just to kind of give people an idea of how many things we have automated. I recently had to upgrade our service with them so we could have twenty thousand automations a month because our previous ten thousand wasn't enough. Yeah. So I mean, that's how much stuff is going on, and people don't realize how many things have to be done on managing a property and every one of those things, even if it just takes a couple of minutes, all that adds up. It's enormous. You think twenty thousand things that each takes a couple of minutes? Yeah, that's a lot of time. Oh, so you know, I mean, and so that's that's what people need to understand about just how much goes into this. It's not as simple as, like you say, OK, I went out and put the lockbox on. Ok, well, there was a million other things that went into that first.

Jonathan Cook: Yeah, well, yes, so many things that goes into that. The fact that like, well, we chose a specific kind of lockbox for a reason from a specific company. We don't just have that service. And hey, congratulations, we have it. We have a specific service because we have friends in this industry. We have the experience to understand that we think that this is the best version of this service, right? And the whole idea of hiring a good property manager is somebody that knows, yes, there are tons of options for all the things that we do. There are tons of different ways to screen tenants, right? We think our way happens to be the best because we've spent a lot of time researching how this works. We've intentionally spent time researching and planning and looking at other systems and talking to other people that have done different things so that we can go. This is what we think is the best way to handle this. This is why we score tenants the way we do, because we score them on these three things. Ok, we grade them like this because of that. So it's it's the automations. It's the it's the experience and the expectations that you get with a property manager that makes it. You know, it's this is where things can really screw up in a real estate investment is not having to manage well, right? Oh yeah, mean, that's the whole thing. There are more of a hiccup here than maybe any other moving part.

Todd Ortscheid: Oh, and you know, like you say, I mean, some of this has been trial and error. So I mean, you know, you say we know the best the best solution to use for lock boxes, for example. That's only because we've worked and tried others. And, you know, we've eventually gotten to what worked so great. You know, you don't want to be the person who had to do the trial and error. You want to hire someone who's already done all that and figured out what the best way of doing it is. And that's that's why you hire that property manager who has all that experience.

Jonathan Cook: And because, like, what are the risks of choosing the wrong lockbox? Oh, your house gets broken into and you lose appliances. That's eighteen hundred dollars and now you have vandalism and you're going to claim it on insurance or are you going to how are you going to replace these appliance? So you've lost it all goes on and now time frame. So like, you're just about six percent just in a couple of weeks, right? Of just like and that's just the difference between marketing it and finding a tenant for it. We're not including the fact of, oh, what if somebody goes in and vandalized the property because you have some cheap lockbox that you can, you know, you can pop them open with a toothpick if you really know how to. I mean, there's there's a level of difference between those two things. How much would that mistake cost you, Mr. Investor? How much does it cost us? Nothing, because we've already figured it out. We don't do that anymore. We have a different system. I mean, and that's what I think is so important to realize. I tell a story about and this is, you know, this is where I kind of want to to epitomize everything that we're talking about here into one story that is actually not one story. It is several hundred stories compiled into one because they are all so unbelievably similar.

Jonathan Cook: And it just happens to be because my role in this business happens to hear from a lot of real estate investors. And I have to explain why they should choose us as a property management company. And then they're like, Well, you know, let me tell you why I don't like property managers, which always here. If I'm going to like meetings where there's real estate investors or groups like that, they're always like, Well, you know, I've gone with the property manager and this let me tell you why. I don't like property management companies and I know the story before they finish that sentence. I'm like, OK, because it's the same story every time it's, you know, they worked with some real estate partner friend that was like not necessarily a real estate investment real estate agent. You know what? No, they're not necessarily great about real estate. They're just a buddy of theirs that happens to do some real estate. And and, you know, maybe they found, you know, I found this property, it's a it's a pretty good deal or it seems to be and it could be something so small that like, Oh, well, this one is a percent or something under the market median. So to me is a real estate agent that doesn't do this full time. Maybe it seems like a good deal to me.

Jonathan Cook: So whatever that case is, yeah, my real estate buddy told me that he had a good deal on a property. And, you know, so I went over there and I bought it. And then that real estate friend of theirs, you know, had promised them much higher rent than it probably be worth because they don't really know how to look at a market median on rent as opposed to. Well, I've heard there have been properties at one time that have rented for whatever stupid no way over market value because like, maybe there was one anomaly house that had six bedrooms and was twelve thousand square feet. Or, you know, those kind of things happen, right? And if you're only worried about a commission check at the end of a closing. What incentive do you have to have the best information you want it to look as pretty as possible? Buy this property because I think it will rent for some ridiculous because they don't have to make sure that that rent actually happens. Oh yeah. Once the closing happens, you blame, well, then your property managers. Not good, right? And like, I see it all the time because that story always follows. And they had a friend that was a property manager, and usually that property manager just happens to work in the office with them. They just aren't good at sales. And so they decided they wanted to be in property.

Jonathan Cook: Management is just ancillary income because we manage eight properties. Oh, she she manages eight properties, huh? Yeah, she's been doing it for about a year and a half. She's got she's got about eight properties. And you know, it's it's the same thing and the story just repeats every time I hear it, it's the exact same stuff. Well, they put it on the market for the number that my friend told me that it should be rented for. They couldn't find a tenant. It sat on the market for three months and then they kept telling me I needed to lower the price. But like I really needed, I really needed that price for my num