Wait, before you jump off this page mumbling about how insensitive or cruel I am, you might want to read on.
There are so many options available to a landlord now to receive their rent there is no reason you should be waiting for a tenant to pay you.
Unless you only accept cash… which is foolish in my opinion.
Cost is usually a factor in how a landlord receives their rent payments. There are plenty of pay to play services that will do automated ACH drafts from your tenant’s bank account and deposit the money, less those pesky fees, into your account. This is a great option and works very well for lots and lots of landlords and property managers across the country.
We don’t use ACH transactions.
Yes, it is because of the cost.
Some landlords get a tenant to write a series of post-dated checks, one for each month of the lease when the lease is signed.
We don’t do that either because the tenant can simply issue a stop payment on them.
But, we do require most of our tenants to pre-authorize the drafts from their account each month. They fill out a form, attach a voided check and we are set.
Then each month, they get an email or text notice of the amount and date of the upcoming draft. They are reminded the draft may post to their account the very same day it is submitted to our bank for deposit and they are reminded the rent is received subject to verification. In other words, the rent is not really received until the check has cleared their bank.
We print the drafts using a laser printer and MICR toner. We then deposit these drafts exactly the same way we do any other check. If the tenant’s bank has any questions, we have the signed authorization AND the voided check to prove the tenant authorized the draft.
We have never had a successful challenge to a draft.
Our cost is minimal. The toner and paper cost is less than one and one-half cent per draft. The depreciation of the printer adds about a penny and the software is part of our integrated system using the FastDraft document assembly engine to generate the paper drafts.
We do this in our central office, meaning the front-line property manager does not have to mess around with generating the drafts or collecting the rents unless there is a problem.
What happens if the draft is returned due to a lack of funds?
Our lease details the consequences and remember, the rent is not received until the draft clears so the notice to pay or quit is immediately generated and delivered to the tenant.
What happens if a tenant contacts us after the notice and asks us to delay the draft a day or two? We often work with them and will even adjust the draft date on a permanent basis to fit the timing of their receipt of their paychecks. We will ONLY do this with pre-authoriuzed drafts which is another way we encourage them to use them.
So, as I said, if your tenant is late paying you the rent you are owed, it really is your own fault.
Tags: Apartments, Cash Flow, Consulting, Customer Service, Investing, Property Management, Real Estate Investors, Rents
Ask any real estate investor and by far their biggest problems are with managing the assets they are so eager to acquire.
It doesn’t matter whether they manage their properties themselves or hire a property manager. The majority of their problems, concerns, headaches, worries and losses all revolve around property management.
It is tedious, time consuming, error prone and the consequences for a mistake can be devastating.
State laws and regulations to protect owners from dubious and unscrupulous managers are haphazardly applied and enforced and just about every single state fund setup to compensate a property owner for losses due to the actions or inactions of a licensed property manager have claims far exceeding the current pool of available funds. What’s more, the pools are not only being depleted but the flow into them has shrunk to little more than a trickle.
There hasn’t been much serious application of technology to help either. Oh, don’t get me wrong, there are plenty of “Property Management Systems” out there at varying price points, but much like the state of sales force automation in the early 1990’s they don’t solve the problems needing to be solved. In the early days of SFA, the focus was on gaining visibility and collecting data to give management a clearer view of what the sales force was doing. All of the work in keeping the data current was on the sales force, but little or none of the benefit flowed to them.
That is the state with just about all of the property management software out there today.
That is why we built our own several years ago and why we did a major rewrite of it over the last couple of years and why another rewrite is happening right now.
In the mid-1990’s SFA morphed into CRM (Customer Relationship Management) where the focus was moved to providing tools to help the front line sales force manage and extend their relationship with their customers. It was a major conceptual leap and was not immediately accepted by the companies writing the checks to implement these systems. But, the reason CRM won out was it had all of the benefits for management provided by SFA as well as significant benefits to the sales force. In other words, CRM made the time spent on keeping the data updated worth it.
If you look at the property management software in the market today, they all have the same problem SFA did before. The people responsible for keeping everything up to date and running smoothly are not getting tangible benefits making that time and effort “worth it”.
That is why in 2002 I proposed we build our own. That is why in late 2003 and early 2004 the first version was put into service. That is why in 2008 it was rewritten to use current technologies and why in 2010 it will be released for use by a broader audience.
Internally, we refer to the system as TOA, for Tenants, Owners and Assets. It uses a combination of technologies to pull together a cohesive system for managing all the interconnected relationships in play in investment property.
My partners and I and partners of partners several degrees of separation along, all use this system. There are over 150 front line property managers and over 8000 service professionals actively using it to manage our relationship with our tenants.
It is the ONLY system I know of allowing the tenant to use it too. Survey after survey has shown the demographics of the average tenant is changing. One very big change is they want more self-service options. They want to be able to go on-line or use their web enabled phone and do what they need to do, when they want to do it. They don’t want to have to call, wait on hold or leave a message telling you their unit is over-run with bugs because the neighbor next door is a filthy slob. They want to open a ticket with a few clicks and track it whenever they want.
Our whole motivation and every single design decision came back to one simple principle, how can we increase our profitability through the use of this system. Most people think, cost reduction and tracking, but that is just a very small part of it. The system is designed to capture data needed to do complex analysis of your asset from an investment perspective. But, this data is captured in the normal course of doing business unless you want to make that capture a project. This means the system is always looking at “what ifs” to help identify ways to improve profitability.
The system does this because at every step of the way, there is real tangible benefit to the ones responsible for keeping the data up to date as well as the ones writing the checks to implement and maintain the system.
In 2010 this system is going to roll out to a wider audience through an ISV or Independent Software Vendor I am forming for this purpose. No, I am not looking to build a large software company. In fact, it will, by design, remain very small. You aren’t going to see ads in the property management trade publications you aren’t going to see billboards, radio ads or television ads. Why? Because there is no need. It isn’t that I am naive and think it “will sell itself” it is because it solves a specific niche need for the management of mid to high end properties. Someone managing section 8 properties could use this system, but that is not my target.
We are in a very interesting time real estate investment wise and many who are real estate investors today, won’t be within the next 24 months. I am convinced a system like this can make the difference. It has for me, my partners, their partners and partners of partners.
Tags: Apartments, Consulting, CRM/SFA, Investing, Property Management
In the past we have limited the number of new memberships allowed to join the Field Guide for Real Estate Investors in any given time period. Over the last couple of years, there hasn’t been a formal number set it was just kind of based on a number of things in play at any given moment.
However, for 2010 I am bringing this back. You won’t see a count down as new members join. You won’t see any bogus, “Only X memberships left for 2010.” The only indication the 500 available memberships are gone is a removal of the subscribe button and a change in the message non-members see on the Field Guide. Once that happens the only way to join before the arrival of 2011 is through an existing member.
Okay, so why am I mentioning there is a set number of memberships available for 2010 at all? Because typically no limit on the number allowed each year has been imposed. In the past, we have set the limits based on capacity and timing until new servers and systems came on-line. See, we were in continual build mode. And, to be blunt, we have a good subscription base. But, 2010 is a transition year for me and as a result the Field Guide as well.
In 2010, the Field Guide is focusing on helping investors make the most of the situation we are in. Whether you think what Washington is doing is a good thing or a bad thing, we all still must survive and dare to thrive in the real world. The new articles, materials and research planned for the Field Guide all revolve around making the most of the current economic conditions and preparing to take advantage of the next growth cycle.
Things like…
- Maximizing the profit from the properties you have
- Adding to your portfolio in opportunistic ways
- Aggressive cash and asset management to improve your bottom line
- Taking best advantage of any programs created or extended by government
- Reducing costs and improving your tenant’s satisfaction through process and technology
- Making sure you get the best tenants available in your area for your properties
I follow a number of forums off and on. What is interesting is in good times, when things are easy, there are plenty of people shouting about their successes and how others can do the same. Now, on many of the forums the tone is very different. Now, you often seen questions that before would elicit an, “Oh, that is easy, just …” now attract things like, “you can’t do that because things have changed.”
Yes, “things” have changed but those of us who have always stuck to the fundamentals are doing fine, well in fact. This is the time when preparation is meeting opportunity.
The Field Guide spent a lot of time in the early part of this decade preparing its membership for the crash in 2007 and 2008. Now, we are spending time helping that same membership not only survive the current conditions, but thrive while preparing for the next growth cycle.
So, 500 people will be able to join us between now and the end of 2010. Will you be one of them?
Property managers are having a tough time. Yeah, I know, I can hear the mock sounds of pity from investors who have been burned by property managers.
But, even the good ones are having trouble. No, you are not more likely to suddenly find yourself face to face with a unicorn than finding a good property manager. If the property manager you as an investor chose sucks or sucked, it is much more your fault than theirs.
However, this is not a post about whether you as an investor should or should not use a property manager. It is about why property managers are having a tough time. Yeah, yeah, I know what you are saying, “The economy is why they are having a tough time, duh!”
Yes, the economy is the symptom, but the disease is far more complicated.
Property managers and property owners have a love-hate relationship. When things go well, there is lots of love all around. But, at the first sign of trouble there is no end of finger pointing and accusations. Yes, I do understand much of it is valid. Yes, I do understand property managers take advantage of owners far more often than the other way around. But, I am also confident Oswald really did kill Kennedy.
See, when times are good many property owners take a pick and forget attitude with their property managers. As long as the checks roll in each month, they don’t worry about what is happening. Of course, the obvious problem with that is by the time the checks stop, the problems are huge and difficult to correct, if they can be corrected at all.
However, in times like these many property owners are trying to figure out where they can cut costs. The thought process often goes something like this…
What exactly am I paying this property manager to do? Collect the rents? Send out repair people? Show an empty unit now and then? I can do that myself and save this money each month. Then I won’t have to worry about them not paying the maintenance people or getting the money to me in time to get the mortgage paid.
In other words, Mr and Mrs Property Manager, they see you as overhead. You are on-par with the tax bill and interest payment to the mortgage company each month. They don’t understand the value you bring. In fact, they often see you as a potential risk because you are facing many of the same financial pressures others are facing. As an aside, I talk about how to determine the financial stability of a potential property manager in Hiring a Property Manager which is part of the REITactics Learning Series of eBooks.
So, how do you not look like overhead? By proving the value you bring to the equation.
If you aren’t submitting a report to your property owners each week detailing what you did for them in relation to their properties the previous week you are missing the best opportunity you have to demonstrate value. I am not advocating you create a work of fiction each week. Far from it. It should be honest, fact based and complete. Most definitely complete. You want to short circuit the conversation the property owner has with themselves or others. You want them to know what you do for them each week so they can look at it and say…
“Wow, they do a lot for me for the amount of money I pay them each week. Now, about these property taxes, what exactly am I getting for those again?”
Tags: Advice, Apartments, Consulting, Investing, Property Management
If you are like a lot of landlords in the United States today you might be looking around and asking yourself what is going to happen? The unemployment rate is projected to stay above 10% for all of 2010 and well into 2011. Other costs are going up and to top it all off rental rates are declining while vacancy rates are climbing at the same time.
If you have been reading my advice for a number of years and putting some it to use then in 2010 you are likely to see the benefits of focusing on running a business instead of the piffle the gurus teach.
See, landlords are facing a decrease in revenue. Vacancies are rising and they are staying vacant longer. Nervous landlords are starting to drop their rents putting downward pressure on all landlords as tenants pit one potential landlord against another.
However, what if you had absolute certainty you would not face an increase in vacancies? What if you were able to actually reduce your vacancy rate without losing money.
If you have been running a business then you have been accumulating reserves. If you have had your properties more than a year or two you should have a sizable amount sitting in your reserve accounts. If you don’t then you probably don’t want to read any further because you can’t do what I am about to recommend.
I know what you are thinking, and no; I am NOT recommending you tap your reserves for some purpose other than what they were intended to address. In fact, your reserves should be invested and giving an acceptable return each month. No, we are not going to cannibalize our reserves.
But, we are going to slow their growth.
See, it is unlikely your competition in your market actually implemented a reserve program. If you did, because you learned about reserves from me, you are going to be able to make your competitor feel like they are living through a depression while you are all but coasting along without suffering any ill effects.
I am proposing rent reductions. But in a very selective way.
Walk with me and allow me to explain…
Your tenants who pay their rent on time and have jobs are a prized commodity. They are the tenants your competition wants. So do you! If you have followed some of the advice I’ve given over the years, the majority of your tenants should be this high quality commodity. You have treated them well over the years, you have responded to their maintenance requests and they know you are a great landlord. Now is the time to capitalize on that.
Offer your great tenants an early renewal! At a discounted rent amount!
You are probably saying, “Huh? Discounted rent? But, they are already renting from me now why should I take a drop in income?”
Because you are going to see a drop in your income anyway. If you are smart, you will realize getting an early renewal with a great tenant even at a discounted rate is better than the unit being empty or worse putting an undesirable tenant in there who is always late, or never pays and destroys the place.
How much of a discount? Well, see that is the interesting part. It probably doesn’t have to be all that much and I wouldn’t do more than half of the reserve amounts currently being set aside. Remember, I said we would slow the growth of the reserves, not cannibalize them.
This month, we offered early renewal discounts to about half of our tenants. Next month another round of early renewal offers will go out. The discounts in this second group aren’t quite as steep as these were in the first group this month. Yes, we tier our clients by profitability and desirability like every other responsible business does. Our goal is to have all of our units leased through 2010 and into 2011. Yes, there are some legal hurdles with longer leases and we are doing everything required to comply with the laws but it is worth it.
Our tenants are happy with a reduced amount for rent each month and we are happy with lower vacancies and almost no turn over for the next 15 to 18 months. Field Guide members are learning exactly how to design and implement this type of program to maximize their profits. Yes, you should make a profit even in these times.
This is the difference between running a business whose product just happens to be rentals and speculating the way the gurus teach.
So, will 2010 be a good year or a bad one for you?
Tags: Advice, Apartments, Cash Flow, Investing, Property Management
Everyone seems excited, even giddy about the way the stock market has rebounded from its lows of last spring. They point to that as the “green shoots” indicating the economy is turning the corner.
However, there are some problems with this theory. Not the least of which is institutional money is not moving into the market. It is still predominantly parked on the side lines. The managers of this money are putting preservation of capital above a desire for growth. This will be a problem for the stock markets as we go into 2010.
There is another problem looming out there. The US government is raising its debt ceiling, meaning it will borrow more money than it has ever borrowed before. That means there will be less money for private citizens and businesses to borrow for their needs. It also means the rate on T-Bills will go up. That means we are likely to see MORE institutional money flow into the relatively secure T-Bills as opposed to the stock markets.
See, the thing to watch in the markets is not just prices, but also volume and money flowing into or out of the markets. We are in a situation where the prices of stocks have gone up but the volumes have not rebounded in a way to make it sustainable. We are also not seeing institutional money flow into the markets. In fact, there is good reason to believe some institutional money that stayed in the previous market too long is looking for the right time to pull some of it out of the market and move it to less risky environments.
Combine all of this with the absolute certainty taxes at all levels are going to go up across the board and the signs of trouble become more clear.
Stock markets, like all other equity markets, operate at the macro and the micro levels. The run up we are seeing now is at the micro level. When you look at the macro level, the future isn’t all that hopeful.
Tags: Bear Market Rally, False Hope, Investing
Two days ago I talked about landlords giving tenants self service options to reduce the landlord’s or property manager’s work load, reduce costs and improve tenant satisfaction. Since then, I have received several contact emails from here saying they couldn’t post a comment for some reason (we are looking into it) and asking if I had or could provide a demo site showing the self service options we give to our tenants.
That is a great idea! Therefore, I am going to do just that. What’s more, I will do a series of posts here explaining how it was built and what Drupal modules you can use to do a similar site of your own. If you have a hosting service that supports PHP5, you will have everything you need to get started and these articles will fill in the missing parts. There are some really inexpensive hosting options available now that provide all of the power needed for most small to mid-sized landlords and property managers. We opted to write a few modules to support some of the functionality but I will explain how similar functionality could be implemented using standard Drupal modules available through the Drupal site.
Some also asked if I would set and administer a site providing this functionality for them. I am thinking about how to do that.
Tags: Drupal, Landlord, Property Management
The majority of small landlords and real estate investors don’t have a clue what their costs are in relation to servicing their tenants. It’s not really their fault because the gurus who got them hyped up on real estate investing didn’t actually share any real information about running their business. So, they end up with some properties and some tenants and then they have to feel their way through dealing with all of it. Too many times they find themselves in a continual reactive cycle.
But, it does not have to be that way. Many of your younger tenants would prefer to be able to handle most of their interaction with you without interacting with you very much.
In other words, your tenants probably want more self service options than you might think.
Do you know what it costs you for a tenant to report a maintenance issue to you or your property manager? No, I am not talking about what it costs you to send someone out to verify and correct the problem once reported, I am talking about your real costs just for the tenant to report it.
If you are saying to yourself, “Self, what is he talking about? It doesn’t cost me anything to accept a call from my tenant to tell me about a problem,” you are very mistaken.
Again, it isn’t your fault. No one taught you the reality of running a business. They sold you the idea of rent money rolling in without any real discussion of the costs you face.
At the very minimum, for your tenant to report a problem to you, you must have a phone and someone to either answer it or pull the message from the answering machine or service and do “something” with it. Then you, or someone working for you, has to get back to the tenant to let them know you received their message and have done “something” about it. You have to actually coordinate getting the repair done, or do it yourself. Up until this moment, you might have thought that was where all of your costs for a transaction like this lived. Then when everything is completed you have to get back to the tenant and tell them what was done and that all work has been completed. Oh yeah, and your state or locality might require you to notify the tenant prior to any maintenance people entering the unit.
However, what if the scenario could play out like this…
Your tenant goes to a website, it could be yours or one you share with other landlords, they enter some basic information to login. Then they can submit a maintenance request. They can include their email address and cell phone number to get updates and then they submit it. Your website sends them confirmation of receipt of the request and the status. Then each time the status changes, the tenant gets an automatic update. If any notices are required they can be sent automatically. Then when everything is completed, the tenant is notified and asked to complete a short survey about their experience. You could give them some kind of incentive to complete the survey.
See how this will reduce your costs of doing business?
Now, the “I gotta do it all myself” types will say, but I have no costs because I am the one doing all of it and I would be doing “something” anyway. So, this just increases my costs, not reduces them. If that is what is running through your mind, you do not understand the realities of the business you are running.
You should be looking for opportunities to provide self service options to your tenants.
Tags: Advice, Consulting, Investing, Property Management
You can read about it here…
http://timowensby.com/okay-what-if-it-only-partly-brokesic
Tags: Consulting, FastDraft
I can’t remember a more challenging planning cycle in my adult life. I know I have not had a more difficult time planning for the coming business year since I have had to do this type of planning.
I have no desire to debate the political or social merits of the what the democrat party is doing to this country. You might think it is a good thing. Personally, I don’t. However, it is happening and the feckless republicans seem unwilling or unable to turn the tide. I wonder what the founding fathers would say if they could see what this country has become. The men who pledged their fortunes and lives to each other to break free from England and form what would become, in its now gone glory days, the most powerful, most fair and most benevolent superpower the world had ever seen. Now, that once great nation is decaying from within. Anyway, all that is now history and quickly becoming ancient history.
Now, December 2009, businesses all across the country are planning for 2010. Most are having a very hard time doing that planning.
Any rational person looking at the amount of money we are spending as a nation and the available sources of revenue the government has sees a train wreck coming. I’ve stopped scratching my head trying to figure out why the politicians don’t understand what is coming. They don’t understand it for the same reason the average person doesn’t understand how to manage their own personal finances.
In the 1980’s when Congress made significant changes in the tax laws affecting real estate investors, I and many like me literally went to bed one night is good shape and woke up the next morning over-extended. I was in a little better position than many I knew but it still took several years to fully recover and it was not a foregone conclusion I would recover at all. There are many who have learned the lesson. Many of those who have learned that lesson either manage or own businesses. They are the ones having a very difficult time planning for 2010.
Many have put a freeze on hiring. My partners and I have not stopped all hiring but every option other than adding another employee, or replacing one choosing to leave, is explored first and then only as a last resort are we hiring.
We are not alone. A recent survey of hiring managers shows companies are thinking survival first, expansion second if at all. Granted, that opens a huge opportunity for an entrepreneur with the foresight, backing and a whole lot of luck to do well. Yes, speculators do sometimes hit it big but usually they just end up losing it all.
The media is trumpeting the insignificant drop of 0.2% in the government published unemployment numbers. It is meaningless if you understand how they arrive at that number. There is good news in the unemployment data if you dig deep enough though. For example, unemployment in professions requiring a college degree is 4%. That is double the historical average of 2% but it is a damn site better than the 17% real unemployment number in the economy as a whole. Now, before you post a comment saying unemployment among college graduates is much higher than 4%, go back and read what I wrote here. I said, among professions requiring a college degree.
Tags: Consulting
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