Broken toilets, leaky boilers, non-paying tenants, and mice infestations...
Today, the BxB team discusses the glorious world of property management!
The team touches on the good, the bad, and the ugly in order to prepare you for what's in store as a property manager -- whether you're self-managing or hiring it out to a property manager.
Property Management is a make-or-break for any real estate investor who holds rental property, but it's not for the faint of heart.
Ben Shelley: [00:00:00] Welcome back to the Brick x Brick Podcast. I'm Ben. I'm here with John and Ryan. And today we're going to talk about property management now whether or not you were less or less see if you're involved in real estate or interested in investing in real estate. Understanding how property management works especially for rentals is a vital part of understanding the real estate business overall. So we're going to jump right into it and we're lucky for us. We have a property management expert in our midst. John Errico one of the top property managers in all of northern New Jersey.
Ben Shelley: [00:00:33] John I'd love to know. I'd be interested to know from an origin perspective. First and foremost how you got started as a property manager and I think that would be a nice way for us to get into what property management really is.
John Errico: [00:00:45] Yeah I mean I killed the previous property manager.
Ben Shelley: [00:00:48] So no I mean this is on video you know.
John Errico: [00:00:52] Yeah no. The central premise of property management when you own an investment property is that you will have to manage the property that you own in some capacity. And I think that that we talked about this in previous episodes but I think that that for a lot of investors newer investors is not necessarily obvious to them. They think that they will either you know manage it themselves or whatever but but don't we think about what goes into that. So when I bought my first investment property which was in Union City here in New Jersey I was a 2-family home very immediately. I read it out part of the house to tenants and very immediately we had you know what I would call property management concerns for me. They were also the homeowner concerns because I was living in the home as well as renting it out. But just as a basic premise whenever you buy a piece of buy and hold real estate you will have to manage it in some capacity and as you scale larger and larger that can become a bigger and bigger burden on your time or your capabilities. Before I started the construction company and did all the things that I do with Ryan that we began last year I would say that my primary job was a property manager. I manage my portfolio in Hudson County to some extent properties in South Jersey and then a little bit properties in Connecticut. And that can be a full time job. I mean you think well how often can you know X problem happen. Well I might be not very often but if you multiply that by say 15 properties then it's going to happen pretty often. So like I've as I said before in previous podcasts like the number of times I've had to fix something leaking like water is the enemy of homes and water from the outside water from your plumbing whatever it is the number of times I've had to deal with a water related issue is so many and it happens all the time and every season has its own particular annoyance like winter is heating summer is cooling and rain fall and spring or like the transition period of time so it might be too hot and might be too cold and maybe this might be that. Lots of issues.
Ryan Goldfarb: [00:02:51] Did you set out and make a conscious decision that you and some combination of you and Shannon were going to manage your properties when you guys started acquiring or did it just kind of naturally morph into that over time as you scaled up the portfolio.
John Errico: [00:03:04] No I think it morphed into that. And the reason why I like to bring up the point about new property investors not realizing the management challenges is because we were very much in that position where we bought the property and we were living in it. We're like oh it's no problem to rent it out to other people and it wasn't. But along with that came the challenges of actually operating it in the the more the farther a move that you get from properties. I think in some ways the more difficult thing can become like when you're living at the property you obviously know what the problems are and if you're observant and proactive you can solve a lot of them before they happen. But if you're not at the property you know actually during the filming the recording of one of these episodes they had a very large problem which was that one of our basements in one of our properties totally flooded like over a foot of water and destroyed the boiler and the hot water heater which was very very expensive and challenging replace in the middle of winter so people didn't have heat.
Ryan Goldfarb: [00:03:56] And being the consummate professional that you are you were unflappable on air you really.
Ben Shelley: [00:04:01] Was impressive given the context of what we were dealing with.
John Errico: [00:04:03] Oh thank you. And that means a lot. But as an example you know I think if I had been living at that house I probably would have thought ha like I wonder what that dripping sound is or I wonder why my water pressure is low or whatever. And I probably would have stopped the problem before it got to the extent where it destroyed these this equipment in the basement but because I wasn't there and because I have tenants not to denigrate them in particular but obviously they're not either gonna be as observant or know what's going on you know what happened happened. So if you have tenants or you truly don't know them at all or you inherit a property with tenants that are in place you know Ryan and I have had this issue recently that has been some of those have been some of my my least favorite or most difficult property management experiences because the tenants you didn't you never talk to them when they went to see the property you have no idea who they are there they could have any manner of problems or issues that were inherited from the previous property owner and that the property owner didn't tell you because he wanted to buy the property no wherever it might be it's now there's.
Ryan Goldfarb: [00:05:02] No ending their merit in qualifications as talent.
Ryan Goldfarb: [00:05:04] They may not have been. They may not have been up to par for you if you were managing it but that the previous owner had no issues about exactly.
John Errico: [00:05:12] Yeah. So there's there's a reason why there are. There is a class of property managers because it is a job and frankly it's oftentimes not a very well compensated job given the amount of work that sometimes goes into it. But it is a job and it's one that I fulfilled For my own properties.
Ryan Goldfarb: [00:05:29] At any point did you consider. Did you consider outsourcing it and going with a third party property manager or was it always. Once you started it was something you were going to keep it.
John Errico: [00:05:38] No I didn't really consider outsourcing it because the class of properties that I owned and that we buy are primarily single family and small multi-family properties and finding a property manager to manage those properties can be uniquely challenging mostly because the way that property managers make money is by scale. If you manage a single property and your say taking a percent 10 percent of gross rent per month that's not going to be a lot of money. I mean you're talking about two three two dollars at most in this area. So to to employ yourself full time you'd have to have a portfolio of maybe 20 or 30 different properties. And if you can do that all under one roof if you can manage a 20 unit building that's great because you have one location you have maybe one boiler, one roof, maybe a few hot water heaters things like that. So to manage a lot of small one in 2-family properties you're not going to find a great property manager. And I know from being in the business that there is so many bad operators in this business. Finding a good operator was gonna be very challenging and if I had the time and inclination to do it then I might as well do it and start a business you know doing it professionally which is what I have done.
Ben Shelley: [00:06:55] I have a ton of questions that kind of come from what you what you were just describing but I think my my first one would be so if I'm trying to let's say House hack in an area and I want to take on property management for my individual unit whether because I think it's cost effective because I think I have the time or because I can't find to your point a property manager that's worth you know anything that's willing to take just my one unit. What were the what maybe are the first things that I should be prepared for or maybe even better. What were the first things that you realized gosh I really need to have X Y and Z in place to properly manage this property.
John Errico: [00:07:31] Yeah it's a good question. You can sort of think of it as the lifecycle of a tenant if you're sacking a property you probably have a unit that's vacant. So step one would be preparing the unit for a tenant to actually live in and in that dovetails a little bit with construction as well but you know basic things like do all of the utilities function in the unit. Are there things in the unit that would disqualify it from being rented to a tenant or would maybe reduce the the market price of a unit. So that would all be things like and you can even classify this in the category of preventative maintenance. So if I have a really old say stove in the unit I might think well the stove is functional or operational but you know at any time it might break. Or am I going to get the sort of tenant that if the stove breaks is going to be a big deal or we have to go and replace the stove maybe it was easier for me before I rent the unit to replace the stove that I can marketed as equipment in the kitchen is new. So there's a whole category of things that you might consider you might consider painting it. For example if the walls are scuffed up or have holes in them which is not uncommon from previous tenants just little issues that that if you yourself are living there you might want to fix.
John Errico: [00:08:36] You should probably take care of them for the tenant and then the second step is actually finding a tenant. So that is is its own challenge and there's obviously a class of real estate agents and brokers that can do that for you either for four cost or for no cost to you as the landlord depending on where you might live. But tenant selection is its own art and skill and there are a lot of legal issues as well involved with that involving anti-discrimination and whatever else. So I mean we could delve into any of these topics more specificity but I would think of preparing the unit finding the tenant running into the tenant and then after that is what do you mean.
John Errico: [00:09:11] You know that sort of maintenance or or more management mode which is mostly reactionary. So it's if something goes wrong which is usually identified by the tenant or possibly by you you're fixing the problem like something is broken something is leaking something is whatever. And then once the tenant has gone you're resetting that process again. So you're repurposing the unit for rental you're refining new tenants successoretc. Along the way you might have things like I want to increase rent.
John Errico: [00:09:37] So how would I do that or why would I do that. Basic things like how do we determine what the rent is we've talked about that in previous episodes. But those are those are all components that go into it too.
Ryan Goldfarb: [00:09:47] And to Ben's question about preparedness once you get into the management stage and you have a tenant there as John alluded to a lot of it is reactionary and I think one thing you can do to prepare yourself for that is to make sure that you have a lot of the requisite contacts that you will ultimately need when things hit the fan. Whether that's a plumber whether that's a handy man whether that's a pest control company whether that's your SEO. No. Yeah yourself. Or just knowing the contact info of the utility company when you have an issue with the electricity or the gas or the water having all those things handy will save you a lot of headache especially if you have it centralized and something I do is just kind of keep a note on my phone of all of these. Of all this relevant information and so if anything happens whether I'm at home or on the road I have access to most of what I need and can generally handle things remotely.
Ben Shelley: [00:10:45] I would imagine that the most difficult thing oftentimes for newer property managers or owner occupiers who are managing their own properties would be during a crisis. What do I do. Who do I call at what things cost and obviously a lot of these things is trial and error right. John oftentimes talks about just doing in real estate investment. I think property management falls under that umbrella of something that you could just try to do just out of curiosity for me. It's kind of a maybe a little bit of a sidetrack but we can look at this from two perspectives right a perspective of an investor looking for a property manager and then for listeners of ours who want themselves to be property managers so just curious.
Ben Shelley: [00:11:20] Just out of curiosity for the latter. Obviously if you own a property you have your own affiliated insurance that that covers affiliated issues with that property. But if you are trying to become a property manager what do. Is there any steps you have to take with the city or the state or the municipality. Anything in particular that you can recommend John for people or I'm just curious if you have like different insurance for your property management business or something like that.
John Errico: [00:11:45] In New Jersey specifically. There are legal requirements to operate legally a property management business a lot of them are ignored in other states. I think that the the barriers are probably a little bit less so but in certain municipalities you would have to register your management of the building depending on the size of the building so larger buildings are generally more regulated. So I think in certain cities in New Jersey if you have if you're managing a building that's larger than like three units maybe five units you have to register with the state. I'm sorry with the city and the city might impose various things on you. I'm not really even sure because it's very municipality by municipality and honestly these laws are not enforced a lot.
John Errico: [00:12:26] Usually I would say you know for if you're if you have like one hundred unit building you have an onsite management team there. If you have a single family home you have not an onsite management team. So there is in the hundred unit building probably has a professional management team and they might have certifications that are not legally required but are nice in the industry like they have taken some course for some whatever it might be versus the guy managing your single family home we just could be your buddy or yourself or whatever.
John Errico: [00:12:59] So there is a spectrum in professionalism I would say and as I alluded to before the other space that we operate in is much closer to or identical with a single family small multifamily space. So that's the least professional least regulated kind of least oversight type area of property management.
Ryan Goldfarb: [00:13:16] And I would just just caveat that by saying I think this if you're looking at this from the purpose for the purposes of self-management things are getting much less prohibitive in the sense that if you're if you're living at the property I don't even know if that's considered quote unquote property management. If you are self managing it.
John Errico: [00:13:35] Yeah a lot of these laws are to the extent they even exist have exemptions. If you are an owner of the property even a partial owner of the property so then all bets are off. That's why a lot of a lot of man a lot of bigger buildings will have on site management is just a part of the owner of the company and they don't qualify under any really laws because they're part of the company that owns it.
Ryan Goldfarb: [00:13:57] And this also oftentimes applies as well for rent control and rent control exemption. I know in a lot of cities the statute may be for units that are buildings that are for units of murder they are subject to rent control but there's an exemption if it's a four unit building that's owner occupied.
Ben Shelley: [00:14:17] You see stuff like that I think sometimes in Union City where I think there would be new ordinances that are passing both on a short term versus long term rentals and then also registering apartments for rent control and what threshold you cross 2-family for three families to buy where you have to register apartments for that for new investors it's worth looking into.
John Errico: [00:14:34] It's a good point to touch on a little bit are the the overarching legal laws that don't have to do with property management per say but just the operation of renting out an apartment. So you mentioned rent control rent control is a big issue in New Jersey and it is to some extent in other other states around here. But I think New Jersey might be pretty singular in its the prevalence of rent control particularly in North Jersey. So rent control is one issue city by city we've actually been ourselves doing a research project to just document what the rent control laws are in every city which there are so many cities in New Jersey and there's so many different laws. It's very very very to many challenging too many cities are agreeing we can. That's a whole nother topic.
John Errico: [00:15:14] The consolidation of northern New Jersey. I mean it's like they're trying to they're trying to break California into five states.
Ben Shelley: [00:15:21] It's like the opposite it starts getting one of us or each of us on different city councils and we have to beat them from within.
Ryan Goldfarb: [00:15:28] In this day and age I think it's probably a daunting challenge to unify people in that capacity.
Ben Shelley: [00:15:33] Even in Jersey I feel like Jersey maybe I I doubt it. Well this is one thing or more divided than ever right. This is not a are you talking about. Are you telling me that Bob Menendez can't do the job of unifying the Great White or the great point and end as well as him in Mayor.
John Errico: [00:15:50] Big supporters.
John Errico: [00:15:50] No it's so you know rent controls an overarching issue and then in New Jersey there's there's state level right. In fact I shouldn't even move on from the municipality level because there is still municipality issues to deal with so there's rent control issues and then there's also Certificate of blank issues occupancy conformity whatever you have call it habitability. Again every city might have their own particular take on what this is. So some municipalities in New Jersey require you to register with the city every time you get a new tenant which could trigger an inspection. Some require you to do it when you sell the property some never require you to do it some required for properties of certain numbers of units and above. So that's a whole nother regime. Again the enforcement of these laws is scattershot. In some cities at best. But it is something to be aware of. Once you've dealt with the municipal level issues there in New Jersey are state level issues in New Jersey there's a state law that applies essentially to units to buildings that have three or more families and that requires its own registration its own regulatory regime and very frustratingly the state and the municipality might be on very different pages about your compliance with various laws. It's not uncommon in New Jersey for buildings to be in compliance or at least nominal compliance with the state law but not in compliance with the city law which is very frustrating because or the opposite or the opposite. I would say that I've seen it more. They have a green card but they don't have any green card is essentially the registration certificate to get from the state. If you have three or more units in a building but I've seen it very frequently where they have a green card or they've registered with the state I'd like the city has no idea what's going on.
Ryan Goldfarb: [00:17:37] I'm thinking about it more so from. You just renovated three in a building. You close that all your permits with the city through the building department and then after that you go for the green card inspection and they come up with a whole new slew of things to tackle.
John Errico: [00:17:50] Once you've already got got it occupied and you did as Ryan just suggested it can be very frustrating because you have two different regimes. They're not communicating with each other they have no incentive to communicate with each other but you're you're exposed to the burden of both of them and they both carry a monetary and real penalties if you don't comply with them. So that level of expertise you know if if if you're getting into larger buildings and you're getting into municipalities that are more heavily regulated which is like northern New Jersey I would say it's valuable to at least learn about these laws and be aware of them.
John Errico: [00:18:23] BiggerPockets is a resource talking to other investors as a resource networking as we said before in a previous episode to this podcast listen to this podcast for sure and we can go more in depth in future episodes in New Jersey specific investing which is its own its own game but in some point we're going to have an episode about short term rentals Airbnb rentals which I think is a continuation in part of this property management conversation.
John Errico: [00:18:47] That's it's a whole nother legal regime and legal issues there.
Ben Shelley: [00:18:51] So in terms of leasing I realize this may be a quick step back but is there anything you guys can advise or just give some context to. I'm actually curious because I've never seen your guys as leases and I know also Ryan for example some of your properties we should talk about this in a second. Have federally backed tenants so as a Section 8 tenants for example. And I'd be curious to know how that affects sort of the machinations of property management but just generally speaking the standard leases or is there anything in particular you guys like or look for when you are leasing out your units.
Ryan Goldfarb: [00:19:24] Well to the leasing question itself a lot of this depends on what your level of interested is in being a part of the process. So for some investors they may choose to quote unquote self manage but if they know they may be more so interested in just kind of dealing with the continuing nature of the management but they want to leave the leasing part of it to an expert so they'll bring in a realtor and that realtor will then listed on the MLS and kind of handle all the showings and in a lot of areas that burden financially may fall on the tenant in the form of in the form of paying a broker fee. So notwithstanding the rich like limiting you know not notwithstanding the fact that you're limiting the pool of tenants who may be interested in paying that biography there's not necessarily a downside to doing that if you don't want to be doing it in the first place. Having said that I think I think this the old adage holds true that nobody is going to care as much about your property as you are. So if you want to get it done right and quickly then the best bet is probably to just suck it up and do it yourself. I know I've actually heard this from a number of investors who have had a property a rental property listed with an agent for a month or two and they were getting kind of like intermittent feedback and they were getting a little bit of traffic and wasn't renting like they thought it would. And then they took matters into their own hands and listed it just threw it on craigslist facebook Zillow and through some combination of those listings they were able to get it listed at the same price within a week purely based on the fact that they were just responding to the inquiries and they were making an effort to get people into the property when they wanted to get in there. So I think a lot of this comes back to the financial incentives here because you're talking about a eighteen hundred dollar a month rental. The net fee that the net commission to a broker might be five or six hundred dollars if they don't bring the tenant. So that's not going to in most cases it's not going to get somebody out of better it's not going to get somebody to forego their showing for a five hundred thousand dollar sale property and make it make them prioritize getting tenants in there.
John Errico: [00:21:45] I want it maybe your point then can be addressed through the the lens of tenant identification which is what Ryan was alluding to like the actual lease itself. We can talk about a little bit and it's important to have a lease but I think much more important is the process of finding tenants and identifying who they are. That's it.
John Errico: [00:22:00] That's a deep topic and I want to caveat delving into it by saying that it's very important to be aware of federal fair housing laws when you're finding tenants.
John Errico: [00:22:13] So I mean it maybe is obvious if you're at all in real estate but you can't display discriminatory preferences to individuals when you are leasing properties or even selling properties based on things like race religion ethnic cultural background. I'm not entirely sure if it's federally mandated but I'd just say logically would be sexual orientation things of that nature.
John Errico: [00:22:36] So what that means is it applies to the leasing the leasing realm is that you know you can't put up an ad saying I'm only looking for a person of a certain age or gender or race or whatever. I mean realistically that does not happen anymore because people are aware of this but it means beyond that that if someone of a particular race or gender or ethnic background comes to your property to look at the property you can't disqualify them on that basis. So usually as that is the way that all filters down to finding tenants is that you need to apply objective criteria to tenants. One example is credit score. So you can you can certainly accept tenants. You can say I won't accept tenants below a certain credit score which is an objective criteria that you can apply to them. But it becomes much more. And it's not required but it becomes much more suspect when you have a tenant who comes to with a certain credit score and they might happen to be of a certain ethnic background and you reject them. That becomes more suspicious because you could say Well I reject them on the basis of their credit score of which I have no actual criteria or you could say well maybe I reject them on the basis of some other illegal or impermissible criteria. So that's a very high level overview of it.
John Errico: [00:23:52] I don't think it's a lot should have to go into the details of that in this episode but it's very very very easy to find information about fair housing laws for housing acts. There also might be state specific laws as well. But in general just don't display discriminatory preferences towards tenants. I think that that's it's 20 19 so that's probably goes without saying. But having said all that.
John Errico: [00:24:13] What I require. When I when I look for tenants one of the most important things to think about is how you're going to price the unit. So one thing I found in leasing is that you will if you your unit correctly you will find normal tenants that are appropriate for that area. If you price your unit incorrectly you will find abnormal tenants for that area. You'll probably still find tenant applicants but they will just not be normal. And one example that I have is if you price your your unit higher than market rent you will still find tenants but they will be tenants that have something wrong with them which disqualifies them for many apartments and therefore they have to pay more but will try to for whatever reason convince you that they are okay renting your apartment. So for example they might have a low credit score. They might have very low income. They would have an eviction on their record. They might have all sorts of stories special conditions that may or may not be relevant to you but are definitely going to disqualify them from the vast majority of apartments. So sometimes people will say oh you know market rent for this area is to offer dollars a month and I'm losing my apartment at 14 15 months just to see well I guarantee that you'll get somebody to come to your apartment but they're probably not going to be the class of tenants that you're going to want to rent to. So that's not that wasn't obvious to me before I started renting but just because you can try to list your apartment for more money doesn't mean that you're gonna just because you list your apartment for more money and you get interest doesn't mean that you haven't listed it for too much money.
Ryan Goldfarb: [00:25:48] So one one thing that we've talked about in a number of different contexts is the theme of understanding what your costs are. And in this case I think the way that that applies is understand that there's a cost of trying to get that maybe above market rental number because in this in this area in particular if that is a problem tenant and you need to through an eviction the cost of that eviction both in terms of lost rent and the legal costs associated with going through that eviction whatever that difference is is not going to be enough. You're not could be obtaining a significant enough premium to justify those at added expense.
Ben Shelley: [00:26:26] And it's interesting for somebody who doesn't have properties or rents to hear that perspective because you're talking about right if everybody wants try to juice the rents as much as possible but within a margin of what the market is you can have.
Ben Shelley: [00:26:39] An extremely volatile different outcome based on the quality of tenant and that poor quality of tenant to both their points. Yes and the immediate might pay a couple of months at two hundred dollars more a month than market. But then there could be all kinds of other issues which may lead to as you know for a variety of outcomes maybe eviction being being the worst case and destruction of the of the unit you have on the topic of pricing.
Ryan Goldfarb: [00:27:01] One benefit to underpricing or at least pricing something fairly is that you will get a a wider sample of applicants from which to choose. And if you're looking at this as a long term investment and your goal is going to be to obviously make things a little bit easier on yourself but also to minimize vacancy and if you have tenants in there who are paying a fair rental figure and they're qualified because you know they were the best of the crop from which you are choosing then there is going. There's some long term value to that stability as well. Yes.
John Errico: [00:27:39] For sure. Yeah. So I think step one in the tenant identification process is listing you know determining the appropriate rent for your unit and you you can listed above what you think is market rent. But the caveat is what I said before about the quality of tenants and what we just talked about. The second thing for me is I like to you know at some point in the rental process these tenants will be met by somebody who could be by you it could be by your manager it could be by a broker or whatever but that interaction is usually quite important. Not again for determining their you know characteristics that you shouldn't discriminate on but just for determining their possible quality as a tenant. For example if they come into your unit and they bring you know eight family members and you're renting a one bedroom apartment and they say oh it's just gonna be me and my husband you know that's problematic to me because I don't know why you'd be bringing you know your eight family members to look at this one bedroom unit if it's just you and your husband. The biggest thing that I like to do when I when I meet tenants is explain to them what's going on to their reaction and then very importantly is have an application process for your tenants. A lot of landlords for some reason don't really do this or their application process is maybe verbal but it's totally legal and totally appropriate in my opinion to have a written application which alone will drastically remove a significant portion of the tenants that are gonna be interested in your your property. So wherever you find the tenants and I don't know if it's worth while to go into it because it's you know it can be region specific and you could use a broker but whoever you find tenants once they come to your apartment sometimes be interested some won't be interested. Some a waste of time some will cancel on you some or whatever. But if they actually submit an application which is a written application which requires them to actually write something and usually pay a fee which is usually for a credit check or a background check. That alone will remove about 95 percent of people that are applying your apartment and many times. I'll get tenants particularly in in know certain certain areas that say I can't figure out how to fill out the application and I can understand that to an extent. If it's maybe online and they're elderly or they don't have access to a computer. But even if you then provide them with say a written application and they're unable to do it that is a disqualification because if you're unable to. If you're unable to convey to me the information that I request. For example if you can't comply with my request for a credit check or background check because you can't sign an application or logistically get it to me in the amount of time that's required you're probably not going to be a good tenant. And maybe there is an apartment for you somewhere else. But my criteria is that you need to fill out an application in some manner has to be written so that I can submit it to a credit agency and a background agency and you have to pay me a fee so that I can pay the credit and back agency to do it. Normally I use a website called Cosey which I'm a big fan of. Cozy. Also a syndicate you're listening to a certain certain websites online. I don't only use them so much for the marketing aspect of it but their application process I found is great. Their fees are very low and reasonable for tenants and the information that they give you is usually very comprehensive. So they'll give you information like the credit score which will not be just a number but will include things like credit inquiries derogatory factors in their creditetc. They include a background check for the background check.
John Errico: [00:31:26] When you say positive or negative it'll include things like. Here is an eviction which is obviously a big negative too. Here is a misdemeanor that they got eight years ago when they were a college student which is probably less of an issue. All these factors are important because you know sometimes you'll find with tenants tenants will come to you and first of all make my favorite tenants are the ones that come to you and say you know I say okay well in order to rent the apartment know there's we do a credit check and we only accept credit scores above x or whatever might be and they'll say Oh great. You know my credit is is perfect. That's fantastic. And then I run the credit score and their credit score is like five something ridiculously low. Really. Wow.
Ben Shelley: [00:32:07] Like you know that they always wonder why majors why say it. Every move they're trying to speak it into existence right.
John Errico: [00:32:12] I mean that's really concerning to me because it's it's a total obliviousness and is also lying. It's either lying to me or being so oblivious that they have no idea. And on the contrary sometimes tenants will come to me and say Hey I just want to be really a friend. I had a hard time three years ago. You know I had to declare bankruptcy because I got divorced or someone died or some you know I lost my job. Some facts like that happened and then you see their credit score and say you know the credit score is bad but everything stems from this one incident. You know it's like a two month period of time when all their credit card bills relate andetc. and that still is not necessarily good. Their credit score might be low for four for their purpose but at least they've explained it and then you can evaluate that as you might take it. You know that the same is true with background checks like sometimes people say I've never been evicted. No eviction then you go on and then it's very obvious that the reason they're looking for a new apartment is they just got evicted for the previous year. So it's stunning because you'll tell people like look I'm going to do a credit check and a background check.
John Errico: [00:33:14] I'm not even saying like everything has to be aware I've just just to let you know what I do and they look and then say Go do and then be proactive and be like they did not ask me about it but I can't tell you how great I am you do the opposite. It's like you got me. Have a nice life. I mean you'll be it's amazing I frequent it.
Ben Shelley: [00:33:31] Did you really hear that Joy. So when I graduated from high school I actually originally I worked for a property manager and it's worth noting that every property manager to an extent does some variation of the process that John just described and I know for us like we had obviously a credit check fee and a written application a background check and it's funny now hearing John I never really thought about exactly why we did I mean I just always assumed but hearing that methodology I realized oh that's why we do it. But we also asked for like a good faith deposit which you can do I guess which is was fully refundable for some reason didn't get approved in a certain amount of security which you guys can talk about more being the landlords in the room but that is that is very funny and I think one of the things about property management is you can kind of take some some some kind of role with the funny moments when they come because like I imagine it can be extremely stressful and operational stress.
Ben Shelley: [00:34:23] So oftentimes you're going to see people and things that probably you wouldn't believe especially in very specific areas in northern New Jersey.
John Errico: [00:34:30] I mean a lot of the stress can be oftentimes people just waste your time. And that's why it's it's sometimes able to have a property manager slash realtor degree adjustments. Yeah because people will I mean they there's so many times and people will say I'm so excited it's department I want to come see it right there I second there you know they never show up or they'll say I'll be there at 1:00 and you rearrange your let's go to be there at 1:00.
John Errico: [00:34:53] They're like oh you know I am running late I'll be there at 4:00.
John Errico: [00:34:57] It's like how can I be running late. I mean that's insane. Well that's funny because that's it's different.
Ben Shelley: [00:35:02] You know it's like if you are a property manager or work for property manager versus being an individual owner as well your time constraints are very different and your time value is very different. So that's that's it that was always a brutal one.
Ryan Goldfarb: [00:35:14] A lot of the a lot of the things that you put in place here a lot of things that John just alluded to there are qualifiers and then there they serve as a filter for a lot of the bad applicants that you would otherwise receive. And while they're short while I'm sure there are plenty of applicants who will just outright ignore the fact that you're saying upfront it's going to be a month and a half security deposit the rent is going to be this much the credit score qualification. Is this that you know there are plenty of people who are going to apply anyway and just think they can get around it but they're all also are a number of people who probably don't apply and who you filter out and ultimately you know that they don't waste your time because you're upfront about that stuff.
Ryan Goldfarb: [00:35:55] And I think it's super helpful to do that because it's only going to rear its ugly head at some point so it's better to you know filter out who you can still have your process to kind of verify that you're a diamonds are being fulfilled. But ultimately ultimately you're you're only hurting yourself by not having these restrictions in there and being upfront about them. So you may as well throw it out there upfront and you may as well put some thought into what your criteria actually is.
Ben Shelley: [00:36:28] Just having some sort of process to to win out. Yeah that's possible.
John Errico: [00:36:32] I'm having rules as well. Like if you don't want to have pets in your apartment that's appropriate. But you need to be upfront about that so you can you know you can't. What sometimes happens is that people will try to fool you and they'll say oh you know I'm not going to bring a dog or something and I can bring a cat. But then they actually do. You know that's a violation of your lease and that's so that that's a serious problem it's not a problem to be like Oh it's like we just forgot about it. Like that's a serious problem. The same is true with occupancy. Right. If you have a single single bedroom apartment and you say look I only want to rent it to two or fewer people or three or four people that's appropriate because it's more people can be a fire hazard or a safety hazard than somebody moves in they have six people. That's not OK. That's a serious problem. So being firm about the rules and saying like here's what I expect is we'll set the tone for the entire relationship and also will prevent you from getting into serious trouble possibly even legal trouble with if there's an insurable issue or fire or whatever might happen.
Ryan Goldfarb: [00:37:33] And having thought about that and having kind of codified this in your own way also makes it a little bit easier to enforce it down the road because if somebody comes to you and say and says Can I can my daughter and son in law move in here or can I have a dog or a cat or any other number of requests. It's a lot easier to say no I'm sorry we have a specific company management wide policy that prohibits this versus saying you know no I'm just I'm just gonna be the bad guy. I'm just gonna be the bad guy today until you know.
Ben Shelley: [00:38:09] So out of curiosity we talked about some of the thresholds of getting tenants in. And what are the kind of standards that you can outline to try to get in the most qualified tenants are paying the maximum rent you possibly can for the area. I'm curious you get a tenant in there and they don't pay rent or they're violating there as we just talked about maybe it's the animal policy or it's again just been laid on rent what have you. What are your processes and what are certain methods property managers can take to try to address these issues very common issues I want to talk about the topic from the sense of.
John Errico: [00:38:47] So there are a lot of property there are property manager that operate on both sides of the spectrum on either side of the spectrum can be can be very negative their property managers who are extremely lackadaisical and have no conception of what's happening at their unit or their apartment and literally just show up to collect a rent check that's bad for obvious reasons because you're probably not solving problems you're probably not aware of what's going on in your in your unit to your buildings to that can cause a whole host of issues the other extreme which you might think doesn't happen but I've actually seen all the time and in fact right and I have been talking about this recently our property managers or landlords that are so involved in the lives of their tenants that it's it truly becomes a problem.
John Errico: [00:39:33] You have an on both ends of the spectrum. Your behavior will set the expectation of the tenants. So if you're the sort of property manager that doesn't deal with anything then tenants will never tell you when there is a problem because they suspect that you're not going to deal with it. On the flipside if you're the property manager that is really involved in every aspect of your tenants life they will tell you everything that's wrong. Even things that are unreasonable for you to care about or fix and expect you to be involved with them. So like I know landlords that have gotten like roommate disputes with their with their tenants which are totally beyond the scope I would say of a landlord to the extent that you know if they're all in the lease or whatever like I don't care what happens as long as you pay. I don't care if you don't like your your roommate that you yourself picked you to accept a future tenant the landlords that will do things like you know if there is a slight minor issue in some totally irrelevant way to the apartment where they'll move heaven and earth to fix this very minor bizarre issue that is like maybe unfixable or this is not economically viable to fix that nobody really care about you wouldn't care about if you live there. So there is a whole range of spectrums. Maybe. You can. I mean you know people like this also.
Ryan Goldfarb: [00:40:53] Yeah I mean I certainly echo those same sentiments. I would like to point out on the larger scale side of things. This is a little bit of a tangent but it does speak to the point of as a property manager having your pulse on the property.
Ryan Goldfarb: [00:41:12] I know it's pretty common in the investment space to buy a buy a 50 unit apartment building and to prosper to approach the investment from a value add perspective with the intention of getting rents up and as we alluded to in the last episode bumpingA.I. and improving the property that way. But oftentimes one impediment to that is that you may have a certain cross-section of your tenant pool that is involved in some type of illicit behavior or that is doing something to otherwise stigmatize that building that community that block maybe. And.
Ryan Goldfarb: [00:41:55] One thing that one benefit of being a property manager who has your pulse on the property is you know who those one or two bad eggs are in the building and if you nip that issue in the bud then you may not get to the point where your building is only 50 percent occupied because nobody wants to stay there because you know that because they know that the building is a haven for drug dealers or if there's other if there's other behavior there that other that is going to deter your tenants from wanting to live somewhere. All they want is just a safe quiet secure place.
John Errico: [00:42:37] Yeah and I think part of the issue one big name the game is communication. I mean this is the case for like it whenever there's problems or conflicts. But in the property management space being responsive to tenant issues is important. Even if your response is No I won't deal with it. So I had a tenant recently that this is in fact in the same building that we had an issue with the heating and the hot water from a flood. And we had to make a small hole in her wall to fix some plumbing and for various reasons we had to leave the hole uncovered for two or three days. And you know this is like a hole maybe six inches by six inches in a corner of a room and the heating was working the water was working everything was on just that there was this hole in the room and she said well you pay for a hotel for me because of this issue and I certainly didn't ignore her. But I just said no like that's not that's not an appropriate. That's not reason well for me to do that and I don't want to be you know she had all these reasons why I shouldn't want to do it and and why I was such an inconvenience for her an ecstatic saidetc. And I said Look I don't want to be inconsiderate to your concerns and your you know maybe unique life history that makes it so that this is very inconvenient to you but from a perspective of my duties as a or to you this is not an appropriate thing for me to do so. No we can't do that. And so so you know being that being the bad guy I guess in that context is definitely a necessary thing to your original point been about like what happens when things go wrong. You know a lot of it is like communication. So hopefully you have tenants and you have relationship with tenants such that they'll tell you when things are going wrong like if they're going to be late if they're going to be late on rent they'll tell you in advance like hey I'm having a problem that still is not necessarily okay or great but at least you're informed. But if you're not communicative or your tenants aren't communicate with you. And you know that the day to collect rent comes and there's no rent that is a big problem. You know the worst tenants that I've had are ones that either don't communicate will lie or stop communicating when things go wrong. So you know we have Ryan and I have a tenant have several tenants right now and I've been a building where we inherited tenants from the previous owner and you know we're talking earlier in the episode about how that can be problematic. You know we have these tenants are our super bad. They're they're bad because the act their expectation for communication set by the previous landlord was totally off. So they don't say when things are wrong or they they will over communicate when certain irrelevant things are wrong they won't tell me about when rents do. They have all sorts of crazy assumptions. I mean I had one one tenant claim that he believed that yes her rent is generally paid in the first of the month for the month that you're in. He claimed that his belief was that rent should be paid at the end of the month for the prior month that you'd already lived in the building for. Which is just I've never heard of that.
Ben Shelley: [00:45:44] And it's like Sir how does that have to do with you having not paid rent for three months. Right. So like I feel like usually it's a microcosm of Vallejo as you try to return your initial question like when things go wrong.
John Errico: [00:45:53] Step one is communication and just understanding what's happening and certainly there are legitimate reasons why people can be late and rent that are not eviction quality with certainly there are legitimate reasons why people can be late and rent that are not eviction quality events.
John Errico: [00:46:11] Yes. But knowing what they are will prevent that from happening.
Ben Shelley: [00:46:15] Although I would imagine I think you I think anybody would agree with the sentiment that if you feel like a tenant relationship is going in that direction to probably document as much as you can or keep track of as much as you can in terms of any issues you've had with the tenant.
John Errico: [00:46:30] Tech text messaging and email have been great boons for that as opposed to verbal conversations. So a lot of times I communicate with tenants through text and that's a great medium for just keeping information right there. You know the ultimate the ultimate problem with the tenant is when they are a tenant can do a lot of things to make it such that they can't live in your unit anymore or you you won't allow them to live in your unit anymore. And obviously if you just don't like the tenant personally or whatever you you just don't think they're good tenants that probably in alone is not enough to qualify for you to remove them from their property if they're not violating their lease agreement. It might be a justification if you're not in a rent controlled or rent stabilized or whatever situation for you to not renew their lease in the future. However you know that there are overarching legal issues as I alluded to before that might cause it to happen. But generally the number one reason why people get evicted or why leases ended because of a violation with the lease which is usually non-payment of rent or habitually late payment of rent other issues could be you know they are subletting your apartment without your consent. They have other people living in the apartment without your consent. They're violating some rule that you've imposed. Like with animals with doing illegal activities in your unit maybe they're destroying your unit or inconveniencing other tenantsetc. I very rarely ever dealt with the latter but non-payment of rent is or late payment of rent is a reality. If you manage enough properties in any area affluent or poor you will find people that are gonna be late with rent or not pay rent.
Ben Shelley: [00:48:15] And so attitude of which I rent. I just want to say I edit Curia or ask out of curiosity now sort of having now gone through most of the rental process and management process for market tenants. I do want to have a quick conversation about rent control rent stabilization and in Section 8 as it pertains to units that we that we have or that you have Ryan. So maybe you guys can take us through a little bit in the same overarching context of what is the difference if there is one between managing at market and tenants and and rent control rent stabilized Section 8 tenants maybe outside of just the obvious fact that there's a certain cap on rental increases cetera.
Ryan Goldfarb: [00:48:54] Sure. Well I think it's worthwhile to take a step back and just to think about what Section 8 is and what what that really means. Yes. So the way that it generally works in the context of the two to four one to four family rentals is a quote unquote Section 8 tenant comes to the landlord with essentially a Section 8 voucher. I think it's called a half that area for housing assistance program and that voucher is generally good for a particular amount of money per month generally as there's there's a formula that's generally based on either affordability metrics for the area or a percentage of that tenants income that should be allocated to rent and then the tenant picks up one portion of the rent and the Section 8 voucher covers the rest. So in this context these Section 8 vouchers are essentially a means of the government stepping in and providing housing assistance to lower income families.
John Errico: [00:50:10] And just as a quick caveat there are a lot of programs like this section is one particular program that's operated by it's funded by the federal government although it's actually operated by municipalities.
John Errico: [00:50:22] But there are many many many programs like this for low income or disabled or other category of tenant where for whatever reason they have government assistance to rent a unit and what Section 8 is the most common one that landlords will deal with. But all of these things that I think Ryan is about to say will apply in a similar manner to a lot of these programs.
Ryan Goldfarb: [00:50:45] And sometimes you may find tenants who are using a combination of one or two or maybe three different programs. So to me the overarching theme is the same. You want you want tenants who are going to abide by the lease. You want tenants who are not going to create issues and who have realistic expectations. Whether they're market tenants or whether they are paying through some means of housing assistance the we're also going to go with this. So when it comes to section 8 or other housing programs I think you generally find within the investor community you'll generally find that investors are either really far on either end of the spectrum so they either love it love them and swear by them or they had one bad experience with it and have written off these programs entirely. I think the reality of the situation is that it's it's case by case you're going to have excellent tenants who are on some form of housing assistance and you're going to have some tenants who are quite subpar when it comes to these are on these housing assistance programs and it's on you as the landlord to screen them appropriately and to ensure that regardless of what their means of payment are that they are qualified to lease your space.
John Errico: [00:52:08] Right.
John Errico: [00:52:09] So in my experience you know government subsidized tenants first of all in general you will find a very wide array of tenants that have government subsidies some Section 8 tenants will be in Section 8 you can just parenthetically your mind for government subsidized tenants some Section 8 tenants will be fantastic and some will be terrible. And as Ryan alluded to they the the voucher which is the amount that the Section 8 tenants rent will be covered can vary a lot. It can be a hundred percent of your rent too much less than that back of the envelope sort of high level talking usually tenants that pay more money even though this sounds counterintuitive are better tenants because they have more of a financial stake in where they live. If you have a tenant who's paying truly zero because the government program of their own pays their entire rent they have really no financial incentive to do or be anything in your apartment. And although this hasn't happened to me I know people that it's happened to these tenants can just trash your apartment because they have really no financial consequences for that happening. So if they for whatever reason don't like you or having a bad day they can really cause you financial penalty without them selves being financially at risk.
Ryan Goldfarb: [00:53:37] To be fair there there are the ramifications of their behavior in that situation would be it would be that they would lose their housing assistance payment which is not insignificant.
Ben Shelley: [00:53:46] Curiosity does the does the federal assistance cover things like credit check fees and security deposit like if you're renting to one of those tenants what is the price. Is the process different in terms of the source of of funds for those initial fees or no the tenant is still on the hook for for those payments.
John Errico: [00:54:02] It depends on the program. Oftentimes as Ryan alluded to before tenants can use multiple programs. So you know I have a tenant in one of my properties that isn't actually a section 8 tenant as in she pays market rent out of her own pocket. However for her security posit she and her security adviser was paid through a program through the city of Newark that provides emergency housing relocation because her building was condemned or something like that. And so she didn't get her deposit back or she might at some point or whatever. So there is a whole variety and yes there is assistance for application fees and whatever else might be relocation fees etc etcetc.
Ryan Goldfarb: [00:54:41] Now one other downside to a lot of these programs is they are generally administered by some agency. So in this case I think there's either I don't know that's at the city level or at the county level but there is a local section 8 office that administers the program and each of these locales and those offices will conduct periodic inspections I don't know of it's a yearly or bi annually.
John Errico: [00:55:07] I don't know.
John Errico: [00:55:07] I think it I'm not entirely sure it certainly depends on the program but it happens not infrequently but just as we alluded to earlier with the state and the city having different requirements. This just adds a third layer of oversight and it's just another body that comes out and will say hey you need to paint this wall or you need to fix this door you need to do that. It's not it's not necessarily that these things are unreasonable. It's it's just that the frequency with which these things happen and the ramifications of not being in compliance whether these requirements are reasonable or not can be significant if they're not cured within a certain period of time they will stop paying the rent. And it's just it's just another source of frustration.
John Errico: [00:55:58] It's bureaucracy. And to be honest a lot of these programs are not administered particularly well. Right. And that can be very frustrating from a landlord perspective like one of the craziest things that that we've had to do what I think is we have a section 8 tenant who is very habitually late with her rent show he seems to manage to pay it but it's very late normally.
John Errico: [00:56:20] And you know her her income portion her portion of the rent is maybe like a third or something of the total rent for the unit. So most of the rent comes from the local Section 8 office. However if she is late on her rent she will be out of the program which means that we won't get section 8 income anymore. So it's a pretty perverse incentive where I'm actually incentivized if I want to get that two thirds of her rent and if I think that at some point she will actually pay I'm actually incentivized to tell the section in office she's paying her rent on time so that I get the two thirds of the rent which is ridiculous.
John Errico: [00:56:59] Right. If I say that she's out of the program boom she's out of the program you know if I say she didn't pay rent this month you know they they want to be helpful to me. Oh great. Well she's out the program. Well okay fine. But now I have to. That doesn't mean that she leaves the apartment. It just means that some sort of a victory just means that I don't get the Section 8 component anymore and so then I have to evict her which in New Jersey is a multimedia process. I have to go through everything else involved it that try to get money from her for those other months without sexy assistance. It is not going to happen.
Ben Shelley: [00:59:52] Paper. People say that I'm scared to say that on the show because that's going to catch on. I need a trademark that. So more importantly looking at the way that for example rent stabilization grows I know it was usually like mandated between 1 and 4 percent per year of whatever rent it was below a certain threshold in New York. So I'm just curious to know like in Union City for example where there are very strict rent control and stabilized rules. What the process is for a landlord there and what to expect if you're if you're managing a property that has these kinds of controls on them.
Ryan Goldfarb: [01:00:20] The benchmark that most rent control programs are based upon is CPI Consumer Price Index. Generally there is a permissible increase of maybe a set a set amount like 3 percent or so. The greater of 3 or greater or the lesser of 3 percent or CPI sometimes it's CPI plus 2 percent. And oftentimes there are other permissible increases.
John Errico: [01:05:08] So either ask someone knowledgeable or ask your lawyer to look into it or do the research yourself.
Ryan Goldfarb: [01:05:15] All this is not to say don't buy rent control buildings. It's more so to say understand what you're buying before you do. Because at the end of the day there are still some advantages while few there are some advantages to owning these types of buildings one of which is the fact that if you have if you have a tenant who's been in an apartment for 15 years paying a thousand dollars a month in a unit that would otherwise rent for two thousand dollars a month then that tenant is highly incentivized to do whatever is necessary to stay in that apartment. Whether that means prioritizing paying rent or not being a thorn in your side or a thorn in the side of the landlord or just keeping the place in general you know generally good condition. There are some advantages to that when it comes to occupancy or when it comes to stability. But you know at the end of the day the numbers are what the numbers.
John Errico: [01:06:10] And very briefly not know about management per say but if you want to be if you want to be a value add investor and you're buying a rent controlled building that's going to pretty significantly limit your opportunities to add value to that building. Because as we've talked throughout in previous episodes. In an ideal world the value of a bit of an investment rental property is a function of your income your gross income which are your rent and your expenses and assuming your expenses are generally going to be fixed. If you can't increase rents increase income then the value of your building is not going to increase. So buying a rent controlled building where there are truly no opportunities to ever decontrol it or raise rents or do whatever else you're either hoping on a law to change which has happened but or b you have no appreciation value at play you're just happy with the cash flow as it is and you're gonna increase it at 2 percent a year and that's it.
Ben Shelley: [01:07:08] So excellent gentlemen.
Ben Shelley: [01:07:10] Last question before we head out because we all have dealt with this and are dealing with this I'm going to talk about market tenants here not not stabilized controlled or federally backed tenants security deposit. How do you guys operate with that. I think there's always a lot of questions and sometimes that can be the most contentious aspect of the lease period at the end for a market right tenant. Obviously the standard would be if something goes wrong you use that money a portion of that money to fix issues. But do you guys have certain thoughts on it or policies on my website.
Ryan Goldfarb: [01:07:40] My one thought on this is that you're bringing this up to bring to the forefront your sterling Rep Ryan is not going to bring it up if I could I promise I wasn't I just was curious and prides himself on having his security deposit return I'm going to soil and I'm going to start that business specifically consulting on how to get your security back. Yes that is true but I I promise I wasn't going to bring in our knowledge in the back of your mind.
Ryan Goldfarb: [01:08:04] Notwithstanding that the topic of support of security deposits is an important one in a lot of in a lot of situations your security or the security deposit that you are holding on to maybe your only point of leverage in a dispute with a tenant. That's not to say it's something that you should be holding over their head and exploiting but if you have a tenant who has not paid rent if you have a tenant who has or who may trash the apartment has any reason to be upset with you whether it's justified or not if you're holding on to a month or a month month and a half worth of rent in the form of a security deposit then that's one that's one thing that's at least going to deter them from doing that.
John Errico: [01:08:51] Yeah I mean I very rarely have taken people's security deposits or a portion of secured deposit. I mean respect the you know like the idea from a landlord perspective is that there's gonna be reasonable wear and tear. I mean there's is even a legal issue about the legal bases on why you can keep a bigger deposit but in a reasonable way and terrible things like little dings Nicks holes in the wall. I mean I anticipate basically every unit is going to have to be repainted in between tenants.
John Errico: [01:09:19] But unreasonable things would be like they've punched a hole into my wall or they've ripped up flooring or they've destroyed a vanity or something like that. And obviously some of it is dependent too on the length of time that has been there like a tenant there for a year. There's gonna be a lot different than a tenant there for 10 years for example. So it's hard to say a blanket blanket statement but for me it goes back to tenant selection again. So if you if you select quality tenants. And then beyond that if you communicate with them you know a one thing I like to do is for a lot of my units I provide pest control services which means that I'm an exterminator goes into all my units and will spray for bugs. And that's a great excuse to just get in you. I mean obviously to the tenants in advance it's gonna happen and set their expectation for it but that's a great rationale for getting in the unit every month to just see what's going on. And so you know it's really clever. Yeah I've gone into units before and you'll see crazy stuff like I was in a unit not too long ago where the tenant had deadbolt or had put in a huge lock to the basement which is a common basement and all the utilities were in the water shut off electricity shut off and didn't give anyone the keys only they're the key you know and obviously somebody's got to figure that out. But I don't think it had happened maybe a few days before or something and I was like you know this is crazy like you would figure that out when you had a leaky boiler in the basement and you had to get in there in an emergency.
Ben Shelley: [01:10:48] I mean the response was I don't even think about a bubble or something crazy or like I'm storing my stuff down which is about it you actively brought someone in a deadbolt the door to the basement. It's crazy. So. So there aren't more people in nuts.
John Errico: [01:11:01] Yeah more crazy things would be like taking in every smoke detector in your unit or they've like blocked the escape door. They've made it so that every window is an operable you know things like that that are safety issues that could have ramifications on you. But you know also I just I don't want you to die in my apartment.
Ryan Goldfarb: [01:11:18] So absolutely this isn't this isn't on the topic of security but it's per say but while we're at it I think John's story there reminds me of a few things that I think are worth touching on just when it comes to setting expectations with what tenants John I don't know how you feel about this but you have anything that you either put in leases up front or or divulged your tenants at the beginning to kind of set certain expectations like I know one thing that we put in that I think it's been recommended to me by a few other investors is to say that as a blanket statement any repairs under hundred dollars or so are on the tenants shoulders so that you're not getting calls about things like light bulbs need to be replaced. Do you have anything like that as a general operating brick by brick do things like dollar amounts.
John Errico: [01:12:10] But I will I will do things like Oh we'll have rules about keeping things clear from access ways pets pest control is a big one.
John Errico: [01:12:22] Lead paint is a big one and that's a whole nother topic that we can get into but lead paint trash or recycling and we've gotten trash or as I think in the past for new tenants move into a space and we weren't as clear as we should have been about the city's requirements for trash and recycling and so we ended up getting or even just the expectation that they need to be taking their trash out to the curb or not for example.
John Errico: [01:12:47] Yeah I'd never heard about the dollar amount and what I think.
Ryan Goldfarb: [01:12:51] I mean the obvious downside to it is if you get a tenant who tries to interpret that to literally and they see something that they could probably fix for under a hundred dollars and they take that on and then they do it incorrectly and it either needs to be redone in the future by you or it leads to a bigger problem.
John Errico: [01:13:09] And that's and that's obviously counter and I would I would prefer them to call me. And then just for me to say no reason for them to just not even bother because they have then let's be honest people don't realize leases so strict is what it is.
Ben Shelley: [01:13:22] But it's like the agreements on i tunes you know you're just you're just clicking I accept that we will not take all my information right.
John Errico: [01:13:28] I mean that is problematic because it is there there are enforceability concerns and some of these leases that you can really get into if you have you know litigation relating from it.
Ben Shelley: [01:13:37] But I was going to say to to that that last point about reading your lease you know I remember the first lease I signed on on my first apartment the city that deep buried in the you know Section 24 subsection 1 sub subsection 1A or something there was a little note about a no matter what a five hundred dollar move out fee that was just a feeling for no purpose other than to further take money from you as you as you went out there was no stipulations it was literally just to move out. So by catching that before we signed by reading through the lease we were able to have that taken out of the property. You know I'm not saying everyone's trying to get you. But it's worth doing your due diligence when you're signing a lease and as a property manager to possibly going for commercial leases something like almost nothing.
Ryan Goldfarb: [01:14:19] It's like going to lease a car and having a thirty six month lease and then I'm charging you a disposition fee at the end. It's like my lease is over.
Ryan Goldfarb: [01:14:26] Obviously having a car has to be returned. Why do I ask why am I getting a car like that be built into this.
Ben Shelley: [01:14:32] I think the moral of the story here to sum up of what has been a very informative property management episode is first and foremost preparedness making sure you have the right contacts when you endeavor yourself to start out as a property manager understanding and creating a process for identifying and leasing up your units and working with tenants and then also understanding the market around you and what is your thesis for property management. What kind of tenants are you managing and and tailoring and I think your process and processes to dealing with issues to whatever type or kind of rentals you're working with.
John Errico: [01:15:07] Yeah. If I can touch very briefly on the team aspect. Sure. Which is so probably the most important person that I used when I was getting started is my handyman whose name is El Chapo. No relation to the more famous El Chapo for Ramon is his. This is a Christian name Jose but he's we actually found him by going to a hardware store locally and we said hey who is who is a guy that chops you a lot. Like is there something that you'd recommend which is a great technique for finding local guys that are active in the area.
John Errico: [01:15:45] And we found through that context and he has been instrumental I would say from he. He is what I would say like the definition of a handy man. He also can do larger projects and he actually works for us now in our construction company but he can do a little bit of almost everything and if he doesn't have to do it he probably knows somebody else that can do it. So he's been fantastic because you know it even when I was living in a unit of a building that I rented out if I had a small emergency or a small issue that I couldn't fix like a small leak or whatever. The fact that he was responsive and was able to do it and I didn't have to call a billion different people you know I wouldn't call him like my property manager because I didn't pay him a flat fee. I paid him like per job but just that just as his being there was very very important to me and I don't think it would have had the confidence to expand the way that I did without him. So
John Errico: [01:16:38] when you're starting if you're thinking about expanding in particular area finding even not a property manager but just like a handyman type person that you can reliably call on for a range of small issues I mean I'm talking about like the toilet's clogged like whatever else is is gonna be very important. It's been very helpful.
Ryan Goldfarb: [01:16:57] One thing that John's point here just reminded me of is another point that we've actually discussed at length in the past and it's the idea of managing of self managing properties at some point in your real estate career I know it's it's actually something that I personally dislike strongly. I would say something I loathe really is is property management but we start our first rental property. I still manage that along with my brother. And while it is frustrating it's been a truly formative experience in my real estate career because it's it's put to it. It's brought to light the reality of owning property both the good and the bad. The reality is that it's it's not as scary as I may have thought but it also does come with with certain challenges and there's no substitute in my opinion for first hand experience and I think regardless of whether you see yourself as a property manager in the future I think it should be a prerequisite for every rental rental property owner owner or future landlord. I think it should be a prerequisite to have some experience managing property first hand.
John Errico: [01:18:17] And you might find that you're just not cut out to be an operator like. Like a hands on property manager as a landlord. I mean if you're the sort of person that doesn't like confrontation or doesn't like people being upset at you or angry with you or can't can't figure out that like some problems or more desperate than other Hey I just got a funny text that I share with these guys about someone said there's an emergency at the property the dryer is not trying my
[01:18:50] clothing. You know if you're if you're the sort of person that would take that text in seriousness and call over a repair person that moment to resolve the issue and can't contextualize that with an actual emergency which is like hey I don't have heat or there's water flowing through my apartment you know whatever else again that may not be. Is that something wrong with you. It just may not be the type of you know investor that that you should be. So we've dealt with that too on the construction side. We have people that are just as I've mentioned before about to involve people that are just really really really too involved in things that go on the property and they can't they can't figure out when a request is unreasonable or though hypothetically reasonable doesn't need to be taken care of the moment that it is received. So it's not something to learn. I think by going through it.
Ben Shelley: [01:19:44] Gentlemen thank you for your time and expertise as always.
Ryan Goldfarb: [01:19:47] Always a pleasure Benjamin thank you.