Key Questions To Ask About A Property Manager | Ep 15

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of real estate investing. And our mission is to equip people to invest wisely in both property and people so that together we can build wealth and improve housing. I'm James and this is my wife, Jessi. Hi, how you doing today?

Jessi: It's good day.

James: All right. I love good days. These are good. I want to kind of go back to like semi started this a long time ago and now we're coming back to it, but Last year I wrote this report that was all about doing due diligence and what are the questions that you need to ask or that you can ask, I should say, in order to properly evaluate a property.

And so the very first conversation we had, we looked at the sponsor themselves, which is the role that I do and all of the Questions that you could potentially ask. And this entire thing is like 196 questions and there's broken into eight different sections. And so I want to talk about section two, which is questions about the proper new manager.

So again, the idea is you've got someone who's bringing you an investment, which is again, that's what I do. And you as a passive investor are saying, okay, am I interested in investing in this deal? And oftentimes people just ask about like, well, what are the overall returns, which are really important questions to ask.

But there are other things that you should dive into as well, because there are a bunch of assumptions that underlie those like top line numbers. Does that make sense? Sure.

Jessi: Yeah. The people putting the deal together or how they're running the deal. Yeah. It is important.

James: It's important. Right. Yeah.

Jessi: They came up with numbers somehow.

Yeah. How did they do it?

James: Right. And they've got a, yeah, and they've got a plan for doing it. And so the question is like, how do they, how are you gonna pull it off? So today I want to focus on that second section, which is questions that they should be asking about the property manager, because when you get into a larger Property.

Oftentimes the sponsor isn't the one doing the day to day and they're going to hire someone else to do it. And they're the ones who are actually going to have their boots on the ground, getting the action done, meeting with tenants, meeting with contractors, like doing the stuff. They're really important team member when it comes to a syndication or an investment just in general.

And even if you are not thinking about passively investing, you're going to like buy it yourself. And then hire a property manager yourself. I think these are like awesome questions to ask. And I actually count, how many are there total? That's my, can you do that math real quick? 11 questions. So that's it.

It's 11 questions, but I think they're really important. There's three that I think are like super, super important. So what I want to do is have you Read them and talk about them. And if you have like a question about it or a comment about it, which ones are you like, particularly like, Ooh, I really like this one.

Or you're like, why are you asking this? Those kinds of things. So very similar to the previous time we did this, which if I was really smart, I would have remembered the episode number so that I could mention it. It's okay.

Jessi: You'll link to it.

James: Yeah. You do that link in the description to whatever that is.

Oh gosh. I hope I remember. All right.

Jessi: It's gotta be one of the first couple.

James: Yeah, it's within the first ten.

Jessi: Yeah.

James: I know that.

Jessi: Okay. So. The property manager. Just, I have a question before we go there. Could it be the sponsor?

James: What do you mean? Who's

Jessi: doing all the things? Oh, yeah. Totally. If it's a smaller deal or something?

Yeah.

James: Yes. It's either, like, so if it's a bigger deal, sometimes sponsors will vertically integrate. Where they'll be like, yes, we'd like to We do investments, but we also do property management. We also do construction. So it's like your company that does all

Jessi: the things, not necessarily the individual.

Yeah,

James: But you could also have an individual, I suppose, who's doing it. Like I could see say I got a duplex in the area. You'll see if, if you go back and listen to the other one about the sponsor, there's some overlap here. Cause a lot of it is like, do they have good character? Are they trustworthy?

Do they have proven like trustworthiness and character? Right. Like, so that I would imagine

Jessi: too, everything kind of yields on the sponsor. So it's like, if you've done that due diligence and asked all those sponsor questions. Your, your confidence level goes up, and so you may just trust that, okay, yes, I know you, I've gotten to know you, I know how you do deals.

I

James: know him! I know him! I was listening, you'll really appreciate this, I was listening to another podcast. This guy, he is it's a, gosh, I'm totally blanking on his name right now. He's an academic, he talks about like, Taking breaks from digital media. Oh my gosh. I am just totally blanking on his name right now.

Jessi: Nope.

James: No, no. He wrote deep work. Yes. Thank you. Wow. That's wow. I really just launched that one. Anyways, he was talking about he was talking about the idea of a single purpose notebook and one of his examples was from buddy, the elf or from, from elf where the guy dinkle, what's his the author comes in.

And he's got his book, he's like, I've got some really good ideas here that I'm really stoked about. Oh, oh, yeah. Not Dinkle. That's his real name. Or, dude, wow, I am just like killing it on names right now. Awesome. Oh, well. Anyways, he referenced that scene. Niles,

Jessi: Niles something. Finch? Yeah. Niles Finch.

Miles Finch. Miles Finch.

James: There you go. Wow. Anyways, he used that as an example for like, here's a single purpose notebook, the idea of

Jessi: it. Oh, okay. Yeah. I

James: just appreciated Semi goofy.

Jessi: That was like a rabbit trail.

James: Dude, that's Welcome to my day.

Jessi: Anyways like I was saying, if you have vetted the sponsor, and you know them, I know him you tend to trust some of the other things that he's put together.

Right. Yes. So, you, you know, may or may not want to ask more about the property manager, but

James: Yeah. And I think should, but it's, yeah, definitely. It's like, that's that first pass. If you can't make a pass, trusting the sponsor and what they're doing, like who cares about all the other stuff. Yeah.

Jessi: Yep. So you've made it past that.

Now you have some questions about the property manager and what they're going to do. So do you want me to start with the most popular or

James: whatever? I mean, there's only 11. So,

Jessi: So question number one, how did the sponsor source the property manager? How did you find them?

James: Yeah. Basically. Is it your friend Joe from across the street or like someone who has the best reviews on

Jessi: all of their social media or whatever?

James: Yeah. Yep. Just, you know, yeah, it's just important to know, did you get a recommendation from someone else?

Jessi: Yeah. Will the current property manager stay in place?

James: Yeah. So that is an interesting one because often for bigger properties, you already have a property manager in place. And so it kind of depends on the building situation and why they're selling.

Like if it's. Not doing well and rents not being

Jessi: managed. Well, yeah,

James: right. That's like, that's, that's really important to know if they're keeping that person in place or not now. And I think the next question actually kind of addresses what happens in that situation.

Jessi: Yeah. So if they are keeping the current property manager, is the sponsor projecting a significant increase in performance from the same management company, how will the sponsor get that improved performance?

James: Right. So, okay, you're going to keep them on board, but how do we, like, how can you be certain that they're going to see a change? And really this is about like, in some ways it's about people management and how you, how you lead people. And so for example, the place that we bought on 14th, that is a 15 bedroom co living And we kept the existing manager in place.

Now she was, she was good. Like, you know, we, we met with her and like, she seemed totally fine. And she did a good job of like carrying out the owner's wishes. Yeah. Now the previous owners, they weren't absentee necessarily, but they

Jessi: More hands off.

James: Yeah, more hands off. They were like, Oh, we fully trust you to do this.

And it's not that I, Don't trust her. It's just, I, I tend towards the micromanage side of things or better yet is I'm highly opinionated on how things should be done. And I picked someone who was very responsive to those ideas. And, and so I walked in. I looked at all the rents and went, yeah, these are too low.

We need to raise them. Period. And I looked at what was happening, like, for example they were running the heat with windows open. And I was like, what are you doing? And so, and I was paying for all the electricity. Yeah. And I was like, yeah, no, that's not happening. So we implemented a rub system. system, which to me was like, Hey, I guess if you guys want to run the heat and leave the windows open, sweet,

Jessi: have at it.

Yeah,

James: but I'm not paying for that anymore.

Jessi: Define rub system.

James: Oh, it's a ratio utility billing system. There you go. So cause like, for example, oftentimes like for water, you just get one big water bill and you can do some math and you can get creative or not creative. So you can either be like, in 15 units, boom, divided by 15, call it good, or you could do it by the number of occupants in each unit, which Isn't as big of a deal for mine.

Cause they were all single people, but. What if you've got like a family of four living in a two bedroom versus a single living in a two bedroom? You could also potentially and for water, that's usually like you'll do it by people because like that determines,

Jessi: yeah,

James: yeah. By using the bathroom, taking showers, making pots of pasta, I don't know.

And whereas say like electricity, if you, or gas, let's say like sort of heating thing That one you might actually do by square feet. Cause it doesn't matter how many people there are. It's all about what's the space that we're heating up. And yeah, so there's like, so you divide

Jessi: it out by,

James: so all I have to say, so I talked to her and was like, Hey, we're going to implement this thing.

I don't want to pay for it essentially. And it's, it's like, it's a big number on my particular bottom line. It's like, it was like almost like two grand a month for me, but for each individual, it was like 150 bucks, whatever, you know? And so that was Yeah, it worked out really well actually for us.

And but I took an active role. I still meet with her every other week. We go over the P and L we have an ongoing list of things that she's doing and keeping me in a loop of, and we talk about that. And so that's something that I do that changed the performance. And there were some areas. Question on

Jessi: here.

James: Oh, I don't know. Like,

Jessi: how do you interact with the, how does the sponsor manage the property manager?

James: Is that, is that one of the questions?

Jessi: I'm at, no, I think it's kind of, it's

James: kind of implied in number in that third one we just talked about, but you should ask those kinds of questions. Like how often do you, there's a really good book called best in class.

Don't read it. You don't need to, but but I did because it is all about how as a sponsor, do you manage the property manager to create a best in class experience and investment?

Jessi: All right. Some of these other ones are really related. So it's like, has the sponsor worked with the property management, this property manager before?

Yeah. And then some like other things about the property manager. How many years has, have they been in this business? Do they have other assets that they manage?

James: Yeah.

Jessi: Are they in the area? How's their performance?

James: Yeah. You're really just trying, it's essentially what you're asking is, do they have a proven track record in managing these types of units in these types of places and these types of conditions and these types of whatever's like, but it's getting a, it's, it's not just straight on asking that it's trying to get around it.

Jessi: Yeah. Build some credibility for. Will they be capable to manage this particular property? Yeah, those kind of questions

James: kind of remind me like when we're doing tenant screening. We, we tell people we're, we want to rent to responsible tenants. But what does responsible mean? And so we ask a whole bunch of like very pointed, specific, objective questions.

And so that's what I'm trying to get to for this here.

Jessi: That makes sense. And if there, if there's a pre existing relationship, that, Kind of relates to the first one to me. Like, how did you find this person? Yeah. Did you already know them? Have you worked together before? Because if you trust them, it just, it builds on that trust.

Right. But you know, there is, but if you're just like, I have no idea who this person is that might be like, well, why are you going to have to manage for you? Interesting

James: deal, actually, when I was looking at an investment out of the area I, I got a recommendation. I got a couple of recommendations for a property manager and from, from the agent who was helping with the transaction.

So I called them first and and they both, it was interesting. One of them sounded awesome. He said everything that I would want him to say, but then the more I started researching him and looking at him online, there was just something weird about it. Like he didn't have. The online presence that I would expect given what he was telling me and I even called like I asked for Like one of things I did was I was like, well I'd like to I'd like to talk to some people to get referrals to figure out what it what it's like Working with you.

Interestingly, actually I had two property managers where they both refused to give me any other names of any other investors who have worked with them. And I was kind of, I was kind of shocked by that. And I kind of got it where they were like, well, like where you know, we respect their privacy. I was like, yeah, all right.

But like, you don't have anyone who's willing, like, You can't even ask if someone would be willing to talk to me, like pick your favorite one and have them talk to me. So then what I did was I followed up with, well, do you have any contractors who you work with and like, can I talk to them? What's it like to work with you there?

And this, this guy, he actually gave me a couple of contacts, but he's like, it was really interesting. Like he just like, Oh, well, you know, there's this person and this person that we do this and I'm like typing as fast as I can trying to keep up with it, realizing I should have recorded the call so I could go back and reference it all later, but whatever.

And that's why I called them up. They had never heard of him.

Jessi: Weird.

James: It was super weird, right?

Jessi: Yeah. And that was what sent me down this

James: rabbit hole of like I started looking up his LLC online to be like what is like It was super weird and it turned out his company name had expired and it hadn't been renewed for like a year.

It was all sorts of funkiness. So that's just an example of the kind of like deep diving that that I'll do if I don't know who the person is. Another person I talked to, she actually, she's not a great, and I actually made a mistake with that one. I pummeled her with like 60 questions and she ultimately was like, you know what?

I just don't want to like, She's like, you're just too intense for me. I was like, ah, well, alright. And so I, I dialed back the intensity on on the third person. And he actually sounded great. I'm kind of a bum that I didn't get a chance to work with him, cause he was a small branch of a much larger property management company based out of Portland.

And so he had all the resources of a big PM, but was also local and personal. And kind of had the small town feel. Anyways. It's kind of a good mix. Yeah, but that was what I tried to do to To learn more, by the way, when I interviewed with them or yeah, I guess there was some of that too. They gave me a property management agreement, just a blank one.

Like, oh, you know, it's just a standard one, you know, whatever. And, and it had I, I did my research on like, what should be or should not be included in it. And some of the resources I read were like, look out for these like five gotchas and they totally had all five of them in there. I was like, nice.

Okay. And, but When I asked about all five, I'm like, Oh yeah, yeah. We can get rid of that. No big deal. Which I was like, Hmm, interesting. This was just a classic. Like if we can get away with it, we will. Yeah. It's kind of property management. It's an interesting world.

Jessi: Yeah. It's kind of interesting. It seems to me like once you find, if you're doing deals in the same area, once you find your property manager that you like, If they have, that's the next question.

Like, do they have the capacity to take on new units? If they do, it's like, you just use them. Yeah. You know, you're not using a different manager for each property and going through that process over and over. Like,

James: yeah, it's like, for example. The property manager who's managing the place on 14th and 15 bedrooms.

I also gave her the storage facility to manage. And like just a couple of days ago, we talked about taking over my five unit place in sweet home. Cause it turns out she manages the property right next door. It's like, all right, this is a good mix. I trust her, but. When we, we initially had that conversation back in like October, November timeframe, but she wasn't at a place where she had the capacity to take that on.

And she was also like, but I'm, I'm hiring a couple of people, going to be onboarding them. Give me some time to, to get that in place. And then I'll have the capacity to do it. And so now we're having that conversation and so she'll take it over in May.

Jessi: Okay. The rest of these, I think just, it's kind of like, how does the property manager operate?

You know, how many People are on their team, what software do they use when do they provide reports, what kind of stuff do they provide what's the structure of their management company. So that seems to me kind of like more detailed information that you, you, again, you as a sponsor would want to know those things so that you can build that relationship and trust with them.

But me as an investor, it's interesting. But I'm more like, this is interesting to know that you asked these questions.

James: Yeah. That's a good way to say it. Yeah, I guess, and a lot of those are like some of those initial questions made me go, huh, really? That's who you chose? Or do you know a lot? Yeah. It's trying to dive a little bit deeper.

Yeah. Try to build that confidence into, into who they are, but yeah. And I totally get where, yeah, these may not make sense depending on your level of involvement with where you're at in the property, but yeah. Or if I'm like. Because honestly, what will happen a lot is they make the reports and I will forward those on to the investors.

And so like if you kind of want to like, so you'll get to know what the reports look like from that standpoint. And yeah, but I definitely ask about it too, because I'm like, I want to know, which a lot of them, they use that folio and it's a really standard garbage reporting system or how do I say it?

Garbage is not the right, it's too generalized. It's not pretty. It's not easy to understand. It's not user friendly.

Jessi: Yeah. It's just highly functional.

James: Yeah. And from what I've gathered, cause I've never used it, but I've talked to a couple of property managers who have, from what I've gathered, it's like, it's that weird, it's customizable.

You can pretty much do anything, but you kind of got to borderline be a rocket scientist to understand how to do it. Yeah. Bye. Everyone I've talked to says when they want to create some sort of customized report, they're like, they gotta talk to somebody there and have them help them build it. Like it kind of requires developer level skills, which is a bummer on their part.

I mean, cause

Jessi: that's not, I mean, I guess they have default ones. I could see that working for like some sort of website development software or whatever, cause it's like, oh yeah, as a developer, I'm into this anyways. As a property manager, you're like, no, I don't want to like, this isn't what I do. I just, I'm going to pull the numbers, but I'm really into like managing, making the property better, talking to people.

James: So how about this for annoying? So her property manager, she provides PDF reports. And I just, I asked a simple question. I was like, Hey, is it possible for me to get these in Excel? Cause ultimately. I'm going to put it in my own thing, and it just saves me from having to do the translation. And she goes, yeah, after two hours on the phone with someone there, she figured out how to do it.

Jessi: Oh my word. Like, that's

James: not just a drop down. Yeah, you

Jessi: would think, like, export it as a PDF or Excel.

James: Now, having said that, I use a piece of property management software that isn't nearly as like robust from what I can tell, but the stuff that it does, it's awesome. Yeah. Like, yeah, if I want to report. Yeah.

Give me a choice. PDF, Excel. It does all of it. It has all the reports. You can't, you can't create a report. Like they have their set, like these are the reports. Okay. Deal with it. But I haven't found one yet where I'm like, it would be really nice to have and I don't have like, or I can combine a couple to create that thing because the data is there.

But yeah, so I, that was the reason why I went with the one I did because I was like, dude, I don't want to mess around with all that,

Jessi: but

James: anyways, yeah, it's good to know.

Jessi: There you go. Bye. Those are all the questions.

James: Okay, sweet. So there you go. That's we had that moment like, so now what? Yeah, awesome.

Cool. So overall do you, I don't know, do you, anyone that you're particularly like, yes, like I'm really interested in this one. You kind of tipped your hat and a little bit to that, but I'm just kind of curious if you had one that was, you were like, dude, all the way.

Jessi: Really it's, it's like where you start.

Like, what's the relationship between the sponsor and the property manager? Okay. Alright. Cause as, from the investor perspective.

James: Gotcha.

Jessi: I'm kinda like, I'm giving the sponsor my money. I'm gonna trust that you make all the decisions to make this right.

James: Alright, so I'm curious. So, on that one that was up north from here.

I mean, it was a, I did a Google search. And, I mean, I called like five or six places. They were one of them, but I, I mean, we talked with, I talked for the main guy in the branch for like an hour and then I talked with him and his boss for like another hour. And that was where we also kind of went over the management agreement and stuff like that.

Like, is that, and I, had we progressed, I would have met him in person, but but I mean, I was, it was good enough where I went, dude, that you've like, Everything checks the boxes. Yeah.

Jessi: I mean, if you're asking the property manager these questions, I'd be like, yeah, I trust you to,

James: you

Jessi: know, work through these different things.

And it seems like you've, you're trying to get a good picture of whether or not this property manager is, Like responsible, trustworthy, reliable, capable of doing this job.

James: Yeah, that's fair. One interesting thing, again, having read best in class, they're like, Oh, we meet with our property managers weekly.

And then it's like once a month we meet in person and I've talked to other property managers and they're just like no, like that's way too much. Please don't do that.

Jessi: Well, to do that with every single owner. Yeah. For them. Well, just

James: for me, like, so. For whatever, like for my person, like it would be like, Hey, we're meeting weekly to talk about the properties and what's going on.

Yeah. I, part of it is like properties are just, they move just slow enough that weekly is like maybe at the beginning, if you're doing a lot, sure. Cause there's a lot of knowledge transfer as well. But yeah, eventually like I found every other week to be a great cadence. And usually what we do is we've got it where like the report comes out on the 18th and so we're meeting On whatever Tuesday comes after that.

And then we do one at the beginning part of the month as well. And that's more like, Hey, let's just talk about projects that are going on. What's the, where are we at in that? That's kind of how we've divvied it up.

Jessi: Makes sense.

James: That seems to work pretty well. We, I don't know, sometimes we go for an hour. A lot of times it's just 45 minutes, half an hour is way too fast, but but yeah, that's that seems to be a good cadence for what we do.

Cool. Yeah. Anyways. Awesome. So I hope that you enjoy this podcast and we would appreciate it if you left us a quick rating, wherever it is that you listen to podcasts. So thanks for listening and have a great day.