The Landlord Entrepreneur

Double Your Profits with Real Estate Property Management

Bryan M. Chavis

• Editorial: Touchstone
• Año: 2017
• ISBN:
  9781501147203
• Categoría: Business
• Categoría: Real Estate

From the author of the real estate investment bible Buy It, Rent It, Profit! comes a fresh guide to teach new and aspiring landlords how to go from managing a single rental property to successfully managing a large rental portfolio. In his first book, real estate expert Bryan Chavis created the ultimate how-to guide for buying and managing rental properties, with practical, realistic ways to build lasting, long-term wealth. Now, he takes his acclaimed program one step further. The Landlord Entrepreneur shifts the focus from dealing exclusively with residential real estate to building a dynamic property management business. By following the step-by-step instructions in this new guide, anyone can create a fully functioning, professional property management company in only ten days. With Chavis's modern take on real estate, you will learn the five phases of property management and the skills needed to successfully move through them—as well as the hacks and tricks to build your profitable business from the ground up.Full of smart, practical business advice, The Landlord Entrepreneur is the only guide you need to become a successful property manager in today's real estate market.

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PART I

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PROPERTY MANAGEMENT AND THE NEW REAL ESTATE ENTREPRENEURS

ONE

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UNDERSTANDING THE VALUE WITHIN THE REAL ESTATE INDUSTRY

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Property management as the foundation of real estate investing

As a real estate professional or investor, you know firsthand how cyclical the real estate market can be at times. I’m often asked, “Is there a foolproof plan to always generating cash flow in real estate no matter the market?” The answer is yes. The plan, or business, is property management. Management at the on-site level is a staple of the industry; the need for property management on the operational level makes it virtually volatile proof. Property management also provides what most businesses need and strive for: cash flow and passive income.

Before we dive deeper into the value of property management within the real estate industry, let’s take a look at the three segments of real estate, which most people identify with from a commercial real estate perspective.

Three Segments of Real Estate

• Residential: Single-family or multifamily property that is used for occupation purposes

• Commercial: Nonresidential property used for business purposes only, including stores, malls, office space

• Industrial: Land or buildings used for industrial purposes, including manufacturing, warehousing, and research

Understand that within residential, there is a commercial aspect. Why is the term commercial used within the residential segment? The answer is that rental housing is often considered commercial after exceeding four units. Property management companies often identify all their rental properties the same way, but the complexities of the investment property change as more units are added. Economies of scales, interactions with contractors and vendors, and insurance requirements all change. Most of all, skill sets will need to change. Both single-unit rentals and multifamily-type assets are looked at as investments. How does all of this fit into your property management business? There are four standard focuses for a property management business:

Residential: Typically, a property management business that’s focusing on residential will look to manage single-family homes and small portfolios of single-family rental homes. A property management company with a focus on residential may also specialize in vacation rentals as well as possibly managing vacant homes. A residential manager must focus on many processes; however, one process in particular will prove to be vital: the process of tenant screening. Although tenant screening is important for all property managers, there is an increased importance on single-family rentals as there is only one source of income to pay down expenses.

Most property management clients/investors transition to small or midsize apartment buildings to receive the benefit of economies of scale. To illustrate this, consider that as a property management business you have two investors: one with a single-family home, and the other with a duplex. If both investors have one vacancy, the single-family home investor is 100 percent vacant and the duplex investor is 50 percent vacant. The duplex investor is benefiting from the economies of scale by owning one more unit, thereby reducing risk by 50 percent. The skills needed to lease rental units and qualified tenants are extremely important to the single-family property management business model.

Residential/Commercial: This describes a property management company that focuses on renting a hybrid of single-family homes and commercial-grade rental assets. As I stated before, property management companies begin to define their rental properties as commercial grade when the rental units exceed more than four units. There are differences in how a portfolio of single-family homes should operate versus one of commercial-grade assets. These are described in detail later in the book. For example, if you are managing a portfolio of single-family homes, those homes may not be located in the same city. Whereas if you are dealing with apartment buildings, all of the units would be located in one general area. Managing a portfolio spread out throughout various zip codes requires time-management skills as well as a high level of dependency on reliable vendors. With midsize apartment buildings, the management of tenants as well as the management of vendors is typically easier. On the flip side of the coin, when dealing with a single-family rental portfolio a skilled property manager will create a lease that puts most of the responsibility of day-to-day operations on the tenant rather than the property manager.

The property management business that focuses on a hybrid portfolio must define the qualifying criteria, rules and regulations, and the process for screening tenants. Accomplishing this will mitigate vacancies and costly evictions. You can find sample qualifying criteria template forms within this book, as well as many other must-have forms.

Commercial/Retail: There are differences between dealing with a business versus a tenant. When dealing with retail, a property management company’s primary concern is risk management. These property management companies put in place what is known as a triple-net lease. This lease typically places the majority of responsibilities to maintain the premises that the business occupies—aside from the common areas—on the actual tenant.

Industrial: This sector includes buildings slated for industrial use, such as manufacturing, production, assembly, storage, and distribution. I see this sector as a growth sector, as consumers move from purchasing items from traditional brick-and-mortar stores to patronizing businesses such as Amazon and others that are looking to level up their online sales. This is already spurring the growth of this sector of real estate.

LOOK FOR OPPORTUNITIES

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I have personally chosen to focus on the residential segment of the real estate industry. Through fluctuations in the economy, I have seen people cut their Starbucks budget, I have seen people go without cable TV, I have even seen people sell their car and buy a bike. However, housing is one of the last things that people can go without. For this reason, I see stability and a bit of insulation from economic cycles that affect most sectors of real estate investing. The real estate industry cycles are influenced by micro and macro changes to economic health within the nation, demographic changes, interest rates, employment, and legislation. The lower- and middle-income demographics are directly tied to these influences of economic cycles. As long as there is a need for housing, there is a need for a property manager. I have often said that it is one of the oldest professions in history; property management is even mentioned in the Bible: Jesus was born in a manger, and that manger was operated by the innkeeper . . . aka a landlord.

THE GLUE THAT HOLDS THE INVESTMENT TOGETHER

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Property management is the glue that holds the segments of the real estate investment industry together. Property management businesses have evolved tremendously for most, from being a standard rent collector to more of a business consultant. To clarify, property management companies are evolving from managing rental property to managing their clients’ businesses. These businesses involve the management of portfolios ranging from single-family homes and midsized apartment buildings to industrial complexes and mixed-use developments. It’s the combination of managing real property, businesses, people, and, oh yeah, let’s not forget vendors/contractors as well.

So on any given day, the property manager can be managing multiple relationships as well as the actual physical property itself. This takes not only the efforts of highly skilled and trained individuals, but also the employment of successful operating systems to provide a consistent and predictable service to all. In my experience, only through system predictability and consistency can a business obtain profitability.

Most brokerages are set up now with a focus on transactions. This type of brokerage’s ability to generate income is greatly impacted by the fluctuations in the real estate industry.

HOW TECHNOLOGY HAS TRANSFORMED THE CONVENTIONAL REAL ESTATE BROKERAGE

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Technology is disrupting transaction-focused brokerages. I began to identify and understand these threats as I introduced property management as a source of income to real estate brokerages. Listening to how most brokerages wanted to grow their business and how most were concerned about the impact technology would have on one day reducing their commissions or eventually eliminating them altogether, I realized there had to be a better way. It was time for me to create a real estate brokerage that focused on managing not only my investment group’s assets but the assets of others as well. I began to see a trend emerging, a trend that would be heavily reliant on the property management industry, so like any entrepreneur I had to act on this vision.

After meeting with many highly qualified brokers, I still felt that I wasn’t really on the path to what I saw as the brokerage of the future. Finally, I met with one of my youngest coaching clients, Nathan, the head of business development with our Academy. Along with our licensing and franchising attorney, as well as a host of other real estate business leaders, we realized collectively that there had to be a better w...