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GreaterKCHomes

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About GreaterKCHomes

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  • Birthday 11/06/1968

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    http://www.rewholesaleking.com
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    Kansas City
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    Investing, Mentoring, Traveling
  1. As promised, here is part 3 of my investigations into PM and the problems that alot of investors are facing today. As noted before, 95% of this research came from the Kansas City market, with the remaining, being comprised of 2 other markets. I will not name them, as the data retrieved was really insignificant to compile accurate results. I do want to thank those of you that not only replied to my previous 2 posts, but also emailed me directly. This Part will focus on the companies themselves, now needless to say I will not be naming those companies. But I will tell you this, this portion of the investigations was derived from those "LARGE" PM companies. My definition of LARGE, is any company claiming to have over 300 properties/doors. First and foremost, I feel it to be responsible posting, if I disclose exactly how I chose the companies to investigate for this portion of my research. I selected those companies that managed all over the Greater KC area, and not those companies that only managed in the suburbs. I also did NOT include those companies, that refused to manage in the inner city. The reasoning behind this is simple, alot of out of state and out of country investors, own properties in our inner city. The difference between these investors, and those that only invested in our suburbs, is not even close. I will be 100% honest, I have disclosed this information locally, and have been absolutely hammered with some really creative emails, threatened to be sued, and so much more. So you can imagine, this is NOT the information that companies want to be seen. First and foremost, the most shocking thing I found with these large companies, is they, without question had the largest percentage of vacancy than us SMALLER companies. Now I know the argument here, they have more properties so it's easy to see why. But I STRONGLY disagree with that, and to be honest, ITS A COP OUT! I actually, at the time of investigation, found 3 companies that were above 15% vacancy and that is totally unacceptable in Kansas City. This market is KNOWN for it's rental base, it's what drives 1000s of investors from all over the globe. Again the facts....KC has approx. 2.2MM residents, and over 40% are renters, it has one of the most aggressive Section 8 programs in the country, and is often in a handful of cities that test new HUD programs designed around Section 8. They should have the resources to market these properties very heavily, and maintain a 3-6% vacancy rate, as is more acceptable in this market. They should know how to attract tenants and keep them. They should have the appropriate sized staff to properly manage themselves, RIGHT? Please read on!! Most of these large companies operate on a 1:75 or 1:100 ratio, which simply means, for every 75 properties, they had 1 leasing agent. This is no surprise, as it is pretty much an industry standard, but it did cause me to raise an eyebrow, for those that operated on 1 to 100. The problem is the roles that were defined for the leasing agent. This is where the process breaks down. What was uncovered was the leasing agent was asked to do EVERYTHING, as it portrayed to his/her properties. This included the following: 1. Show Properties 2. Sign Documents 3. Section 8 Inspections 4. Marketing 5. Rent Collection (for those that don't use the post office, and you have to drive and pick it up) 6. Maintenance Requests ( Are you kidding me?) 7. Other (not sure what this was, but I just wrote it down, cause it seemed funny) Now here is where the whole process just implodes! For my data, I chose the 1:75 ratio, as this seemed the most popular option. This data is derived from real numbers, dealing with very conservative estimates, this is not manufactured in any way, or made to seem like something it's not. All of this data is 100% verifiable! So your a leasing agent with 75 properties, and your asked to perform all of the above tasks, during a normal 5 day work week! FINE! Okay, you have 75 properties with a 15% vacancy rate, so that is 11 properties, VACANT! If you are marketing correctly, you should have 4-5 showings a week on these properties, (not each, just a total of 4 or 5). I'm presuming you are not rushing out showing every property to every caller, without some sort of pre-screening. The average drive time in KC, is around 20-25 minutes on a good day. This is taking into consideration the fact, that most LARGE PM companies, are based in our suburbs, which essentially wrap around our inner city. So 5 trips per week, at 20 minutes one way, equals 40 minutes round trip per property, for a total of 3.5 hours. I did not calculate the numbers for Job #2, as it's really not needed. #3 - Section 8 Inspections: This one is fun, when the Housing Authority calls and tells you they are ready to inspect your property, you get a morning appointment or an afternoon appointment. The trick is you have to be able to get there within 30 minutes, or they leave and it's counted as a failed inspection, get 2 of those, you lose the tenant! They will do a 3rd inspection, but it better be for a better reason than I couldn’t make the appointment. So how do you pull this off, well it's easy you go to an area that guarantees you to be there on time. If you are 20-25 minutes away from the property on a good day, then stay at the office and pray there is no accidents or road construction. The smart move is to be within 10-15 minutes of that property, to eliminate those variables. What this means is you could burn 1-4 hours of your day, waiting on the inspector. For the sake of argument, let's split this number in half, and say you will lose 2 hours of that day. #4 - Ah yes, Marketing! This one is the time eating task! If you want to rent your properties, here is the exact formula for success, it's what I use, and bottom line, my properties are NEVER on the market for more than 3 weeks ( that is of course, if they are in fact market ready) Step 1 - Craigslist! There is no point in using CL, if you ARE NOT posting 3 ads per property, every DAY! You might get lucky every now and then, but the numbers don't lie, if you are not hammering CL, the results just are not there. The reasoning behind this is pretty clear, the very reason you use CL, is the very reason it’s hard to be consistent with it. Step 2 - Print Ads - You must be in at least 3 print ads, and more if you have specific papers that run in certain area's only. WHY? Over 60% of tenants, do not have consistent internet access. Step 3 - Internet - You must be on no less than 3 websites, not including your own. Why? It links your website to their website, which draws more traffic to your website, making your website important to the almighty GOOGLE! Okay, so let's say you market as shown, but if you don't, could explain why the vacancy rate is so high, just saying! If you have ever posted on CL, you know, unless it's automated , you will spend 3-4 minutes per post. So that is 3 minutes times 11 properties X 3, for a grand total of 1.5 hours per day x 5 (normal work week) for a total of 8.25 hours! Print ads, are easy it's a one time shot for at least a week. But it still takes time to draft those ads, so I will used my time as a calculation, it takes me around 10 minutes to draft an intelligent ad for print. So that's 10 minutes x 11 vacant properties for a total of 1.8 hours, but we will call it 1.5 hours. Internet Ads - Again this is usually a one time setup, but you will spend time adjusting the properties from vacant to rented, things of this nature. So let's say you have to spend 30 minutes a day for adjustments to the properties on the website. I am being fair and not calculating the time it would take to actually setup the ads. Recap time! Thru 4 steps of your job, you are looking at a total of almost 16 hours of your 40 hour work week. Better calculate lunch in there, as almost all leasing agents are on commission with a base salary, so there is no HOURLY pay. That's an additional 5 hours a week! So thru 4 steps of your job, we are now at basically half your work week. #5 - Rent Collection - This one can absolutely destroy your week, if you have not trained your tenants to utilize what we have had in place for over 200 years, this step and this step alone will explain why there is so much vacancy. If you have 75 properties, with 11 vacant, this means you have 64 properties occupied. My research showed, that leasing agents are literally picking up rent, on around 30 properties! This means 30 trips at 20 minutes each way, cause the likely hood of you being able to schedule all 30 pickups on the same day in some kind of thought out plan is not likely. But for the sake of argument, I only counted round trips on half of them. That is almost another 15 hours of your work week. #6 - Maintenance - This one is time consuming as well. With 64 rented properties, it's not a stretch to see a minimum of 30 maintenance calls per week, and that is probably being very very generous. And from experience I can tell you, I am on the phone an average of 5 minutes per call talking to the tenants, and at least 10 minutes explaining the problems to your maintenance men, this is of course, you get them on the 1st call. This is a total of 7.5 hours of your work week. Okay another recap! We are thru 6 tasks, and unless my math is weird or something, I'm seeing 43.5 hours of work time, to pull off in a 40 hour week. HMMM? #7 - Other? I honestly had no idea what this was, so i had no way of accurately tracking this time, but for the sake of argument I will say you spend 30 minutes a day doing OTHER. For another 2.5 hours a week!! Grand Total >>> 45-50 hours a week for a 40 hour a week job! Okay, I will be the 1st to admit, I know there are All-Star employees that when the time is needed they will give you 50 hours a week, but can you honestly say that this does NOT affect employee moral if they have to do it week in and week out? Here is the reality! An effective leasing agent will not be able to spend alot of time in an office to do these other tasks, he/she will be out showing properties and such. If he/she is away from the office, who's responsibility is it to complete these other tasks? If there is no employee assigned to do marketing, rent collection or any other task, then it doesn't get done! So in order for him/her to keep her job, they will make decisions on what is important on a daily basis. This almost always leads to marketing taking a back seat to every other task, they have assigned to them. The very thing that defines PM, is the very thing getting left out of the picture, thus resulting in a huge and completely absurd vacancy rate. Please keep in mind, this defines a PERFECT work week, with no bumps in the road, how many times can you say that has happened? Again, I want to thank all of you, and I sincerely hope this will help you with any future investment purchases, or the ones you currently own. Investing in any market in the US, does NOT have to be filled with ripoff artists, and bad performing properties. There are excellent property managers in every major market in the US, you can be sure of that. If you learn anything from these posts, I hope it would be to ask them tough questions, make them back it up with real numbers, and you will find that professional PM, and start earning the numbers you thought you would. I can assure you the numbers are as advertised in alot of cases, but they are only made realistic by finding that professional PM company, that truly has your best interest at heart.
  2. As promised here is the 2nd posting of The Real Truth in PM. This posting will focus on marketing, and more specifically the strategies followed by almost all companies, as discovered during my research/investigations. In a city where over 40% of 2.2MM residents are actually renting, it's a little hard to wrap your head around the idea that your property is actually vacant. When you read the following message, you will probably understand it a little more. It's not that there are no renters, or even enough qualified renters, what I have found is the fact that the properties are just not being marketed correctly. Please read on! When marketing a property for rent, what I have found is almost all companies operate with the exact same strategies. In my experience, most company executives know that business does evolve, and you should as well if you want to maintain success. What I am seeing is the exact opposite of this, they are not evolving at all, they are relying on the same techniques of a different era, where gas prices and the economy was considerably better than now. Their strategies are as follows: 1. Sign In Yard - BAD BAD BAD IDEA! Why? I'm glad you asked! The issue with signs in yard is the fact that gas prices in my city are hovering around $3.50-$3.60 per gallon. So if the average vehicle can hold 15 gallons of fuel, that is around $50 or so for a tank of gas. Now this may or may not seem like alot of money to most of us, but I can assure you that it might as well be 1 million dollars to most tenants. These tenants usually put $10-20 in their cars at one time, they DO NOT drive neighborhood's just looking for their next rental home. In fact, my exit polls with tenants have discovered less than 15% of tenants use this method. Those that have answered that they found the property by a sign in the yard, was only because they happen to be on the street. The other major issue with a sign in the yard, it advertises your property as in FACT being vacant, and invites break ins!! I see this time and time again, rental houses with yard signs, having their front/back doors being kicked in. It's just a bad idea! 2. Craigslist Posting - Before someone yells at me, I strongly support CL ads, when they are done correctly! What do I mean by this? When posting rental properties on CL, you have to run that ad, no less than 3x per day, if you want it to gain momentum. The very reason we post on CL (millions of users), is the very reason it can defeat your intentions. The average ad takes 15-20 minutes to go live on CL, in a section like Apts/Housing For Rent, you will literally have 1000s of post every day. What happens to your ad is quite simple, it goes live, and within 30 minutes it is buried on Page ___! To properly use CL, you must fully understand how CL works, this means creating intelligent ads that CL will not FLAG, and a good understanding of marketing. How do you get your house to stand out among a 1000 others? 3. NON Employee Leasing Agents - This is just a terrible idea! You can bet, if your company is using this method, and many many companies, in fact, utilize this strategy almost exclusively. Here is the only problem you need to know about this. I can promise you and almost guarantee you, there will be absolutely no background checks run on those tenants. Here is how this strategy plays out. Most independent leasing agents, will charge anywhere from $350-500 per tenant. If your property is renting in the $600-800 range, and your agreement calls for 75% or even 100% of the 1st month's rent, who is going to pay for the background check? You can bet not the leasing agent, and the company will not be happy with $100-$300 to place a tenant, this drastically cuts into their profits. So to reduce this number by another $30-100, just not going to happen. A thorough background check should cost around $30-50 per adult! And they should be pulling a background check on ALL adults! Now for facts! 60+% of current tenants DO NOT have consistent access to the internet! They simply cannot afford it. 80+% of current tenants DO NOT and WILL NOT drive area's looking for their next home! This used to be the norm, but gas prices have changed all of that! It's time to evolve! Over 95% of tenants literally live check to check, extra money is out of the question! Why do I bring this up? To help their bottom line, all companies I researched, charge anywhere from $20-40 for an application fee! What's wrong with this? It's really about economics, the very tenants that cannot afford to pay any extra money for an application fee, that they stand a 50% chance of being denied, will just look for those companies that DO NOT charge for applications! ME!!! What does this mean for me and my clients? I see considerably more applications per property than any other company, as they say safety in numbers! I choose from an average of 12 tenants per property, instead of 1 or 2, which odds do you like better? There are companies that have connections with Section 8, and are allowed to market within the Housing Authority. I have no issue with Section 8, as long as you do a background check, and a very very thorough previous landlord interview. I won't post the story here, but if you all would like to see why this is important, visit my website and read the story of a Section 8 tenant! All companies I investigated DO NOT run any checks on Section 8 tenants, this is simply foolish! It may be guaranteed rent, but IT IS NOT guaranteed good tenant, major difference. To summarize: Make sure your company is in fact evolving with the times, this economy has changed the way ALOT of us conduct business. You can bet if it's effecting our bottom line, it's killing the tenants. Your company should be savvy enough to detect this and make changes where necessary. NO SIGNS IN YARD! They simply are not as effective, and they cause more problems than it's worth. CL Posting - Consistency ,Consistency is the key! Learn CL, so that you can manipulate the results. For example, I use video links in my ads of the properties. Why? It creates an automatic counter for me, I can see actual results of my ads, and not have to guess on their effectiveness. This is marketing! Independent Leasing Agents. Just a bad idea PERIOD!! I want to thank those of you that have read my previous post, and this one! I hope this information will help all of you experience a better opportunity, in any market. These methods are tried and true, and backed up with actual data from tenants!
  3. I am often approached by investors from all over, not just the US, that have invested in properties in Kansas City. The common problem that seems to concern them is property management. I would really like to say that it's just a misunderstanding or lack of communication that leads to these problems, but unfortunately in most cases this is just not what is happening. I have been managing properties on an exclusive level for over 4 years, and usually only managed those properties that my company was involved with every step of the way. I found this to be the most productive way at maintaining a professional approach with my clients. I currently manage just over 80 properties and just don't have many problems with the tenants or the properties. I decided to do some undercover work to find out exactly what is going on with property managers and why they are unable to find qualified tenants in a market that is full of renters. Please keep in mind, this research was conducted over a 2 year period and consisted of data found primarily in the Kansas City market only, though I did ask some of the same questions to clients that have properties in other locations, to see if this was being followed in other markets. I am in no way, saying this is the rule for all markets, as I am confident that not every property management company operates with this amount of incompetence. What I will post over the next few weeks is data that has been recovered over this 2 year investigation in to what is wrong with property management companies, and why they struggle to perform. The first topic discussed is the placement of tenants. What my research has made ever so obvious is that most PM see this business strictly as a numbers game, now this might sound like a statement of the obvious, until you read deeper. When you consider most PM's charge anywhere from 0-100% of the first month's rent to "place" a tenant, and then anywhere from 7-10% of the monthly collected rents after that, you can begin to see where the problem lies. If your paying for office space, internet service, office supplies, insurance, gas, marketing and of course employees and your "net" gain on an average rent of $700 monthly is around $60, you can clearly see the need for ALOT of properties to pay these expenses. Since its more profitable to "place" the tenants than it is to collect the monthly rents, the background checks ran on most tenants are just non existent, due to the cost. The end result of this of course, is more often than not you are getting a very questionable tenant and most likely will result in an eviction within the first 3 months or so, obviously not the goal. I found thru investigations, that most, if not all KC property managers were either NOT running a background check of any kind, or only focusing their search at a LOCAL level. This is just not a good idea, tenants move from one city to another with no regards to financial intelligence. They usually have family or friends in that town, thus you could run a local search on a tenant and find absolutely nothing wrong. If you were to run them nationally, you would see a whole different picture. The problem here of course is it takes money to get a nationwide criminal check, where as most states now have their court system online and are either free of charge or cost very little. I can run a search for all of Missouri for free, where as if I run for the State of Kansas it costs me a dollar per report. The problem here is of course, if they have never been to court in Missouri or Kansas, then its not going to tell you all you need to know. Insist on a nationwide criminal check! Just as shocking as electing to ONLY run a local criminal check, is the fact most didn't even pull a credit report. This one stunned me, as there is information on the credit report that is very valuable in the decision to rent to a tenant or not. The credit score is one thing, but more importantly is what is on there to bring that score. If your renting to someone that has judgements from the utility companies, guess what this means for you, either you will pay the bill sooner than later, or your going to get a call from your PM saying that the tenants never got the heat turned on and now you have a swimming pool in your basement or living room(if no basement), and you will need to wire 10K for repairs. The other issue is if your renting to someone with a judgement for child support, their freedom could be over anytime. It's likely they have a warrant for their arrest if they are not paying their child support, and that means an eviction if they get caught and hauled off to jail. These are not that rare at all, especially the utility judgements, I see them quite often. The last topic for now will be the decision to place, and well you will see is the shortest explanation as found in the investigation. This probably shocked me more than anything. My research found that most companies make a decision to rent to a tenant based on 3 factors. 1. No evictions ( Thats good) 2. Verifiable Income ( Keep in mind, no mention of the source of this income, I will explain in a bit) 3. Verification of Employment and Rental Reference. What could be wrong with that? Let me explain if you will. If you are basing your decisions on nothing more than those topics, here is where you will run into trouble. 1. No evictions --- well that's great, but what else is there if anything. Have they been arrested for drugs, inappropriate relations with a child or any other serious crime. Again if you are only running local searches this information might not be available, but you better know it or you could end up in a legal struggle for your property if ceased for drug use, law suits for moving in an offender, or thousands in repairs for someone "running" with the wrong crowd. 2. Verifiable Income - Great! But what is the source? If its unemployment, you better not accept it, it WILL expire and usually its 27 weeks, don't bank on it being renewed, as this is not a given. If it's SSI or some other government benefit, better confirm it's renewable and just not a one time occurence for the year. Is there a ratio being applied to the rent vs income? You better be asking for a no less than 2x the rent, or you are in the "gray" zone with that tenant. It could come down to them making a decision to stay warm or pay the rent, most often they will pay your rent, get the gas turned off and freeze up your plumbing, then bail when the water lines break causing you thousands in repairs. Ideally you would want to see 2.5 times the rent in verifiable and reliable income. The other NO-NO in income is personal day care, first off it's just a law suit waiting to happen in your home, the 2nd is if this tenant is moving more than 5 miles away, most of her current clients are not going to follow her, as they can find someone considerably closer, thus leaving your NEW tenant with no income. Just a bad idea all around. 3. Verification of Rental & Employment References - Again all good. But here is what I found, their rental reference usually only went back to their current landlord. Are you joking me? When questioned what they were asking, it usually came down to these few quesitons: a. Are they leaving on their own terms? b. Did they pay their rents on time? c. Would you rent to them again? Hardly a professional interview. And why only the most recent landlord? You need to go back at least 3 and preferably 5, to see if there is some pattern being exposed. Are they tidy tenants? Did they tear the house up? How often were they late? Any problems with the police visiting? Anything else I need to know? Verifying employment is a pretty straight forward process, but most PM's were only going back 1 year, again WHY? If they are job jumpers, this almost always leads to an eviction (unless of course they are in school, then this is pretty common as their class schedules change like the weather). Why so many jobs? Do they have a career path laid out? What is their average time on any one job? To summarize this posting. 1. Insist on nationwide criminal checks 2. Insist on credit reports ( not just 1, but all 3) 3. Place restrictions on the Income ratio, and actually perform professional interviews from landlords, and not just 1 or 2.
  4. The current real estate market is offering up some excellent returns. Whether your interest lies in Commercial Units, or Single Family Homes, there are literally million’s of deals available to you, each and every day. What happens in these types of scenario’s, is investors will just jump on the very 1st deal, without doing proper research. I am not referring to the property itself, I am referring to the proper research on management companies, and construction professionals. With so many deals available, you should no longer be in the mindset, to jump on the 1st deal. The fact of the matter is well over 50% of investments fall apart, not because of the deal itself, but because of poor management or a very poor renovation. Your first step should be locating and securing the best property manager for the property, and making sure the renovations are done professionally, not necessarily the cheapest. Stay Tuned over the next few weeks, as I will reveal to each and every one of you, the very things you need to know about investing in the US, as well as locating that quality manager, to handle your investments, properly. I will expose the problems within property management that lead to so many failed portfolios, but it will give you the information you need to make a wise decision.
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