Property Management Nuts and Bolts for Small Apartment Owners with Jim Abernathy

John Wilhoit: [00:00:23] Welcome to John Wilhoit on Real Estate. Today we are with Jim Abernathy and our discussion is on property management nuts and bolts for small apartment owners. Welcome Jim. Thanks for coming in talking about this. You are a small property owner in a what we would consider a small town under 100,000 people in the Midwest. I think a lot of the things that you do apply to owners in just about every market because every market that has small property owners has renters. There are issues in property management and there's issues in addressing those matters not only in the professional way but in a continuous manner that makes it reasonable so that you're not going crazy.

Jim Abernathy: [00:01:12] There's a couple parts to it. One is dealing with people and what we have to do fairly and do consistently. Any business has to deal with people in some shape or form. Anybody in business has to deal with people and knows that they have to be consistent. You need someone like the teacher. You've got to be consistent, you have to be fair, you have to clearly communicate and do all that with all of your students.

John Wilhoit: [00:01:48] And whether you're in a small property owner or a large property owner, one of the things that you really want to deliver is a consistent quality product.

Jim Abernathy: [00:01:56] Sure, you want to be professional about what you do even if you're a small business owner. And part of that is just the image you portray in whether or not you're going to keep tenants because they're not going to with somebody who doesn't doesn't fix things on time or if he can't communicate well or who doesn't take them seriously or doesn't treat them properly.

John Wilhoit: [00:02:16] And we know from an institutional property management perspective that about half of all complaints have to do with maintenance. And with maintenance issues, the reason the complaint level is so high is where there's an extended period between time of request and the time of the repair. Anything you can do to shorten that time period is a positive. Now we're talking about reasonable request. If someone has seen one drip from their faucet that doesn't require a 24 hour or 12-hour repair and so it would be nice if we could do that all the time. That aside just communication addressing the matter, having a system for doing so, making sure that is accomplished in a timely manner, considering the level of service that's required to address that repair.

John Wilhoit: [00:03:05] Now if it's a toilet that's running all the time we have multiple reasons for wanting to address that immediately. We want people to tell us there's 100-gallons a day going down the toilet that's flushing twice a day. We really want to jump on that as soon as possible because think that in multiples. If there are 10 toilets doing the same thing that's a major issue with respect to utilities expense.

John Wilhoit: [00:03:29] As small property owner tells us some of the nuts and bolts that you utilize on a daily basis to manage those assets.

Jim Abernathy: [00:03:38] I've had a couple things just recently where I had a dishwasher that went out. I order my dishwashers through a commercial sales place. I like the product that I get and I like the price that I get them for. Unfortunately, the commercial sales place, they're only delivered on Wednesdays. If somebody calls me on Wednesday and their dishwasher has gone out I go down and I look at it.

Jim Abernathy: [00:04:01] OK, this is a dishwasher that I won't be fixing, that I'll be replacing. It's going to be a week until they get another dishwasher. But most people are reasonable if you communicate that too them tell them why and tell them what's happening. Now, if it's a water heater, you don't want to look it and say it's going to be a week. That's unreasonable. You have to treat people fairly in what you're dealing with but you have to treat yourself fairly as well. I'm not making an emergency call to get something done in 12 hours on a hot water heater. You can live without hot water for a day. Now I ask you to do it for two or three days is unreasonable.

[00:04:38] You should not only be to your renters but you have to be fair to yourself as well in what you call an emergency that with great expense.

John Wilhoit: [00:04:51] You are an owner operator?

Jim Abernathy: [00:04:53] Yes.

John Wilhoit: [00:04:53] You have an office that handles your business which is multi-family that’s really duplexes.

Jim Abernathy: [00:05:02] Yes.

John Wilhoit: [00:05:03] Are your duplexes all in one location or are they spread out across two or three spread out across the city?

Jim Abernathy: [00:05:10] I've got 19 buildings and 16 of those are all in the same place.

John Wilhoit: [00:05:18] They are in one location. So, it's a lot easier to get to maintenance issues and then would be where are scattered site duplex owner, right?

John Wilhoit: [00:05:27] Plus I'm able to do some things myself. If I have a running toilet I can I can put new guts in the toilet myself. I've had people stop me on the street say I'm having this problem. Well I've got a tool box in the back of my truck that happens to have a flapper valve or a fill valve for a toilet, common ordinary things that happen every day.

John Wilhoit: [00:05:49] I'm glad I know that in case you’re at my house for dinner.

Jim Abernathy: [00:05:52] We can fix a toilet. I've fixed hundreds of them. This is not an issue.

[00:06:00] You have to be able to do some of those things yourself, but you if you communicate with people and just let them know this is why the repair will take time.

[00:06:08] Now, people get upset when you have an air conditioner goes out. Of course, they always go up when it's 99 degrees outside, hottest day of the year and all of the heating and air companies are backed up. And if they can't get to you until another day that's just the way it is.

John Wilhoit: [00:06:24] That's the reality.

Jim Abernathy: [00:06:26] And I understand people are not happy about that. I understand that. But at the same time, I'm not going to say I will pay for you to go in a motel.

John Wilhoit: [00:06:34] Overnight.

Jim Abernathy: [00:06:36] That's not reasonable. At the same time if you've got somebody who has a heart condition and they can't stand the heat, you communicate that to your heating and air people and most people in business, they understand that that and they'll work with you in those situations.

John Wilhoit: [00:06:50] Or if there are small children, babies.

Jim Abernathy: [00:06:53] Yeah, those situations to be addressed properly. You have to communicate; you have to let them know. The other thing is just developing a rapport with the people that they work with. I call one particular heating and air company and they know whenever I call and they know who I am they know they're going to get paid on time. Most of the time they've installed the units so they have the parts to fix them.

[00:07:19] Yes I can call a different heating and air company and they will probably be able to fix a particular unit, if you’re dealing with the same people that installed it you’re going to have a good chance that when it breaks down they're going to have what's necessary to fix it.

John Wilhoit: [00:07:35] You mentioned a number of things related to being a small property owner and operator. One of them has being able to fix some things yourself. One is having valued vendor relationships. Another is communication with residents, consistent communication, professional communication.

[00:07:55] These are all of the same things very large companies are able to deliver and they are staffed to do so. As a small property owner, what percentage of your time do you think you devote to communications, to repairs to administration? We break them out that way?

Jim Abernathy: [00:08:17] I can get up in the morning and spend an hour or two at my desk very easily, every day, just doing just communication and planning. Yesterday morning, I got up and I called the carpenter company, I call a painter. I dealt with three renters, all within the first hour of being in my office.

John Wilhoit: [00:08:39] At what scale or what size did you decide this is going to be my new full-time career? Was it at 4 units? Was it 14 units? What number gave you the confidence to say, not that you had to quit your day job to do it, but, if I were in my day job, I need this many units at this level of monthly revenue to make it work for me as a full-time position.

Jim Abernathy: [00:09:08] It was a little bit different for me in that I worked a job where 50 to 60 hours a week was not uncommon. So, I already had that was an order that was the norm for me. So, my level of being able to do that was high. I was a little bit of a workaholic.

[00:09:26] But you'd have to be. If you're if you're going to have a normal 40-hour week job and then you go to some small multi-family, you're going to figure eight or 10 hours at least, a week, on just two to five units. You're going to have to would have to that. But when it becomes a full-time job would vary from person to person. I would think that for the normal person when you get up around 20 units you may be looking at I'm going to do this full time or I'm going to have full time managed.

John Wilhoit: [00:09:57] So that's your break point.

Jim Abernathy: [00:09:59] For me it would be. But for somebody else, their time commitment is maybe four units. Where they say, OK, now I'm going now I'm going to a full-time management company as opposed to doing anything on it myself.

[00:10:13] And you can go with different levels on that. You can have people who will supply your renters for you and sign your contracts and then they can even take over and do all of your maintenance. They can schedule your yard work in the summer. There are different levels of service looking that different property management companies have. Pick one that suits your personality and suits what you are willing to do.

John Wilhoit: [00:10:36] Some property managers, particularly in larger markets, there are property management companies that provide different levels of service. One would be exclusively leasing another will be exclusively management. One will be evictions as an example for some property management companies that let you select from their array of services. You can pick and choose whichever one's you need and they're available for you. In smaller markets, smaller property management companies are usually a one stop shop. Maybe you'll find one that's willing to ala carte. But it's more unlikely.

[00:11:12] Let me give you a parameter here with some guidance: if you're buying units in markets where there are less than 40,000 people within a five-mile radius of the property then you're going to have a hard time finding service providers. Doesn't mean you can't find them. It just means going to have to do your homework and search for them and make sure the reputable like they would be in any other market and build those relationships which includes property management.

[00:11:41] Once you get in markets where there's more than 40,000 persons within a five-mile radius of that property you'll likely have choice and with choice you get to pick, right? You get an option or two, if not more than that. That's kind of a generic barometer to tell you about whether you'll have options if you decide to utilize professional property management. If you’re in markets that are smaller than that, guess what --> it falls to you.

[00:12:09] If you're not interested in doing it you're not interested in being a small multifamily owner or small property owner because it will fall to you. Or you'll find out one service provider that comes to you with a price and it's in essence a take it or leave the price and you decide to pay it or not. Before putting yourself in that position make a conscious decision on whether or not you want to be a property owner. And then secondarily whether or not you want to be a property manager.

Jim Abernathy: [00:12:39] You can get into that with your own home. What do you fix in your own home, what you pay to have someone come to your home? I've got a brother who's an engineer and yet he still installed the hardwood floor. I don't know if it was the price that the man gave me for installing the hardwood floor seemed to be too much, or whatever it was, but just keeping up... I keep I'm a I'm a list maker.

[00:13:02] For me, I've got a list at home right now of perhaps 10 or 15 things that I need to address on different units at different times. I've got one microwave, I've got a dishwasher making that sound, etcetera. You have to decide this is something that has to be done today. This is something that should be done within the next week. This is something I need to address within the next month as you do those things.

John Wilhoit: [00:13:31] For you, what's the hardest thing me a property manager of your own units? What's the absolute hardest thing?

Jim Abernathy: [00:13:37] I am sure it would vary for different people. For me it's dealing with people, its dealing with renters. And I joke about it because I'm a Christian man and I look at people and say I find that I don't like people which is what you do which is a harsh statement from a Christian. You've got me and tell me I have to love him, but he didn't say anything about I have to like them. So, for me dealing with people because I get very very irritated whenever people don't tell me the truth or whenever I can't trust what they tell me. When they say I will pay you your rent next Thursday and next Friday gets here and hasn't been paid.

John Wilhoit: [00:14:14] The good thing is that you know your strengths and weaknesses. You know that's one of your weaknesses that we haven't given the choice, your preference would not be to the residents directly.

Jim Abernathy: [00:14:25] I've gotten better at it just because you have to. You don't have a choice.

John Wilhoit: [00:14:29] Well, or you have to get out of the business. You have to hire professionals to address that particular component of the business for a you.

Jim Abernathy: [00:14:35] And one of the things that helped me to understand that is you unique clearly and part of that is just developing the forms that I have. if I have a complaint (maintenance request, noise complaint), If I know this is a dog complaint I've got a form for that I can send off.

[00:14:49] I have a tenant cleaning procedure form. Whenever somebody is getting ready to move out they've told me we're going to be moving out on such a date, within a month before then usually I'll ask them to get an e-mail address and that's my preferred way to communicate. And then I'll e-mail my form over to them and it's just a checklist of about 30 different items. Did you wipe off the top of the baseboard? Did you remember to move the refrigerator and mop under the refrigerator. It's a move out checklist.

[00:15:18] These are things that I’d going to check whenever I come in and if I have to pay cleaner to do them it will be deducted from your deposit. Did you change your light bulbs? Did you fill your nail holes? Are there batteries in your smoke detectors? are all those things taking care of? Is your oven clean or is your refrigerator clean? Did you wipe out the cabinets? What was your level of expectation?

[00:15:43] I find that the more that I can communicate clearly with my tenants, the better I am at dealing with my tenants.

John Wilhoit: [00:15:51] The more formal the communication the more comfortable you are with that circumstance?

Jim Abernathy: [00:15:57] Yeah. Because you don't leave it. You don't just you know it. I assume you know the old meaning about assume; it makes an ass out of you and me. So, you can't you can't do that. When you really can most people from so many different walks of life you're not on the same wavelength all time. If you put it in writing, then it makes it a whole lot easier to say I told you when you moved out if this was not clean I would charge you for cleaning it. I have an expectation.

[00:16:26] The big thing I came into was cleaning carpets. People would go rent a rug cleaner, they'd throw a bunch of water on the floor and call it clean. And then the people moving in would say no that's not clean and here I am caught in the middle. I have to go have it cleaned now because the people who will accept it. My solution to that was OK everybody going to use the same clean company. You understand when you sign a lease with me, because it's written right in the lease, I use X Y Z cleaning company to do my carpet. And when you move out you will be using X Y Z cleaning company do your carpet. This is a major expense that's about $190 to clean most of the units that I have. But that's an expectation clearly communicated.

John Wilhoit: [00:17:10] And it's also uniform so you're treating everyone the same. You're using the same documentation, the same formulas the same format for all of your residence.

Jim Abernathy: [00:17:20] You can't say "I left it nicer than I got it." No, you used the same exact person that cleaned it for you when you came in.

John Wilhoit: [00:17:28] As a new property manager, what's the one or two things that you have to know from day one? You buy a duplex or 4-plex or any 8-plex you're not and property management prior, and you've decided, for whatever reason, you're not going to hire a property management company, what do you need to have in your back pocket for the day of closing, because the very same day you meet, addressed, say hello to, or communicate with, eight different residence and you've never done this before. What are the first steps that you would recommend?

Jim Abernathy: [00:18:03] You better understand that the lease you have is a legal document. But it goes both ways. The tenant has rights as well. I get real tired of hearing from people that the landlord cheated me out of my deposit. Well, there are courts for that. If he cheated of your deposit he's a thief. You need to take him to court. If you have a right to your deposit back you need to get your deposit back.

[00:18:26] I have an obligation to that lease as well as the tenant does. I have guaranteed that tenant that they are going to have a place to stay for a year.

John Wilhoit: [00:18:31] You the property manager, you the owner.

Jim Abernathy: [00:18:35] Yes. It's a two-person system. But that tenant has also made obligations; that they're going to pay their rent on time, that they're going to take care of your place. So, you have to understand that very first day you have now become a businessman and you have to approach this in a business-like, professional manner as you deal with people. That's the fair way to deal with them.

John Wilhoit: [00:18:58] For brand new property owners, I think one of the first things you can do before closing day is read my book How to Read a Rent Roll which gives you some standards on how to look at properties financial before and after the closing. And then a few other books I have that focus to property management. Think about How to Read Rent Roll and getting some standards from a financial perspective that you can deploy immediately with your new purchase.

Jim Abernathy: [00:19:30] This is something that I wish I had known when I started. When I started I had a general idea. I could look at it and say OK here's my payment, here's what my taxes are, here's what my insurance is, here's how much I think it's going to go empty and this is what I think repairs should be.

John Wilhoit: [00:19:46] What is it you wish you would have known?

Jim Abernathy: [00:19:47] I wish I had known how to read a rent roll. I wish I had known the business side of this. I could look at something I could say. OK. I want it because it positive cash flows. But that was really my only criterion. My thing was if I can buy in positive cash flows how come I don't own 100 of them. How come I don't own a thousand of them if they're all making the money? Being able to read the rent roll would helped me to understand this is a better investment than this one. This one makes a better choice than this one does. Knowing that from the start, knowing the business side of this, from the start would have helped me a great deal as I grew it.

John Wilhoit: [00:20:28] Taking it in the back of the envelope to a spreadsheet to a form of analysis that is rent roll analysis, those are the layers apart in terms of the outputs that come from that and the ability to use that as a decision-making tool in the business.

[00:20:44] There can really be two properties side by side that generate the same level of income that have significantly different financial outputs based on age, based on how they are managed, based on expense ratio, based on utilities and taxes. Even if they are side by side in two different districts. There may be two different tax rates and that one factor alone can have a substantial difference in the underlying value. If one property same $20,000 a year annual tax and another is paying $40,000. Guess what, they are from a different basis from day one.

Jim Abernathy: [00:21:18] I happened to get lucky in that starting out I understood how some of it worked. Doing what I could with the properties. Looking back knowing more of the business side of what have been a real advantage to me.

John Wilhoit: [00:21:36] This has been Jim Abernathy talking about property management nuts and bolts for small property owners and this is John Wilhoit. Thanks for listening today.

John Wilhoit is the Author of five books, including: "How to Read a Rent Roll: A Guide to Understanding Rental Income".  Join the conversation at JohnWilhoit.com for updates, blogs, books and podcast.