Effective property management, or lack thereof, is the difference between you loving or hating your rental properties. You often hear people site rental properties as a great investment, with lots of tax advantages. What’s not talked about nearly enough…that is, until you own them yourself, is how critical good property management is. Dave Payerchin tells us all about it, and shares some efficiency tips on how to effectively manage rental properties in this FlipNerd.com Flip Show interview. Check it out!
Highlights of this show
- Meet Dave Payerchin, Co-Founder of Columbus Turn Key Houses, and Property Manager.
- Learn some tips from Dave on how to effectively manage rental properties.
- Join the discussion on the importance of great property management, and how poor property management can eat your business alive.
Resources and Links from this show:
Listen to the Audio Version of this Episode
FlipNerd Show Transcript:
Mike: Welcome to the flipnerd.com podcast. This is your host, Mike Hambright. And on this show I introduce you to expert real estate investors, awesome entrepreneurs, and super-cool vendors that serve our industry. We publish new shows each week and have hundreds of previous shows and tip videos available to you, all of which you can access by visiting us at flipnerd.com or visiting us in the iTunes store.
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Hey, it’s Mike Hambright of flipnerd.com. Welcome back for another exciting VIP interview, where I interview some of the most successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
Today, I’m joined by my friend, Dave Payerchin, who is a co-founder of Columbus Turnkey Properties, an Ohio-based turnkey rental provider. He’s an awesome guy. He’s a big sports fan. Happy to be in a winning town there.
Effective property management is critical to your financial success and really it’s both an art and a science. For people like me, I hate property management. I don’t ever want to do it myself. But people that are in the space that do it well understand how important it is. Today, we’re going to share some lessons that Dave has about how to become much more effective and share some lessons that he’s learned the hard way in property management. We’re going to talk about effective property management today. Before we get started though, let’s take a moment to recognize our featured sponsors.
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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.
Hey, Dave. Welcome to the show.
Dave: Hey, thanks for having me, Mike.
Mike: Yeah. So you’re in the heartland that is kind of a jewel in the rough right now. A lot of people don’t know how hot Ohio in the Midwest is right now for turnkey and for rental properties.
Dave: Yes. We are in Columbus, Ohio so I think it’s worth noting we are the national football NCAA champions right now, NCAA football, The Ohio State University, so it’s pretty happy out here.
Mike: Yeah, congrats, man. I want you to kind of introduce yourself in just a second. But I think a lot of people are really starting to catch on to the values that are out there for rental properties in the Midwest, especially Ohio. I know quite a few people that have shifted to buying in Ohio and some of what somebody had mentioned to me recently is how basically the hedge funds and a lot of the institutional side buyers just really never came in to some of the Midwestern states because they read the news or they hear the news that populations are declining and unemployment rates are higher than average and things like that. But there’s still some great opportunities for cash flowing rental properties, right?
Dave: Yeah, big time. My business partner, RJ Pepino, and I, we have been investing since 2005 and really started out as wholesalers and then we got into doing rehabs and I actually used to live out West. I lived in Arizona for a brief stint and then lived in California as well. From Ohio originally and I literally moved back from out West. You don’t hear about so many people moving from out West.
Mike: Yeah. They usually never come back.
Dave: And then I’m back. I came back because I partnered with by business partner, RJ Pepino, and we just started buying up rentals because it’s a huge opportunity and I think you hit the nail on the head when you said a lot of the stuff when it comes to property management and rehab, it comes with experience. Right now RJ and I, we own and manage our own portfolio for about 30 homes and then we’ve actually pretty much positioned ourselves as the number one or leading provider of turnkey investment properties here in Columbus.
Mike: Yeah, that’s awesome. So talk about kind of some of the dynamics of what makes it a great place to own rental properties.
Dave: I think what really attracts people, number one, is the university. We kind of touched on the fact that it’s very successful. One of the largest universities in the whole country and it’s a very young professional environment in Columbus because a lot of the people that moved from all over the world and all over the country to attend places like Ohio State, they end up staying here so it makes it the best economy in the state of Ohio. I can say that because I’m from Cleveland, I travel there all the time. My parents and my family that’s still there but the economy, it’s never going down in population and it’s basically home to several Fortune 500 companies including Big Lots, the Limited brands clothing which includes Express, Victoria’s Secret, Abercrombie is here, and there’s a lot of big businesses out here in Columbus which really keeps the market pretty stable.
Mike: Yeah, that’s great. I think throughout the Midwest and certainly in Columbus where you’re at, it’s one of those markets where the values, you really don’t go up or down a whole lot but from kind of a proportion to rent standpoint it’s just killer, right?
Dave: Yes. The rents maintained high and the prices low and that’s all you can really ask for. But like you said, it doesn’t really go up or down too much. It’s not a big appreciation play. Investors don’t bring their hard-earned money to places like Columbus expecting huge swings like you’re going to see in California and Nevada and Arizona and these other places. Columbus is one of those markets where you’re going to see a steady increase in prices and appreciation but just the cash flow is what everybody is attracted to. It’s just a great return on investment.
Mike: Yeah, absolutely. So tell us a little bit about your company and what we want to get to is just your experience of kind of learning how critical good property management is.
Dave: Yeah. I would have to say that of all the aspects of business, and I know FlipNerd, by the way, we’re huge fans and really it’s an honor to be on.
Mike: Thanks, man.
Dave: You cover a lot of topics in a lot of aspects because real estate is a very vast business, as you know, of everything. From raising capital to rehabs, and our business, what we have found and we’ve learned this the hard way from owning and managing our own properties and we are continuing to buy today. So we’re encouraging other investors to always invest with people who own properties themselves, especially in the market they’re investing in. But property management seems to be the glue for us that just holds everything together because if you can dial in property management systems and it starts in the very beginning, Mike, it’s all about the set-up. That’s what I want to get into today.
Property management is essential because when it comes to working with investors, and we work with investors all over the country, the only thing an investor really cares about who’s investing here in Columbus, in our market with us, the only thing they care about is, “Where is my money?” So if you can’t manage the tenants appropriately and they’re not paying the bills, it all trickles down and it really is the thing that we focus on pretty much the most here.
Mike: Yeah. For those that don’t know, I know you know this, turnover and make readies will make or break you. I mean, it’s all about turning that property around fast and keeping it rented.
Dave: Yeah, I couldn’t say it better.
Mike: I know the hard way myself. It’s funny, I was just talking to a group of people the other day and they’re like, “Why don’t you manage your own rental properties?” We have about 40 or so. And then I hear people say things like, “Well, I have like five but once I get a few more I’m going to add it in.” It’s like I didn’t manage them from one on, like I have no interest ever, every.
I know that I could develop systems and process and do better, always improve but it’s just not something that I really care to do. I usually tell people, in fact I said the other day, “I don’t cut my own hair, I don’t mow my own grass, and I don’t manage my own rental properties, and I’ll never going to do any of those things.”
Dave: And if I recall, we’ve met several times before, Mike. You have a pretty good relationship with your property manager, right?
Mike: That is true. Yeah. I’ve had different people but I’m in a good place right now, yeah.
Dave: Very good. We’ve gone through several people as well and we’re very selective and very careful on who we would ever refer to manage somebody’s properties just because of our own experiences and we’d like to keep our finger on the pulse of what they’re doing 100%. Like somebody manages your property, we’ve gotten really good at not only managing properties but also managing property managers and just holding them accountable is key.
Mike: Absolutely. You talked a little bit about the importance of the set-up. I assume you’re kind of talking about how you communicate with the perspective tenant.
Mike: Yeah. So tell us about that.
Dave: This is key and I would say that in my experience, these lessons that I’ve learned all about the setup is that’s the motto that we use in our office. It’s all about the setup and sitting people down. We’ve gone through in our properties, in our own management, we have gone through numerous leasing assistants, people who do showings for us, people that we train to fill out leases and what not and build rapport, if you will, with the tenant or set the level of expectations of what we want from this tenant. There’s no one better at it than just doing it myself.
That’s what I’ve gone to the point of and we say it all the time in the office is anyone who’s moving into one of our units or one of our properties, I want to sit them down and look them in the eyes. When I sit these people down, I go through the lease with them line for line and basically one of the biggest tips that I could give right now is let them know that you mean business right off the bat and if there’s going to be a problems, tell me what the problems are going to be right now on your end, and it’s amazing the stories that start coming out at the signing table.
Another thing is you as the landlord or somebody who’s managing a property, don’t be afraid to walk away from a prospect at the signing table because one of my mentors has taught me is the cheapest eviction is the person that you never even move into the property.
Mike: I bet. Yeah, absolutely. It’s funny, if you don’t do what you’re talking about here and you don’t kind of set the expectations upfront, I just know from other property managers and tenants in the past that they assume that there’s some rich company or rich person behind all these rental properties. But what they don’t really understand is, “Look, I need your money so I can pay my bills,” and they just don’t see it that way. It’s like, “The man owns this and they may not even notice so I don’t pay the rent.” It’s like, “No, we’re going to notice.”
Dave: I’ll share this with you. RJ is in the other room right now, my business partner. He’s a little bit more firm with these people and no leniency but I like to position myself and what’s really worked with me and I’ve learned this just from different sales books is I resort to a higher authority. So I’d basically say, “Yeah, the man does own this property,” and even though it is us that owns the property, we say the investors, capital partners, things like that and I say, “They don’t mess around, they will have you in court, they will throw you out and I’m the liaison.”
I position myself as, “Hey, I’m here to work with you but if there’s something that’s going to come up, let it come up right now here with me because you don’t even want to know what these guys will do.” Let them be a big, scary monster and me be the reciprocal of all information and kind of build that relationship a little bit but still set the expectation that you will be legally evicted if you break the lease.
Mike: I presume in all these conversation we’re having here, you’re probably talking more of kind of a C-class property. It’s not like you’re renting to people living in a quarter million dollar house that have great jobs, which none of those would be cashflow by the way. But you’re talking to people that are by nature somewhat transient and may have never owned a house and maybe they never will, right?
Dave: That’s 100% correct. So, RJ and I, our portfolio of properties, the majority of it is C-class type of properties. But as I mentioned in the beginning our company, ColumbusTurnkeyHouses.com, we sell a lot of investment properties to investors around the country and we’ve had the most success for out of state investors in working with the B and A type properties.
Mike: Really? Okay.
Dave: Absolutely, because this person is a little bit higher quality of person and we don’t really suggest an out of state person because we’re in the trenches, Mike. We’ve been doing this a while, we can handle the C-class stuff and we got people coming to our office and dropping off money every single day, and this and that. Like I said, we set people down and look them in the eyes.
For somebody who’s out of state who just wants a good return on their investment, the best thing they could do is an A or a B-class type of property where the numbers still work. When I say A or B class, I’m talking $70,000 to $110,000. The quality of person is definitely drastically different, but since we have so much experience with the C and even D-class type properties, and B properties are a walk in the park. Those people don’t mess up at all. They invite us to Thanksgiving dinner and sends us Christmas cards. See the Christmas cards in the background there, two of those are from tenants, I’m not kidding.
Mike: Wow, that’s awesome. Cool. I learned the hard way that you really do have to kind of rule with an iron fist with tenants. Otherwise a lot of folks, if you give them an inch, they’ll take a yard. But it’s funny how a lot of people, tenants included, if you’re kind of firm with them upfront and you set those expectations, that they just treat with a lot more respect going forward.
Dave: They absolutely do. You kind of mentioned, we need to collect rent payments in order to provide good service and we like to have that conversation as well where it costs us at least $100 to send somebody out, at least. Nobody works for free and we do work with professionals. We don’t hire guys with no teeth off Craigslist and starts sending them to our tenants’ units because they’re representing the company as well. So we let them know, “You got to pay your bills on time and you got to pay your rent and that allows us to provide better service in the end.”
Mike: Yeah. So we talked a little bit about that kind of a set, which you called a setup, which is setting the expectations with tenants upfront and kind of being real forward with them on how this should work and you do what you’ve agreed to do and we’ll do what we’ve agreed to do, right?
Mike: So talk about some other kind of tips for effective property management. I know in your rehabs, some of the things we talked about before the show which I know, I’ve rehab hundreds of houses that we usually resell. What a lot of people would be surprised to hear, I don’t know if this is the case with you, is that when we keep a property as a rental we actually put more expensive carpet in a $70,000 rental than we do in $150,000 rehab because it’s just more durable, it just takes a beating more. Not that the other stuff is junk either but at the end of the day you have to think about the replacement cost, how long it’s going to last because we’re keeping them as a long term investment. I’m sure you’ve learned some tips along the way of the importance of materials.
Dave: Yes, most definitely am and I’m really happy that you brought that up. We do the same exact thing. When it comes to flooring, we try to do away with carpet the best we can. We have a rehab going on right now that we’re putting in granite and new carpet and what have you, so we have experience with doing the retail flips. When it comes to rentals, we want something that’s going to last.
So on a lot of our properties, if there’s carpet there and we can’t get by with a simple cleaning, we’re going to rip that carpet out and find out what’s underneath there. If we can restore the floors, forgive me, we’d like to get by with just sanding and doing like a polyurethane.
Mike: Yeah, with the hardwoods.
Dave: With the hardwoods, we have a lot of hardwood properties out here in Ohio. If it’s even lower class property, we try to get by with just painting the hardwood which we have on several of our duplexes and lower end properties. In the middle of the road stuff, and this is a lot of the stuff that we sell to other people, California investors and what not, we’ve found a product here. I actually brought an example. I can grab the example for your viewers if you’d like. But this product – give me a moment here, Mike – so this is called Allure Flooring. How does that look?
Mike: Yeah. It it like a vinyl flooring?
Dave: Yeah. It’s like a laminate flooring and what we like, I don’t know if you can see or not but it’s got basically a 25-year guarantee. This is not the cheapest stuff. We could have it installed for . . . just the labor alone is typically we pay about $1.25 per square foot, just measure it out. The cost varies depending on where we get it but we’re usually all in for about $9 to $11 per square foot but this stuff lasts and it lays so beautiful.
These tenants see, for instance, I just walked a woman through a Section 8 rental that we own and we laid this flooring down and she said, “I’m never going to leave.” And we checked a ton of references, I believe this woman. She’s been living at her old place for years. We’re not going to have to replace these floors. For kitchens, we like to just use sheet vinyl, it works. Same with bathroom flooring, we like to use the sheet vinyl.
When it comes to a tub surround, if it’s the lowest end rental that we would feel comfortable owning and managing, we’ll just do a cheap $100 tub surround, but in anything that’s really C and B class, we like to do tile tub surrounds. When it comes to the paint, we’d like to use decent paint. We don’t want the cheapest paint on the block. We’ve had success with Glidden, eggshell.
We use a color called “Sudan sand” and we use this color, Mike, for every single property that we do. So if we ever get a call or an instance where the kids marked up all the walls, the guys who work on our staff, they already know. We don’t even talk about the color anymore but it actually looks pretty good. You can see in the background, we’ve used it for our office as well.
Mike: Yeah, it’s important. I mean, those things are important. You probably would agree with this but when we do, whether it’s tile or some sort of laminate flooring for example, or ceramic tile or anything, we always buy an extra case or two and stick it in the attic or somewhere where if somebody scuffs it up or there’s a burn mark or somebody somewhere breaks one tile, you don’t have to replace the whole thing. You’ve got some backup there that’s going to get you through probably several years or several tenants at least. Would you agree with that?
Dave: Absolutely. If I was a day to day landlord and I just had a handful of properties, the way to do that or store that would at the property. Early on, we used to keep even paint and other materials right in the basement or the attic, as you’re referencing. Now we’re actually moving towards a storage facility and a lot of our guys it’s just easy for them to access in and out. We go so far as to use the same hardware, we like to use a nice brushed nickel hardware. Everybody’s on the same page and so it really just keeps the costs and decision making very low. We don’t really have to think anymore. It’s just pretty much just do it.
Mike: Yeah, absolutely. So what other tips do you have for us today? What other tricks do you have up your sleeve?
Dave: Well, RJ, my business partner, he’s really the acquisitions guy and he’s been finding some really great deals. We’ve gone so far as to get bus benches and we’ve found a lot of successful probate marketing. But when it comes to my area of expertise which is really the rehabs and the management, I would say when it comes to people rehabbing your properties, it’s okay to pay a little bit more to work with professionals rather than cut corner.
This is a huge lesson, Mike, that I wish I would have learned early on. I wasted so much time managing people who needed to be constantly baby sat when, really, I could have just paid a little bit more and it would have allowed us to do the amount of volume. We would have grown much faster if I wasn’t driving around, like I said, managing toothless guys off Craigslist. When it comes to hiring professionals, check references. Again it’s all about the setup, bring them into the office, or if you’re small still, meet them at a Starbucks, look them in the eyes, make sure they’re not driving up in a smoking truck and have dirt underneath their fingernails. You want to work with professionals and it doesn’t hurt to get books. In fact, there’s a really good book I wanted to recommend if you’re okay with it.
Mike: Yeah, absolutely.
Dave: It’s called Investing in Fixer Uppers by an author, Jay DeCima. It’s a really solid book, easy to read. But in summary, if I was giving a tip I’d say don’t try to cut corners on costs and things like that, rather work with professionals so it’s less management intensive.
Mike: Yeah. The one kind of tip that I try to drop whenever I can, I know you’re going to agree with this – we’ve said this, we just haven’t necessarily said these words – is you’ve got to consider your opportunity cost. For me, it’s worth with me paying the property manager so I can find more deals or enjoy my life more or whatever it is that I want to do with my time. I think a lot of people don’t really value their own time and what else they could be doing with that time as much as they should.
You and I are both in a Mastermind together where we spend a lot of time talking about why we work so hard and it’s to have more of a life and I think a lot of us get caught up in a mix and thinking that we need to do everything and we kind of forget that sometimes.
Dave: Yeah. It’s like you can’t see the forest through the trees. Stuff is so piled on you that you lose track of the big picture and, like you said, the why, on why we’re actually doing what we do.
Mike: Yeah, and even with materials in a rental property or anything else, if you consider that probably 50% to 60% of the cost of doing anything is labor, right? So it’s like if you spend a little bit more money on materials, the chances are you’re going to save money on labor from having to do it a second time, right?
Dave: No question. No doubt about it.
Mike: Yeah, awesome. Well, Dave, we’ve got just a couple of minutes or so, why don’t you share your thoughts on how people should evaluate whether they should manage properties themselves or outsource that to somebody else. You guys manage your own, you guys are effective at it. I have no interest in ever doing it. Maybe explain how people could determine whether they should manage it themselves or outsource it to a professional.
Dave: Well, I think it’s how thick of skin do you have. So, RJ and I, we came up from the trenches and that made the transition into managing our own properties easier. If somebody is a professional, especially if they’re out of state, we work with a ton of out of state investors, Mike. We would never expect that person to manage their own property but if somebody’s up and coming and this is the career that they have chosen, if somebody’s committed to being a real estate professional and you know you’re going to be in it for the long haul and you’re local and you’re buying in your own market, I don’t think there’s any better way to learn how to manage people, talk about or do everything that we’re talking about as far as setting the expectation. It’s all trial and error.
You’re going to make a ton of mistakes but that’s the best seminar that you could ever pay for, the best podcast you could ever listen to is getting out there, getting your nose bloody once or twice and you’re going to come out a very educated investor and learn from trial and error. But if somebody is out of state, they’re not local, and they’re just looking for a passive return and passive gains on their money, work with professionals like us and we’re going to steer you on the right direction. We’ve got a ton of testimonials and references.
I would also say whether they’re working with us as a turnkey provider or any of the great turnkey providers that I’ve seen on your show, just make sure that they have a knack for management themselves or they own and manage their own properties, because it really does change the mindset on how they’re going to actually support you, the investor, in managing that manager.
Mike: Yeah, absolutely. Yeah, I think if nothing else, if you manage your own properties for a short period of time, if you decide it’s not for you, you’ll appreciate a property manager that much more, right? But it’s also like you’ll understand how to manage them better. Like you said, you have to manage property managers, you’re so much better equipped to do that, I think, after you have been through a couple of property managers or managed them yourself and have several lessons and I definitely encourage people that are listening to try to learn that as fast as possible because it costs you a lot of money if you’re screwing things up over time, for sure.
Dave: No question. I mean, some of the most successful relationships, spouse or husband and wife relationships, people go through tough relationships and they know what they don’t want and know what they do want, and then you find the spouse of your dreams.
Mike: Yeah, there you go. All right, man. Tell us how folks can learn more about you and your company if they want to dig a little deeper.
Dave: Sure. So our main website is ColumbusTurnkeyHouses.com and we focus and specialize in the Columbus, Ohio market. We’ve been approached many times, “Do you do deals in Cleveland?” We do have some contacts in other cities in Ohio but we don’t want to ever spread ourselves too thin. Columbus is our baby, so to speak, and we’re happy to talk to investors and really coach you through this and help you, and we have a ton of references and testimonials, like I said.
Columbus is a really, really great place to invest. As you kind of mentioned in the beginning, this is one of those markets where the hedge funds just stayed out of and we really do have a firm handle on the Columbus, Ohio market and there’s still really, really good deals to be had here.
Mike: Awesome. We’ll add a link for your site down below in case people want to come back to the page and check it out. Dave, I appreciate your time today.
Dave: I appreciate you, Mike.
Mike: Good to see you, my friend. I’m sure I’ll see you again soon one way or another.
Dave: All right, man. Thank you.
Mike: Have a good day.
Thanks for joining us for today’s FlipNerd.com podcast. To watch or listen to more great shows, please visit FlipNerd.com or visit us in the iTunes store. To access the most robust social platform in existence for real estate investors where you can find off market wholesale deals, great vendors, literally in your market and to socialize with other like-minded individuals please visit the one, the only, FlipNerd.com.
If you’re not yet a member, you could set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry so get on over to FlipNerd.com.
Thanks for joining us for today’s FlipNerd.com podcast. To watch or listen to more great shows, please visit FlipNerd.com or visit us in the iTunes store. To access the most robust social platform in existence for real estate investors where you can find off-market wholesale deals, great vendors, literally in your market, and to socialize with other like-minded individuals, please visit the one, the only, FlipNerd.com. If you’re not yet a member, you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry so get on over to FlipNerd.com.