Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
When you treat your properties like a true business, you typically should hire professionals to do those things that you know are gonna get done properly. And so at the end of the day when you think you’re gonna save a few dollars, By managing it yourself, uh, it often isn’t the case. What would your life look like if you could replace all of your working income with simple and conservative investments that could do it for you?
Over the last 13 years, we’ve helped thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income. Each week, we’ll be pulling back the curtain on the ins and outs of real.
Retirement based real estate transactions that will transform your financial future even if you have no real estate experience. This is Replace Your Income with me, Kevin Clayson and Steve Earl. All right, everybody. Hello and welcome to Replace Your Income with Kevin Clayson. Steve Earl, how’s it going?
And we we’re actually like recording for real today. Yeah. Can you believe that? I mean, this is, this is fantastic. I feel like we’ve done episodes separate, We’ve done episodes in different locations. I’ve had, we’ve had guests on, I did a solo episode, which really shouldn’t have happened cuz nobody wants to just hear me talk.
But dude, it’s gonna be back with you, man. Yeah, it’s been, it’s been too long. We were just saying this morning, it seems like forever, since we actually got in the same room and, and kind of just chatted about things. We’ve done a lot of, a lot of things via, you know, zoom and passing in the hallway here and there, but it, it’s great to, to be back together and doing this.
But I, I told Steve I’ve got this New Year’s resolution and I’m gonna try to shower again. And so he’s like, Good, congratulations. I started the New Year’s resolution this week, and so he’s willing to be in the room with me. Yeah, you told me that you did that this morning. I was like, Okay, we can, we can, you know, connect in
Oh, man. Well, it’s good to be with you, so we are so thankful for you guys, and thank you for continuing to listen. And I hope that you enjoyed last week’s episode. You know, I didn’t have Steve, um, but we talked just a little bit about how some people choose to replace their income utilizing even something like multifamily.
Now you guys know we’re big single family advocates, and the main reason for that, we’ve outlined that a hundred times, but regardless of whether it’s a duplex or a multifamily or especially a single family residence, we get this question a lot, which. Should I, And there’s a lot of investors, Steven, you know, there’s a lot of investors who go, Look, I just wanna, I wanna make as much as I can on my property.
And so they think, Well, how do I make more money? I either increase the rent or I decrease expenses, or I buy additional real estate. And sometimes people think that. A way to decrease expenses in order to make more on a property is to do the property management yourself. And so what we’ve talked, what we thought we would talk about today is, should you do that?
Should you, regardless of what scenario you’re in, should you be managing the property yourself? There are advantages, there’s disadvantages, like everything we talk about. So we thought, let’s have the conversation of what com, what, what should we be thinking about? What should you be thinking about when you’re considering managing the property?
Or hiring a property manager to do it for you. Yeah. What I found with most people, Kevin, is that most people are like really good people. They’re really nice people, and uh, sometimes it gets in the way. With property management, you don’t have to be mean, like you don’t have to be to take advantage or anything, but you have to be very blunt and you have to be very proactive and you have to be willing to say no.
And you have to be willing to make some pretty tough decisions, you know, with tenants in, in some cases. And because the nature of most people is opposite of that. Most of us, like we wanna be very helpful. And when, when we see somebody in need, like we wanna pull over, we wanna help them change the tire, and when somebody’s kind of down on the luck, they lost their job or they had some unexpected expenses, all of a sudden we get put in the position of having to say, Hey, you’ve gotta figure out how to pay your rent.
Like, I can’t do it for you because, make no mistake about it, Kevin, when, when a tenant doesn’t pay their rent, and so you have to cover your mortgage payment, you know, without them making their rent payment. You just got in the game of lending and you just lent a stranger. Money that you would never do even to your closest for even your closest friend or relative or, or neighbor.
Yeah. You know, for that matter. Absolutely. And I think this is such a critical component because we, I know for me, I like to be generous. I like to be kind. I am a terrible landlord. Not actually, I’m a great landlord for the tenant. I’m a terrible landlord for my bank account. I know when I’ve had, when I’ve had renters in the past, That it’s very easy for them to take advantage of me, and they figured that out very soon, right?
The first month that they’re a little bit late on rent, and I don’t charge a late fee. Right? Guess what? I just taught ’em? Maybe it’s an exception. I could even tell ’em it’s an exception, but in my experience, I remember the first tenant I ever had, one of the, within the first couple. Of her, uh, supposedly she was supposed to pay, We agreed on everything.
She was supposed to pay rent, and she was about a week late and she’s like, Oh, I’m just sort of like, I’ve got my daughter. And like, it’s just kind of, I, I really, I don’t know if I could really afford the late fee. And, and I’m like, You know what, Adrian, that was her name, I said, It’s fine. You know, you just, I am, I am a nice guy.
It’s the holidays. I’m gonna take care. You don’t worry about it. Well, guess how many other times she went late and had the same exact excuse. It was two or three times in a row before I finally had to terminate the contract. And I ended up getting out of, uh, that relationship with her. Purely because my kindness was preyed upon, and now I don’t think that everybody is just naturally that way.
But I think that if you get some, you know, there’s that phrase, we see it with our kids. Sometimes you give them an inch, they might go ahead and take ’em a hill. It’s, it’s kind of a double edged sword, right? We all are looking for a deal, and if somebody’s willing to give us a dealer discount or whatever, like oftentimes we’ll ask for it, right?
And so somebody asks you, Kim’s like, Oh, can I not pay this fee? It’s like, You’re gonna be Mr. Nice guy, and you’re not gonna charge the. And the fact that maybe they wouldn’t do it again, actually goes against human nature. Sure. Because if they can save it all and they know that you might give it to ’em, they’re going to ask.
That’s right. And then you kind of are left feeling guilty is so, So let me ask you this, Kevin. Have you ever showed up to, let’s say, McDonald’s or some restaurant and just showed up and ordered your meal? Or maybe not McDonald’s. Cuz you have to pay for it front, right? Yeah. But when you go to a sit down restaurant, it’s more like rent.
You get to enjoy the benefit of it. Yep. And then without having to pay anything front, you pay your rent in in arrears, right? Yeah. So if you showed up at a restaurant, you sat down and you ate your meal and then you know, you server came and you’re like, Hey, you know, I’m a little bit down on my luck, or you.
My paycheck’s a little bit late, or I didn’t budget properly this month, or whatever the case is. Yeah. Do you think that they would give you your meal for. You know what? I don’t think they would now, and I wouldn’t be one to ask my wife. On the other hand, she loves deals. She will ask for a discount whenever she can, but No, that’s a good point though.
You wouldn’t sit down and go, Hey Sue, let’s just assume the service name is Sue. Hey Sue. Look, I know the bill says. It’s, you know, $33. I only can really afford, If you want a tip, I can really only afford $25. And so could we just go ahead and knock that puppy down or, Hey, let me tell you what, let me go ahead and pay you the 25 now, and then I’ll come back next week and I’ll, I’ll pay you the rest.
It’s, you’re right, it goes against human nature. And what’s interesting is with the mortgage company, have you ever tried to call a mortgage company and have that same conversation? There’s no way. It’s either you pay the. Or it’s gonna go, or you didn’t pay your full mortgage. And over time, that’s gonna have a negative impact and it’s gonna give them license to do some things that you probably don’t want done if you’re the one owning the home, supposed to be paying the mortgage.
But we look at, when we manage the property ourselves, I feel like I have a tendency to look at them, not as a business transaction, but to look at them as a. And then the human side of me wants to help the other human that’s supposed to be paying me money to live in my home. But I don’t get that same consideration from the mortgage company.
Right. It’s a very different story. And so as a result, it ends up putting me in a tough position. Yeah. And you, you, I think you really hit the nail on the head with, with the concept of oftentimes when we are managing a property ourselves, we kind of forget that it is a business and that you have to.
Business decisions, just like the businesses around us, like businesses have to make decisions in order to stay in business, in order to be able to continue to service their clients and their customers and to provide the services and products and benefits and so on. And so that’s one of the, the cons of managing a property yourself.
And, and I’ve managed some properties myself, and I’m kind, I’m much that way also. And so when you treat your properties like a true business, you typically. Should hire professionals to do those things that you know are gonna get done properly. And so, at the end of the day when you think you’re gonna save a few dollars by managing it yourself, uh, it often isn’t the case.
Now another issue is repairs, right? Again, if you are managing the property yourself, you’re, you know, you’re getting the phone call, whether it’s during the day or in the middle of the night, if there’s a leaky faucet or whatever, and, and you’re managing. Everything all the way from, and maybe you hire it out or maybe you think, Oh, it’s just a simple thing.
I’ll go fix it. And let’s say that your property is even 20 minutes away, 20 minutes there, 20 minutes back an hour to fix the thing. You know, half of your day is gone to do something that that would’ve cost you. I don’t know if you had a property manager and it was a leaky faucet, and if you hire the proper.
Uh, property management company, they’re gonna have some in-house labor that can go out and make those simple little repairs, you know, fairly easily and less expensively. And so it might be a $50 or a hundred dollars repair. Um, in some cases they have, they hire professionals, right? They’re not HVAC specialists and they’re not necessarily like the hard plumbing, you know, specialists or electricians and that kind of a thing.
But the simple things, they can go out and do less expensively and save you a little bit of money and in, and then in other cases they’ll hire it up. But at the end, end of the. You’ve gotta take a look and ask yourself the question, How much is my time worth? Absolutely. There’s, there’s an opportunity cost for you.
Yeah, there is. And so if you think to yourself, I’m gonna, I’m gonna spend. Three to four hours doing something that the actual work maybe only takes me an hour. Cause I gotta travel and I gotta think about it. I gotta go to the store and pick up parts and, and then you get the wrong part and then you gotta go back to the store.
Right. I’ve experienced all of that. Right. In my beginning days I thought the same way and I’ve, and I’ve learned over the years that I’m way better off and I actually. I do better from a return on investment from a cash flow standpoint when I leave it to a professional to to manage it for me, Sure. All day.
From collecting rent to doing the repairs, to making the best decisions at the end of the day. A property management, if you hire, and we’re gonna talk a little bit about this, a. How do you find the best property manager and how do you, you know, make that decision? When you have the right property manager, you will do significantly better than if you’re trying to manage it yourself.
And the frustration of managing it yourself as well can kind of force you outta the game sooner than you ought to be. Oh, that’s a great point. Absolutely. You go get a property, you think I’m gonna manage it myself. You have, you have some bumps in the road and all of a sudden, And here’s the crazy thing.
A lot of people don’t consider this. Let’s say that you own a property and it still performs well, let’s say that at the end of owning it for 3, 4, 5 years, you look at the numbers and you go, Okay, I got appreciation, I got cash flow. But what if it was so frustrating and such a headache along the way?
You may still look at that and even though your cash flow positive, you may go, I am never investing in real estate again. Right? I, I spent every Saturday and most of Sunday, Dealing with issues. That’s right. And, and, and I know some, I, I met a guy, so in a previous life I was in the construction industry, I had a painting contracting company.
And I remember, you know, going, I was doing some work for landlord on, on some fourplexes that he owned. And I was talking to him about it cuz I was interested in real estate at the time. And he was telling me, he actually told me he is like, Don. Get into real estate. He’s like, It’s a nightmare. . He’s like, I’ve stopped going to church.
I’ve stopped doing activities on, on Saturdays. Right. With with my family. Cause he’s like, I am here every Saturday and every Sunday. And in my mind I was scratching my head. I was like, What? Really? It’s like, that’s nuts. I can’t imagine that that’s the case. Yeah. But I got to know him a little bit for a short period of time, and that was pretty much the case.
Yeah. And on, on top of that, he’s like, I’ve ruined my knees because I’ve been doing all the tiling. I can hardly walk anymore. I’ve got calluses on my hands. And, and he had like cut some bruises all over his, Yeah, his hands and arms and stuff from like Bean that, that handyman guy, which he’s kind of a, you know, a do it yourself or try to make shift things and so on.
So you know, when you’re doing that and your real job, you’re a teacher. You don’t know all the tricks of the trade to do, to do things easy and quickly. Sure. Right. And you, you know, you injure yourself and you do them really crappy, you know? Yeah. Crapp your work machine anyways, that alone can just push you out of it.
Exactly. When in reality you had an awesome investment. Right. Well, then you’ve got another opportunity cost, which is now I’m not going to continue to invest in real estate because, I’m gonna decide in my mind that it was a frustrating experience. And so now what do you miss out on as far as cash flow and upside?
And if we look at just kind of the way, and I’ve really kind of come to believe that if there’s something that I am not an absolute expert at, I do better to hire it out. And you know, and there’s, that’s one aspect of it, that there’s another aspect of it, which is what we were talking about earlier.
There’s something to be said for having a degree of separation. Like if you think of athletes, professional athletes, right? There’s a lot of. Stuff going on in the NBA right now. People are solidifying. The athlete is not the one talking to the organization. Right? There’s a, there’s a manager, There’s an agent that’s involved in this in the decision making, and I would say the same thing for real estate.
There’s so much value that comes from working with a real estate agent. That’s incentivized to make the transaction go smoothly and get it closed because yeah, maybe you’re looking at it, whether you’re selling the property or buying the property, maybe you’re, you’ve decided that having an agent involved in the mix is somehow gonna be a little bit more of a headache or, or, and it’s gonna cost you money, it’s gonna make you less or whatever.
But I’m, from personal experience, having a good agent that’s there to have your back throughout that entire process, that is an expert in that exact transactional process that you are not an expert in. All the difference in the world. And, and when it comes to property management, it’s exactly the same.
Why not have a little degree of separation between you and the tenant so it can be a business transaction. Kevin, do you remember, I mean, this was back in a different lifetime. Do you remember Carl Malone? Oh heck yeah. So he was one of the best players in the nba? Yes. He was an mvp, the whole thing. Right.
Um, he had an awesome relationship with the owner of the Utah Jazz. He did, uh, Larry Merri Miller, and he always negotiated his own contracts, I think up until up until the end that. Was never paid what he could have earned. Yeah. Um, because he negotiated his own contract and he was such good friends. It’s like even when you have a great relationship, With somebody, it is always best to get that middle person cause then take the emotion out of it and it becomes a business transaction as opposed to, you know, just two friends trying to hash something out.
That’s ex. That’s exactly right. And when you look at a property manager, for me, the property managers, like I think of our property managers in the markets that we work with, and I think of. What they deal with every single day, right? I think of everything from marketing the property to finding the right type of tenant to the tenant evaluation process, to to running the credit checks and the background checks, to interviewing the person to sort of negotiating me, maybe even some of the terms and sort of the way that the lease is going to work to win.
That tenant maybe doesn’t pay rent or they’re a little bit late. I’m not the one who’s having to deal with it, right? I’m not the one who’s getting the phone call. The property manager is handling it, and that degree is separat. Makes all the difference in the world. And I really think, Steve, I think, look, if the average property management fee is eight to 10% of gross monthly rent, right?
So if I’m gonna assume that I’m gonna make eight to 10% less every year, okay? And that’s all I’m focused on and I’m in kind of this negative. State of, Oh, it’s gonna cost me money. And I don’t consider everything we’ve talked about from the time that it’s gonna take to the emotional toll that it’s gonna take to, you know, just the, the frustration of potentially, I’m so frustrated I won’t even go and invest in real estate in the future.
The actual cost is, is far greater not using a property manager. Now here’s the caveat though. If you use a crappy property manager, it, it may not go so well. And so it’s really key, Yeah. That you have somebody that knows what they’re doing and that you feel good about and that, that’s one of the things that I think, you know, what we’ve tried to really do at done for you real estate.
And I know Steve, you spend, was it every week? You’re on the phone with our property managers every month. I know you guys are interacting random conversations with them on a regular basis. But I have a standing monthly meeting. With each of them. And if I, if I could point out real quick, Kevin, like, here’s one example of having, you know, a really good quality property management company working for you.
You know, our, our property management company in I’ll, I’ll just call him out in, in Florida, they, with this whole Covid 19 issue that’s been going on forever, you know, there are, there’s a percentage of tenants who, who haven’t been able to pay their rent. Well, this is something that on your own, you probably could have never figured out, but because of their connections, because they’re in the industry, they went out and they have figured out, they, they went to all kinds of different, uh, organizations, assistance organizations, and they figured out how, how to get rent for their tenants.
It’s awesome. And, and because of that, they’re who the, the real winner in this whole thing. Was the owners Yeah. Of the properties who could have never really done that Right on their own. Right. Like they’ve gone out and they’ve scoured and they’ve done the legwork and they’ve figured out how to help their tenants.
And so when you have a really good property management, not only are they very business like and they hold their the tenants feet to the fire, they also are concerned about the tenants. That’s right. And they wanna ma, they wanna do all in their power one to make sure that they’re comfort. That repairs are done timely, that they’re done properly, and then on top of that, if there are issues, a good property management company will work with the tenant to figure out if they did miss, uh, rent, they’ll figure out a payment plan to help them get back on track Again, all of that is so time intensive and very expertise oriented where.
They’ve seen that situation a hundred times before, and so they know the best way to handle it. And they also can recognize when somebody’s trying to play you. And as a, a lay person, oftentimes you don’t recognize, you know, that, you know that that tenant, that manipulation is manipulating you and taking advantage.
They’ve seen it enough times, it’s like bam. They instantly know it. And then they also recognize at times when it’s a legitimate, you know, situation, a one time type thing or a legit. You know, ongoing concern that they then can jump in and help you know, the tenants through the problem, through the crisis, and take care of both the.
And just as importantly the owner of the property. Absolutely. So to kind of summarize, it’s a little bit of a shorter episode, but we thought it was an important conversation to have. So to kind of summarize, can you manage the property on your own? Absolutely. You can. Can there be benefits? I guess the benefit would be, In theory, it makes you a little bit more money cuz you’re not paying a property manager.
But as we actually take a look at what Steve’s experience has been, what my experience has been, when we look at all of our clients, when we look at, I know I have friends and family that have done a lot of managing of their own properties. When I look at the actual, and I know Steve has too, the actual experience is such that, yeah, maybe it saves you a little bit from a property management expense, but the time that it takes, the frustration that comes with it, the repairs that need to be done.
Even the simple idea that the tenant may have an easier time taking advantage of you as the owner. There’s all of these things that can make that transaction and make that experience. Actually, it can, I guess, diminish some of the good that can come from owning investment real estate if you’re managing the property on your own versus if you hire a good property manager, even if this is a property manager.
In your local area. Now, obviously the, the most of the properties that we do and that our clients do, they’re out of state, so we have to hire a property manager. It’s, it would be very difficult to manage the property from a distance, practically impossible. But the benefits of, of having a property manager hired.
Is you’ve got that little degree of separation between you and the tenants, so it becomes more business like. It’s more of a transaction. Then you’ve got somebody who’s an expert at doing things like marketing the property, collecting rent. They’ve got people built in and crews built in that can do the fix up and do the little repairs, and then that individual can communicate with you when that needs to be communicated, as opposed to you having.
See all of that communication, and so there’s good property managers and there’s bad property managers. We could do a whole episode just about that, and maybe we will. We talked a little bit with, uh, Morgan from River City, one of our, our, you know, our Tennessee team about that concept, but we could do another episode on that.
But at the end of the day, here’s what I think Steve and I are trying to say is, look, I know I get this question a lot. Should I use a property manager? Is that a good idea? My response would be absolutely. It’s a good idea, especially if you’ve got a really good property manager. And so think of it as your real estate business, and if you were gonna think about it as your real estate business, you shouldn’t be the one negotiating your own contract.
If you’re an NBA player, you should. Somebody that’s an intermediary to make sure that, that you are being fully taken care of. But that they’re also thinking about the other side too. It’s, there’s, there’s value in having somebody that’s kind of there in the middle and in many ways the property manager can be that and much, much, much more.
Last word, Steve. Yeah, exactly. Again, you just nailed it in terms of even negotiating the lease, right. Negotiating, uh, the terms and the monthly rent and the, the length of the contract, the whole thing, and that’s upfront. And then everything, you know, along the. So although in, in, in some circumstances it might make sense for you to, to try and manage your own property, our recommendation truly is hire a good solid property manager.
And in another episode we’ll talk specifically about how do you choose a good property manager. Yeah, that’d be great. We definitely need to do that. Well, that’s it for today, everybody. Thank you so much for tuning in. Hope that you enjoyed this little bit shorter episode than usual, but we wanted to get this out there and we wanted you to have this content.
Just kind of a word as we are continuing through December. Listen, regardless of what may be happening in the world around you, you always retain absolute complete and total control over how kind you are to others that are around you and that you interact with This year, This season, more than ever, just choose kindness.
Just choose to be a little more kind than you usually would be, and you will end this 2020 year with an incredible boost as you look to 2021. So that’s just kind of my little side. Sidebar, just choose kind as we go throughout this holiday season and, uh, watch how it impacts your life. So for now, this is Kevin Clayson signing off.
Everybody. Take care. See ya. Thanks so much for listening to replace Your Income with Kevin and Steve. Do you want to connect with us? And other income replacement rangers out to obliterate the status quo and experience real retirement with income replacement through real estate type done for you Real Estate USA in your Facebook search bar.
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