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JF1067: How to Know the Right Time to Contract Out Certain Real Estate Duties #FollowAlongFriday

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Time for another update on the deals Joe and Theo have been working on. An interesting question gets answered, and Theo brags about his deal he recently closed. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff.

This is our Follow Along Friday episode. Normally, we interview high-performing real estate investors and entrepreneurs and get their best advice ever, but today we do Follow Along Friday where we talk about what we’ve got going on in our entrepreneurial endeavors (real estate-related) so that it can help you along your journey as well. With us, Theo Hicks, as he normally joins us on Fridays. Hi, Theo.

Theo Hicks: How’s it going, Joe?

Joe Fairless: It’s going well. Alright, so how do we wanna kick it off?

Theo Hicks: Let’s kick it off with some business updates, mistakes we’ve made this week, any lessons we’ve learned or successes… So if you wanna start off and provide a map to what you’ve got going on…

Joe Fairless: Sure, we’ve got the 200+ unit apartment community that we’re purchasing, the due diligence is going well… In fact, recently I sent out a note to some investors who were considering the opportunity – it’s all closed out now – and I mentioned a couple things. One is that it is still at 94% occupancy, so that’s good, that’s where it originally was at when we put it under contract. Two, the average rents have increased for new leases for the last 30 leases almost 1%, which just shows the market’s continuing to go up.

Nothing major at the property in terms of any improvements or mandatory CapEx projects, other than what we expected. Let’s see, what else… The property condition assessment went well, which ties into what I’ve just mentioned. The environmental site assessment – basically, there’s no nasty, hazardous materials at the property; that checked out. So all in all, it’s going really well. We are scheduled to close the week of 10th September, which happens to be the week I get back from my honeymoon. I’m being in Europe with Colleen for two weeks.

And things are going well. In terms of lessons learned – you know, just going through the due diligence process. There was something that I wanted to mention in terms of my new morning routine, because this all ties into being effective; what we do after listening to Tim Ferriss’ podcast about morning routines – he’s doing a new format where he’s compiling a bunch of previous episodes and talking about one topic that a bunch of guests talked about, and this topic is morning routines. And he’s doing like, how to overcome fears and other stuff like that; this one’s morning routines, and one of the routines — I forget what comic he does, what comic strip… Maybe Dilbert?

Theo Hicks: Oh, Scott Adams?

Joe Fairless: Yeah, Scott Adams. Is he doing Dilbert?

Theo Hicks: Dilbert, yeah.

Joe Fairless: Okay. He talked about how he’s all about affirmations and writing them down. And then I was reading the book “Ninja Selling”, which I talked about last week – I’m probably three-fourths of the way done with it. You must buy this book, everyone must buy this book. It’s a condensed version of Tony Robbins, “Unleash the power within”, in my opinion, and really focused on sales, and how you don’t sell, you actually give value… A bunch of stuff. Well, the author Larry Kendall talked about affirmations and a part of your morning routine… So now what I do is I have a notebook that as soon as I wake up in the morning I pick up the notebook, I get a pen, and I write down my affirmation 15 times. It is “I’m a strong, confident, successful and handsome real estate billionaire entrepreneur.” I write that down 15 times; I don’t touch my phone, whereas I used to go straight to e-mail… I write that down 15 times and then I read a chapter from a book. In this case, it’s Ninja Selling by Larry Kendall.

Then I feel like I’m programmed for the day. I just feel stronger, more confident, more handsome, more successful… I just feel that way, and I truly believe when you just wake up you’re in a little bit of a foggy zone, and there are some sneaky things you can do to your unconscious mind; I really believe that. And it helps set you up for the rest of the day.

So that’s what I do, I fill all those things that I’ve described, and I’ve been doing this for six days or so. They’ve just been phenomenally effective days. So that’s what I’ve been up to.

And then I still do my liter of water with a scoop of wheat grass.

Theo Hicks: I’ve actually got that same routine from Scott Adams, from his book… And I think we’ve talked about his book on the podcast before, it’s called “How To Fail At Everything And Still Win Big”, or something along those lines. And he talks about how he writes down his affirmations… I can’t remember what his initial was, but he did it for seven days…

Joe Fairless: He was being good at stocks… I think it was stock investing.

Theo Hicks: Okay.

Joe Fairless: Anyway, it doesn’t matter.

Theo Hicks: So I did that for a couple of weeks; I can’t remember what my affirmation was, but my question for you is when you do it, how do you make sure that you stay engaged? So since you’re doing it constantly, you’re doing the same thing 15 times the first day, but then you’re doing it every single day, how do you avoid to kind of just mindlessly doing it and then letting your mind kind of think about something else while you’re doing it? Does that make any sense?

Joe Fairless: I don’t have rules on it. If my mind wanders, which sometimes it does when I’m writing it, as soon as I wake up in the morning, that’s fine. I’m just doing it. No rules, I’m not gonna be hard on myself about anything; I’m just gonna put it down on paper, write it 15 times, and then move on to reading a chapter.

Theo Hicks: Okay. The fact that you are able to just say it back right away… The way that you said it lets you know that you’re definitely imprinting it in your mind.

Joe Fairless: Well, it’s been my affirmation for two years probably, but I haven’t consistently been saying it in my head, so we’ll see. I will continue to do it, and we do Follow Along Fridays, so we’ll see how it works.

Theo Hicks: I know that there’s a similar version, and this one actually — I bet that the different types of affirmations work better for different people. I know there’s one I’ve heard Tony Robbins talk about before, and there’s another book that I’ve read that he talks about this, and it’s saying it to yourself in the mirror 15 times; so you look at yourself in the mirror and say it yourself

Maybe for some people it works better if they’re writing, for some people it works better if they’re saying it, for some people it may work better if they’re visualizing it… I don’t think Scott Adams does this, but I know maybe Joe Rogan does this, while he’s in isolation tank – he’ll record his own voice and then he’ll play that back to himself 15 times. Or if he’s going out on walks, he’ll play his own voice saying it to himself. [unintelligible [00:09:24].15]

I think there’s a lot of different approaches… Yeah, I just thought it was interesting.

Joe Fairless: I think ultimately it’s whatever you will do consistently. Because no matter how you dress it up, consistency is much more important than having a slightly different angle that’s slightly more effective… Because if you’re not doing it at all, then it’s a [unintelligible [00:09:46].08]

Theo Hicks: Exactly.

Joe Fairless: Cool, that’s what I’ve got. How are your properties?

Theo Hicks: I was just sitting here thinking right now that it was literally seven days ago today when I closed, and it does not feel like it’s been seven days, it feels like it’s been like a month… A lot longer than that.

Joe Fairless: Really?

Theo Hicks: Yeah. It’s not a bad thing; it’s not like, “Oh, there’s all these problems that it feels like times has slowed down.” It’s just all that I had to do that came along with it that I wasn’t doing before – that was making time slow down. But I think we’re doing good.

One issue that we’re running into right now, and I’ll know when I leave here how big of a problem that is, because… We’ve gotten 50% of the rents – I collected, I have them… And I had a lot of people that were…

Joe Fairless: It’s the third, yeah!

Theo Hicks: Yeah, and on the lease it says it’s due by the third, so those late fees are starting tomorrow… But we were trying to set them up on this online Cozy.com, and a lot of the tenants were either 1) afraid of typing in their bank account information, because I think they’re not used to setting up bank account information online, or they were gonna send their bank account information – there’s like a fee for your debit card or credit card, and they were like “Well, I don’t wanna pay the fee…” So I had a lot of people that literally text me, or e-mail me or call me either on the first of the month or on 31st, they’re telling me this, even though I reached out to them way before hand to set that up.

I thought that was interesting, and it [unintelligible [00:11:01].20] we’re gonna do a video with the interview of a property manager, so we’re gonna talk a lot about how to make sure that you set up that transition process smoothly. [unintelligible [00:11:10].11] prepare for the call, and one thing that I realized that I did is that I was so focused on just closing the deals that I didn’t even think about what I would do after closing until literally we were having a conversation and you brought it up, on the Follow Along Friday, and I was like “Hm! What am I gonna do?” And I was thinking about what I was gonna do as we were having that conversation, and I did what we talked about and what you told me to do.

I’m looking forward to that conversation with Linda to determine exactly what completes the finish to transition, and then the next time what I can do, because… She was saying she’s listened to what we talked about what I was doing in that, and she was like “Oh, I felt like I could add so much value…”

So I guess that’s maybe the only mistake, but besides that, the affairs are going smoothly. We finally got all the updated rents, so we know exactly what people are paying.

I guess what happened was they increased the rents in April, and didn’t sign new leases, didn’t change the leases at all, they just did it. So obviously, we had to go in there and do month-to-month leases going, because I guess technically they’re [unintelligible [00:12:06].01] or “This price isn’t what my lease says, so why am I paying that?” [unintelligible [00:12:11].13] higher than what they’re paying or what their lease actually says. But besides that, things are going well.

Joe Fairless: Besides having 50% economic occupancy, things are going well. [laughs] It will work out, it will work out. And the conversation with Linda you mentioned – Linda Liberatore, she is the founder of Secure Pay One, which is actually a sponsor of this episode and has been a sponsor… So you’ll be having a one-on-one conversation with her; it’s gonna via video, and it will be on our YouTube channel sometime within the next week or two.

Theo Hicks: Yeah, so the reason why I said that I don’t know how dire of a situation it is and whether I’m actually at 50% occupancy [unintelligible [00:12:52].25] but they were all calling in so late… And I knew if they mailed me a check I wouldn’t be able to see it for two or three days, so I was going to the mailbox [unintelligible [00:13:00].28] Because I went there yesterday, and I went pretty early in the morning, so I don’t know when they drop the mail off… And there were two checks in there, and I was like “I was hoping all of them would be in here!”

So yeah, we’re gonna do that, and then if it doesn’t work out [unintelligible [00:13:13].03] the checks are in there, I’m going to — I have everyone’s phone number, thankfully… Everyone that hasn’t paid I have the phone numbers; one person’s phone I don’t have yet. But I’ll have to call them all and explain to them the situation and say “This is what your lease says, so you owe us your rent, plus” whatever their late fee is. I think their late fee is like $25/day; I think that’s what they have in the old lease. And then I’m hoping the rents are in the mailbox, because I’ve talked to all of them and they all said they were gonna send them in the mail… It’s just that I talked with some of them like two days ago, so it must not have gotten there yet. We’ll see what happens.

Joe Fairless: This will be an ongoing story, that’s for sure.

Theo Hicks: It will be.

Joe Fairless: Okay, cool.

Theo Hicks: That’s the updates I have. I think this is a good transition to a question one of the listeners have based off of the conversation that we had about my properties, and I think this was based off of last week’s when I was explaining what I plan on doing and how I was gonna be the manager, and things like that.

So the name was CityPark Properties, and he says “Does Theo employ anyone to help maintain his new property? If not, what’s the breaking point where one would hire someone versus using an outside contractor?” And I kind of started thinking about that, because obviously [unintelligible [00:14:19].22] what your business plan is, but I was just thinking in general, how do you determine when–

Joe Fairless: Well, before that, why don’t you answer that first question, just to address this?

Theo Hicks: Yeah, so it depends on what you mean by contractor. Do you mean if I actually have a general contractor, or a maintenance person? I don’t do that stuff myself. I’m not capable of doing anything besides like painting or changing a lock or a light bulb… So I have a — I wouldn’t necessarily call him a general contractor because he doesn’t do everything, but he’s a plumber, and he can do most of the things that would need to be addressed quickly, like if a pipe burst, or he can do HVACs… So anything that would need immediate replacing, he’s someone that I can call and he’ll go right in there that day or the next day and address it.

What I was doing for my last property and I’m going to do with this property too – if something comes up that you can’t do, like if I need to put in a new carpet, then I’ll just use a [unintelligible [00:15:10].19] or I’ll just go on Bigger Pockets and find someone to technically contract out the work to

I’ll mow the lawn, I’ll collect the rents and things like that, but I just kind of look at it more of just it being like a project that whenever a problem happens, I’m managing someone to take care of it. I kind of look at it more like I’m like a manager managing employees, so to speak. That’s how I kind of look at it, because ultimately the goal is to have a bunch of units, and I don’t ever plan on giving it to a property management company; I plan on either having my own, just because Marcella – that’s what she wants to do, manage all these properties and have this be her business, because that’s kind of what she does now for her job.

So the goal would be to eventually just kind of replace me with someone else, and then just move up a notch and kind of manage the Theo that’s controlling these 12 units, or the Joe that’s controlling these 30 units over here… So that’s my plan.

I guess the question is – and I don’t necessarily know the answer to this, because I haven’t done it yet, but how do you know when it’s time to replace your current self and move on to something else and then manage new person? The only answer I can think of is when you feel as if it’s intuitive that it’s the time to move up. Besides that, I can’t think of any objective rational thing to look at and say “Okay, I’ve got 26 units and I’m working 15 hours a week. It’s enough time to move on.” I’m not sure whatever your thought’s on that.

Joe Fairless: I’ve always had a property manager, even when I bought my first house, because I was living in New York City and I bought it in Texas. I come from a different perspective than you and perhaps the  Best Ever listener who submitted that question, because I’ve never managed a property myself, therefore I always build in — so here’s one takeaway, and this is what every person will tell you… Always build in property manager fees into your numbers, so that if do you transition out, then you have the ability to pay them and you’re not losing money once you delegate those responsibilities. So that’s one takeaway – always budget in property management fees.

In terms of the fees, in general, if you’ve got single-families with a management company, it’s gonna be anywhere between 7%-10% of monthly rent that’s collected. There might be some other fees on top of that, like renewal fees or maintenance if they charge for working with maintenance people on certain requests, but in general it’s 7%-10%. Multifamily can be as low as 3% of collected monthly income.

As far as determining when is the right time, that assumes that you didn’t start out that way, I think, in your case. I would say whenever it becomes a burden or whenever it starts slowing you down for acquiring new properties and growing the business, that’s when you need to hire someone.

So then the question becomes “How the heck do I know if it’s slowing me down?” Well, I would say it probably is already slowing you down if you’re asking the question… Because if you’re doing a job where you can pay someone hourly less than what your hourly rate is worth, then it’s slowing you down. And in general, that’s gonna be all the time.

Now, the reality is some people might not have the budget to bring a management company on, or you might wanna learn the ropes so that you can then build your own property management company, and that’s a different approach. So all roads lead back to what’s your vision for your own real estate kingdom, and if it is to build your own property management company, it makes a lot of sense to manage it on yourself. Of course it makes sense to manage yourself. Learn the ropes, learn how to hire, learn what type of people you need to bring in and put in place, and then you know the type of skillsets a person will need to have in order to replace you.

But if you don’t plan on having your own management company, I don’t think it makes sense for you to manage out of the gate. Just build it in and start scaling by bringing more income to the table, because you’re focused on income, not handling maintenance requests.

Theo Hicks: Yeah, that totally makes sense. I guess from my perspective the way I was looking at it was I wanted to – I kind of alluded to it – know what it’s like to be a manager; what are the best practices and what are the mistakes and what are the stupid things to do versus what’s the best thing to do. That way if I ever do end up hiring another property management — if I’m like “I don’t wanna make my property management company anymore, I don’t wanna do it anymore”, at least I can find someone and I can tell if what they’re doing is right or wrong, versus if I had no idea how to manage it properly at all; I wouldn’t even know if what they were doing was they’re even being effective or as efficient as possible.

Another thing too is that I was kind of looking at it from the beginning and I was talking to Marcella about it, and I was trying to figure out what would be one of the main reasons why I would get a property management company… And just being honest, one of the reasons why I wanted to do it was because “I’m lazy, I don’t wanna deal with it right now.” But since that was kind of my only reason why — usually if my reasons why I don’t wanna do something is because I’m lazy or I just don’t wanna do it, then I usually do it… [laughter] Because probably that’s a good enough reason, and I think it helps me grow, and worst-case scenario I’ll have a toolset of property management and I will understand how to do it, and who knows what opportunities that can bring in the future. That’s the plan for now.

Joe Fairless: It reminds me of when I was talking to Emmitt Smith on this show, and — he’s a hall of fame football player and now he is in real estate development, in different avenues of real estate. How do you make that transition? I mean, those are two different professions. And he studies like a mad man the aspects of this business in real estate; similar to what you’re talking about.

He’ll know if someone’s trying to pull  the wool over his eyes, because he’s done the studying enough to be competent in the areas — by no means he’s an expert, compared to someone who’s been in the business their whole profession, but at least he’s competent enough to know if he needs to raise the BS flag. That’s necessary in what we do.

I believe you can get that education enough to be competent by not doing it; I think you can go shadow management companies, best in class management companies… I think you can do 1,000+ interviews with real estate professionals, and there are other ways to do it, but certainly hands-on experience I would say would be the best… But then you’ve gotta balance your time and your long-term vision for your company and if you wanna go more focused and hands-on on that one aspect because you’ve got a long-term plan for management.

Theo Hicks: I imagine what would happen — because again, it’s impossible to predict exactly what’s gonna happen. But I can imagine [unintelligible [00:22:33].14] you have 12 units, and they’re all in one area, so that’s basically [unintelligible [00:22:40].12] and I’m gonna do everything myself, and I can imagine being more and more like “Oh, this is too much. Let’s just get a property management company, let’s focus on the acquisition and finding more deals.”

Right now, our plan is to buy more property, just use all of our personal money that we can replenish enough to buy new properties just with our income from working every six months, and that’s not taking into account what income we make from the actual properties… So we’re just gonna do that and [unintelligible [00:23:04].12] and then maybe after 18 months we’re bringing in so much money that [unintelligible [00:23:15].15] going through all that headache of closing and “Oh, man…” This first time going through the transition to getting all these people to pay us rent… It’s like, “Oh, we’re gonna just contract that out to a property management company”, and then I do it one time and see how much easier it is and how much more smooth the process is, and I go “What am I doing? Why did I ever do that in the first place?” I’m sure that type of thing will end up happening, if I’m being honest, but…

I guess another thing that was interesting is you say oh, you can learn property management hands-on, by doing it, but you can also interview, you can read about it, you can shadow about it. That kind of goes back to what we were talking about the affirmations too, where it’s like it depends on how you learn. Getting to know yourself and know how you learn the best, and then make sure you are doing that. So if you learn by reading, then don’t watch YouTube videos all the time, make sure you read. If you learn by doing, then actually do it; you can’t just like read a book.

Joe Fairless: I think everyone learns best by actually doing it; that’s the highest commitment of time. I think it’s about where do you see this aspect in the future, and if it’s a very important aspect where you think you’re gonna build out your own company, then it would make sense. But if it’s something that “I just wanna be competent to know if my third-party management company is trying to pull one over on me”, then you can read and interview and shadow, and spend more time on making the money or finding new properties, that sort of thing. Because I think the hands-on experience – I think everyone’s gonna get the most out of it… It’s just a high time commitment.

Theo Hicks: Yeah, there’s two people that come to mind – Elon Musk, and then a pharmaceutical executive, Martin Shkreli, or whatever. I’ve read Elon Musk’s book and I’ve listened to a lot of YouTube videos of both of them; they are obviously CEOs of massively multi-billion dollar companies, and both of them — Elon Musk, when he did his SpaceX, he learned about it by just reading a bunch of SpaceX textbooks… A bunch of like rocket science tech books.

Then Martin was also saying that when he started the pharmaceutical companies, he just read a ton of tech books on chemistry and pharmacy and biology. He’s doing the same thing now for programming. He was having a conversation with this guy and he was saying “Why are you wasting all your time learning programming? You shouldn’t be doing that.” He’s like “No, if I’m gonna do a business, I wanna know everything about that business, because that’s what I did for the pharmaceutical industry and that’s why I did so well on it, so I’m gonna do the same thing for the tech industry, too.”

I can tell that my mind works similar to theirs, the engineering mindset. I see that it’s working for them, so I’m kind of like replicate what they did and kind of use that approach, too. I’ll probably be that guy that’s sitting in a Starbucks, reading a property management textbook, and it’s like “Who is this guy? Is he in school?” I’m just like “No, I’m just trying to figure out what’s going on here.”

Joe Fairless: I have one of those, by the way.

Theo Hicks: Really?

Joe Fairless: I have a property management textbook.

Theo Hicks: I’d like to borrow that.

Joe Fairless: Yeah, I’ll let you borrow it. Alright, one last comment… You mentioned every six months, based on income between the two of you, you’ll be buying another — but I’d also look at the cash-out refinance.

Theo Hicks: Oh yeah, that’s something that I plan on doing. I plan on using the cash on a refinancing combination with life insurance to buy real estate, too.

Joe Fairless: Got it. In order to cash-out refinance, you’re likely gonna have to pump some money into it… Except for this deal, it sounds like heaven’s opened up…

Theo Hicks: I got lucky.

Joe Fairless: Yeah, you got lucky. And if you wanna hear about how he got lucky on this deal, listen to the last week; we won’t go into it again.

Theo Hicks: I think last week we said it was $100,000 of equity created, but I calculated and it was $50,000 in equity created, just because some of the rents were right, some of them were wrong, and so just by luck I created $50,000 in equity on these properties because the rents were given to us incorrectly. So yeah, I’m lucky. [laughs] So I guess that’s what’s happening.

This will be mentioned — we’re gonna be doing that video with Linda Liberatore of Secure One, so keep an eye out for that in the next week or two. And then just to finish off, make sure you guys subscribe to the podcast on iTunes and leave a review for the opportunity to be the review of the week.

This week —

Joe Fairless: Did you practice saying it that way? Because you sound like a voiceover guy.

Theo Hicks: I sound like a commercial. [laughter] A quick anecdote… I took that Dale Carnegie class, and one of the silly presentations we had to give was we had to mimic — do you know those OxiClean weird infomercials we see?

Joe Fairless: Yeah.

Theo Hicks: I’ve had to mimic that, and that’s the voice I do. So I guess whenever I feel like I’m doing a commercial, my voice just completely changes. It must be some subconscious thing.

The review of the week this week is from Jay Caseman, and he says:

“Joe is an excellent host, and his podcast delivers expert tips for the new and advanced investor. Joe has a wealth of experience himself and is responsive to listener inquiries and feedback. He’s pulling in more famous guests now, but keeps the convo focused on the relevant material for investors.

Excellent podcast, very deserving of five stars.”

Joe Fairless: Sweet! Thank you for that, I appreciate it. And yes, we are getting high-profile guests on the show; we’ve got more coming, and I certainly am focused on pulling in feedback from you, Best Ever listeners. As you have questions, then you can either e-mail info@joefairless.com, reply underneath the video on our Facebook page, which is facebook.com/meetjoefairless, and just comment underneath the video, ask a question, and we’ll be happy to answer those questions on a future episode of Follow Along Friday.

With that being said, I enjoyed it. Best Ever listeners, I hope you have a best ever weekend, and we’ll talk to you tomorrow.

 

 

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