Episode #007 - Do you want to know the in’s and out’s of property management? Well now is your chance! In this episode we visit with Jay Hartley. Jay is the Co-owner of Frontline Property Management and he has extensive experience in real estate investing/managing. Join us as we get to know Jay and learn key insights in the world of property management.
(https://youtu.be/GJXNqgRMO9A)
Jay’s Bio: Jay is a seasoned investor and has been a licensed Texas Real Estate Agent specializing in rental investments for nearly two decades. He is an active and contributing member of the National Association of Residential Property Managers (NARPM) and has served as the Fort Worth/Mid Cities Chapter’s President, Treasurer and Secretary in recent years. He is a sought-after speaker for multiple Realtors boards & advisory panels, investment training seminars and several nationally syndicated radio programs focused on single family real estate investments.
Links from this episode:
Coffee purchased from Starbucks: https://www.starbucks.com/
Frontline Property Management: http://frontlineproperty.com
Transcription
Episode #007 REN Podcast Transcription (Jay Hartley)
Jason: Good morning everybody. Jason Reynolds here with the ‘Real Estate Now Podcast’ and I have Jay Hartley with ‘Frontline Property Management’ he is the COO and co-owner of ‘Frontline Property Management’
Jay: Hey everybody!
Jason: How are you doing today Jay?
Jay: I am awesome, how about you?
Jason: I am doing great. Okay guys, so obviously, in the real estate business, we work in investments as well. ‘Frontline;’ is actually a sister company to ‘Vision Realty and Investments’. So I want to bring Jay in to talk a little bit about property managements and his role there. Let us get to know Jay a little bit, how long have you been in the area? (0:37)
Jay: I have lived in the DFW metroplex for about 20 years.
Jason: Okay. So quite a while then.
Jay: Yes.
Jason: Where are you from? (1:06)
Jay: I was born in El Paso, so Texas native but shortly after I was born, our family moved from place to place. I think the longest we ever stayed was about three years. Mom built shopping centers, they call then strip centers.
Jason: Okay.
Jay: Not to be confused with the other kind of strip centers. She built shopping centers and dad was in the military. Between mom and dad, we moved about every 2-3 years on average.
Jason: Is that how you got the bug into being into property management and around the business? (1:39)
Jay: Yeah. For as long as I can remember, my mom has been in some form of real estate. She is what they call an abstract officer originally, which is what we consider now as a title officer. Metes and bounds, when you want to buy a property, she is the one that pulled out a big book and figured out exactly what you were buying.
Jason: Okay.
Jay: How it measured and so forth. Then she got into really full-fledged real estate selling, leasing and property management and has been doing it for so long. I swore to myself, especially my brother and I. I swore to myself that we were not going to get into real estate because, it was the business that took mom away from us, late nights, weekends and all that kind of thing. But after I got out of college, I was in the hospitality industry and mom called me up one day and says, “Hey, I need some help. Please come help me in my office” as family does, you pitch in whenever you are needed. So I went into her office and kind of helped out. The first person I met was someone that needed a house and to make the long story short, it was an eye-opening experience for me because I was so energized by one person’s reaction to being able to get a home.
It just pumped me up. I was excited and I wanted to do it again. I wanted to replicate that feeling for somebody else and replicate the feeling I had. Then I got a check and I was like, “Oh! You make money at this”. Shortly then after, I got my real estate license and I was off and running.
Jason: Cool. Are you married? How long have you been married? (3:33)
Jay: I am married. Just over 10 years. My wife and I just celebrated 10 years. We have 3 beautiful dogs, we are doggy parents so my wife’s career is in real estate as well but on the other side of it, she does HOA management , she has got a blossoming career so we find time for the dogs, but that’s about it.
Jason: Cool. I know this but not everybody else. You have recently jumped in to ‘Frontline’ so how long have you been with this officially? (4:01)
Jay: I started January 1st actually January 2nd. I don’t think any of us work on January 1st. yeah, I started January 2nd, I have been in real estate for 17 years now. I had been running another company for someone else for 15 years. I decided to make a change and the original owner of ‘Frontline’ was somebody that I have done many deals with in the past. We decided to partner up and move forward.
Jason: That is Steve Fithian.
Jay: It is.
Jason: We interviewed him on the last one. I have got a bunch on miscellaneous questions that are in no particular order, these are questions that I have had owners ask.
Jay: Putting me on the hot seat.
Jason: One question is; a lot of people ask about the eviction process in Texas. It is pretty strict in California. Can you give a short version of what the eviction is like in Texas? (5:00)
Jay: Texas is a landlord friendly state so it is awesome. We do not want to have to evict anybody but if we are actually going it have to go through with the eviction process. It is great for it to be easy. I never really understood how easy it was in the beginning for us anyway. Until, I started working with a lot of out of state investors in California, New York, Florida and so forth. To actually find out the difficulties that they go through; time constraints, the issues that they run into is mind boggling for me because it is so foreign to me.
In Texas, it takes us about 23-25 days depending on how many weekends fall in there to actually get a tenant out from start to finish. There could be a little more of a delay if the tenant appeals it but that is pretty rare. Texas is pretty cut and dry with the tenant’s inability to pay being the primary reason for eviction. When you go before the judge with the case, it is pretty much cut and dry with the judges and the tenants. The tenants hadn’t paid and they can’t show that they have paid. It is pay to stay and if you can’t pay, you have to go.
Jason: So pretty easy compared to other states.
Jay: Yes.
Jason: Another one is, when people are doing the research of property management companies, you are going to see the fees range all over the place. One thing that I have noticed is some companies may have really low fees but then there is a maintenance fees on top of things, so they are making the same amount but just in different ways. (6:40)
Jay: They actually make more.
Jason: They actually make more?
Jay: Yeah.
Jason: Can you kind of dive into that?
Jay: Sure. There are companies out there that still do what you consider all inclusive prices. It is the way that ‘Frontline’ is set up. We do not charge for maintenance, coordination, answering the phone or whatever it might be. There are a lot of fee based structures that are out there. It is kind of that introductory rate if you will. The comparison is that 5% credit card that you can get also when it jumps to 20 or 25% after you introductory period so it is comparable to that. A lot of companies are switching to a low monthly management model because it is a set stagnant fee, if you will because the rate never changed. But, the variable fee is the one that they put on top of your maintenance coordination. If you have a toilet repair and it is $200 and they charge you 10%, that is an easy $20 that they made just for coordinating that and sending it out a vender.
That is not so bad one time, but if you are replacing a water heater and doing a roof, replacing a roof or a major remodel. Anything like that and if it is expensive, those fees can really add up. Me being an investor myself, it is hard for me to calculate a variable fee. I don’t want to have what-if’s. I know some things are going to break and I am going to have to fix and that kind of thing but I budget for that kind of thing. If I happen to budget and extra 10% on top of that or whatever that number is. I am not saying that everybody charges 10, I am not saying that it is but something on average like that. Then, you have to budget for those extra fees.
Jason: Right.
Jay: It is not a model I like, it is not a model that I am interested in pursuing. It works for some people and some investors are okay with that. If they are, more power to how you want to handle your business. I just think that all inclusive is a better pricing model.
Jason: Right. I think that is a good comparison. Let us say, John, a new investor comes into town and buys a bunch of properties and gets set up with a property manager and some of them are already vacant. What is the process that ‘Frontline’ uses to market those properties and get them filled as soon as possible? (9:10)
Jay: Good question. Initially, we are going to hope that John contacted us before we actually closed on the deals. I know you and ‘Frontline’ we work really well with investors. Introduction up front and putting together a deal and evaluating properties. We are going to hope John contacted us ahead of time so we can prepare and have a chance to put everything on paper and get it scheduled out. Once we get a piece of property that an investor has taken on. First, we are going to run the comps on it. Whether it is occupied or vacant, we are going to determine what the rate should be and compare it to what they are paying now, what they were getting before. From that, if it is vacant, we are going to hop to and make sure we are getting it ready for leasing, showing and make sure it is ready to show and ready to move in.
From that, get it on the market, out it is in MLS, start showing through our multiple different websites. Put a sign in the yard and pictures online and all that good stuff. Vacancies are the kiss of death for investors. I hate it when one of my properties goes vacant - if it is not my choice. I don’t want people’s properties set there because a house sitting in a ground empty is not making me any money so I am losing money. The passive of cash flow is…
Jason: Gone.
Jay: Yes, it’s gone. You have a month of vacancy, two months of vacancy, you lost everything that you were going to be making for the year.
Jason: Jumping off of that, how does that look for the investor? Do they have any type of fees when a property is not leased out? (11:04)
Jay: No. we don’t charge anything for the vacancy itself. There I no handling fee or anything like that. Obviously, if there is anything that we need to do work on, we are going to pass that through… we will ask that they cover make ready cost or the rehab cost or whatever but we are going to know what those would be upfront before we dive into it. But let’s say you have one that a tenant moves out and you have to get it ready. Hopefully, we have stocked a little cash away in the reserve so that we can absorb that expense relatively easily. Once it is leased, we are going to charge you a fee once you have leased it because that includes all the screening, background checks and that kind of stuff. But, no fee while it is sitting empty like that.
Jason: I just realized my windshield is cracked.
Jay: Oh dude.
Jason: That is funny.
Jay: That sucks.
Jason: New car, new windshield.
Jay: I wonder if the warranty covers that.
Jason: I don’t know, I have to check.
Jay: I don’t see any.
Jason: Yeah, I don’t see a rock or anything. I want to jump off into that. You mentioned tenant screening. What does that look like for ‘Frontline’ once you find a tenant? What is that process for how they get screened? What are the parameters that you look for? Does the owner have any influence on anything there? (12:19)
Jay: We try to make the application process as easy as possible for the tenants. We want them to go online and fill out an online app. Complete the application relative easy and pay online for their app fee.
Jason: They do everything, it is pretty quick.
Jay: Yeah, they do everything online, they log in and we don’t want them to have the facts and all those other stuff. We make it as easy as possible.
Jason: Okay, now we have got our Starbucks fix and we are ready to go again. So back to the eviction, not the eviction question. The tenant screening process.
Jay: Yes.
Jason: So you got an online portal for everybody to do quickly and easily, which that is awesome because I have had people apply for properties. You have to print out paperwork, you have to try to and coordinate with the landlord and the property manager, I mean, it is just a mess. Then it all gets immediately process. What is the review process?
Jay: Once a tenant applies online, I am not saying ink is dead but we want to make it as quick as possible so the online process make it a lot easier. Once a tenant applies, it automatically goes to our background check, it runs credit check, criminal check and then they start the employment verification and the past rental and mortgage payment verification, the biggest delays that we run into is going to be… oh, hello, how are you doing? Is going to be the employment verification and then also the rental history. Those are the things that delay an approval. The credit checks is instantaneous. The criminal checks takes a minute. Those are relatively quick and we can look and see what kind of perspective tenant we are talking to. Of course, we want to make sure all the ducks are in a row, no skeletons in the closet. So we wait for the employment and rental history and mortgage payment history to come back in.
It usually takes about a day and sometimes 2 days to get everything in processed depending on the employment and the rental. From that, it’s basically a clear-cut point system that approves or declines a tenant. There is always a possibility that the tenant can be conditionally approves. Some of them maybe borderline, they fell just below the approval process. Sometimes, there is an opportunity for them to still lease the property and make an additional deposit. Maybe a co-signer, it depends on the scenario. If they fall below that then it is a done deal. Unfortunately, we have to decline them.
Jason: Say it is a popular property and it got a lot of attention and there are three applicants that are approved and there is really no difference among them. Is it based on priority, maybe whoever applied first? (15:32)
Jay: No, actually Texas is a great state that does not require that I take the first applicant. I know that is going to be a strange things from some of the California and Florida listeners because they are required to consider the first one. I am not, I would take the best applicant that we have. Let us say we have three applicants who have applied for the property, we don’t tell anyone of them that they are approved. We want to consider them all; we are going to run the backgrounds, we are going to check them all and I am going to pick the best one. I want the best candidate that we have available for our owners. There are a multitude of factors. How long have they been in the company? How much money do they make? Obviously. How good is their credit? A bunch of different factors. If someone is really questionable they went to the bottom of the pile automatically.
Jason: Okay, kind of going off that as well. How do you deal with pet scenarios with certain properties? Because I know some owners are asking, “Do we have to allow pets? Can we say we don’t want pets? Could there be a case-by-case basis. What’s that process like? (16:42)
Jay: I mean the easiest answer is case-by-case but I will caution anybody that says they don’t want to have pets. That the potential tenant pool just shrank remendously. The national average is 2.5 kids and a dog. I don’t know if the cats get left out of that one but that average is… a lot of people have dogs so. Little Timmy and his dog, you want them as a tenant. Sometimes, they can be the ideal tenant not to say that dogs aren’t bad. This is coming from a dog lover but I know that there are bad dog owners out there, I don’t think any dog is bad, I think it is trained to be bad. Rottweilers and Pitbulls, they get a terrible name. The insurance company has now labelled them so that is a whole different story, they don’t allow those.
I think that there are bad dog owners out there. I know some owners of rental properties think that it would be better not to have dogs. We would have that conversation but we would allow an owner to say, “Look, no dogs” if that is the status quo then that is the way it would be. We want to caution them against that because we will diminish our tenant pool.
Jason: That makes sense. Once you have a tenant, how is the rent collected from them? I know they can drop it off at ‘Frontline’ but is there a direct deposit of it available? (18:24)
Jay: Yes, they can pay online, there are multitude of ways they can pay. They can pay online via ACH or direct deposit, which is probably the easiest E-checks and that kind of good stuff. We also have this ‘pay near me’ option. Let us say someone for some reason does not like using computer and electronic transfers of money or what have you. They can go to a bunch of different venues; convenient stores, check cashing place and they can take cash in there if they want.
Jason: Really.
Jay: Give it to them. They have an account number and everything is set up ahead of time so they know specifically where to go and who to sign to and so forth. But a tenant can go into some 7-Eleven and say, "Hey, here is my account number. I want to pay this bill" and we get a notification shortly after the payment is made that this account has paid the rent.
Jason: Is there a fee associated with that?
Jay: Yes. There is a fee. Obviously, there are certain services that..
Jason: I mean you are going to a 7-Eleven to pay your rent!
Jay: It is a similar fee amount if they went elsewhere and purchased a money order. I mean, it is comparable to that. We really talked about this option ahead of time and what it would cost and what would it look like to a tenant in utilizing this service. We wanted to make sure that it was relatively inexpensive but it is another option. If they are worried about their rent being on time, they can run over here and pay a couple of dollars in addition to the rent payment and the rent is tabbed in at whatever time they dropped it off or went and used this service. If someone is really scrambling to pay rent on time and they are waiting till the last minute. Procrastinators, you have got to love them. In that scenario, a couple of dollars hopefully won’t hurt.
Jason: From the owner’s side of things. Once they have a tenant. What kind of services does 'Frontline' have in terms of owner portals, being able to see their property? Obviously, they are in different time zones. A lot of clients are in California. Whenever they have the time, they have the access to look at their properties. (20:40)
Jay: They do. When they first set up the account. We would have what we call the owner portal access. They would be given a log in. They an look at their statements anytime. There are some history notes that are in there and are made available to them. Access to payment information and so forth. The most important thing is that it is stored in the cloud so they don't actually have to download their files or worry about emailing us or calling us and saying, "I need a copy of last year’s January's statement" or whatever it might be. They can easily log on to the portal and access those statements at any time. It makes it easy and every month, we get a new statement and a new log in, not log in. New statements and notifications that your statements are ready. A little bit of communication if anything has happened that month or if it is just status quo. You are going to get a note that all is good and here is your statement and your money is in your bank.
Jason: Yes. That is typically, what we get. Once a month, we get a statement that all is good and we go from there. If there is a tenant is on the property, how often do the property managers do property inspections? Like an actual walk through. (22:06)
Jay: Texas has a licensing for inspectors. None of our agents are inspectors.
Jason: Not inspections, just a work through.
Jay: Work through, we do them minimum once a year. Sometimes a property may warrant a more frequent visit. Pending a bad tenant or a couple of violations, HOA slap on the hand or whatever it might be. Minimum, they are going to walk it once a year. We encourage our owners that if they want more frequent visits to the property. We offer a service where it is roughly $119 and they have a professional inspector go out there as often as they want and truly inspect the property. Take pictures, check the smoke detectors, walk through and test the HVAC or check the water heater and all that good stuff and negotiate a little bit for the special price for the inspection company to go out there and do it. They can do it as often as they want but keep in mind that having an inspector go by once a month, you are going to irritate your tenant.
Jason: I agree, and you’re eating up your passive cash flow.
Jay: Sure. We usually encourage them maybe once or twice a year and they have the inspection done. I do have a couple that had it quarterly in the beginning then when they get to comfort level they back it down. We don't want to inconvenience the tenant, but it is the owner's property I understand if they want to have it checked more frequently but once a quarter that is really pushing it.
Jason: Information for this new market, what do you see as the average for a property that has been made ready for the recommendation of the property manager? It is at the price that the property manager recommended. It is everything that 'Frontline' that has recommended. What do you see based on the market? (24:01)
Jay: Days, Literally 7-14 days.
Jason: Not long at all.
Jay: A week to 2 weeks is about the average. Some properties move within the day. Some properties move before we actually put them on the market. We would get neighbors that would see us working on the house and doing the paint or whatever. They’ll come and ask the maintenance crew, "Is this going to be for rent or is it going to be put back on the market?" Or what have you. The managers get those calls from time to time. Of course, they love them because they don't have to do much to them other the regular turnover make ready type of deal. Some of them may take a little longer and those are averaging about a week to 2 weeks. We are seeing them move really fast. We are seeing rents climb, which is great, but we have to be conscious about overpricing something. If you over price it and hope that someone is going to pay whatever you are asking. Sometimes those will shoot you in the foot.
Jason: Right. What is the leasing season? Just for a new investor. Typically in this area. When does it pick up and when does it slow down. Are there a few points during the year when it does that? (25:26)
Jay: Yes. Great question. The majority of our tenant base is going to be families. So kids that are in school and a majority of people that have children and want to try and plan their move, plan the move when the kids are out of school. So the busy time for us is summer. April through August is really rock and roll. We try to position the leases to where they come up during that period. Even if the tenants are going to stay, we want to renew them within that time frame and keep them on a one year basis. In the beginning, we get something that is offered for lease. They bought it in December or what have you. We don't want the lease to come up in December every year so rather than a traditional 12-24 month lease term. We are going to try and position it to where it comes up in the summer. We do an 18 or 36-month lease so that when the first term comes around they are offered a renewal option and then at the point, they are going to be renewing on an annual basis or every 2 years. The more work we can do in the beginning to make it easier it is on the back end, the better.
Jason: Perfect. Jumping out of the property management side and more on the market. I know a lot of investor that come into town and they know ‘Frontline’ and ‘Visions’ we focus on the west side of the full metroplex. What areas does 'Frontline' like to cover? What area do they like to specialize in with the property managers? (26:57)
Jay: What do we cover? What do we specialize in? North Texas is what we like to cover. There are 6 counties around the DFW metroplex that we cover. Obviously it big ones are going to be Tarrant county, Dallas county and then we also have Johnson, Elis, Dimmit, Collin. So allover. We are expanding our footprint as we kind of get bigger but. That is also really following the trend. Obviously, the big push originally was properties that were in the nucleus if you will. The metroplex itself for the short commuters. You also see a lot of suburban expansion. A lot of the commuters are going further and further out. Investment opportunities. You want to follow the opportunities. No house is too far as long as someone is willing to pay the rent that we need for it. We are looking at the entire metroplex as a whole.
Jason: What do you say to those investors? Because I know that a lot of clients that I have recently had. They came in and they were looking at Plano area. We had to coach them and show them that there are opportunities in other places as well that make them more money plus there is room for appreciation. We help them buy a home say in Granbury, Texas or in Weatherford or Azle Texas. If someone is listening in from California you probably don’t know but if you do pull it on the map it is maybe a 40 minutes drive from downtown Fort Worth. What are your thoughts on those? Are those still good places? Are the tenants typically commuting in or is it a variety? Do they work in town too? (28:32)
Jay: The easiest way to compare it. Let us get off real estate entirely for a second. Let’s say you are going on vacation. Where do you want to go? When you go on vacation. Obviously, you are going to a popular spot or what have you. The first thing that jumps into my mind is where do the locals go when they hang out. Where are the best bars? Where is the best dance club? Where is the best beach? The locals know that. Now, translate it back into real estate. What do the locals recommend? Where are the locals living? Where do the locals go? Where do the local professionals recommend that you buy? That is first and foremost. The metroplex is expanding rapidly. What is the average? 1,100 people a week moving to the metroplex. We cannot for them downtown Dallas and Fort Worth. So everybody is looking... not everybody, but the majority are looking at the suburbs. There are a lot of opportunities. We want to try and make sure that we are capturing that. It is the commuters that are living further and further out of course our freeway system is just crazy. The rents aren't as high as Plano but the cost of purchase is comparable. It is lower price points, lower entry points.
Jason: Lower taxes.
Jay: Lower taxes. A little bit lower rent but that is all in comparison on ROI basis. When you show people that if you go a little further out you are going to pay a little bit less. They are going to get a little bit less but the ROI is just as good. Why wouldn't you?
Jason: Another thing for those listening that are maybe in California. If we are 40 miles away, it typically means 40-50 minutes. 40 miles doesn't equal 2 hours of a commute time because the freeway system is so good here. Usually, it moves pretty well, you just have your traffic hours. (31:17)
Jay: I thought we had bad traffic. I actually went to LA to attend an educational event to meet some people. Literally, it took me half-an-hour to go 4 miles. I could not believe that. I thought our traffic was bad. It is not. California is hand down some tough traffic.
Jason: Alright guys. We are kind of run up on our time. For those that are interesting in property management and have questions. Where can they go to and how can they reach you and contact you? (31:59)
Jay: FrontlineProperty.com is our website or give us a call 817-377-5190. I would be happy to talk to you an answer any questions or you an email me JHartley@frontineproperty.com. Happy to help.
Jason: Okay. Perfect. Thanks Jay.
Jay: Thanks Jason.