So, we’ve been talking real estate the last few podcast episodes.
So far, though, we’ve only talked about buying and rehabbing rental properties.
But buying/rehabbing isn’t enough.
You need tenants to actually make money – and build wealth – from real estate. Tenants pay the rent!
But how do you find great tenants? Manage them? And, importantly, keep them around?
In this week’s podcast, I talk with Mark Ainley in depth about how to manage rental properties effectively by attracting and retaining quality tenants.
Mark is a long-time real estate investor and co-founder of a Chicago-based property management company that currently manages ~1K residential doors + 2M square feet of commercial real estate.
We chat about:
- Best practices for attracting quality tenants to your listing (and screening applicants)
- Tips for managing tenants effectively – including key lease provisions, dealing with lease expirations, and regularly inspecting units
- How to retain good tenants and handle bad ones
- Key things to look for when hiring & reference-checking property management companies
If you own rental properties, what are your best practices for finding, managing, and retaining great tenants? Do you use a property management company? If so, how do you make sure you’re getting good service from them? Let me know by leaving a comment when you’re done!
Don’t miss an episode, hit that subscribe button…
If you liked this episode, be sure to subscribe so you don’t miss any upcoming episodes!
I need your help, please leave a listener review 🙂
If you liked this episode, would you please leave a quick review on Apple Podcasts? It’d mean the world to me and your review also helps others find my podcast, too!
Links mentioned in this episode:
- GC Realty & Development
- Get Mark’s Tenant Scoring Matrix to help you screen tenants effectively
- HYW private Facebook community
Read this episode as a post:
My guest today is Mark Ainley.
Mark is a longtime real estate investor who has rehabbed over 450 properties, as well as the co-founder of GC Realty and Development, a brokerage and property management firm that currently oversees around 1000 residential doors and 2 million square feet of commercial space throughout the Chicago metro area.
He’s been featured on CNBC’s “The Deed,” as well as the Bigger Pockets Podcast, the Real Estate Mogul Podcast, and Joe Fairless’ Best Ever Podcast, among others.
Mark, thanks so much for joining us today to share insights and tips all about how to be an effective property manager.
Mark Ainley 1:55
Thank you for having me, Andrew. I appreciate the opportunity to come on your show.
Andrew Chen 1:59
I would love to start just by learning a little bit more about your background. Can you walk us through? How did you get into becoming a property manager and an expert on property management in the first place?
Mark Ainley 2:09
With no direct intention. Back then, when we got into property management, I never realized property management was an industry. It wasn’t even a service.
In my mind, it was you collect rent. You respond to maintenance. I didn’t even think about it.
We bought our first property and we self-managed it, of course. And we put the first sad story tenant in there and we ultimately had to evict her. So that was my first experience with property management.
And we ended up doing the file for eviction, did the modern day cash for keys, and got her to leave. And then we ultimately sold the property.
And we said, “We are done on the property manager side of things.” And we actually checked out of the whole investment side of things there.
So that was my first experience.
On the brokerage side of things, we were working with a lot of investors. This was, timeframe-wise, 2004-2006. And we were selling live investment properties.
Now, selling investment properties back then was not what it’s like today. Back then, it was knowing what areas of potential fast equity someone can get because prices kept climbing and you sold people properties that they’re getting 100% loans on.
So we found ourselves, no matter what, still selling it to investor base. And they kept asking us for property management, and we kept saying, “No, trust me, you don’t want us to manage your property.”
And we fought that off for many years. And ultimately, we sold a true investment property to our attorney. And our attorney was like, “Mark, I need you to manage this for me.”
I said, “Paul, no. You’re the one that actually helped me evict my only tenant I’ve ever had.” I said, “You don’t want me doing that.”
He said, “But, Mark, you’ve learned it on your own dime, and you know what not to do now.”
I said, “Paul, I don’t even know what to charge you.” He’s like, “I’ll pay you $50 a month.”
And I go, “Paul, you’re an attorney. I don’t have a management agreement. You’re going to want something formal.”
He’s like, “Mark, I’ll draft something up and you can use it for someone else, if you want to grow that part of your business.”
And to this day, we still charge him $50 a month. And that actual property is still in our portfolio that we manage. And we still use a modified version of that same agreement.
So that was 15 years ago. And I remember the conversation we had when we were deciding. I went back after that meeting with our attorney that day and I was talking to my business partner.
He was like, “Hey, $50 a month, that covers the espresso cost for our espresso machine.” We chugged a lot of espresso back then, and that was our justification.
And then our second client had two properties, and those covered our water cooler and our water bill for the office.
So our intent was to be a brokerage company, but we accidentally got into the management space.
Andrew Chen 5:06
Awesome. That’s a great story. Cool.
I’d love to structure the conversation around property management in three phases: one around screening tenants, then managing, then retaining.
So if we just deep dive on attracting and screening good tenants, what are some best practices that you’ve learned over the years for how to attract good tenants to a property in the first place? Because that really is the foundation of everything.
Supposing that you cannot change the property location, that’s a given, what are some strategies that landlords and property managers can follow to actually attract good tenants?
Mark Ainley 5:41
Well, I actually wrote a blog on that about a week ago, so that’s top of mind.
But I see a lot of people out there that say “no pets.”
There’s facts out there that over 50% of tenants right now have pets. There’s another 18% that might want to get a pet, that will not look at your listing at all just based on you saying “no pets.”
So I always encourage people.
A lot of people say “no pets” for reasons of fear. They say it because they heard some horror story.
A lot of times, I tell people that that horror story you heard had a lot of red flags in the beginning that people ignored, and then you only heard the consequences of some bad decisions early on.
But I tell people you can discriminate against pets. There’s nothing in fair housing that covers pets. So you could put out there “small pets only” or “dogs only” or “cats only” and see what you get.
And a lot of times, you can collect fees or funds or deposits that will equal your risk.
What does it cost to redo all the flooring in your first floor or second floor of the house? What does it cost if they chew x amount of doors and the flooring?
So you can cover your costs with that. Or at the same time, you could get an application that you just deny because “It’s two pit bulls. We’re not going to mess with this.”
But just putting the “no pets” is a big one that I always tell people to try to avoid.
Actually, you have out there now a petscreening.com website that you can screen your pets.
And they actually give you a FIDO score, not a FICO score. It’s like pets’ risk level. And you could charge deposits and fees based on the risk level.
And they assess different things, such as shots and breed and all that.
That was a lot on pets, but I think it’s a big one when I see people say “no pets.”
I know our timeframe for how long it takes to fill one that has “no pets” is about 30% longer than it is with somebody that says, “We do accept pets.”
I think priced right is the other one.
All these investors, they do want to maximize their property, but it’s sometimes at the cost of having an extra long vacancy.
To drop the rent $25 to get it rented a couple of weeks faster, or $50 even, you’ll make more up by the end of that 12 months.
Also, a big component of that, good tenants, smart tenants, the best tenants are attracted to the best deals. So they’re not going to go to the property that’s $100 over when there’s four other in that same market that are $100 less.
So what you end up getting is the tenants that got beat out on the best tenant coming to your place, which right now is the best tenants.
Two of the main reasons we know we’re priced too high is no activity. It’s an obvious one. But there’s activity going on in your market no matter what, and you just priced yourself outside of that activity.
And then bad activity, the sad stories and the long explanation in the inquiry of why you should accept them or give them a chance. My first rental exactly. I priced it too high.
Attractive marketing. I think we as a consumer these days in any industry, if you don’t have pictures of stuff, we get wary. If you’re trying to sell a house or sell a rental or sell anything, people want a little more than just the cover page.
So having good pictures. Don’t take pictures of your place blown out with the current tenant’s stuff in there.
I tell people you could get professional pictures done for $100 when it’s vacant this year, and then you can use those pictures for the next three vacancies. And you always have them upfront or you can put them out on the market while the place is getting the turnover done.
So I think pictures and attractive marketing.
Also, I went to a marketing course on this last year, but stop putting in your marketing the three and a half pages of just blah blah blah.
Use bullet points. The consumer today, we all have ADHD and we need to know high level stuff fast. So bullet point all your marketing is one of the big things I took out of that conference that we went to.
And ease of showing. There’s a lot of opportunities nowadays for showing lockboxes that consumers can go in themselves. Works great in A and B class neighborhoods, but I would avoid on the C and D.
But making sure that you’re able to show up. And if you only can show on Tuesday and Thursday at 9:00 in the morning, then you’re going to get a lot less people than if you’re showing at 5:00 at night on Saturdays and Sundays.
Those are just some of the things that I put in the blog recently.
Andrew Chen 10:24
Got it. Can you say more about the lockbox thing? Does that allow a prospective tenant to actually let themselves in without the presence of an agent?
Mark Ainley 10:33
Yes. There’s lots of different ways you could get these lockboxes, and there’s lots of different levels of security. Some are better than others.
But for us, we use ShowMojo. We feel they have the best security for their lockboxes. And they actually offer an insurance policy against something going wrong.
Something going wrong could be someone steals a fridge, or somebody leaves a door open and somebody breaks in. There’s a lot of ways to hedge your risk when it comes to showing these lockboxes these days.
Andrew Chen 11:05
Gotcha. Any other best practices in terms of marketing? Like the type of messaging that is effective to attract an ideal type of tenant?
I know you mentioned the bullet points, keep it short, good photos. Any other tips?
Mark Ainley 11:21
I think in that first line or that headline of any listing, whether it be at Zillow or Trulia or MLS, is to put the three or four most important things.
They always say put the bedrooms as your first thing, if it’s a three-bedroom or a two-bedroom, because a lot of people will pass up because they just think it’s not a two-bedroom.
So put the bedrooms and the baths in that first line.
And the two or three great things. For us, it might be a two-car garage versus a one-car garage in that neighborhood.
Or in the city, laundry in the unit is the biggest thing you can have. So if you don’t have that in your headline, you are selling yourself short and the opportunity you could get to get that thing rented faster.
Andrew Chen 11:59
Awesome. So now you’re getting prospective tenants in the door. Maybe they’re coming to the showings. What are some tips or best practices for actually screening tenants?
What do you look for in a credit background, eviction check? What should you be asking for when you’re reference calling past landlords?
Mark Ainley 12:17
One of the biggest things that we did about four years ago was put together a screening matrix.
And we could talk about all the things you collected and the stuff we do to underwrite a tenant, but once we collect all those things, we put into a point system that we’re able to score a tenant that a tenant then is either rated acceptable, high risk, or denial.
That helps us then really understand our risk level. And high risk for us isn’t just the guy that just got out of jail last week. High risk for us is first time renters.
They’ve never experienced a bad landlord. They’ve never had a cost this much.
That right away they’re high risk. And they’re a pain in the ass a lot of times.
Over the years, we’ve built this matrix to have the information. We went back and scored all of our most annoying, aggravating, and bad tenants we had in our research to put together this matrix.
And I’m happy to share that matrix with your listeners as well too, if they ever want to reach out and get a copy to make it their own.
Andrew Chen 13:20
Cool. So what are some things that folks should look for?
Mark Ainley 13:27
In that matrix, we have a variable credit score, but we are big on making sure that they’re paying rent. Current renters, I think their current rental history tells a lot.
And we do the landlord verification. We call landlords.
But I don’t think it’s worth its weight because I can apply today, put your name down, buy you lunch next week, and say, “Hey, make sure you tell them I paid this much and I lived with you this long.” So there’s a lot of cheating when it comes to that.
But we’re big on the proof of rent. It used to be cleared rent checks, but now it’s more of the snapshots or the proof of the QuickPay and proof of the online payments.
And that tells a story. When they send over their rent payments, it tells you how much they paid, who they’re paying it to, if they’re paying the full amounts.
And the red flags that come out of that is if you’re paying partial payments, if you’re paying different amounts every month because you’re holding back money for maintenance items, then are you really paying the landlord of record?
And the landlord of record, that goes into another thing. If they’re paying Doug Smith, but when we go into the tax records and the owner is Jim Jones, then that’s a red flag for us. So we want an explanation on that.
So our goal is to search out all the red flags and get written explanations from the tenants for those things. Now, Jim Jones might just have a property manager, but we need to see some proof of that because then it’s a red flag otherwise.
People that pay cash only too, that’s another big red flag for us. And essentially that’s when you get their statements for their paychecks, if they’ve got a direct deposit but they’re paying their landlord cash, then they should still be able to pull a paper trail of them pulling money out of their account to give to their account.
There’s a lot of landlords who take cash. There’s no doubt about that. I think they could beat the system with that, but there should still be some sort of paper trail that a tenant can produce.
Andrew Chen 15:24
Got it. Awesome. Do you run background checks?
Mark Ainley 15:27
Yes, we do background checks. We do eviction checks. We do credit checks.
Andrew Chen 15:31
What are the key items you’re looking for in these reports?
Mark Ainley 15:38
With the credit check, you’re always looking at payment history.
I don’t know if I say this the right way, but I think the credit score system or model is skewed where someone could be 100% on time forever and just have not much credit and still be in the 600s.
So I think it’s payment history that’s huge, especially with utilities. A lot of times, a key indicator of someone’s cash flow issues is how they pay their utilities.
Seeing in their credit score that their utilities are coming up month after month, being on time in their credit report, then that’s quality.
The eviction check, that is what it is. Have you been filed against? The risk of them being filed against is huge.
And then the background. Here in Cook County in Chicago, they just passed some new laws about we can’t discriminate upfront on issues on background. We have to make that a secondary scoring.
But for us, we really don’t care if someone got busted 10 years ago for marijuana. We’re looking more for domestic violence issues and things that the neighbors could be mad about us bringing into the neighborhood and so forth.
Andrew Chen 17:00
Got it. You mentioned utility on time payment is particularly important. Can you say more about why that is?
What makes utility special, as opposed to credit card payments or car payment?
Mark Ainley 17:14
Car payment is another one as well too. But those things are the top four or five things that everybody has.
They start with rents, and then they have to pay utilities, and they have to pay that car payment every month. If they have a strong history of that, then that tells a sign that their priorities of the top four or five things are there.
In their credit cards, you might see a lapse of the 30 days. And that could be something stupid. They’re on vacation and they missed the warning, or they switched bank accounts and it didn’t take out and all that stuff.
So those dings here and there over the years are not as important as keeping the lights on to us.
Andrew Chen 17:56
Gotcha. Okay, cool.
Just curious. Don’t say names, of course, but are there any stories of tenant applicant shenanigans you’ve seen before? What are some of the ones that have come up over and over that you’re now well attuned to sussing out versus the far out ones?
Mark Ainley 18:16
One of the biggest things we ever experienced that was just a shame is we had such an elaborate scam that was going on in Chicago with individuals posing as representatives of some larger not-for-profits that say, “Hey, we will apply. We’ll put you in there and we’ll pay your rent.”
And it was well-known and they knew the system of it, so they were plugging tenants in. Those individuals were taking money from these renters, posing to the renters that they’re part of this program: “Hey, I’ll get you on the program, just give me $500.”
That was a big scam that happened a few years ago with applications with not-for-profits. Now, that’s more of a C-D class neighborhood issue that we saw here in Chicago.
But shenanigans, I think one of the problems you have calling your landlord as well too is if I’m calling you to hear about your tenant that you’re trying to get the hell out of your place, then there’s good probability you’re not going to tell them really how you are because then that lowers your risk of getting that tenant out of your place faster.
So I think that’s a huge danger in using the landlord reference.
We’ve had rental stubs created multiple times as well too.
And that petscreening.com thing I was talking about, we get a lot of people saying, “I got my pit bull and he’s a care pet,” or “He’s an emotional support pet.”
It’s like, “Man, your dog is going to tear everyone apart on that street.”
But that petscreening.com is something that helps weed out some of those people.
Andrew Chen 20:01
Awesome. So shifting gears toward managing tenants.
Now you’ve got the tenant. They’ve signed the lease or they’re about to sign the lease, and they’re committed. They want the place.
Are there any lease clauses that landlords should consider including in their leases to help incentivize or enforce good behavior perhaps that other leases don’t typically have? Are there things that you’ve seen come up over the years that are really helpful to have in your lease?
Mark Ainley 20:31
Well, to start that conversation, I think one of the biggest things I see landlords do wrong, especially self-managers, is they just have a crap lease to start.
They might have gotten something off the internet. They might have gotten something at Staples or something like that.
But I think leases really these days are very localized with the different ordinances that different villages, cities, municipalities have. For here, it’s a big crime free addendum state.
But having the right lease to start.
Now, a quick default to having the right lease is usually you reach out to the local realtor board or a realtor you know and utilize their template as a start. And usually that covers you 90%.
But as far as having what you’re having in your lease, it’s laying out the expectations a lot. I think one big thing where I see issues happen is the move out part or the holdover part or what that really looks like or what the expectation of the house to be when you move out, identifying normal wear and tear versus tenant heavy wear.
So having that is huge, the expectation to move out.
The other thing is access. I think having it clearly defined of when you as the landlord are allowed to have access is important.
For us here in Chicago, it’s a requirement of 48 hours. But we want to make sure we educate the tenant upfront that “Hey, we don’t give a heck.”
“We’re going to give you a 48-hour notice. And if we got to come in there, we’re going to come in there.”
For suburbs, it’s more lax, where it’s even more important that we let them know that “Hey, we’re going to give you notice we’re coming in. It’s not an option.”
The move out policies, we talked about that. But those are a couple of things.
For us here in Chicago or in Illinois, we’re a very judicial state, where you could put anything you want in the lease, but the tenants have a lot of rights.
And I think that’s very similar when you get into the West Coast and so forth. But there’s a lot of tenant rights.
And I think one of the more important parts of this that I want to point out is making sure you have a good attorney to reference. And that attorney isn’t going to jam me for $250 every time you call him.
Having a good attorney in your network that “Hey, man, this happened. This is my lease. How should I do it?”
Or having a local property manager just in your pocket to be able to talk to. But it’s a lot of laying out expectations.
Now, our experience is tenants don’t read the leases. We even had tenant orientation programs at one time. We put together some videos.
Having some of that is important. I think video versus writing is important these days if you want to get your message across to tenants.
But a lot of times, they’ll read the lease. So a lot of times, it’s having some of those details in there that you can refer back to. But you still end up in the pickles because they never read their lease.
Andrew Chen 23:39
Gotcha. You mentioned being clear about what condition of move out is or should be in the lease can be important. What are some rules of thumb or best practices you’ve seen in terms of how you define acceptable wear and tear versus excessive?
Mark Ainley 24:02
It ends up being if we have to do anything more than a touchup paint of a handful of holes after a year or two, after it’s freshly painted, then that gets into the excessive.
It’s similar with flooring. Carpeting should last you 5-6 years. And if you put a new carpet in and then now you’re questioning if you have to replace or not, that’s excessive.
With pets, I think it’s always important to put on the tenant too that they have to have professionally cleaned carpet at the exit as part of your pet policy.
And I see other landlords that do that across the board. If you have carpet, no matter what, you have to provide us at move out a professional Stanley Steamer type invoice. Not where you go right down at the local Albertsons, but professional carpet cleaning.
Wear and tear, for us, we put light bulbs. And if the ceiling is less than nine feet tall, you’re required to put light bulbs in all fixtures. And that ends up being in our lease because we’re going through and putting in 30-40 light bulbs sometimes in units and that just added up.
So we put that in our lease as something that we put back on the tenant.
Andrew Chen 25:20
Cool. In a multifamily building, even if tenants come in the door at different times, do you recommend having the leases all expire or terminate around the same time and then renew around the same time? Or do you recommend staggering them more evenly over the year to the extent possible?
Mark Ainley 25:42
I’ll answer that two different ways.
We do definitely recommend, in a multifamily scenario, staggering. But it ends up being based on time of year. I’d rather have the risk of six people moving out in June than six people over the next six months going into the winter months and the holiday season.
For us here, it’s cold right now because there’s not too many people moving unless they have to.
We put this in place last year, and there’s a huge payoff for us already this year. Starting September 1, we did 18-month leases.
So anyone who moved in at September, we did 18-month leases. Anyone that moved in at October, 17-month leases, and so on, up until January where we started doing 12-month leases again.
And what this did for us this year is it slowed down drastically for our move outs in the fall. And it takes off all the vacancy issues, or the leasing has less pressure on them to produce in a time of year when they’re up against virtually the impossible sometimes.
Andrew Chen 26:50
I see. So it sounds like you try to have your lease’s cycle begin at the beginning of January. Is that correct?
Mark Ainley 26:58
Yeah. Oddly enough, February is our second largest move-in month of the year. It goes April, February, March is our biggest move-in months based on how we have things set up.
And I think February ends up being a lot of pent-up demand after the holidays. Last week, we had more showings on our leasing side than we did the whole first three weeks of December.
And I think it’s just people are like, “Oh, shit. The holidays are over. I still got to move.”
Andrew Chen 27:26
I see. Interesting. So then the rest of the year, you’re fairly quiet outside of February, March, April?
Mark Ainley 27:36
No, not necessarily quiet based on the size we’re at now, but it’s a little more consistent throughout the rest of the year going into September-October.
Andrew Chen 27:49
Got it. When the lease expires, do you have them renew a new lease or does it just go month to month?
Mark Ainley 27:54
We renew 100%. They got a new lease. We start our renewal process about 90 days out.
Our goal is to get them to renew before they’re even thinking about moving. So they sign a whole new lease.
We used to have them sign an addendum. But because we change our lease about two or three times a year, we have scheduled lease updates that we do. We want to make sure they’re on the newest lease at all times.
Andrew Chen 28:21
I see. So it sounds like that’s a requirement then for tenants to stay in your properties.
They have to be on a lease. They cannot be month to month.
Mark Ainley 28:30
Yes. In our lease, we put an option. If you want to stay month to month, I think we have a $300 one-time fee for them to stay month to month.
And that is really to cater to the people that “We bought a house. It’s under contract and it’s not going to close for 60 days,” or “We bought a house and we got to do stuff to it.”
So that helps our owners pick up a couple of extra bucks for the risk they’re going to pick up if it might fall into a couple of months later.
Andrew Chen 28:57
Got it. That’s an interesting one because it’s conceivable that somebody who is renting could end up buying a home and then not need to rent anymore because they’re going to move in their own house.
Actually, it just made me think. Do you recommend offering a month to month option but just at a slightly higher rent? So the tenant can choose, but if they’re going to go month to month, they’re paying a little bit extra?
Mark Ainley 29:23
Yeah. On a case by case scenario, sometimes that will be the conversation.
It might be because there’s not a definitive date. They might be up for a job transfer.
Or sometimes we’ll negotiate. “All right, you signed a year lease, but if you break the lease, it’s a $1000 fee.” We’re not going to hold the lease at that point.
Sometimes those things end up being a case by case. But our goal is to look out for the owner’s interest in making sure that any risk they’re putting out there for the surprise move out or the non-attractive seasonal move out, that they’re covered.
Andrew Chen 30:02
Gotcha. Cool. So now the tenant has signed the lease. You’ve given them the keys. They’re ready to move in.
Are there things landlords and property managers can do to set a really good impression for tenants who are just moving in, to really wow them and make them feel great about choosing your place versus the place down the street?
Mark Ainley 30:20
A book that I read a couple of years ago, and actually, our entire office is going through reading it this quarter (it’s a group event), is never lose a customer again. And it’s really about the customer experience.
Our ultimate fiduciary customer is our owners. But no matter what we have, our tenants are our customers as well too. So it’s really the experience.
I think no matter what, we all get buyer’s remorse no matter what step it is. Even when you apply, “Oh, did I apply for the right one?”
When they sign the lease, there’s still some doubts sometimes.
And moving is a stressful time as well too. So we’re always trying to constantly get the message out of “Welcome” and “Let us know how we can help.”
We have a series of messages that go out after each step of the application, lease signing, and throughout the movement process. Those messages help instill that they made the right decision. That’s our mindset.
At this point, we’re not leaving care baskets or anything like that at the house. But we try to make the process more functional in the sense of we do lockbox movements for tenants.
So if they want to move in at 10:00 at night on Saturday night, they can. It’s not “Hey, you got to be there by Friday at 4:00 to move in.” They can move anytime they want.
We require three things upfront from them before we give them the lockbox code, and then they can move in a week later if they want to.
And then we also give the tenants the opportunity to document the property themselves.
Our reports that we do in our moving process, they have an app they download and they’ll go through it and they’ll document it themselves. And it gives them the chance to document it the way they want.
It gives us another chance to make sure we didn’t miss anything, even though we have a couple of inspections we do prior to make sure everything is rent ready.
But then also on the backend, we explain it to them. It covers everyone’s butt. And they get the opportunity to make sure that their security deposit is protected on the backside.
Andrew Chen 32:20
Gotcha. Okay, cool.
So now the tenant is in the door. They’ve moved in. How often should the property manager or the landlord be inspecting the interiors for routine maintenance checks?
And what is on your checklist, for example, of things that you’re looking for when you do routine maintenance checks?
Mark Ainley 32:42
We don’t go out specifically for routine inspections. We offer it as a service, but we tell our clients or people who we’re talking to that you don’t need to if you’re putting the right tenant in there.
I don’t like to go in just for going in sake. But we do tell owners and the reality is: we’re on the property.
We have an average of one and a half work orders per unit per year. I think that’s how it breaks out.
And then we’re in there for the annual HVAC inspection and cleaning.
And then we might be in there for a rental. A lot of these municipalities have rental inspections.
So somebody from GC Realty is going into these properties three to four times a year at least for other reasons.
Now, what we’ll do on those inspections is take the opportunity. All of our techs have eight things they’re looking for.
I don’t know what the eight specific things are to list off, but a couple of important things that they’re looking for is tenants that aren’t supposed to be there.
Are there a lot of people crashing on the couch? People that aren’t on the lease.
Making sure the outside is not a distraction to the neighbors or an attraction to the city.
Inside, we’re always looking for life safety things. The fire, smoke, CO2 detectors are all in place, all operational. We’re looking for the banister that’s loose, the porch or deck that’s got a foot through it where it’s now a tripping hazard.
So there’s two things. We’re looking to make sure the tenant is following who’s supposed to be there, and we’re looking for things that are going to mitigate risks.
Each time we’re in there, that three or four times a year, we’re looking at those things. And that serves as our unofficial inspection.
Andrew Chen 34:32
Got it. Are there other maintenance items you’re looking for?
For properties I own, I’m really interested in making sure the pipes under the sink, the water, there’s nothing leaking because that’s going to be a big problem if there’s a small leak and it goes ignored.
Just curious. What are other things you’re actually inspecting from a maintenance perspective just to make sure the property is in good condition?
Mark Ainley 35:02
Plumbing is always one of the number one things.
On the supply side of things, I think we probably control about half of the water bills that get paid. When we get that bill, if it’s over x amount of dollars per unit per month, then that’s a trigger that something is leaking. So we have that on the supply side of things.
On the drainage side, one of our videos is a plumbing hazard video for tenants to make sure they need to let us know that they’re going to be responsible for the damage of those issues.
In particular, in condo buildings, those are where the bigger issues become where I don’t control what happens downstairs, what that downstairs guy does to fix this issue or call the association on us.
So plumbing is one of the number one things.
And then making sure that the furnace filters are always changed out. There are services out there now that deliver them, but we still are always making sure that those are being changed out at least six times a year.
Andrew Chen 36:02
Awesome. So now the tenant has been living there for a while. They’re coming up or close to renewal time. What are some best practices that property managers and landlords can do to maximize tenant retention?
And related to that, are there any incentives that a landlord or a property manager can offer to try to retain good tenants? You can obviously always discount rent, but I’m just curious if there are other effective incentives that can motivate a tenant to stay.
Mark Ainley 36:37
I think it doesn’t necessarily happen at the renewal process.
We’ve taken all the data over the years from our application side of the business where people are coming to us, the reason why you’re leaving. And we have a couple of different ways we ask the reason why you’re leaving on our application because we want that data for understanding why people leave.
And the number one response is it has to do with maintenance or upkeep of the property.
There’s bugs everywhere. My guy won’t get the exterminator out there. My stove has been broken for two months, and so forth.
So we are big on the responsiveness of maintenance because we know that’s going to be the number one.
And especially in our A and B class properties, they might only get a work order a year or a work order every two years. And if we mess that up, that’s their entire memory of us as a company when they want to go to renew.
So I think throughout the term of the lease is making sure they’re getting the service they need or we’re holding up our end of the bargain of the lease.
And with the lease renewal process, especially if it’s below rent or what other things are going for in that area, we might be happy having $1550 with this current tenant because we like this tenant, but the market is $1600 or $1650.
It will be clear to show them, “Hey, listen, I was going for $1650, so you’re getting a good deal.”
And not everyone, for circumstances of family or job or whatever, are going to renew. So you’re going to have a percentage that are just not going to renew based on, it doesn’t make sense for them to live there anymore.
But I think the biggest control you could have over keeping the people that should stay is really your level of customer service.
Now, there’s a lot of random questions that happen throughout the year of “Hey, my tenant ledger is showing that I’m $5 short when I paid that $5.”
And again, back to the responsiveness of getting that information back to the tenant in a timely manner or some sort of technology tool where they can solve those problems on their own. That goes a long way to why people are going to stick around.
I think the general consensus of human nature is if the nail you’re sitting on doesn’t hurt that bad, you’re not going to move.
So I figure if we could be at least a tack in our service, and I’m totally downgrading how good we are, but if we could be good, then they’re not going to go anywhere in that sense. And I think that’s true for any landlord.
Andrew Chen 39:14
Okay, cool. So shifting a little bit here now.
We’ve been talking about tenants that are good. They’re paying on time, and they’re good citizens of the community.
If you think about tenants who are not working out, what are some best practices or rules that you must follow in terms of evicting?
And I’d love to probe two cases in particular.
So tenant fails to pay rent. What I’m interested in understanding is what are the sequence of actions the landlord or property manager needs to take and when? Just high level, not the legal aspects.
And then second case: bad behavior from a tenant, noise, nuisance. They have unauthorized occupants or whatever.
How do you handle these things?
Mark Ainley 39:59
I think both cases, the most important thing that you do is react fast and with teeth.
Empty threats, people remember those. “I did this before, and he didn’t do anything about it.” So empty threats will continue any bad cycles of behavior.
And this is something that, especially if it’s a newer tenant, we want to get upfront and make sure they know who’s boss here.
All the different states have different regulations, but here in Chicago, to cure something, whether it be quiet enjoyment or they have different additional people in there, for us, it’s our 10-day notice.
So deliver a 10-day notice with the threat to evict them after 10 days. Unless they solve whatever they’re doing, it’s going to be our first step.
We do use other, whether it be the alderman of the village or the city, as teeth too in saying, “Hey, the city called and this is a problem. And if this is going to be down our throat, then we’re going to send them right over to you.”
And a lot of times, when they know it’s not just coming from your property manager and it’s coming from somebody else, then it’s a little more real to them that “This can be a big problem if I don’t fix this.”
So reacting quick and with teeth, and knowing that if they don’t do this, you will take it to the next level. I think that’s very important.
Andrew Chen 41:29
Cool. Any other thoughts regarding tenants who fail to pay rent?
Mark Ainley 41:35
I think what we realized is, as a property manager or a landlord, you can set up as many payment plans as you want, but you’re acting in good faith at that point. So for us, what we realized about three years ago now is just get them to court fast.
And we modeled this after another large apartment owner here in Chicago and how they were successfully keeping tenants or getting their bad payments corrected. But getting them into court fast.
I think there’s a very fine line of when a tenant says, “Hey, it’s cheaper for me to move than it is to pay my landlord.”
You have to get them to court before that line hits. And for us, that line ends up being about a month and a half into it.
So if you get them into court and you give them 45 days, then in court, for us here in Cook County, we’re able to create a court ordered payment plan.
Now, that court ordered payment plan is very powerful because the judge is signing off on this. This is no longer GC Realty or any of the good faith BS that we’ve been talking about the last three weeks and you not paying.
So now, for us here with the court ordered payment plan, if they miss one of those payments, we call the sheriff the next day versus having to start the whole process over.
If you and me agree on a payment plan and you don’t do it, then you know as a tenant that I still have to come and serve you a five-day notice, you still have to file for eviction, and we still have to wait for the court date.
So getting them into court fast and working in this payment plan often saves a lot of relationships. We were talking about this the other day. All the people that we’ve had to do that with, over 80% of them are still in our units.
That means they’re still in our units because they corrected their payment issue. And they have an eviction on their record now too, so it’s not going to be too easy for them to move.
That’s not trying to pigeonhole people into their options, but their decision not to pay fast has created that consequence for them, and it’s going to be a lot more difficult for them to move over the years.
Andrew Chen 43:35
Got it. Is that to say that if you’re on a court ordered payment plan, then you have an eviction mark on your file at that point?
Mark Ainley 43:44
Yes. A lot of people, even tenants, don’t understand this. The day we file for eviction, that filing for eviction is what shows up on their public records and their eviction report.
We get a lot of people that apply, and on their eviction report comes an eviction. And they think because the sheriff never showed up or they left before the sheriff came, that they weren’t technically evicted. And that’s not the case.
Which is great for us, or for landlords in general, because that public record of it being filed means that’s what you want to avoid, not necessarily the sheriff coming.
Andrew Chen 44:15
I see. So it’s the filing itself, not the fact that you were evicted.
So you don’t have to be evicted to still have an eviction mark on your file. Is that correct?
Mark Ainley 44:26
Correct. Yeah. So if you’re behind and I go file for eviction, then it’s on your record for seven years in that sense.
Andrew Chen 44:34
Wow. So, a lot of owners will have rent due on the 1st. There might be a few days grace period.
If you pay up to the 5th, no harm, no foul. And then on the 6th, you’re late.
I’m not sure if that’s the structure of your leases, but are you pretty much filing for eviction the day after?
Mark Ainley 44:56
No. For us personally, we have one person 40 hours a week. All she does is bust chops on the collection side of things.
And you get a lot out of that part of collections. And then you also learn which ones you’re not going to be able to collect on right away.
We do not file until they’re behind one month rent and one dollar. So basically, Day 31 or the first day of the next month is when they qualify for that.
And in that 30 days, there’s a lot of back and forth and trying to work them out. Maybe they made a partial payment, all that stuff.
So the ones that actually get to for us is a very small percentage that get to that point.
Where we end up in eviction court a lot more often is when we inherit situations, because if you’re doing that whole rental screening and the rental matrix, your risk goes down a lot less of ever being in that situation.
Andrew Chen 45:51
Awesome. So let’s say an owner has been self-managing for a while, and maybe they’re tired or maybe they have too many properties to self-manage and they want to hire a professional property management company like yours.
What are some of the key factors that an owner should be considering when hiring a property management company? And what are some key questions they should be sure to ask when interviewing a property manager?
Mark Ainley 46:20
Yeah, it’s all good stuff.
I think a lot of people, when they’re interviewing a property manager and they find out that the property manager is an investor or manages some of their own properties, they look at it as a bad thing, like “You’re going to take care of your properties before you take care of mine.”
Any owners or investors that I know that have property management businesses, they take care of the customer far before they take care of their own properties. Ours is a case in point.
But I think having somebody that knows what it’s like to lose as your property manager is huge.
And when I say “knows what it’s like to lose,” it’s having a property manager or a team in your property management that has had to go through eviction or has had to do a $7000 rehab or a turnover because the last tenant destroyed the place or turned the faucet on or some crazy leak, like you were talking about before, happened as they left and no one discovered it for a week.
So knowing what it’s like to lose in that situation is huge because your property manager then is losing sleep over your issues, versus someone that just doesn’t know and then they treat it more like “It’s not my money. I’ll deal with it tomorrow” type of thing.
So I think that, first and foremost, is important.
Understanding how this property manager is going to communicate with you. And that’s a very broad saying, but what you get in response of how you’re going to communicate.
For us, we have about 10 different points where we’re “Hey, these are the times we’re going to reach out to you when these triggers hit. And you can expect that then.”
Of the properties we take on as new customers each year, it was 56% of them last year that came from other property managers. And the number one response of almost every single one of them, short of about three or four, was the communication and mostly revolving around the responsiveness.
“They didn’t tell me my tenant moved out.”
“They didn’t tell me my tenant was going to move out.”
“They didn’t tell me about the repair that was $600, and it just showed up on my statement.”
“I had to email them three times before I got one email back.”
So I think understanding communication and how that’s going to flow with your property manager is probably the number one thing because I think that’s the number one problem with the property management industry out there.
You’ll see in our marketing now that we’re out there boasting ourselves as most responsive. And it’s because we get back to you. In our owner handbook, you’re going to see that if you email us, the expectation of how fast we’re going to get back to you.
And those are things that you need to know upfront.
“Hey, if I email you, when can I expect your response?”
So I think that that’s huge.
And then if you’re not going to ask questions, or not necessarily related to questions, but reviews. I think reviews are huge because reviews really show you that company is caring about their reputation.
We have 260-some Google reviews. And I think we’re about 100 more than anyone else in our market. But we really care.
Now, don’t get me wrong. I got my wife to leave us a review. And when you start seeing these companies that have hundreds and hundreds of reviews, it’s not all 100% tenants and customers on it.
But they care about the reputation so much that they’re going to do the right thing, no matter what, to make sure their reputation doesn’t get touched in that sense, whether it be from an owner, tenant, or whatnot.
And then that all leads back to the best interest of the landlord at the end of the day.
Andrew Chen 49:56
Are there any other questions that owners should prospectively ask a property manager when they’re evaluating one?
Mark Ainley 50:04
Yes. I think real estate in general is all about numbers and understanding percentages and so forth.
So asking specific questions of what your eviction rate is, or what’s your average time on market this year so far for any vacancy? How many days on average can I expect it from the time the tenant moves out to the time it’s on the market? What is your uncollectable at the end of the year for any tenants that moved out?
Any property manager that knows their numbers or can get it back relatively easily is huge. And that’s a huge separation from all the other property managers in the business.
The important thing to keep in mind here is almost any property manager in this country is going to be in that 6-10% range. But there’s a huge variation of deliverables that you get.
I think for us, what we used to always get asked is (we charge 8%) “What do you do for the 8%?”
And what we created was defining our services, which basically breaks down what you get for the money. And having that be in your possession from whoever you’re interviewing to understand what you’re getting and what you can expect.
For our management fee, it’s four pages of what you get for that 8%. And two and a half of the pages might be things that might not ever come up. But at least you know when those things come up that we’re not going to jam you for an extra charge or whatnot.
So understanding what you’re getting is huge in that sense of researching property managers.
Andrew Chen 51:35
Awesome. How should an owner go about reference checking a property manager?
Mark Ainley 51:43
I get that question all the time where they’ll ask me, “Have you got any current clients I can speak with that can talk about their experience?”
And that question is like me with the landlord. I could give you anybody. And definitely I can give you a landlord that fired us last year, or a client that fired us.
So what I recommend everyone to do, especially nowadays, is you Google my name, you Google up my company’s name, and you go four or five pages deep in the internet.
If you see nothing, that’s a red flag.
If you see something bad, that’s a sign. That’s a red flag.
If you see good stuff, that’s good.
If you go on places like Bigger Pockets, I think we haven’t talked about that at all, but Bigger Pockets is a huge place as far as references of just going on there, saying, “Hey, I’m in the Chicago market” or “I’m in the Boise, Idaho market. What’s a good property manager for hire?”
You’ll get honest opinions on there. And even if you Google up the property manager name and they’re a good manager or a really bad manager, they’re going to end up on forums like that where you could get real research from people commenting on there.
And you can even reach out to those people. Those are the best people that can share their experiences on there.
Andrew Chen 52:53
Awesome. One thing I just wanted to touch on. You mentioned a moment ago and I wanted to be sure to loop back to follow up.
You mentioned that it’s rare, but sometimes you’ll have the situation where you got to go in and do $7000 of rehab because the tenant trashed the place.
I’m just curious. As an owner who may be concerned about that type of situation, even if you have to pay that out of pocket upfront, you would go after the tenant for that, right?
You would file against them for damage to the property. And it may take some time, but eventually, even if it comes to garnishing their wages, the owner should expect to get that money back, right?
Mark Ainley 53:36
Yeah. Every state is a little different as far as their collection policy or what it takes to file for that.
Now, there’s certain things that even if a tenant has a $100 balance or a $300 balance or $1000 in damage over their security deposit, it doesn’t make sense to file for them and go collect and try garnishing.
But it does make sense to put them with a collection agency. Maybe only get 50% of it, but at least it goes onto their credit. And at some point in the next 10 years, if they buy a house, you might stand a chance to get that money back.
I had a call about two months ago from somebody from nine years ago saying “We’re closing our house next week and we got to pay you this $914.” I’m like, “Oh, yes, that’s awesome.”
But then it comes down to the tenant pay. That’s $7000 damage for us. If it’s a Section 8 tenant, we’re never going to collect that from that particular tenant.
It becomes a business decision at that point.
Again, those types of problems typically don’t happen in Class A or Class B situations where there’s actually means to go after. So it ends up being a case by case scenario.
But they’re always reviewed to make sure that if there’s any opportunity to recoup something, we want to try.
Andrew Chen 54:51
Is there a threshold that you guys use? Like if it’s above some dollar amount, we’re going to go through the court process. Otherwise, we’re just going to send them to collections?
Mark Ainley 54:59
We’re going to typically tell you about $10,000, or at least here in Chicago as far as it’s worth.
Because here’s the thing. Call it an eviction case that you won the judgment of $10,000. Now you still have to go file for another judgment to collect that money and garnish wages and all that stuff.
Usually the legal aspect of going after a sum is going to be a few thousand dollars to start. And you’re still not guaranteed you’re going to get it. So you might have additional bad debt on top of bad debt.
So it’s a case by case a lot of times.
Andrew Chen 55:33
All right. Mark, thanks so much for taking the time to chat with us. This was super insightful.
I really appreciate your sharing all your experience and wisdom around property management and tenant management with us.
Where can people find out more about you and your work and services?
Mark Ainley 55:47
I put a blog out there. I’m doing at least a post a week on our website, gcrealtyinc.com.
And then I’m very active on BiggerPockets. I actually did a podcast on there as well too, if anyone is interested in checking that out.
But I’m on there. I’m always trying to give feedback and talk to other investors local and around the country.
Andrew Chen 56:07
Awesome. We’ll make sure we link to all those things in the show notes.
Thanks so much again, and best of luck with everything.
Mark Ainle 56:13
Yeah, I appreciate you having me. Talk to you soon.