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Probably like many entrepreneurs, I love business, the creativity and control that it provides, and all the benefits of not having a boss.  But the thought of having employees makes me shudder.  I’ve always contracted for help and have avoided the employer-employee relationship.

As I think about why this is so, I believe it comes down to cost, accounting, and responsibility.  I know, or at least I think I know (not ever having had employees) that it costs much more to have an employee than it does to contract out.  You have all sorts of tax issues.  Unemployment, workman’s comp, social security, and whatever else might be entailed.

The payroll and accounting side adds some complexity, although I know I would have someone else handle this for me because I enjoy bookkeeping as much as I enjoy having the flu.  That’s why I don’t do either.  So add more cost to the scenario for accounting.

And the responsibility of knowing that you are providing for someone else’s financial well being.  What if my business fails?  What if I can’t make payroll?  What if I decide to take the business in another direction and this position is no longer needed?  I’m not in a place yet where I want to take this on and have someone dependent on me for their finances and support of their family.

Now having said all that, even though I contract for help, I still have all of the other what I’ll call “squishy” employee issues.  By this I mean the management side of things.  I still need to worry about giving adequate praise, keeping them motivated to a certain degree, and dealing with corrections when performance is poor.  I have to hire and fire just like I have employees.  I have to train and maintain.  I don’t mind any of this.  I guess I get all the good parts of working with a team without having to deal with the bad.

For example, I recently had to fire and then hire a new property manager.  One of the agreements we make is that either party agrees to give 30 days notice when ending the relationship.  The way I keep my end of the bargain is that I continue to pay the leaving manager 30 days after they are gone. 

This manager was dismissed on the 15th of the month, and so I paid him a half-month on the 15th when he left, and paid another half-month on the 15th of the following month.  As was classic behavior for this manager, I get an email at the beginning of the month that says that he’d really appreciate being paid early because he has bills to pay, and Christmas is coming, and blah blah blah.  Surely I could find some goodness in my heart to do him a favor.

Let’s see.  He was a LOUSY manager.  He caused me a ton of problems, stress, and lost my business thousands of dollars.  As I read his email…. do I feel like doing him a favor…. NOPE.  Don’t even have to think about that one.  Not because I’m a meanie, but because for crying out loud!  This is business!  The reason I create agreements and systems is so I don’t have to think and to prevent me from making emotional business decisions.

It never was about doing favors.  For him, for tenants, for whoever!  The beauty of rental property is that pretty much everything is in writing.  All parties read papers, agree to what they say, and sign them.  There’s never any question about what has been agreed to, or what the consequences are when a party breaks the agreement.

So the manager was told that he would get paid on the 15th exactly as was agreed to.  No earlier, no later.  It’s business.  It’s about cash flow.  And doing as we agreed is something he never did understand.  After a few expletives from him, that was that.  I cut the check on the 15th using all the normal procedures.  And then a week later there was one more expletive just for the fun of it.  I’m hoping this chapter is finally closed and there won’t be any more leftovers.

The 5th edition of the Carnival of Real Estate Investing is up at Mortgage Manifest!

Looks like we made the list this week and my good friend over at Cash Flow Treasures made the top spot.  Congrats to Steve!

Check it out for some real good articles this week related to real estate investing.

Anytime a new property manager takes over, it’s an invitation for tenants to take advantage.  Suddenly you have a few that play dumb to the rules and seem to test the manager’s fortitude.

December was the first month my newest property manager was in charge of collecting the rent.  Of course a handful of the tenants didn’t pay because they “lost” the new mailing address.  We decided to change the address for payment to make it more convenient for the manager, however mail that goes to the old address is being forwarded as well.  All the tenants were given letters almost a month ago with the new contact information.  So my manager had to go to the buildings to collect the rent that never arrived.

One tenant called my manager on the 4th of the month and said there was a problem with the heat and she wasn’t paying rent until it was fixed.  He tended to the problem immediately and even went and bought her a space heater to get her through the time before it is working perfectly.  She has one radiator in her apartment that is not working, but several that are.  After speaking with her about the problem, she let my manager know that the heat hadn’t been working for a few weeks.  Whether she waits 2 weeks or 4 days to tell him about the heat is irrelevant as far as the rent due date goes.

So why did she wait until the 4th to tell him?  And why is she holding the rent hostage?  Because she’s taking advantage and she is testing the system.  The rent and a maintenance issue are mutually exclusive events.  Our tenants are given work orders to turn in anytime there is a maintenance issue.  The issues are responded to within a day and resolved as soon as possible.  It is not acceptable to hold rent until a maintenance issue is resolved.  Besides, since she called on the 4th, she was already 4 days late before the hostage standoff began. 

The rent is to be postmarked on the 1st as long as a tenant is within their lease term.  Period.  If we were to reciprocate, I suppose we could change the locks and kick her out until she pays her rent.  It goes both ways, but it actually goes neither way because the law protects us all, landlord AND tenant, against this ridicule.

This is the time for my manager to set precedent.  He can take a strong stance against these tactics now and make it clear there is a new sheriff in town, or he can roll over and let them know a pipsqueek has rolled into town.  Living in Arizona, I have to confess I have a great affinity for Sheriff Joe and I like the tough approach much better!

This week’s Carnival of Real Estate Investing is now posted at Bigger Pockets. Check it out to read several interesting posts this week all having to do with what we live and breathe every day!

If you’re a blogger, please consider participating in the carnival. Don’t know what a carnival is? Check out this week’s edition and you’ll see.

If you’re a reader, be sure to follow the carnival each week as you will be treated with a collection of the best blogging on real estate investing. Next week’s carnival will be hosted by Mortgage Manifest.

Cheers!

The day of the inevitable has come.  I have a very long term tenant that I inherited when I bought this particular building and she is finally moving out.  This Section 8 tenant has been great in one regard - the rent came on the 4th every month without question.  This ends the greatness.

This tenant has completely trashed the place.  Her apartment has probably never been cleaned during her tenancy, which I’m guessing has been about eight years.  For the several years we’ve owned the building, she’s had a permanent laundry pile in the bath tub.  Guess what that means?

Take a look at her bathroom.  How is it possible that it looks like this?  I honestly cannot think of a sane scenario that makes sense.  Oh I know why, it’s because I’m limiting my thoughts to “sane” scenarios.  I need to think outside of the box and maybe it will come to me LOL.  An incident from a couple of months ago provides some clue.

The fire department has been there because her smoke alarm goes off sometimes when she cooks since there is so much food baked onto the burners and inside the oven.  The city inspectors have been there and gave her a talking-to about the health and safety hazard she’s created.  We’ve talked with her social worker about getting her to clean or hiring a service to come in and do it for her.  Nothing has worked. 

At one point we converted the building to a smoke free environment and since she’s the only remaining smoker, she’s been required to smoke outside.  This happens most of the time, but needless to say the inside of the place is coated with a yellow haze never to be removed. 

With her exodus comes a major remodeling job.  We’ll need to replace drywall, appliances, bathroom sink/vanity/toilet, and all the flooring.  Lucky for us it’s a studio apartment and the costs will not be as high as they could be.

We knew this day would come eventually.  She’s a month to month tenant so we only had 30 days notice of her moving out.  As soon as we found out, my manager contacted her social worker to make it very clear that we expect the place to be cleaned as good as it possibly can be cleaned.  Her measely security deposit isn’t going to make a dent in the repairs we’ll need to make.

We also contacted the Bureau of Consumer Protection to see what recourse we may have for lost rent due to us needing to take time to remodel.  They said that we cannot pursue lost rent due to forced vacancy during the remodel.  They advised that our only course of action would have been to issue her a comply or quit notice as soon as we saw that the condition of the unit was deteriorating. 

It was bad when we bought the building so the only thing we would have gained from that is she would have been gone years sooner.  In retrospect I’m glad she stayed so we didn’t have to spend the money until now.  Plus we collected rent on that unit 100% of the months for all of the years we’ve owned it.  Not all bad.

As it turns out, the tenant is moving out the week before Christmas so at least we should have 7-10 days for turnover.  We are feverishly coordinating all the help that will be needed to get the work done during this tight timeframe.  We already have a referral from one of our other tenants so it’s looking like we may have it rented for Jan. 1.  Great!  No vacancy!  In the middle of winter it can be iffy to get the place re-rented immediately.  Pressure’s on to get the work done because I could not expect anyone to move in to a place anywhere near this condition.

This week’s edition of the Carnival of Real Estate Investing is now posted at Landlord Shmandlord.  This carnival has carved out a niche in the investing world and it highlights blog posts from all over the internet that are related to REI.  One of my posts made the top 10 this week

Be sure to check it out and you can also participate if you’re a blogger!

Recently I had to replace a property manager that was not working out after 18 months of trying.  My new manager Brian has been on board for nearly three weeks now and he’s been a dream!  Rather than compare the good and bad points of these two managers, I thought it would be useful to share some details about how our working relationship is set up. 

Many investors are afraid to invest out of state because of the management issue.  It doesn’t need to be an issue at all.  If you have the communication channels in place and expectations set up front, you can feel as secure with your properties as if they were across town.

I’ve created a landlord system for Brian to follow.  This system lives within a multi-tabbed binder and details all of our procedures.  It includes instructions for how to screen tenants, market the units, maintain the buildings, fill out forms and notices, handle incoming funds and outgoing expenses, and loads of other miscellaneous issues.  I’ve also supplied all the forms and letters that Brian should ever need.

Brian and I communicate using an online collaborative workspace called Basecamp.  It’s a great place to post questions and answers, photos, scanned copies of signed leases - anything.  You create conversation threads that can be organized by category and then named to reflect a more specific topic, such as a tenant name, unit number, or issue.  These threads are saved and can be reviewed again anytime in the future.  Brian scans copies of bills that I need to pay and posts them there.  He also keeps an activity log of his activities so I can look anytime and see what he’s been working on.  I can create to-do lists and assign anyone’s name to each item, and see when they’ve been completed.  I’ve set the system up with users and permissions for each one.  This way we can all access what we need to, when we need to.  The system allows you to set up many different projects, so each property manager is assigned to the project that is appropriate and of course can only see and comment on activities related to that project/city/building/etc.  As the administrator, I see every project in the system.

Last week I went to the city where these particular properties are and met Brian in person for the first time.  I had found him, interviewed him, and trained him virtually.  Oddly enough, now that I think of it, I didn’t even go to the properties on this trip!  Funny.  I guess subconsciously I knew I was comfortable enough with him that my mind didn’t tell me to stop at the buildings.  I found Brian to be a genuinely really nice guy and I’m very happy with my choice now that I’ve met him in person.

Turns out this new venture in Brian’s life is motivating him to expand his context and his own investing activities.  I had sent him some Rich Dad materials to read and listen to as part of his training, and he has since purchased eight other Rich Dad products for himself.  It’s exciting to see him excited to learn and grow personally, and him taking the initiative to learn more on his own can only benefit our arrangement.  Brian is buying his educational products for a fraction of full price on half.com.  I had never heard of this site before but he tells me he got everything he bought so far for $30!  He’s frugal, which is another great attribute of a property manager!