Episode 006

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys invited Scotty Mitchell from American Real PM to talk property management and what to look for in a good company.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

John Larson: Hi and welcome to Real Estate Cowboys Radio Show. I’m John Larson. Today we’re going to be talking about property management, the importance of a good property manager to make sure that your single family residential, rental properties are performing the way that they should. Property management is a super, super important part of the whole landlord, single-family rental model. Without a good property manager, your property can easily, easily fail. So I’m going to talk a little today about the importance of property management, how to find a good property manager, how to find the right property manager to manage your specific asset class, like multifamily properties, single family property. There’s a lot of different things to consider when vetting out a property management company to manage an asset. Especially if you don’t live in a market where you own your properties. So many Californians look to invest outside of California because California is just not a very landlord friendly state. It’s very difficult to manage properties in California. But two, the rising crisis there in California just doesn’t make sense necessarily to purchase a single family rental property. So if you’re going to invest in, let’s say, Texas or Michigan or Florida property, that’s all the way across the country, you’re going to want to make sure that the property manager that you’re using is somebody that you can trust, somebody that’s reputable, somebody that has good name in the industry and somebody that is going to manage your properties, as if it was their own, and really their goals are in line with yours.

John Larson: Obviously you want a property manager that’s going to have the same common goals, keeping the property occupied, keeping the tenant happy so the tenant stays in the property, but also being fair. I’ve seen some property managers that go a little overboard, they care more for the tenant than they do the owner, and so you find them fixing maintenance issues time and time again. Well, that doesn’t really help out the owner in that situation because the owner has maintenance charges on their bill every month. So a good property manager is going to go in and identify what’s actually going wrong with the property maintenance requests. We don’t want to have a lot of high-cost charges on your statement each month. And one of the ways that you can see these high-cost charges is through maintenance, repeated maintenance. And so you want to find a property manager like I said, that has your goals in mind, they want your property to perform like it was their own.

John Larson: And so we’re going to go through a few things today. We’re also going to talk to Scotty Mitchell of AmericanRealPM, headquartered in Dallas, Texas. And it’s actually my management company, a sister company of ours, American Real Estate Investments and Real Estate Cowboys approved property manager here in the DFW market. He manages properties in Dallas Ft. Worth, down in Houston, and in Missouri in St Louis and Kansas City. And uh, so AmericanRealPM has been around for almost two years now and already manages almost 500 properties nationwide. So they’re growing very, very quickly. And, uh, I think you’ll really enjoy what Scotty has to say he’s a wealth of knowledge. He’s a property manager in New York City as well, so he has a lot of knowledge in terms of what to look for in a good property manager. And he’s also an investor himself. So you run AmericanRealPM as if he was his own client.

John Larson: And so he makes sure that things are running in a very investor friendly atmosphere and that’s one thing that I really, really like about the philosophy of AmericanRealPM. It’s definitely investor friendly and everything that they do at AmericanRealPM revolves around the performance of the property. So the owners are seeing a solid portfolio and solid returns on their portfolio for years to come. And so let’s get into it real quick. So I’ve actually come up with a few different things regarding property management and things to look out for when investing in single-family residential properties and when vetting out a property management company. And so, like I said, I believe property management is the greatest factor in keeping investment performing at its highest potential. As an investor, your property manager should be your eyes and ears on the ground.

John Larson: A good property manager watches over your investment like it’s their own. Like I said, it’s not uncommon for a knowledgeable investor to interview two or three management companies before making a final decision on who should be responsible for managing their assets. So just like you’re going to interview someone to work at your company, it’s the same thing. This is a business that we’re running here, single-family rentals, it is a business, and you start to get to two, three, four, five, 10 or more properties. That’s a pretty substantial business and you want to make sure you’re hiring the right team to watch after your investments. And so I don’t think it’s uncommon to interview two to three different companies before making a final decision before making a final decision on who should manage the assets. And I’ve seen plenty of investments fail due to poor management. And really that goes back to, I’ll tell you my own experience managing properties in Detroit; C and D class properties. They’re very, very difficult to manage.

John Larson: So it’s very difficult to find a good property manager that are willing to manage those types of homes, you know because you gotta think about it. Some of these areas where these properties are located, they’re dangerous areas. Um, you know, and a lot of times I’ve said I found in my career that, you know, a C class property generally is managed by C class property management company and I’ve done C class assets in many different markets across America, not only Detroit and St Louis, Kansas City, Indianapolis, and I’ve seen some pretty good property managers, but then I’ve seen some really, really bad ones as well. They don’t have the proper infrastructure in place to manage hundreds or thousands of homes. And it gets a lot more tedious to manage a lower class asset. I’ve found in my career, high B to A class investments, and properties that are priced closer to the median value in any market tend to be a lot easier to manage.

John Larson: It’s just better neighborhoods, little to no crime in these neighborhoods. A lot more passive even for the property manager to manage because you’re not really chasing down rents. You have tenants that have salary positions that are paying rent on time and consistently. And so you’re not running around chasing down rents, you’re not filing for eviction. Uh, I’ve, I’ve noticed that maintenance requests are a lot less or less frequent with higher priced investment properties or properties that are positioned in better neighborhoods that attract better tenants. Uh, I’ve seen it across the board, so, you know, when you’re dealing with A class investments, high B investments, you’re usually dealing with a higher quality management company, a more professional management company. A company that does have the infrastructure in place, different departments for things, you know, utility turn-ons and shutoffs, rent collection. Um, many professional property management companies, you’ll also see they have a team dedicated to troubleshoot maintenance, maintenance calls, a lot of maintenance calls that are called on properties, they’re really frivolous. They’re really a simple fix. There’s really not even a need to send somebody out to the property. A lot of times, you know, like the thermostat’s not working, well maybe the batteries are dead, or maybe you just reset it. So there’s ways that you can troubleshoot simple maintenance fixes over the phone to where you’re not sending people out to the property and the landlord’s not being charged when they shouldn’t be. You know, I own a lot of properties, and in many of the properties that I own are in that high B to A range, and I just really don’t see maintenance on those properties. It seems like the tenants take pretty good care of the homes. I do a very good job of making sure that the properties go through a very professional and durable and quality renovation before I placed tenants in the properties and even when it comes time to turn the property, I make sure that all the little things that can break on you are replaced or repaired or refurbished.

John Larson: So we don’t have issues with little maintenance requests during the tenant occupancy period. And so when you’re interviewing a property management company, I like to ask a few different questions, and one of them is how many homes do you manage? And I also want to then dissect it a little bit further. How many homes do your property managers manage? I found in my career that, you know, 200 to 250 assets, if they’re that high B and A quality asset is probably a good benchmark for one property manager. If a property manager is managing any more than 200 to 250 themselves, I feel like you’re going to run the risk for poor communication, poor service. When you start to get above 250 homes, it doesn’t matter how nice the assets are. A lot of tenants to deal with, it’s a lot of properties to check on, and so I can see some things falling through the cracks at that point.

John Larson: Another thing that you’re gonna want to ask is, is the infrastructure in place. Like I said, it’s good to see different departments in place for different things. Leasing, maintenance, utility turn-ons and shutoffs, and you know, then you’ve got your property managers as well, but marketing, um, so who’s marketing properties? Things of that nature, to make sure that they get rented quickly and efficiently. So there’s a lot of things that you’re gonna want to pay attention to, but I think infrastructure is a big, big part of this whole, this whole thing. Insurance as well. Property Insurance, usually good property management companies, will have a department for property insurance, customer service. So when landlords are calling you and asking you about properties, you know, it’s not just your property manager could be in the field at the time, right, not able to get on the phone and discuss any billing issues or something that you may have, or questions about your statement.

John Larson: So it was good to have some sort of customer service involved and could field calls from owners and tenants alike. And then you’re going to want to ask what type of properties that they manage. You know, I know property management companies out there, they don’t really manage A, B, and C class assets. Most large professional property management companies have a rent cut off. They won’t manage anything below a thousand dollars a month rent because they know they’re starting to get into a little bit more troublesome areas and they’re dealing with a little bit more troublesome tenants. So I would definitely ask that.

John Larson: Be wary of the company that says, oh, we manage it all. We manage multifamily; we manage single family, we manage A class, we manage C class. No, I don’t think that that’s a good option to go with. I think that they’re trying to do too much, it’s the old term, you know, Jack of all trades, master of none. The best property management companies that I’ve worked specialize in a certain class of property or a certain type of property, mainly just single family homes and mainly homes that let’s say rent for $1000 or above or 1200 or above. And then they stick with that. You see like Airbnb’s are becoming more and more popular, and you know, Airbnb’s going to be set up for short-term rental. So like I said, you know, if a company’s saying they can manage everything and you say, hey, can you manage my Airbnb, you know, are they even set up to manage AirBnB’s? I don’t know. That’s something that you’re going to want to ask. And that’s why I’m just very, very careful about…ask these simple questions. You know, what do you specialize in? What type of asset class do you specialize in? Are you a multifamily property management company, or are you a single family property manager? Um, what is your rent cap? Those are all questions that you should ask.

John Larson: I would ask for a description of average property that they manage, as well. Just have them give you a breakdown and then match it up to what you own, and then you should check that box, and this might be the right company to work with. And then another thing that I always want to ask, does your property management company, run on a sort of online system? You want to make sure that they have an online system. I’ve seen property management companies that are still operating on paper. They’re still using files and paperwork and now there’s software in place that can really easily track each property, and it also has a portal for owners to sign up on and track the status of their property., and then also a portal for tenants to go to to make this request and make it easy on them to pay rents.

John Larson: You definitely want to make paying rent as easy as possible on your tenants. you don’t want to have to have your tenants go out of their way to go to the property management office and drop off the check. You want to make it very simple. Something where they can just log online and put in their information and hit submit, pay their rent easily, quickly and efficiently. So that’s definitely another thing that you want to look at with your property management company. I’ve got to go back to the importance of property management it’s just so, so important. I’ve seen the best quality properties that should easily be able to stay occupied. I’ve seen good tenants just end up running the wrong way. It’s really solely because of the property manager. It has nothing to do with the property, has nothing to do with the market, has nothing to do with the area, has nothing to do with the quality of the renovation that the turnkey provider and the owner put into the property. It’s just poorly managed.

John Larson: And so when we get back, we’re going to talk a little bit more about this property management, ways to vet out a good property management company and then we’re going to have Scotty Mitchell join us to talk a little bit more about his experience managing properties experience managing the DFW area as well as other markets across America. So there’s a lot of good information coming up. So stay tuned.

John Larson: I am here with a special guest. We’re talking about property management today and I have the CEO of AmericanRealPM, American Real Estate Investments in-house property management solution, Scotty Mitchell. He’s been in real estate for over 15 years. He started his career in New York City where he worked for almost a decade as an agent, and an associate broker, and the director of operations for multiple firms. He moved to Texas for a better life for his family where he shifted gears into property management, quickly finding his stride. The experience of working with one of the largest single family property management companies for five years was the perfect springboard to opening AmericanRealPM With Scotty’s expertise and determination, AmericanRealPM has more than doubled in size each year for the last few years and has unlimited potential for the future. Ladies and gentlemen, welcome Scotty Mitchell. Scotty, thanks for being on.

Scotty Mitchell: Hey, it’s good to be with you, John.

John Larson: Okay, so Scotty, I wanted to have you on the show, so today is all about property management and the importance of property management for a passive experience. When you buy, renovate, manage single family homes it can really turn into a job. Our investors that come to us for the turnkey experience, we as a turnkey provider or any other turnkey provider in the nation, they’re going to acquire the property. Hopefully, they’re going to make sure that they’re finding properties in good neighborhoods to set their investors up for success. They’re going to do quality renovation, durable renovations, make sure that there’s enough useful life left on big fix items like roofs and HVACs, things of that nature, and basically set the property up for a passive experience from that side of things. Now when you’re a landlord, you have one or two options at this point you can either manage the home yourself or you can hire a property manager to do it for you.

John Larson: Since this is a passive income real estate show, we really like to recommend that you hire a property manager because if you don’t have a property manager, it can really become a job managing your properties and dealing with your tenants. So why don’t you kind of explain to the audience the importance of a property management company, a good property management company for that passive experience that these investors are looking for.

Scotty Mitchell: Of course, John. It’s not just having passive experience as far as hiring a good property manager. I’ve actually taken on properties that were managed by a previous management company and was managed incredibly poorly, and the asset was on the verge of failing. So it’s not just about passive or active ownership or landlord it’s also about making sure that your asset is in a good place to succeed and become a beneficial part of your portfolio. But as far as making a passive, but most people don’t probably think about when they’re looking at this, because coming through American Real Estate Investments, they’re looking for it as an investment, as an asset to go into their portfolio. But property management is a living asset it’s something where there are real people, real property. It’s not like a stock where someone else is running that company. And with that in mind, the property manager is kind of like the people that are running that company for you. People that have the industry knowledge to make sure that you’re up to the local codes and local regulations. People that are making sure that you’re leasing is going while you’re getting the right people in the property to take care of your asset, keeping those people and doing the renewals, handling the maintenance as it’s coming through, making sure that the maintenance is not tenant neglect and making sure that the maintenance is priced right and it’s done by professionals that are reputable and are not going to rip off the investor, making sure that your HOA is in good standing with the city and not getting violations, handling emergencies, you know, no landlord really wants to wake up at two in the morning to handle a toilet that’s overflowing and that’s part of having property managers, you don’t have to do that. As well when things go wrong; let’s say the tenant stops paying timely, it’s a property manager’s job to handle those collections, get the tenant back on track, evict them if needed. And each municipality is different as far as how the evictions go. And how long that takes and what’s required in doing that. And as a landlord, that can be a bit daunting as well. So with a property manager, you want to have a very well educated staff in handling those things. And rate policies in being prepared for those things in advance and as far as making a passive, if those policies are in place that staff is well educated, and the manager’s doing their job well, the landlord can sit back and know that their asset is in good, good hands and it can become an asset in the portfolio rather than something that has to be actively managed by them.

John Larson: That all makes sense. And so earlier I was talking about, you could, you as an investor, let’s say you’re actively finding properties and actively renovating properties and then handing it off to a property management company or you’re looking to use a turnkey provider to produce a single family rental for you. I talked about, you know, you can buy the best property in the best neighborhood. You can do the most durable renovation to keep your capital expenditures low throughout ownership. But if you have a poor management company looking after your asset, things can really start to fall apart very quickly. What would you say about that?

Scotty Mitchell: Yeah, things can fall apart way faster than people would expect. If you put a bad tenant in there, for example, a tenant can do incredibly bad things to a property, and if you don’t have manager who has a policy, for instance, of going out every six months or so, and making sure that your property is taken care of, or has relationships with their vendors, so maintenance items through those vendors, if they see something that’s amiss, that they’re going to report it back. A lot of damage can go through and happen to a property. I’ve seen charges from properties that I’ve taken over that were in thousands and thousands of dollars because the tenant really destroyed the property. On top of that, if for instance, an HVAC isn’t taken care of and the filter isn’t changed on a regular basis, you know, the recommendation is at least every couple months. We try to tell the tenant to do it every month. And that’s something that we pay attention to, if there’s any kind of maintenance item, but if a filter’s not regularly changed, it’s going to restrict the airflow to an HVAC system, it’s also going to put dust on the coil, which breeds more condensation, that condensation then goes down into the drip pan, an HVAC system goes down into the dirt. The drip pan then goes into the drain, the drain clogs because of that dust, and then you’ve got water that’s usually coming from either a closet or the attic and that water has to go somewhere. It’s going to go onto the property, it’s going to create problems. At that point, A, you got a problem, but if your property manager doesn’t know exactly what they’re doing, they’re not going to know that the two most important things are that you have to stop the bleeding, get the water to stop and then get the water out because especially, saying in the Texas market where it gets really warm, it’s three to five days, so you have organic growth, organic growth, that’s a much bigger problem. So again, you have to have educated staff to know exactly what that time, and have the policies in place in advance prepare for whatever situation comes up to keep those disasters. At the minimal.

John Larson: Yeah, that makes. So I’m going to turn the tables. Since you’re a property manager, you run a property management company, we have a lot of listeners that are maybe new to investing or just thinking about buying their first property. What recommendations would you give to them? Like, let’s, let’s flip the tables. You’re interviewing a property manager to manage your investment portfolio or your first property. What kind of things are you looking for in a good property manager?

Scotty Mitchell: A couple of things that pop into my head that are questions that are asked. I know that someone’s coming from an educated perspective and he’s going to get the right kind of a big picture of what I’m going to do is what is our communication style, what is our communication policy? That’s one of the biggest ones because with lack of communication, that says that a property manager is likely to be doing the exact same thing to the tenants, which is going to cause more and more problems. A and B is going to say that they have a policy of being transparent and open and and giving you the information you need to be able to run that asset properly and get the information they need to run the asset properly rather than ignoring problems and letting situations exacerbate. A couple more things that come up would be their fee structure. Obviously you want to know exactly what their fee structure is, and how the property manager gets paid. More importantly, to me, and this is something that a lot of people don’t think about, is how is that structured? Incentivizing my property manager to act on my behalf. For instance, there are companies out there, they have lease guarantees. I refuse to do a lease guarantee where if I put someone on the property, I’m guaranteed that they’re going to be in the property for 12 months or there’s some kind of penalty. That’s not to say that I’m not going to take care of an owner if I put someone in there. Of course I’m going to take care of my work, but having that guarantee incentivizes my company to make sure that person stays in your property for 12 months. Even if we find that they’re not doing the best for your asset, in my opinion, that incentivizes my company to have your best interest at heart. So, knowing what the fee structure is, how the property manager’s getting paid, and what that incentivizes the property manager to do in your best interest is a very important thing that I would question if I was going to find a property manager. I would say that one of the more important things that people don’t really think about that I would be concerned about, is what is your property manager to portfolio ratio and why? And the reason that I say and why, is because there’s no real right answer there, depending on the company structure. If you’re outsourcing a lot, like if you’re outsourcing evictions, if you’re outsourcing your maintenance, so on and so forth, you can have a property manager that takes on many more properties than a property manager that’s doing all these evictions and keeping their eye on all of the maintenance that’s coming through for portfolio. Uh, at that point you’re looking at a property manager that might only be managing 150 to 200 homes, where that same property manager put into a situation where the all of that stuff is being outsourced might be managing 400 to 450 homes. And so it just completely depends. But knowing what that ratio is and why is gonna tell you a lot about that company and how it’s set up.

John Larson: Yeah, I talked about that earlier and I pretty much alluded to 200 to 250 properties per manager is probably a solid number. But like you said if they’re outsourcing a lot of stuff that could give them the opportunity to manage more professionally. In my career, I started off in Detroit and dealing with the C and D class asset. And I don’t think that one person could manage 200 or 250 C class assets. They’re just a lot more troublesome. The tenants, it seems like you’re always chasing them down for rent. Maintenance problems seem to be a little bit more prevalent with that type of property. So I guess this is going to lead into my next question. So we like to talk about passive income, passive experiences, and my personal investment philosophy is I like to buy a high B to an A type of investment, which means I like to really stay very close to whatever the median value is in whichever market I’m investing. So let’s use St. Louis as an example because we produce properties up there and manage properties up there as well. The median home value up in St. Louis is just below $200,000. So I don’t like to deviate too far below that $200,000 mark. Let’s say if I got below $100,000 on a property, I feel like that’s putting you in a position where you’re in a neighborhood that’s just more crime, break ins are more common, uh, the type of tenants that you’re going to attract, they don’t have the best jobs, the most consistent income, they’re not working salary positions, things of that nature. So I guess give me a look at what type of management company you are, what type of assets do you go after, and do you manage, and which ones do you like to avoid and why?

Scotty Mitchell: Sure, John. The company that I’ve built is built around managing A and B class houses. We do have in our portfolio some C class houses, I would say. I wouldn’t even take on a D class and I try to avoid taking C class as well. In my opinion, which goes along with what you’ve just said, it’s a different management style that you have to use for the C and D class properties, then what you use for the A and B class properties. And that different style is to try to avoid some of the common complications that are going to come up Ds you mentioned a few of them, when you’re dealing with C and D class properties which are in neighborhoods that may have a little bit more crime, that may have a little bit more job turnover, that may have a little bit more of the element of people leaving the property without informing you that they left the property, which causes its own situations for different reasons. I’ve come in contact with those properties. Different reasons. I definitely see that. Um, it’s also in those types of neighborhoods. There are owners that I’ve managed properties like that where I have to recommend things like putting extra reinforcements on the door, that I’m talking to them about potentially putting any of the fake cameras, cameras protect their asset. Um, and it’s just a different beast. I also agree with you that, almost not dependent on structure of company, you’re going to have less houses per staff member, which is going to raise your costs as a property manager, which has to get passed somewhere. But you’re going to have more staff per property to be able to manage the C and D class properties because there is more actual labor involved in taking on those properties. Um, so with that being said, the company that I’m building is more geared towards A and B class properties. That’s definitely what we go after. And a majority of what we manage, as I said, we do have some C class properties. I know how to manage those. I’ve got experience managing those.

John Larson: That’s great. So we’re going to take a quick break. When we come back, I’m going to kind of elaborate on what you just said.

John Larson: Okay. Welcome back to the Real Estate Cowboys. John Larson here. I’m with Scotty Mitchell, CEO of AmericanRealPM, a professional management company headquartered in Dallas, Fort Worth and he manages homes in four major markets across America; DFW, Houston, St Louis, Missouri and Kansas City, Missouri. So Scotty, welcome back. We were talking about different classes of property and how C class homes can be a lot more labor-intensive, and I’ve definitely seen that in my career being a real estate investor both actively and passively. And I got my start in Detroit, Michigan and I started off producing C assets for myself and started producing C assets for my investors. And I will tell you it was very, very difficult for me to find a good property management solution for those type of properties. And I do believe it’s because of the fact that it’s very labor intensive. So for example, you talked about a property, someone just leaving in the middle of the night, so I couldn’t tell you how many instances where there was someone that stopped paying rent, we start prepping eviction, putting notices on their door. They know they’re going to get evicted from the property. So they just decide one night they’re just going to leave, right? They’re not going to go through the eviction process. Well the problem with that, when you have a C class asset in the neighborhood that’s got a lot of crime, there’s people out there that are looking for vacant properties, right? So they can go in and they can steal things out of the property or they can go in there and squat in the home, and then you find yourself where you’re trying to evict the swatter out of your property. So that was one thing that I really had trouble with. You know, comparing it to an A class property, you have a tenant that moves out, is not very common that an A class property tenant is going to just leave on you in the middle of the night. Now, I’m not saying it wouldn’t happen, but you know, the chance that it happens is far less than dealing with some C class homes in these troublesome neighborhoods and troublesome properties. And so I’ve noticed that I don’t run into issues like that with my A class homes, the tenants seem to be a lot more responsible; they pay rents on time and when they do vacate the property, they give proper notice. It’s very, very rare that you have to do an eviction, with an A class tenant. And so, give me a couple, you’ve managed a lot of homes in your career. I just gave you a couple of horror stories. I would say myself, which is, you know, tenants leaving in the middle of the night, leaving my property, uh, open to just get broken into and things like that. Do you have any other stories that you’d like to share with the audience that maybe occurred when you started managing properties that were maybe more troublesome or not in the best neighborhoods

Scotty Mitchell: I do have a couple that really pop into my mind. really, really quickly. One of them relates exactly to what you just said. We had a property, and it wasn’t vacant for very long. That tenant actually left properly. They didn’t just skip out. We’re talking maybe three weeks and we did a renovation of what needed to be done for the term. Got It ready to roll. And literally the tenant was scheduled, the new tenant was scheduled to move in on Monday. I was going the Friday before that to do my move-in inspection, take some pictures, uh, get some evidence of condition of property before they moved in, make sure all the work was completed properly. I had a couple more days to get anything done if I noticed anything that hadn’t been done. And when I opened the door, I just heard water spewing. Of course immediately I went to my car. I’ve got a key to turn off the water at the street. I turn the water off, went back in the house to assess exactly what the problem was. Uh, opened the door, walked in and there was attic insulation all in the living room, at which point I knew this wasn’t just, I had a leak. As I investigated further, I found that someone had broken in through the kitchen window in the back of the house and come in, ripped up the sheet rock of the walls to get to the copper that was going from the condenser coil. And uh, so there was holes in the wall going up the wall for where the condenser was, holes in the ceiling going across to where, uh, the, uh, A/C coil was, the AC coil was gone, so the air handler in the attic was completely destroyed. And then these geniuses that had done this and broken into this house decided that it looked like the refrigerator supply line was made out of copper. So they kicked a hole in the wall right there and went to cut that copper out of the fridge supply line. Now they didn’t turn the water off. So as soon as they crimped that supply line of very high pressure, water burst, uh, went through two walls and started flooding the house. I really feel like I missed them by maybe a couple of hours because otherwise there would have been water running out to the street. And there wasn’t. It was all contained within the house. But a lot of damage done by this, obviously. So I immediately got the water cut off. Uh, I called a water extraction team immediately to get the water out of the house. Again, organic growth is a big problem. I called the HVAC vendor to come and give me a bid on exactly what they did to the HVAC, and get that fixed. I called a contractor to come and get a bid on the damage to the property. Uh, as far as the sheet rock, and I believe we needed new carpet in that scenario. Um, I don’t believe I had to replace the cabinetry there, but I wanted that bit as well.

Scotty Mitchell: And then I called the cops, and the cops can come up because there was obviously a criminal burglary there. And all of that I did before I called my owner. And when I called her, I said, hey, the cops are on the way. My HVAC vendors are on the way of rebuild vendors on the way, the water is shut off, so the damage is done. Uh, and water extraction will be started this evening. After I called my owner. I called the tenant, pushed them back. Actually got them a deal on a storage unit, saved the tenant for the owner who had to wait another three weeks now because there was a lot of damage to be fixed. I had to go through an insurance claim, which means an adjuster had to be involved. I believe all in all, end of story. I think it was $10,000 for the damage they did for like $200 worth of copper.

John Larson: Wow. Yeah, and so not to say that this isn’t happening in a more middle class, upper middle class neighborhoods, that can happen anywhere, it’s just a chance that it happens is far less, which is why I really like to, I prefer to buy properties in middle class neighborhoods where crime is not as common and so same thing goes with my investors who come from California or New York or New Jersey or Phoenix or wherever it may be. They all are kind of looking at the Dallas market and the Houston market or Texas as a whole because the economy is so good here. There’s people moving here daily. Almost 150,000 people moved to Dallas last year. That led the nation and population growth and so I just recommend to them, look, you want to go buy that C class asset because a spreadsheet shows you-you’re going to get a higher rate of return, you can go do that, but just understand issues like this are going to be more common, so is a $100 or $200 a month on your net cash flow worth a $10,000 repair like this? Probably not. You know. And, and when you start buying properties in these neighborhoods that aren’t, you know, they’re not really, they don’t, they’re not in demand for retail home buyers. So you know, the properties don’t really appreciate in value because what causes values to increase, generally it’s because of that owner-occupied or retail buyer demand because these people are willing to pay over market value to win a property. Right? So that’s where you see your rising prices and that’s what we see rising prices and a lot of these growing cities across America, like in Denver or Phoenix or Dallas, Austin, Houston, etc.

John Larson: And so yeah, that, that’s my thing, I’m not saying don’t buy C class investments or invest in C class properties. I’m just saying look, understand that it’s probably not going to be very passive. That’s all I’m saying. And so going into the next question, I would say, compare some of the markets that you have managed properties in, and what is it that you like about, this is a Texas real estate show, so we focus on Dallas and Houston, Austin, but I’m talking about all your experiences in the Missouri market or any other markets where you’re going, or manage properties compared to what you see down here in Texas. I just talked about the population growth, vacancies aren’t as high in a market like this. What would you say about when you talk about the different markets that you invest in, what do you lIke? What don’t you like about some of the markets that you’re in?

Scotty Mitchell: Of course. I can’t say that any of the markets I’m in I don’t like, but they are definitely massively different. For instance, Texas. And I love Texas for this: it’s incredibly landlord friendly from a legal standpoint, and from a property ownership standpoint, one of the ways that this presents itself for investors that is incredibly beneficial is that, for instance, if I’m comparing the Dallas eviction systems to the St. Louis. Eviction systems in Dallas is very, very straightforward. That on the third day of the month I can send a notice to vacate. One to three day notice to vacate. We send it via U.S. mail. We can file on the 10th then, right? We’ve got to give it time to get there in the mail, so we file the 10th. There’s a two week period between filing in court, so we get a court date somewhere around the 25th. We get our judgment if they haven’t paid rent, 98 to 99 percent of the time. I’m getting a judgment for default on them. At that point, they have five days to appeal and then I can file and get them out. So we’re talking right around a month, and we’re done.

Scotty Mitchell: The non-paying tenant is out, I can turn it and get a new tenant. Now let’s take it over to St. Louis, which is much more tenant-friendly, and you’ve got, yes, I send the demand for rent, somewhere around the third. Yes, I can file on the 10th. Then I will get my first court date around two weeks out. So we’re talking again, around the 25th or so. But that’s a first court date and it’s never, if the tenant shows up, the only court date. If the tenant doesn’t show up, great. I can get my default judgment. And then they have a 10-day appeal period and we’re around a similar time frame. But if the tenant shows up and they say, no, I want to go to court for this, now we have to get a second court date, which is now another two weeks out. They can then extend that court date and we’re now looking at a six to seven week eviction process for a straightforward, they didn’t pay their rent, eviction. So you’re looking at three weeks of non-collection simply because of the way the municipalities are set up in those statutes and laws are set up within that region. Now, when I get a property in Texas and we’ve evicted, and the tenant is out and I’ve got my turn, if I can find someone and get the turn done in 10 days, great. It’s done. Ten days later we got a new tenant. In St. Louis County, they have registrations that are incredibly strict, I would say. And there are some cities around Dallas that have registrations, but usually those are like, next day I can get an inspection. It’s health and safety and boom, we’re done. With St. Louis county those registrations usually take somewhere around two weeks. So again, versus a 10 days if there’s no registration in Dallas, did that turn, uh, if I have a registration of the cities around Dallas that asks for registration, add two to three days to that, maybe four. So you’re looking at two weeks versus a month for the eviction, and then two weeks and you’re at six weeks in St. Louis County in Missouri, you’re looking at the possibility of six to seven weeks for the eviction, and then two to three more weeks for that inspection registration getting done. So in a worst-case scenario in St. Louis, you’re looking at an 8 to 10 week period from they haven’t paid, to we’ve got a new tenant, right? While in Dallas you’re looking at a five to six weeks. It’s a pretty big difference and it very much has to do with the way that the statutes, the state statutes and local statutes and local municipalities handle themselves and behave; major, major differences. One of the things I love about Texas, is that Texas, from a local level all the way up to the state level, is incredibly landlord friendly.

John Larson: Yeah, makes sense. One more reason to love Texas and Texas real estate. Well thanks a lot for being on the show, Scotty. We kind of ran over on this one. We’re going to probably have to have you back again because I believe property management is such a crucial role in this passive income experience that you can receive through owning rental properties and building a rental portfolio. So Scotty, thanks for joining us today.

Scotty Mitchell: Absolutely, you got it, John. I’ll come back anytime.

John Larson: That sounds good. We just had Scotty Mitchell, a property manager, a CEO of a property management company, AmericaRealPM, that is American Real Estate Investment’s sister company. And so Scotty provided some great information about professionally managed properties, and I will tell you what, I trust them managing my homes, and I would trust them to manage any of your homes that are there listening as well. He’s a very, very vital part to the whole passive income experience here at American Real Estate Investments.So if you like what you heard today, if you think that, hey a single-family rentals is a great option for me to start earning passive income. I want to get my money to work in real estate, go to RealEstateCowboysDFW.com. Enter your information, start receiving weekly updates and exclusive investment opportunities in the Texas market. You mentioned Missouri as well. Also private lending opportunities where we give you the opportunity to be with bank, in a single and land development, and also vacation rentals down in Belize, private islands, luxury homes. We have a lot of different passive income real estate options. Just go to real RealEstateCowboysDFW.com, put your information in, register to start receiving that weekly newsletter. We also have a really cool quiz on there. It’s about 10 questions. Answer those questions to see what type of investor you are. Maybe you are more geared towards private lending, maybe you’re geared more towards a single family rentals, maybe vacation rentals, maybe a little bit of all of them. Go on RealEstateCowboysDFW.com and take the quiz. Answer those 10 questions and find out. And once again, thank you for joining me on this week’s episode of Real Estate Cowboys Radio. This is John Larson. And remember, everybody listening today. What is your return on life? Real estate can give you a great passive income lifestyle and can give you the chance to build wealth with these awesome passive income real estate investments. So once again, thanks for listening to the show. We’ll see you next week.

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