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Property Management Options with Muthiah Nachiappan

Jason Hartman



iTunes: Stream Episode

To start the show, Gary Pinkerton talks about changing your property management sooner than later when it becomes evident it’s not a fit. Then, Muthiah Nachiappan joins Jason Hartman to discuss his self-designed Property Management Survey. They talk about the fees that property owners have to pay and the property management contracts that always favor the person drafting them. Jason shares utilizing self-management, a la carte services, and flat-fee property management instead of property management business.

Announcer 0:04
Welcome to the heroic investing show. As first responders we risked our lives every day our financial security is under attack. Our pensions are in a state of emergency. A single on duty incident can alter or erase our earning potential instantly and forever. We are the heroes of society. We are self reliant, and we need to take care of our own financial future. The heroic investing show is our toolkit of business and investing tactics on our mission to financial freedom.

Gary Pinkerton 0:39
Hello, everyone, and Happy Friday. Welcome to Episode 125 of the heroic investing show. This show is a podcast for first responders, members of the military, veterans and really anyone who’s looking to improve their financial future and gain some freedom with their time. We teach America’s heroes how to build passive income, build their startup business and safely grow wealth through real estate and other alternative investments. We help current and prior first responders put protections and systems in place to enable them to build a life where they can focus on their passion, that service or product that they are uniquely gifted to share with the world and be compensated for it in gifts from others in payment paychecks or just in satisfaction that they’re doing something amazing for the world. My name is Gary Pinkerton. And I co host this show with Jason Hartman. I hope that you find this show to be helpful and inspiring. And please head over to iTunes or wherever you get your podcasts and leave us a rating. You can also feel free to reach out to me, I’d love to hear from you, Gary at Gary pinkerton.com. So in Episode 125, Jason brings us another case study. This is with longtime client and listener and someone that you have probably come across over other podcasts over the past couple of years. His client muthiah and Wi Fi and Jason talk over 30 minutes. And so I will keep my intro here very short. But it is a return to my recent theme on a better approach to property management. And they have a really good discussion about essentially four different ways that Jason brings up that you can, you know, have property management, you can manage the tenants inside your properties from you know, long distance. First is really the traditional full property management or turnkey approach. Now, of course, we all know that in most cases, it’s not turnkey, which is why I’ve been on this thing. It is not perfect and difficult sometimes to fix from a long distance. It is also though mainly the issue that we just don’t have our interests aligned. It’s not a good personality fit. It’s just whatever. But it’s not something that gets better with time.

And so I’ve been slow to change when I’ve realized that I’m with a property manager that is not a good fit mainly just because I’m busy. And that’s probably a common theme for all of the first responders and military members who listen to this podcast. But nonetheless, you got to persevere, you got to make the change sooner better than later when you realize it’s not a good fit. Because in my experience, it doesn’t become a good fit, it just continues to grate on you and probably on the property manager and start and it continues to affect your bottom line. The second method is, you know, an all inclusive flat rate. So Jason has talked about this a lot with Fernando Muth i think is a fan of it. I’m not so much a fan, but I have to say I haven’t tried it. The reason I’m a little hesitant or skeptical is, to me it’s very similar to something like restrictions you can put on an annuity for example, something that I’m very, very familiar with. So you know, an a single premium immediate annuity is a very pure product is a great product is basically a personal pension system. I won’t go long with this. This is just a you know, I think it pretty decent analogy. But you can instead of just transferring money to the insurance company for guaranteed income stream for the rest of your life. You can put restrictions on that. And over the years, they’ve they’ve created more and more and more restrictions, because people feel like that’s just risky. transfer the money What if I die tomorrow or at a young age, I’ve kind of lost my family as lost that money. Well, so you can do things like put a 20 year guaranteed return of premiums, or a 20 year guaranteed payments, or you can put a total return of all premiums contributed, you can do a combination of both, you can do something like a joint life where there has to pay out over two people’s lives.

And while all of that seems smart and safe, what you’re really doing is you’re pushing risk to the insurance company in this case, or in my analogy with a property manager when you say Listen, you can’t charge me for all of these other profit centers that you have. So can’t charge me to go out and respond to a client. You can To attendance request, you can’t charge me for, you know, the late fees, or, you know, Lisa fees and things like that all of that has to be incorporated, if you’re going to ask them to incorporate all unforeseen things of the future, then I believe they’re gonna have to, you know, they’re gonna have to pad the thing to protect themselves. So they’re going to be, it’s going to certainly be less lean, and in my opinion, but again, I haven’t done it, that’s just kind of my gut feel for how it may work out. And I think it’s going to be totally different. When you’re thinking about a class a building, which is, you know, no drama, new construction, maybe with a white collar tenant, as opposed to a class C building, where there’s nothing but drama, you know, both maintenance and tenant payment issues. And so in the class C building, sure that makes sense. I’d love to keep the property manager from nickel and diamond me. But I think on a Class A are a really good Class B building, it would come off being fairly expensive for what you’re getting as an added benefit. So that’s the second method. And the third method is what Jason calls a hybrid or ala carte type property management where you only pull those services that are needed for each property. Now that’s getting closer to something that I like, might become more difficult to keep track of, if you have lots of properties, like do I have this service on this particular property or not? services like ham lane that Jason has interviewed the CEO of hamling, a few episodes ago, cozy.co cozy.co, it’s another one that will let you kind of bring on some services like that. But I think traditional property managers often will offer services like that, as well just do lease up, just do lease up and make ready, you know, and then you can handle the rest of it with things like homeadvisor, and other services, Angie’s List, etc. And then the final one is just flat out self managing, right.

And that’s really kind of the hardcore way that Jason’s mom talks about. And, you know, certainly it is a good way for some people, but only if you you know, if it is your highest and best use, meaning that you’re not giving up higher dollar per hour type activities, whether it be in your business or in your job, and that you know that you actually like to do it, right, that’s the most important thing, nothing, no new plan is going to work. If it’s a burden to you, at least it’s not going to work long term. Those are the four methods traditional, an all inclusive, flat rate, hybrid, or a car, and then self managing, I think it’s a really, really good discussion, I tend towards the self management, but I don’t personally feel like it is my highest and best use, and I don’t feel like it really inspires me to go do it. So that’s why I’m looking to hire, you know, kind of a family office type Portfolio Manager, I’m studying, you know, I’ve read reading in a couple of books that Jason got for me, and, and studying on my own and interviewing a few people, I’m certainly going to try to do that. And I’ll be happy to blaze that trail for everyone else. So again, Happy Friday, and I hope you enjoy this case study with Jason and muthiah.

Jason Hartman 8:10
Hey, it’s my pleasure to welcome one of our clients back to the show, we actually recorded another show a while back, we didn’t air it yet, because we kind of thought we can do it better. And he’s just such a great contributor. He’s been to several of our events. He’s got nine properties through our network, and that is muthiah from Los Angeles. muthiah. How are you?

Muthiah Nachiappan 8:28
I’m good, Jason, thank you. How

Jason Hartman 8:30
are you? Well, welcome, welcome. And thank you so much for the preparation you did for this podcast interview, I think the information that you you’re going to share here is going to be very valuable to all of our other clients. So I just want to first say how much we appreciate that. I’ll say that on behalf of my company. But I want to say that on behalf of all of our clients, because I just think what you did here is is really, really valuable. I’m looking at the stuff you sent me in preparation for this interview. You may be more than any of our other clients have really delved in to property management contracts. And what I believe is this outdated, outmoded, in many ways dysfunctional model of property management. And as I say, you know, the two biggest challenges we have in our business is well right now, and this will change. It always does. It’s dynamic, and ebb and flow, but lack of inventory of properties. So we really, inventory is very scarce very tight for the past few years, seems to be getting worse, frankly. And property management. Those are the two biggest challenges we have. If we can, if we can solve those everything will just be rosy and wonderful. But Matthias what kind of caused you to get so interested in the property management part of the business being an investor with not properties.

Muthiah Nachiappan 10:00
The thing is, Jason, I have a habit of reading everything I find.

Jason Hartman 10:05
That’s a good habit.

Muthiah Nachiappan 10:08
To my detriment I did, I do read all these property management contracts that come that I have to sign and there are things in there that don’t seem, don’t seem like it. Like, anytime, you know, I’ve seen a lot of leases over my time, and not a lot of leases and agreements, they always pay for the person who’s drafting it. And, you know, all these agreements were drafted by attorneys on behalf of property management companies. And, you know, as a, as an investor, you know, always looking out for myself, obviously, is an investor. And so there are things in there that I’m not really comfortable with, and you don’t have the time to go back and forth. And, and the argument often from the property management company is, hey, look, you know, this is what everybody signs and, and we can’t change it just for you. You know, that type of thing. And so, I’ve been able to change a few things, you know, here and there, that seemed important to me, but you know, certain things, I don’t really bother even negotiating because it’s not worth it in the long run. The big the big picture is the personnel, the actual people, you gotta you gotta As the old saying goes, you got to pick your battles, right? So,

Jason Hartman 11:13
yeah, yeah, absolutely. But what I think ultimately needs to happen is I want to disrupt the property management industry, I want to see self management become more popular. And certainly, we have made a dent in that it has become more popular as we’ve been teaching it for the last six or seven years now. And I also want to see all a cart Property Management Services. Why is it that most property managers out there expect you to just sign up with them? And they do the whole kit and caboodle? Why can’t you just buy the service you need? Right? So those are two things that I want to see. And then the third thing is what I propose maybe four years ago, oh, my God, I don’t know, time goes so fast. Maybe it was five years ago now, at our meet the Masters event, which was this flat fee, property management. And you did a beautiful spreadsheet on that, that I am looking at now. And we’re going to talk about that, where the manager just charges a flat fee. And I think this is the way to go. I really like this plan. So where would you like to start with it? As we dive into this? Well, we

Muthiah Nachiappan 12:21
can start with, you know, like, like, like, in any business, right, there are good property rental companies and bad property management companies. And as an investor, you know, going into this, you know, not everybody’s, you know, experienced investor, you know, most of us are just starting out. You know, I think that what what do you look for in a property management company, when you first get started, I think that would be a good place to start. And then maybe that, you know, from that it can evolve into other areas? Absolutely. Okay,

Jason Hartman 12:51
good. Talk about that, you know, in terms of what you look for, you’ve got the, what you call the property management company survey. And I just love this, you know, you’ve you’ve, you’ve gone over, you know, several items, like the lease up fee, the re renting fee, or the renewal fee. Other fees, if any, you know, monthly management fees, pet fee and deposit, maintenance, advertising, late fees, rent do and credited and, you know, statement of accounting of rents. Tell us about that?

Muthiah Nachiappan 13:21
Well, I mean, I broke these fees down based on the nine different agreements, and I actually may have seen up to a dozen, you know, I looked at these and pulled out the different fees that these companies charge and, you know, and so I figured that, you know, good to see what were the biggest chunk of your your rent is going you know, the biggest chunk here is obviously going to the, to the, to the management company, and the management fee, which is really maybe not a whole lot, eight to 10%. But then you start, you know, nickel and diming with these, you know, other fees, and they don’t want to share those fees.

Jason Hartman 13:58
I call I call those garbage fees, there’s a bunch of garbage fees in there. But listen, folks, as I, as I say, that don’t think of it as too derogatory, because everything has garbage fees, you know, hotels are now doing resort fees, this fee that fee, you know, that these are all garbage fees, you know, they’re all over the world. So, you know, it’s not just managers doing that, but But yeah, you know, they’re not the they’re not the apparent obvious fees, right? Are these extra things, they, they kind of slip in there, and a lot of people aren’t really thinking about them. And muthiah before we dive into this, I’m actually Sorry, I didn’t ask you about this before, but it’s always nice to know where someone’s coming from. You’ve got nine properties now, what do you do for a living and, you know, give us a little bit of your background first, just so we’ll understand kind of how you how you think maybe? Sure,

Muthiah Nachiappan 14:45
well, you know, I mean, I’m actually a real estate broker. I’ve done some loans and things of that nature, but I you know, it kind I started out as a broker. And really what the way it all got started was I became a broker and I went to get my fingerprints and I couldn’t find a place in downtown LA to get my fingerprints, I had to drive 15 miles to get my fingerprints. And I thought, well wait a minute, this, this looks like it was a market This is 2008 that time we’re mortgage brokers are knocking that well. And so I said, Wait a minute looks like this might be something that there might be a need, you know, and, and always when there’s a need, you fill a need, and you make some money, that’s generally the business concept where people make money. So I slowly got into, you know, setting up this business where we got, I got certified to the FBI, the Department of Justice, what the equivalent went to training and, and then you know, just started and then the mortgage brokering business fell off, and this picked up. So that’s what happened. So I started doing the run background checks in all 50 states, we do Department of Justice, the FBI, criminal background checks for, you know, for immigrants, for professional occupants, professional licenses, lawyers, doctors, nurses, children, women, people who are come in contact with children, elders, those types of things. So there’s a, there’s been a market for that. So I’ve been able fortunate to make a living at that. And so I did that for a few years. And then I just started, you know, slow, I mean, I listened to your podcast, and I mean, looking at other things to do as well, and, and your podcast got me interested in investing. And I started very slowly. And all in a matter of three months, I bought three properties, and then slowly started picking up and I’ve been doing properties, I basically refinanced my primary home to put money out of that and bought some properties. And then I used this conventional financing. And you know, what other property so it was not an easy process, because Fannie Mae and Freddie Mac guidelines are so strict and the requirements are so sort of rigorous that it took me a while to, to close on the last four properties that I closed on, and I closed for before the end of last year. And so it became more and more difficult. And so but in any event, that’s what I did. And I intend to continue, you know, buying, but I’m looking at maybe doing something unconventional, maybe doing a seller seller financing, some lease options, that type of thing. And other than just going just for the conventional way of buying properties.

Jason Hartman 17:22
Okay, good. So what else happened is first of all, on your business? Did you open a fingerprinting business?

Muthiah Nachiappan 17:28
Oh, no. Right? No, no, what I was going to say was, look, the way it works is in I don’t know the I don’t know the specifics in terms of how they do the calculations, but when you when you have a business, and you have to show a profit, and I have an S corporation, so basically, they take the profits and add it to your your income, and then just kind of, you know, escalate your income. But by the same token, if you have a loss, they basically offset the income against the loss. And so when you calculate your debt to income ratio, it really hurts you, and you’re very tight in terms of qualifying for a loan. So that’s what happened for me in 2015. The business that I was running was had a little bit of a loss, you know, and and so that affected my my ability to borrow more money. And so that’s why I kind of stopped at nine you stopping but for and then I’m looking at other ways of buying property, right?

Jason Hartman 18:28
Yeah. Okay. Okay, good. So on the property management agreement side, now that we got a little background, so that was great. Tell us, you know, what, what your thoughts are about this property manager, survey, property management company survey, you’re using this to really understand what you’re getting into,

Muthiah Nachiappan 18:46
right? That’s the key to it. Right. And I think it’s also important for property managers to look at this survey, because I don’t know if they’ve done an internal analysis on what their fee structure is, because they, you know, they’ve been doing this for a number of years, I don’t think they’ve sat down and broke me down and say, This is what we’re charging for this and the other, I think it allows them to look at all the fees they charge and make and make an informed decision of whether or not it would be worth a while to just charge a flat fee. No, and everything is transparent. There’s no hidden fees. Now, there are things like the markup fees on on maintenance, you know, the, for example, a lot of them become very common practice, among the other many property management companies, if they, if you if they call it a maintenance person into your into your rental to fix something, then they will charge, you know, up to 30% on top of what what the maintenance guy charged you. You know, I don’t know how you know why that’s even necessary. Right. And I think

Jason Hartman 19:45
the thing to do is to empower the tenant, the you know, the property manager doesn’t even know something is wrong until the tenant reports it. That’s kind of the irony of this situation is that if you just work with your tenant Now granted, you know, there are bad tenants out there, we all know that. But if you just kind of work with your tenant, a lot of times they can be your best ally. I mean, I get, you know, I try to get my tenants to, I was gonna say I get, but I don’t always get, I try to get my tenants to, you know, basically get into partnership with me here. And, and you know, you get some there are some really great most tenants are wonderful people, they’re just people, they want to have a nice place to live. And they are our customers, you get some bad ones for sure. now and then but by and large, they’re great. I, you know, so. So, okay, go go through this survey a little bit more, you know, lease up fee re rent fees,

Muthiah Nachiappan 20:41
right. And these are the cheat that I have. Because I think people know, it’s like, it’s like mutual funds, right. But they have all these hidden fees. I mean, it’s you sit down and break it down, you don’t really know how people just think that this thing applied fee, but there’s all these, the Tony Robbins had a book, published a book not too long ago, where he had like 16, or 17, different fields of mutual fund companies charge all hidden, you know, unless you, you know, you really know what you’re looking at. They’re all hidden, and you just think that you’re getting your return. But in that, within that return, there’s so many hidden fees. So I’m just saying that like, as an investor, if you’re looking for your return on investment, you want to look at all the fees that you’re charging, and see if you’ve been charged and see if there’s a there’s something you can negotiate before, you know ahead of time, you know, and the point, you know, in addition to the fees, right, let me just go through the future release of fees, the fee that they normally charge when they find a new tenant for the property. Now, here’s the thing that can be as much as 100% of the first month’s rent. So basically, you get nothing, the first month’s rent, you get nothing, the whole fees is gone, when they find a

Jason Hartman 21:47
tenant for you and the property is vacant, I like to buy a property with a tenant in it. But but that that’s the lease of that. So you basically lost the whole first month’s rent. The other thing that read your entry, they find a new tenant for the property in the second year, then they charge you a fee. Again, that’s another you can go from 16 to 19, from 50 to 100%, which is a pretty big chunk of money, you lose a whole year’s worth. And then some but sometimes, and here’s here’s the odd thing about it. Sometimes there’s no renewal fee, or sometimes the renewal fee is $150 or $100. So it’s all over the board. And here’s the problem. This, this old fashioned philosophy of property management is out of alignment. Whenever you get into a deal, you want to have a strong alignment of interest, the owners interest is to get as much income out of the property as possible. The property’s managers interest is to make as much money as possible, why can’t we put these two things together? You know, rather than having all these diverse motivations, so let me just tell you about that.

Muthiah Nachiappan 22:54
Also, besides the owner in the Manage company, the tenant, the tenant is the one that’s being a being the paying us. So I think aligning the tenants interest as well, you know, if you make it hard for the tenant to stay there, they’re not going to see the very long,

Jason Hartman 23:05
they’re not going to stay Yep, yep, exactly. So we here’s what I was gonna say about that. Some clients will say, the property manager is not aggressive enough on rent increases, they tell me to just not raise the rent or to raise it a very small amount, when I know I can get more. And, and that they’ll they’ll say, well, the property managers being too lazy on getting me a higher yield. But then others will say, well, in they’ll say that one of the reasons is they’re lazy, they don’t want to have to go replace the tenant if they decide to move when the renewal comes up, right. But then, on the other side of that spectrum, you’ll get a different client that says, Well, you know, these property managers, they always tell you to really jack up the rent, so that the client so that the tenant is incentivized to move, because if they move out, they can charge you another lease up fee. But you can’t win in this debate, right? Nobody knows really what the real motivation is, right? We totally see. You see how it’s the exact same set of circumstances and to complete completely different belief systems, right? So here’s what has to happen. We have to have a flat fee system where you as the investor, pay a higher percentage, but it’s simple. It’s totally flat. every dollar that comes in, the property manager gets a certain defined percentage of that dollar. And if the dollar doesn’t come in, they don’t get anything. And then I believe there is an alignment of interest. That’s why I proposed this idea about four years ago at meet the masters. And, you know, nobody really took me up on it. I I didn’t really push it too hard. I have mentioned it on the show. Over the years, but let’s talk about this spreadsheet a little bit. Okay, so we see from just what you haven’t even gone over all of these 18 items, yet, we see that there’s a misalignment of interest, right? Let’s see if we can get the interest aligned. Okay. Tell us about your spreadsheet here.

Muthiah Nachiappan 25:17
Well look, at the I, I took the three most common fees that are universal in all property manager agreements, they were the the management fee, the lease up fee, and the property inspection fee, all the other trees exist to some, to some extent, or the other. But these three, three seem like they exist in all contracts. And I analyze them from 8%, assuming the management fees, or 8% 9% 10%, you know, on a $1,000 per month progress right at one time just to make the numbers easy. So $1,000 a month. So having if you do that, you know, basically the total fees on an 8% or one year, it’s all annualized. So one year, it’s 1710. For the 8%, it’s a total of those team fees are 9% is 1008 30, and 10% 1009 50. But the annual rent is 12,000. Throughout, because you’re getting 12,000 bucks a month, no matter which way you go. So as a percentage of the rent, you’re paying anywhere between 14 and a quarter percent or 16 and a quarter percent. Yeah, that’s, that’s what you’re paying, you know, if you look at it, that’s, that’s a sizable amount, right? I mean, you being whatever people need, I agree, I agree.

Jason Hartman 26:29
And a lot of times this is this is not, this doesn’t happen on the first year, because the property will be pre rented, or they won’t charge a lease up fee for the first tenant. But then after that, you got to pay it right. And it’s sometimes intended to be fair, sometimes the tenant will stay for two or three years or maybe even longer, okay. And that brings that number as a percentage down quite a bit.

Muthiah Nachiappan 26:54
No, it does bring bundela five percentage points brings it down. So I, that’s what I’m saying, if they don’t charge the lease up fee, or you bought you buy a property with a tenant in it. Or if you already bought a property, the tenant in it, then there’s no reason for at least a fee, because you buying it as it is. And the second year of the tenant continues to stay there. There’s no lease up fee, you know, maybe the renewal fee of 150 bucks, which is negligible if you break it down over 12 months is nothing. So if you can take the same management fee as a percentage of rent, and you remove the lease of free from this equation, you get, you know, between anywhere between nine to 11, or 12%. And that’s why I think that maybe it would be better if these if these, that’s one of the questions I have in my survey is, Hey, you know, you know, would you consider switching to a single flat percent of percent monthly? The property management fee, yes or no? If you answered yes, what is the percentage fee would be? What would be the percentage fee? And if you answer No, provide your reasons, see if they look at this, right. I mean, they basically making nine and 10%. Anyway, and they’re getting all these bickering going back and forth between the investor and Marisa things they know, this will trust versus gotta trust the management company, I gotta tell you something decent. There are a few companies in your network that I trust, implicitly, I’m, I don’t have to do any work at all, they do a lot of the stuff for me, they find the best insurance for me. I mean, they do everything. So on the other hand, there are some others that I have to go out and shop for this, that and the other, and I have to call them, you know, spends more, it takes more of my time. So the more value that a property management company can add to this relationship, it will be much better for all parties.

Jason Hartman 28:34
I couldn’t agree more. And, you know, this comes down to the old thing is that, you know, it’s the question of thinking long term in business, or thinking for today, it’s instant gratification versus long term thinking. And, you know, just humans think differently about that. So I say the, the solution to this is number one, you know, there are some options, either self manager properties and learn how to do that. It’s really, a lot of times, it’s easier, frankly, if not self manage, you can propose an all a cart, property management relationship, the blend that I like, is having your property manager, do the lease up and handle things between tenants. But the rest of the year, just collect the rent directly, just have them pay you. And then you’ve got that manager there. If you need a local contact, if you need some help, you can just call them up or you know, email them and they can help you and they’re gonna be happy to do that because they want to earn your business, right? versus if they have you under contract. It’s more like they’ve got you and they become complacent. You know, it’s it’s just human nature. That’s just the way things are. Okay. That’s the way humans are. So when it’s a transactional relationship rather than a contracted relationship, I say you get better service which is odd because you pay less to

Muthiah Nachiappan 30:00
One of the things I did want I did want to mention before I forget is, you know, this thing? I don’t know, maybe you can you can enlighten me on this, you know, the rent, rent is due on the first becomes late on the fifth, right? Generally, that’s that’s the thing.

Jason Hartman 30:13
And then you don’t get it till the 20th. Well, yeah, sometimes here’s another benefit of your rent sooner,

Muthiah Nachiappan 30:20
you know, sometimes they don’t, they don’t credit your account to the following month, there’s no reason for them. That’s long.

Jason Hartman 30:26
That’s that’s, that’s ridiculous.

Muthiah Nachiappan 30:28
They’ve been doing that over 100 properties, you know, you’re collecting month’s rent and then rolling it, you know, under the pretext of saying, Hey, you know what, that might be expensive. So we want to wait for all expenses to be paid, wait

Jason Hartman 30:41
a minute, you already have $500 of minimum reserves that you’re already holding, in a market in a market, if there were actual interest rates paid on savings. And you know, this wasn’t a trust account, I would accuse them of making money on the float. I can’t do that now. Because there’s no money to be made. But yes, in a normal world, where we have normal interest rates, and all these exceptionally low interest rates, that would be absolutely true. I think right now, it’s just customer laziness. But it’s ridiculous. If you self manage, then you don’t have that you get the rent right away. My mom’s self manages all her properties all across the country. None. None of them are local to her, she doesn’t own any properties anywhere near where she lives. Okay, you know, some of her properties are 2000 miles away from her, okay, and she self manages everything. Now, I think she does too much. I think she could do a nice hybrid arrangement, where she wouldn’t go out and do lease ups. Frankly, she’s retired, I think she just kind of wants something to do. Okay. And I’ve had her on the show talking about that. That’s not very logical. Okay. So, look at the third option, you know, remember, I was telling you three options, you know, there’s really four, you can go into your typical property management relationship. And if you have a good property manager, it’ll be great. Most of them are pretty good, or mediocre ish, or mediocre to good. You know, they’re unlike the, the 70%, or like C and above, right? Most property managers, but some are like, you know, C and D, and some are F’s, they’re terrible, okay? They’re all over the board. So you if you get a good one, a traditional property manager arrangement is not going to be too bad, okay, it may be fine. Okay, and I have some great ones, and I have traditional deals with them, and it’s fine. Or the next step is you can have a hybrid arrangement, okay, where you pay all a cart for services. Okay, the next one is you could completely self manage your property. And the one we didn’t mention, which is really what your spreadsheet is about, is you could do a flat fee arrangement with your manager, where you actually pay them a higher percentage, but there’s no garbage, there’s no, they don’t get to keep the late fees, they don’t get to charge you renewal fees. They don’t get to do any other fees, except you might pay them say 14% instead of eight or 9%. And you might be thinking, well, that’s crazy. Not really, okay, you know, that could be a better deal. And even if the deal isn’t better, you can’t hear the dogs that don’t bark. And here’s what you can hear, you can hear that that tenant becomes a happier tenant, because they’re not dealing with a property manager that’s incentivized to be predatory and charge them late fees, or, you know, they’re there, you’re you, as the investor aren’t dealing with a property manager who’s predatory and wants to ding you for a bunch of little miscellaneous fees, right? Everything is simple and aligned. And it’s just a clean deal. And this is where the industry needs to go. If it wants to survive, you know, one of the Oh, look at your sort of into the technology world. I know muthiah. You know, one of the the things we’ve really all realized in business the last few years, is that successful companies are willing to take the risk of cannibalizing their own business, before a disrupter does it to them. And you know, look, for example, if the taxis would have done that, if the music industry would have done that. Okay, they wouldn’t have suffered so much in the transition. You know, the taxis got killed by Lyft and Uber, the music industry got killed by kazar. And what is it Napster? Okay, you know, they wouldn’t have had that if they just were willing to disrupt their own business preemptively. And this is what the property management business has got to do. They need to disrupt and cannibalize their own business and they will win. That’s what I say.

Muthiah Nachiappan 34:54
integrate that into comfort. They’re sitting in the comfort zone. They don’t want to get to get uncomfortable. Doing something they’re not used to doing, that’s a problem. But But honestly, if they if they look seriously at a long term relationship that they have with, with the investor, I think it would be in their best interest to move away from the model that they have right now, because it’s not, it’s not something that’s, I don’t think it’s sustainable given, given all the new technology and how, you know, you’ve done podcasts on no keys, please. And other things where you don’t really need these guys to do stuff for you, you know, I mean, you can, you can like, like you say, maybe do a hybrid, you know, maybe use somebody for just leasing it out, and somebody for maintaining it, you know, and then just the checks come to you. And there’s no waiting 45 days to get the check. It’s just just so many different things that, that people wanted that get smarter about how to manage these properties. And I mean, you don’t have to get rid of they’re not, I’m not saying get rid of the property management companies, but using them in a more in a more efficient manner. And I think once you do that, then the property managers become wise to the fact that maybe they should change their business model. That’s my Yeah,

Jason Hartman 36:06
absolutely. Absolutely. This is the hint. And you know, look at I want to say you mentioned mutual funds earlier, muthiah. And, you know, look at even though it sounds like we’re griping and complaining about this stuff, which we are, okay. But you know, we we want to cause some change, okay, we really want to cause some change, and disrupt this industry, and be the forward thinking people here, and I’m so glad that we have such intelligent, interesting clients that are so engaged, and muthiah Thank you for coming on the show and talking about it. But at the end of the day, this is a zillion times better than any wall street investment, any, you know, fund of sorts, or any pooled money investment, you know, invest in someone’s private placement memorandum, their LLC, you know, they’re always skimming the profits off the top there, at least here, if you read the contract, you know, where the money’s going, right. So it’s not, you know, it is transparent in that sense. But it and you know, when you gave the mutual fund example, I was thinking with IRA, you didn’t even mention all the skimming that’s going on, at the level of the companies in which that mutual fund invests, so the mutual fund has all these hidden fees, right. But then there’s a whole nother layer to the onion. And that’s the graft and corruption of all the executives at the company in which they invest right there. They’re paying themselves the big fat bonuses, they’ve got expense accounts, they’re going on first class trips, they’re going and wining dining and people you know, spending that’s all your money folks pay him for all that.

Muthiah Nachiappan 37:44
All the while while your investment is tanking every day, you’re not earning anything, these guys are living high off the hog. I you know, what loves the thing is, in order for, for them to, to have that kind of charges fees.

Jason Hartman 37:59
I mean, the problem is, is nothing is transparent, most people are not educated enough to drill to look through their statements and see what the feed wasn’t running open the damn statements. That’s the thing. You see. And you know, you only got this opening statement, you see all this, you know, you got to go through and read your stuff. And then you’ll find out all these fees is getting charged. And and most people just leave it to someone else to handle it. And then they cry afterwards about hey, you know, I’m losing money here. Yeah, they do. They do. And so that’s what I also want to tell people, this is not a new thing. You know, I’ve said this many times before, but is it the beginning of the relationship with your property manager? And if you’ve already had the same manager for years, then you know, start today, okay. really pay attention at the beginning and set the tone that you are an aware investor, ask questions about this fee about that fee about that expense, what is that, you know, and and get it all down so they know you are paying attention, they know you are an attentive investor, who is aware and who is not going to be, you know, overfeed, okay, so just set the tone. And if you haven’t done that, and you’ve had the same property manager for three years, then do it next month when you get your next statement. Okay, and just set the tone for a while, you know, be courteous, don’t be rude. You know, don’t be difficult, but make sure they get the message, you are paying attention.

Muthiah Nachiappan 39:28
Okay, right. Absolutely. Knowing and you need to know if you’re spending your money, you know, what you’re spending nine, there’s certain things I’ve tried to follow your philosophy of $850 per per, per month per property. You know, these I mean, it’s difficult to enforce that a lot of them want $500 is fine, you know, but don’t you know, I mean, you’re going to spend, you know, spend the investor’s money, let them know where it’s going, you know, I mean, that’s all it means. You can’t argue them for every like you said, pick your battles, right, you know, but if they’re going to charge you all kinds of fees and Which you didn’t even agree to? You know, there were there was a, I got my bank, my account was credited, you know, for with a 10% fee. And I said, Wait a second, I just signed an agreement you guys for 8%? What are you doing? Oh, I’m sorry, it was a mistake, we’ll credit you the other 2%. So those kinds of things, you try to catch them, right? Otherwise, then just you just think that Oh, they they’re crediting you, nobody’s perfect. You know, it’s all being done by human beings anyway. So you know, somebody will make a mathematical error, or somebody will make an error. It’s your money. If you’re, if you want to, you know, see, make sure it’s done. Well, you know, you need to do it or hire a bookkeeper to do it. But you know, I mean, I don’t know, I mean, just paying attention to the details, I

Jason Hartman 40:39
think is important. Absolutely. Well, I think we covered it in muthiah. Thank you so much for preparing this information. Really good stuff. You know, on the positive side, what’s next for you with your investments in your portfolio? Are you looking to buy in any more markets? Tell me Yes. No,

Muthiah Nachiappan 40:55
I am. Jason. I am. You know, I, I I like new construction, you know, only because they require less maintenance. You know, I’ve got one in Ohio that I’m buying one in Tennessee?

Jason Hartman 41:07
Yeah, you pay a premium for it. But it is more convenient. There’s no question. Yeah. So you’re buying in Ohio and Tennessee right now?

Muthiah Nachiappan 41:14
Right? Right, Ohio and Tennessee. They both new construction is going to be done in March or April. And I think there’s something that carries me saying something’s coming up in Dallas, and we’ll look at that, but I don’t want to go too far out. You know, I’ve got four markets and then Tennessee, Ohio, Alabama, Mississippi. So that’s where I’m at. And, you know, I like kind of see myself stop at five, Don’t

Jason Hartman 41:38
go Don’t go more than five, don’t go more than five just just double down in the same market now. Okay, you know, this is one of the mistakes I made and don’t make the mistake I made that’s, that’s, that’s why you’re here listening to you know, you can learn I I spend the money and I make the mistake and you just get the lesson. Okay? So don’t over diversify. Definitely do diversify. It’s a you know, it’s a commandment, thou shalt diversify one of my 10 commandments, but don’t over diversify. So three to five markets are enough. That’s enough diversification, not more than five.

Muthiah Nachiappan 42:14
Okay. I mean, I’m still looking at, you know, every day and looking at different different things that are coming up and looking at these deals and seeing what, what work and, you know, so I know the inventory is limited, but there’s still some that are good, you know, I mean, it’s just a matter of looking and going through stuff, and hopefully making the right decisions. You know, it’s not all paper and gold, you know, I’m sure you make mistakes, and I’m sure I’ll make them I made mistakes, and I’ll make them but hopefully, the end of the day, you know, with these rental incomes will will allow me to just retire. That’s the whole that’s the objective objective of doing this so that we don’t have to you can do what you want, when you want and drive a Tesla when we want.

Jason Hartman 43:02
Good stuff. Good stuff. Well, hey, muthiah, thank you so much, and happy investing to you. And we really appreciate you contributing to the show and sharing with everybody and, and folks insist on some of this stuff we talked about with your property managers. And let’s together Let’s move the needle on this. And let’s get some new thinking into this industry. We have 1000s of clients out there, and way more listeners than that. We are a powerful group, folks. So let’s move the needle. I have a dream area you go. Not quite as inspiring as the original guy who said that, but you know, there we go. All right, muthiah. Thanks a lot. Happy investing.

Muthiah Nachiappan 43:45
Hey, Ted, thanks for having me on your show. Jason. Thank you.

Jason Hartman 43:49
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