Property Management 101
A Personal Manifesto
by Wilbur Witt
On June 1, 2007 the world changed for us. On that day we found our son, Bobby, dead in his apartment. He was 28 years old. It wasn’t entirely unexpected, but one never prepares for this event, and no matter how you brace for it, it’s like sitting in a bomb shelter getting prepared for the next shell. We began a personal and professional descent into the abyss of a bottomless pit that just got deeper and darker with each day. Then came the heart attacks. My wife could not cope with the loss of our youngest and did everything she could to be with him.
Our business was like a 747 Jet. It took 24/7 to keep it on level flight, and the very moment we took our eyes off the horizon the jet began to go down. Combine this with the greatest economic catastrophe since the Great Depression and you have disaster. There was no autopilot. Sales kept the company afloat. Investors would buy rent properties here in Texas at a fraction of the cost of California. Money was plenty, and those investors on the west coast took full advantage of it. All was good. With the cushion of commissions from sales we were able to create a safe, profitable environment for owners. We accommodated large owners with programs that provided repairs at low or no cost. We paid some owners full rents on occupied apartments regardless of what was collected. This flow of cash caused these investors to invest more. Our rental company was never designed to be a profit generator. The income from the sales on the other side held it all up. This business model was the same one employed by cell phone companies. You can get a $600 iPhone for $99 provided you stay with the phone company for two years. The cell company makes its money from SERVICE, not phone sales! So it was with us. The $80 a month management fees pale to insignificance when compared to a $12,000 commission earned from the sale of just one building, and when we moved into commercial sales the commissions rose to $50,000 and more. With profits like that we would have happily managed properties for free if the investors kept investing.
Our area was unique. With the proximity of Fort Hood we had a self contained economy that was seemingly immune to national trends, good or bad. We could literally predict troop movements by the number of planes flying over our office. The Vietnam war was a war of rotation. For the uninitiated that means soldiers coming and going constantly. A ready supply of new troops meant a solid rental market. Frankly, when we invaded Afghanistan I was professionally overjoyed. My only concern was that the war would only last six weeks and no rotation would occur. As we have all seen this war went a totally different direction. George Bush couldn’t run a war if he had George S. Patton as his chief of staff. Combine that with his charging off after windmills in Iraq. He may as well have invaded England, it would have made about as much sense.
The country dove into recession, and our family, personally, dove into depression. We made critical mistakes, and our fall was our fault. We had no professional staff. My wife and I delegated nothing. We made all decisions personally and all the so-called “staff” had to do was make it to the office every morning and open the door. We would handle everything else. The next thing was family. We got absolutely no family support. We owned four homes. One in Killeen, and three in Berry Creek, a golf course community situated thirty miles away in Georgetown. Within one year our Beverly Hillbilly kinfolk moved in! Take note of this, all of you. If you make over a million dollars you will discover relatives you didn’t even know you had. Jesus said the poor you will always have with you. He did NOT say move them into a mansion on Berry Creek! Poor losers are poor losers for a reason. They know the “poor pitiful me” act allows them to scrape by at the expense of relations who work hard to develop business. You want to know how silly this can get? Have one of these sloths tell you that he can’t (or won’t) pay $1.00 a year rent because he is entitled to a free home with all the amenities because God promised him!
Why did we put up with it? We were working hard to keep the jet flying. We fully expected the economic future not to be much different than the last twenty years. We were too busy making the trip from Georgetown to Killeen every day, and Sunday was just a day when the traffic was lighter. We could put up with these people as long as they kept the houses clean and simply hung out with us the few hours we had to sit on our porch. Not one of them put any effort into the company except two, Tony and John. These two made an honest effort, but by the time they got there the plane was making a 600 MPH power dive for the Texas desert!
To keep all of this going required a massive influx of money. When the troops went to war, and didn’t return, and the broker laid down to die the sales stopped, and I mean STOPPED! When the safety net was removed, and the investors had to view the real world they abandoned in mass! Only a sprinkling of bankers survived, and they, like us, scraped by, one running his mortgage company out of his house! The formula was very simple. The very first time one of these so-called “investors” received a check for what they were actually owed they pulled their property and ran to another property management firm. Only problem was the other companies were struggling with the same economics that we were and all these owners who made thus leap lost their property . . .every single one of them!
There are two types of property management companies. The classic model, the one you learn about in your real estate classes, where there are reasonable fees for management, mark ups for repairs, fees for renewing leases, and penalties for moving your property elsewhere. There is nothing wrong with this, and the people who use this model are not wrong. The other model was ours. Sell lots of property, create Disneyland for the owners, sell them more properties, and them convince them to sell off and invest in other ventures. The money is there for those who have ears to listen and use them to listen! But there is an issue. People get stars in their eyes. That, and people tend to think the world is frozen in place, and forget that life, and property, is dynamic. When I spoke to investors in LA, I told them never count on any more that 84% of full occupancy. Never think, even with troops in abundance, that you will be 100% full, 100% paid in full all the time. That way when you are full it’s a pleasant surprise, and when you are not it won’t hurt so bad. Also, a fourplex in Killeen is NOT an investment. It is a commodity. You are NOT going to pay that building off in thirty years, are you crazy? By the time the 2/10 warranty runs out your shiny new building will be sitting in the middle of a multi-family ghetto. Before this happens get rid of it, take your money and move on to greener pastures. Two owners we had took our advice, did this, and went into the chicken business. They sold that, too, and retired. The police won’t even go to their former rental properties without backup!
The theory of the fourplex as an investment was interesting. The original concept was Sgt Rock would buy one on his VA loan. Now he could do this because in Texas a fourplex is in the same category as a house. The contract says clearly, “One to Four Family Residence.” The old sarge could live in apt A and rent out B, C, and D. Payment somewhere around $750 to $1,000 per month and sarge is NOT paying rent, he’s living rent free and life is good! Now, you take this formula, run the price up to around $265,000 From $100,000, don’t live there, depend on third party property management, does anybody see this train coming into the station besides me?
At the time of the war going south, the heart attack, and the death of our son, our owners, whom hadn’t purchased a new building in up to seven years were getting a view of the real world. I see their point. They bought their buildings new, why weren’t they still NEW? Go right back to the formula. Five to seven years, move on! Property investment is just a conduit for money! There are only three things worth a damn thing: Gold, Money, and Land! And with Obama money’s on shaky ground. Of these three, land is the only thing you can ever really own. But, contrary to accepted theories it doesn’t always appreciate. When it doesn’t, you turn it into money, and use that money to do something else. You break this rule and your land will break you!
So, we went down. All, but one of the houses are gone, we have medicine now, the economy is coming back, and the calls are coming in again. If you don’t learn from your mistakes you are a fool! You deserve to die. There are those of us who need the food you’re using. We learned. We will build our companies back bigger and better. We have ideas that will stand property management on its ear. The one thing I did learn was to listen. People like Jim Wright, Harry Herrall, and others have been in this situation, too, and they have excellent ideas. Together we will make Killeen a boom market, and Texas the greatest Republic in the world!