Property Manager/Broker of O’Neill Property Managment
Bruce’s special guest this week is Mike O’Neill. Mike owns O’Neill Property Management in Riverside, which has been open for business for many years.
- How did Mike first get started in the property management business?
- Who are his typical clients?
- How does he determine whether or not to rent to you?
- What does the typical renter look like?
- What is the parallel between property management and being a hard money loan broker?
- What is the most unique thing Mike looks for when deciding to take on a property?
- How does he advertise his properties today compared to when he first started?
Bruce asked Mike how he first got into the property management business. He said he had always been interested in real estate, and he bought a few rentals while he was in college. When he got out of college, he took a job working for General Electric. He really enjoyed doing this, so he went back and talked to the person who had bought a couple rentals for him. Turned out he needed a property manager. This was with the Century 21 franchise in 1979. He went to work with him for a couple years, then he got his broker’s license and opened up his own business.
Bruce asked Mike if he ever got involved in the other side of the business, including listings. He said he absolutely was. He bought, sold, managed, did leases, and landfills. At the beginning he did almost everything. Somewhere along the line, about 10-15 years ago, it became too difficult to do everything and he started to specialize more in the management part. He has a few people who work for him who do some selling.
Bruce asked who the typical client is who owns the property he manages. He wondered what they do for a living or if they are in the property business full-time. He said most of them own anywhere between 1 and 4 properties. Most live in California, although most are not really large landlords. They are mostly smaller accounts who want to handle it professionally. Bruce asked if they are in the real estate industry or whether they own a business outside of the industry. Mike said it would be both, although most are not in the real estate industry.
Bruce asked what their long-term plan is. Do they keep them for price escalation, or do they typically keep them for the long haul? Mike said there are actually two classes. There is the one who does keep them for a long time. They buy them as an investment and know they will be investments. They hold them until they retire. The other group is people who may have lived in a house before but moved out and did not want to sell for whatever reason. A lot of those people will have them from 2-5 years and then sell. Sometimes they will re-buy the property, and sometimes they will not.
Bruce said if he goes onto Mike’s website as a tenant and gets to a page for rental application, it says “before you begin.” Bruce asked Mike what some of the things are he will need to have in place before he will even be considered to rent a property he manages. Mike said their typical standards are three times the rent in income or greater amount. You want to have good landlord references in your past and reasonably good credit. They do not expect people to be absolutely perfect, but they do not want to see a pattern of credit issues. If there are issues, they want to know why and be able to factually come to the conclusion that it will not happen again.
You can start there, and a lot of it is background information. The three factors for determining who they rented to were: income, rental history, and credit history. Bruce asked how negative a past eviction is, which Mike said it is pretty bad. In most cases, he would say 99.9 out of 100 times you will not get rented to by Mike’s company if you have been evicted in the past. It has to be a really good reason for them to rent to you, but that is the worst scenario that can happen to a landlord and they do not want to expose a landlord to somebody who has had this happen to them. In a rare case an eviction may have happened that was beyond the tenant’s control and they might could work with it, but it is very rare.
Bruce said there are a lot of parallels between property management and being a hard money loan broker in that you act as a filter. There are trust deed investors who have no idea of the process that occurs prior to them even getting a phone call saying they have a trust deed. In a way, this is exactly what Mike does. He tells people to not fill out an application or spend your $45 if you are in one of the categories where it will not work out for you. When most people take on management themselves, they really do not have any filter in place.
Mike said a lot of times their decisions are based on emotions, usually how long they have known the person, when they met them, whether their property is vacant, when there mortgage payment is due. A lot of times when they are deciding on a tenant they are not stepping back and looking at the overall qualifications. Mike said whether you do it yourself or hire somebody, it is a wise idea to step away and not make a decision based on what your deeds are.
In the front page of the site before you begin, all rents are connected to a one-year lease. Bruce wondered why this is an important issue. Mike said part of it is people are paying him to find him tenants, and they do not want a tenant to move in then move back out in two months. They pay Mike to find the tenant, the property is vacant while they are looking for the property, and this is costing the customer money. When a property turns over, there may be some maintenance and repairs that need to be done. They do not want to be grinding through that process on a regular basis. Unless the owner does not want to keep the property for a year, there really is not any reason. He always reminds the owners that a tenant who wants to move in to a month-to-month property is making their decisions month-to-month. It could end up being an expensive thing to do.
Bruce made reference of the correlation between a hard money lender. Craig takes phone calls for this, and if you did not know his position in the company you would wonder if he was a salesman or underwriter. You would think he is the underwriter by what he discusses; and Bruce gets the sense that the property management’s situation is similar. You are favoring the client that is your customer and having the tenant earn the right to get into the property. Mike said it is akin to the same process in a way, but he is not almost looking to not rent to them. They definitely know where to go to get the information, and they look into until they have what they need. If you are self-employed, then give Mike your tax returns from the last two years. You have to always make sure you get the information that you need. You want to have a healthy skepticism. They want to have the properties rented, but they also turn down more applications than they approve.
Bruce asked about the typical renter and if for some reason they have decided not to buy or at a stage where they are not able to get a yes answer from the lender. Mike said it is both, but in this environment there are not many who can afford to buy a house right now. Their best alternative will be to rent a house within what their budget will allow, then look into the future and see if their income or circumstances change. For Mike, the typical tenant is there to rent.
Bruce asked what the typical length of stay is for a tenant. Mike said it keeps getting longer and longer. Years ago when he did research on it, it was around 3 ½ years. Now it is well over 4. You try to treat them well too, and once they have issue they jump right on it and take care of them. If they did anything wrong, they point it out to them in a professional manner and help them not take it personal.
There are certain tenants Mike will not rent to, but Bruce wondered if there is a property he will not manage. Mike said most of the time it is the owner with whom you do not want to do business, not the property itself. It can be a reflection of a particular owner, although not always. Some owners are willing to heed their advice; but some of these properties are in such poor condition they do not want to be anywhere near them unless they are improved. If they are improved, then they know they have the right kind of owner. If not, they do not have the right owner and need to move on. However, he does not know if there is any inherent property with functional deficiencies that they just cannot get around. They always look at these properties before taking on management, and at that point they try to make decisions on this type of thing on their end also. They hope to not run into too many of these.
One of the questions Mike asked Bruce that surprised him was if his backyard had grass. This is because at his company, Mike tries to not take on any properties without grass. This is a big issue in Moreno Valley and a few other places. This is because somebody who does not have or does not care about having a backyard is probably not the tenant you want in your property. This is the kind of insight you cannot know until you have 1,000 of these under your belt and see the repetitive theme. They do not need to be elaborate backyards, but they need to be functional like the house. If you had a house with peeling paint all over it, then likely no one will want to move into this.
Mike used to have his own cable tv ads. Bruce wondered how advertising his business has changed in the modern era. Mike said it is changing all the time. Cable was very successful for a long time. He had Charter in his local area, and at the time they would allow for local advertising on channel 3. He would do infomercials and advertising on this channel and regular cable channels. Then the cable market started to become fractured and they were not getting the response they wanted when some of the other satellite companies started coming into the market. They eventually abandoned cable advertising and moved more into the Yellow Pages advertising. Now, they have moved more into internet advertising.
Things have changed for Bruce and the Norris Group also. He used to buy all his properties with an ad in the Press Enterprise. This would not work too well now since nobody gets the paper anymore. O’Neill Properties still occasionally runs an ad in the newspaper, but their website and the company they deal with automatically enrolls them in 20 different sites that get them tenants. They use YP for a lot of their advertising, and they parcel it out to a lot of the search engines. The whole year he ran about three ads in the newspaper when he used to run about 20 at a time. It is a completely different world.
The group of investors the Norris Group has is very typically renting to owners trying to save money on the management. Bruce asked what pitfalls they could run into in the future. Mike said first and foremost they will have a problem if anything goes wrong. If the rent comes in easily each month and everything goes smoothly with the property, then it’s great. When you run into an un-characteristic problem, this is when it is good to have a management company in there. If you have to get the property, coordinate everything, and get the tenant a place to live due to issues like mold or fair housing issues, these are things the average person is not prepared to handle. Plus, with the challenges and all the changes that happen it is difficult to keep up with everything.
The state legislature passed 1,000 new bills last year, and several of them had to do with real estate. If you are going to do it yourself, it is a part-time job and you have to make sure you put in the time to keep up with us and hear about the problems if anything happens. One of the factors Mike brought up in one of the statements he made is that it is pretty easy to run an ad that is discriminatory and you would never believe it is. There are words and phrases you cannot use, like family house. This does not mean families and children are not welcome. You can go on and on with what cannot be said, including things like executive property. This is where you could have a complaint filed against you and have all kinds of issues to deal with and work your way through this.
The Norris Group once did a 20-question test asking which statements are illegal, and it turned out they all were even if they sounded reasonable. The only one that was actually legal had to do with renting a room in your house, and in that case you could actually be discriminatory. Other than that, there is nothing you can do. Mike does not handle renting out rooms, nor does he ever recommend it since he actually thinks it is a poor idea. He has had people come to him who rent rooms and tell him horror stories. He gets a lot of horror stories from professional investors who get themselves into a mess and then call him. You have to be careful what you get yourself into because there have been times when, by the time he got a hold of it, it is a very difficult situation to get straightened out.
It is not easy to get people out of a property in California. If you take a look at California state laws, we have one that is pretty lenient toward the tenant. It is becoming more costly to evict a tenant, and it is taking longer to do it. The best solution is in the solution of the tenant.
Bruce next asked how vacancies have changed since the downturn in 2008 and 2009. Bruce asked if vacancies grew a lot in that era and if that has radically changed since last year. Mike said every time we have a recession, vacancies increase and rents either flatten out or decrease. The one in 2008 was far worse than any Mike has seen. They had a combination of vacancies for a long time and rents dropping significantly by 10-20%. It was really difficult, and there were so many foreclosures and people losing jobs. It was very hard to qualify people who applied for rents, and it was a very difficult time. Fast forward to 2016, and the rental markets have tightened up and vacancies as low if not lower than the whole time he has been in the business.
Rents are starting to move up, and it is a better time to be a landlord. The offshoot and concern is that they have more requirements of landlords than what they used to, but at least you get paid more for it. Bruce asked what the top end is in the city of Riverside. If he had a 5,000 square foot custom home and decides he wants to live in Florida and lease the property. Bruce asked what the number would be where you cut off how much you rent it out. Mike said it would be somewhere around $3500. People need to understand that there is only so much that somebody will pay to rent. Mike has properties in Corona that go over $3,000, but even here he has not been able to get more than $3,500 for much of anything. Typically those 5,000 square foot, heavily-upgraded properties do not come into their rental portfolio in the first place since the owners do not rent them.
Bruce asked Mike about the management contract he has and how much leeway he has to make independent decisions of repairs that may be needed. Mike said they have a maintenance reserved that the owner sets up with them in the beginning. The owner of a single-family dwelling would be $350 and would be higher if it was multiple units. It really depends on how big the project is. They automatically take care of anything under that. When trying to make rational decisions, you want to make the best possible decision for them. Even when they do minor repairs the tenant is back-charged, and this happens all the time.
They do have a clause that allows them to exact that number if it is an emergency, otherwise they might have worse problems if they did not. However, it is very rare. Typically they can get an owner on the phone and talk to them before they can even do that. Bruce asked Mike for an example of a tenant-caused defect or damage they think the owner will company but won’t since it was initiated by the tenant. Mike said one examples would include toys in the toilet or things going down your garbage disposal that do not belong there. This could be grease or a ground-up spoon. Broken windows are also the owner’s responsibility unless caused by high winds or a break-in. There is a whole host of things the tenant can be responsible for, and every contractor they send to properties has already been trained to lift on the bill if it is tenant-caused. Typically they try to get the tenant to sign saying they realized this. They don’t always want to, but they try to get them to do it.
Bruce asked what the odds are of someone saying they are going to manage their own property and call a very reliable contractor for a wide swath of trades. Bruce mentioned how this is one of the benefits Mike has been doing with these people for a very long time. Mike said he has had people he has worked with for a very long time, but his company is also always bringing in new people. There is somebody new who comes in every couple months who they will start using, but they make sure they have been vetted before they come in to the office. They check out their background, make sure they have their contractor’s license, liability insurance, and worker’s comp insurance. This way they are not putting the owners in jeopardy. There is a good chance that sometimes when companies send out private parties, they make poor decisions.
For more information, you can visit his website at www.oneillproperty.net or give him a call at 951-684-7510.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.