COVID-19: Property Management, Tenants, and Landlords With Matthew Tandy #695

Mat Tandy blog

This week’s radio show and video guest is Matthew Tandy of Formatic Property Management.  Matt is the Founder and Chief Executive Officer of Formatic Property Management, Inc. As CEO, he oversees all day to day processes and guides the long term vision. He is always seeking new and innovative ways to improve the rental ownership experience for property owners, continuing his commitment to providing professional, accountable, and reliable services.  Due to his extensive experience in rentals throughout the country and deep knowledge of real estate investments, Matt is a frequently requested speaker at investor and rental industry seminars and trade groups.  See below for full video and resources.  

Episode Highlights

  • What kinds of properties does he work with?
  • As a property manager, has he experienced any difference in people being able to pay in May compared to April?
  • How are the different counties dealing with this pandemic?
  • What does the Heroes Act cover?
  • How difficult has it been renting properties in the last couple of months?
  • Are more people making the choice to leave cities like Los Angeles because of the pandemic?
  • What is the new split roll property tax that is being discussed, and does it cover apartment buildings?

Episode Notes

Aaron Norris: Hey everybody, it’s Aaron Norris with the Norris Group. Today, we are here with Matt Tandy of Formatic Property Management. He is very involved in the National Association of Residential Property Managers as president of the Long Beach Orange County chapter. But he has a lot of insights into several other states and all over Southern California. I see him out and about at investor clubs talking about landlord issues. Especially now more than ever, it’s been very difficult to track all this stuff. So I really appreciate, Matt, you taking the time to join me today. It’s a Friday, May 15th, and it’s been really hard to track all the stuff that’s happening. And you work in three very different counties. So I can’t wait to catch up. So thank you for joining us. The kind of stuff that you do, just real quick, is it just single-family homes or is it also apartments?

Matthew Tandy: So we do a little of everything as long as it’s small residential. So we do a lot of single-family homes, both for what we call accidental landlords and professional investors. And then we also do a lot of duplexes, fourplexes, and small complexes. I have done up to five hundred plus flexes with the first management that I had. But that’s not our bread and butter.

Aaron Norris: Okay. Let’s just talk real quick, sort of month-to-month, you know, April compared to May. Has there been a big difference? Are you as a property manager experiencing people can’t pay or are they getting back on track because they’re getting federal money? What’s the overall sense of what’s going on?

Matthew Tandy: April was fine. Our rents are normally over 98 percent on-time rent payment across our entire portfolio for tenants that we place manage. And it dropped down to about 8 percent in April who hadn’t paid by the end of the 5th. But by the end of the month we were back at about 2 percent. Now, May has turned into about half a percentage point higher after the fifth, and we’re midway through the month. Most everybody has caught up again, so that’s not really surprising. We did expect that May would be the tougher month because people would be spending that first round of stimulus in April, and then we weren’t sure how May would go.

So we did have a few people move out. We had one tenant whose parents both died from COVID-19, and she was quarantined. But even she has caught up with her rent. One of the nice things to see is that there’s a lot of really good organizations out there. And I know that you work with various charities also, but lots of great charities and aid groups that have been really making themselves available to people who need help. Of course, we’ve been acting very passionately through this. And I don’t say that in some sort of legal or sells mumbo jumbo. It’s just when people call, we don’t make them feel bad. We’re not harassing them. We’re not making their lives difficult. We’re just asking, Hey, let’s figure this out. What’s going to makes most sense for you?

Aaron Norris: Yeah, it’s been really interesting to watch the state and localities fight with their own versions of how they’re going to manage this, and so many conversations at the county and now the state level of them going bankrupt. You know, people aren’t able to pay the property tax. And it’s very interesting to watch everybody come up with ideas on how to help tenants, but on the backs of the landlords, when even the state and the counties are not able to participate in the solution because they’re so upside down. I’m fascinated by that. I’ve said it on the show before. It really bothers me when the politicians come out with this great idea, but they don’t deal with it holistically and for everybody. They’re picking winners and losers, and now we find out it’s just because they don’t have any other choice.

Matthew Tandy: The reality is that landlords are the last thought. It seems that when it comes to legal matters, especially California, but in many other states, too, we’re seeing this spread everywhere, is that first you have to worry about the tenants. They make up a larger percentage of the voting block, and they’re who you’re going to appeal to. It just makes sense politically. So it is a problem. Governor Newsom just put out the other day a list of basically a 14-page playbook for real estate agents to do showings in health and safety and stuff like that. And to give you an idea now, this is about property management. But for landlords, it applies pretty much equally, because if you’re self-managing, you have to worry about these same kinds. Came up with a whole bunch of rules, then not one sentence, one word in the entire 14 pages, touches on rentals or property managers who are licensed real estate agents here. And so you have a bunch of rules that we’re bound by but can’t be adapted at all into our industry. So all the property managers are trying to figure that out. How do we do this? Well, for landlords, it also affects things such as how do you do self showings, make in-person showings. How do you do other health aspects? So it’s a tricky time. It’s not hopeless. It’s just always a puzzle trying to figure it out and you just have to make sure that you’re keeping an eye on the pieces that come in.

Aaron Norris: Yeah, I’ve been pretty lucky. A lot of my tenants, I had one actually yesterday, just ask for a rent decrease. In my opinion, I would rather give her a decrease. Lower her stress, she’s gonna keep paying, and not bury her in something I don’t think she’s ever going to be able to come back from. Sort of just like this overhang of…and I just I don’t want that for her either. The stress of having to feel like she’s got this bill that she’s got to pay. I’d rather work with her now, and we had a lovely exchange. I’m working with a property manager in the Inland Empire, and we had a good conversation. I told her my philosophy: if you can, you should. She was even willing to waiver. I told her I don’t need to do that. I can right now. I’m going to as long as I can. So let’s do this. And I think when you approach it as a partnership, it creates a partnership instead of the us versus them. And I’m glad to hear you’re sort of along the same vein.

She and I had a great conversation about 211. At the county and city level, really dig in. Find out what those resources are. So I was telling her the United Way out here in Riverside had a few really huge donors step up and write big checks and they’re just getting organized to be able to do grants for people who need it. So the majority of the calls at the 211 have always been housing-related. Needing help with rent and all of that kind of stuff. So they’re really set up for that. But what’s cool, when you call 211, they can help with things like food stamps. There’s a variety of things that they will be able to help with based on your geography. So if you’re in Palm Springs, it’s a different conversation than if you’re in Temecula. They can give you access to more resources, which is really cool. Again, I know I’ve said it a few times in the last month. Please understand 211 is a really cool resource and you might be able to get your tenants money that they didn’t even know existed because they didn’t know about the resource. A lot of these charities don’t have unlimited marketing dollars, so sometimes you just gotta plug in.

Aaron Norris: You work in the So-Cal market in a lot of different markets. Let’s talk about how the counties are dealing with it. L.A. being the most aggressive, tenant-friendly area and how they’re making it difficult for property managers, and in particular, what are they up to?

Matthew Tandy: First off, when people talk about California and anti-property rights are being crazy, most of California is actually pretty standard to the rest of the country I feel, having operated throughout the country. There’s a few differences, but not completely. But the areas where we get the bad reputation are pretty much always the city of Los Angeles, followed by the county of Los Angeles and also the San Francisco Bay Area. Things around there. So if you take those out of there, I think we’re pretty much a normal kind of state when it comes to a lot of stuff. But yet, if you look at Garcetti in L.A., he just came out, I think, yesterday or the day before saying that, hey, we may extend this for 18 months or something like that.

The reality is that when you have groups that feel that way, and I don’t know if it’s genuine or political, and it doesn’t matter in the end, right, is that they are pushing to keep things closed longer because for some reason they feel that is a right aspect. We’re not talking about doing just a 60-day extension. They really believe that they need to extend this for a long time. So currently a lot of the states, counties, and cities, when passing laws are basing it off of the state of emergency that has been declared statewide by Governor Newsom, and that is set to expire May 31st. Now, it should be noted, I fully expect that to be extended another 60 days. I think it would be highly unlikely otherwise. But maybe I’ll be surprised in a pleasant way. But if it doesn’t extend, then a lot of things, such as L.A. City, says that the tenant has the right to repay for up to twelve months after the expiration. So that means that anything the tenant doesn’t pay from middle of March through the end of May right now, but it could be the end of July, that you can’t kick the tenant out over that money. You can’t really aggressively pursue them or charge them any penalties or anything else until, we’re looking at June of 2021 at the absolute soonest. So that’s a huge burden, right.

Who do the politicians look to in these cases when they are looking for someone to talk real estate about with? Well, most of time they’re not going to work with the small mom and pop people. That’s not a big voting block. In fact, most of those mom and pop landlords do not live in the area of their properties, nor are they a significant source of tax revenue. So the only people they go to are some of these really big investment groups that usually own lots of mega commercial properties or mega apartment complexes, and they have cash outlays that can last many years. And so one of the proposals, for instance, is being proposed to help alleviate some of this things is that on the state level, they are talking about passing this tax credit law that says, all right, if you take all that rent that you’re owed and you just forgive it completely, then we will give you a tax credit equal to 100 percent of the rent forgiven that you can’t take until 2024 and is good for 10 years. Well, if you have the cash outlay to forgive six months of rent and you can use it as a future investment aspect, especially if you ever want to sell it or refinance, things like that, and that’s actually a pretty solid deal. But can a mom and pop landlord handle that now? No, they can’t.

Aaron Norris: 2024. Why wait so long?

Matthew Tandy: It’s just budget. States like New York and California are going bankrupt because of the extreme level they went. This isn’t me commenting about whether the extreme levels were the right choice or not. I’m just saying the reality of the economic costs is that we’re going bankrupt. And if they gave the tax credit to everybody right now, that would be a problem because those budget shortfalls will get even worse. So they’re hoping in a couple of years that will change. One thing about California tax people have asked is why hasn’t California delayed when taxes would be due, property taxes? Why haven’t they waived some of them. And the answer is that those funds are considered time of need funds. So as soon as they go in, they immediately go out. And where do they go to? They go to the schools, fire departments, police departments, things like that. So they can’t really not fund that because that’s how they get funded. And so, yes, waiving that would be problematic right now.

Aaron Norris: Yeah. This week we found out the Democrats are working on the Heroes Act, dead on arrival according to Republicans. I’m just always disappointed when I see plans coming from either party. The way that we’re set up, we know that that’s not going to work. Can you just work together to release something. Leadership. Wouldn’t that be amazing? It’s very frustrating to watch, but I fully expect another round of aid. And I know the counties and nonprofits are listed out specifically because they know that they’re running into these problems. The county and the state is having a hard time. And again, it’s just frustrating. I get it. We’re all connected. It’s just frustrating that they’re wanting us to do something that they themselves can’t afford to do on their backs. They’re doing it on property owners.

So Heroes, if that comes out, it’s everything from $2000 per month or something. And they’ve even had to change the payroll protection program. They’re looking at it anyway, because, you know, some people are having a better time on furlough because they’re making more money than they did on their job. So there’s a lot of really interesting things that they’re having to adjust on the fly with these federal aid programs for that very reason.

I’m very surprised to hear that you’re on time is so high. Do you think that has to do with how you’re vetting people or the kind of properties you manage?

Matthew Tandy: Both. So the reality is that we don’t have a problem managing low rent properties. But what we don’t do is allow them to be managed in a low-end kind of way. So there’s a difference between a non-performing and a performing C-Class property. Right. Many properties that are C-Class probably could be B-class if given enough proper time and management, at least a low B. So when we take on a C-Class property, we basically do an interview before taking on that client and we say, alright, let’s look at the cash outlays. Let’s create a plan, and let’s stick to that plan. And this is how it’s going to be done. So we have this thing we call the Formadic Way, and it’s this handbook that’s about 70 pages long, along with the management agreement that details everything that we do, how we do it, and why we do it. It really gives the whole playbook, and we give that away. We say, you know, there’s no secrets here, there’s no blackbox. And we do that because we want our clients to understand that we’re very particular in how we do things to protect them legally and to protect them financially. Legally, of course. I’ve been beating that legal drum for more than decade, and only now are people in the pandemic only realizing it’s a concern.

So the way it works is that our standards are very strict. We have a rubric, and we can go find it, feel free to copy it. You don’t have to credit me. I’m not going to cry. I go to our Web site and go to Search Rentals and click the link for that. And so that rubric is pretty tough to qualify for. It’s not impossible. And there are cases where, for instance, even someone on Section 8, if they have kept their get their nose up and done a good job with things, they can still qualify. But it’s really about assessing the overall risk. And that’s something that a lot of landlords are moving to. Why is our success rate like that? Because we’re looking a lot of different factors and we score those factors and combine them together. So that’s all there is to it. You’ve just got to be picky. And for clients to say, well, you can’t be that pick with my property. My answer is always, I’d rather your property sit vacant a whole ‘nother month, which we average about eight days. But I would let it sit vacant another month before I put in the wrong tenant. And I think that’s something that most people understand on some level, but when vacancy ext