Part 2 of Property Management with Formatic CEO Matt Tandy

 

 

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.

Matt also serves as the President of the Long Beach / Orange County chapter of the National Association of Residential Property Managers, which also covers property managers in the Inland Empire area of California. NARPM is the primary trade group for residential property managers. Before becoming President, he was the President-Elect (2019), and Treasurer (2018).

 

Episode Notes:

 

Narrator  This is The Norris Group’s real estate investor radio show, the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever-changing real estate market hosted by author, investor and hard money lender, Bruce Norris.

Bruce Norris  Hi, thanks for joining us. My name is Bruce Norris and once again, our guest is Matthew Tandy, the Chief Executive Officer of Formatic Property Management. How do you guys handle a client comes to you and said somebody just moved in my house? You know, they’ve made up a rental agreement then there they said. So, if you had that experience, then how do you handle that?

Matthew Tandy  Alright, the first thing you say, or the first thing is you should be keeping an eye on your property when it’s vacant, right? That’s number one. And there you can do that with cameras. You can have someone go check every week. Ideally, you catch those situations early on. Because if you do the number one thing you’d never want to say is the word squatter. The word squatter is a legal term, it’s a technical term, not a concept. And this again, this is where knowledge matters, right between the, the people who know what they’re doing and don’t in management. A squatter has rights. But you know, who doesn’t have the same kinds of rights? Trespassers.

Bruce Norris  Okay.

Matthew Tandy  So, you call it the police. You say, ‘I have a squatter in my home.’ Okay, ‘Well, you need to go follow the course this sounds like a civil issue.’ Okay, you call them up, say, ‘Uh, Officer Bruce, I have a, I just stopped by my property. Someone’s broken into it. And I think they vandalize it the door handle looks like it’s been, it’s been damaged or mod or something else. I can’t get any more. I’m concerned that the trespassers in there and they’re going to continue to do active, active vandalism to my home. Can you please come and take care of it?’ Well, I used to be able to set the codes I think it’s called 498 and 503. But I could be off on that locally. I and they come out and they’ll usually deal with it. Now if the people sometimes the people do show up with the moving van like they scope it out ahead of time and they only open it up with the moving van in tow and they move their furniture in and they have the lease and in that case, you, there’s no like and do in some areas. Now Hemet we work closely with the police department in Hemet in the past, when it was really bad in 2016, 2017, there was just a lot of that in, in Hemet, San Jacinto. And we work them and they created a, not because of us, but because of other people reporting things also and some of our conversations, they created a task force over this. Now, frankly, I don’t know how they operate and what the laws that they operate. But if we call them up when the local officers say in Hemet say, hey, there’s nothing we could do, we would call these people up. And we magically have people out within a week or two. And they’ve forcibly removed them from the property in some cases. So, there are ways to do it. But the big thing is never call in squatters. Frankly, it doesn’t happen that often. It used to happen a lot more. And the reason, the biggest reason it happens isn’t so much the bad apples locally. There are scam rings that go around online or that go around from different parts of the world, where they pose as a landlord. And this again, common sense here, right? But common sense is difficult when you’re desperate. They post an ad on Craigslist and they say I had to move away from my home I just want a good, a good Christian family you know to move into my home and that’s why I’m offering for so low, I, you know, I had to move across country for my dad’s medical and I just loved some take care of it. And so it may this be a blessing to you. And they use all sorts of techniques to gain access to the property remotely and to sign leases, take security pauses, steal Social Security numbers and move people in and now at that point, you have a problem where the residents are the you know, on one level, they’re squatters. on another level, they’re victims themselves. And that’s far more common. And we have, we actually run several programs to educate and help, help prevent that from happening.

Bruce Norris  Okay. About a year ago the Coronavirus hit our industry. So, what changes happened? And when does the timeframe kind of end for the reaction to that, the forbearance of rent, that type of thing.

Matthew Tandy  So, it does depend by state, of course. However, I’m involved in because of my background and the 1000s 1000s of properties I’ve managed. I, I’m welcome acted with matches cross country. And we see that it’s pretty, pretty consistent that everyone’s struggled with it in every state. Some have are already a little more open to things now in the last couple months, but last year 2020 itself was very difficult to enjoy one is rapidly doing better. If we’re talking about California, specifically, June 30th, is when, is the last date that residents have currently to not pay rent on time, and with that in mind, is that the residents have always had to pay the rent. They always owe the rent, but you couldn’t evict them over rent if they claimed they were affected by COVID. And yes, I know, there are all sorts of technical things. What did they make this much over? 120% over? Again, going back to your earlier thing, Bruce about, you know, where’s the justice? Now that stuff matters because no judge cares. And we know because we’ve tried, So the… So, ultimately, they’ll June 30th is the date where all the money that they vote prior. While in California, it’s technically September 1 through June 30.

Bruce Norris  Right.

Matthew Tandy  I must be paid back by the end of June 30th. Otherwise, I can evict them that’s on the surface. Now, if they claim their COVID affected, then they technically only had to pay 25% of the back old rent from September to September 2020 to June 30 2021. If they pay that 25%, which is just 25% in aggregate of the total balance that accrued during that time.

Bruce Norris  Right.

Matthew Tandy  Then you can no longer be victim over that the other 75% is converted into what’s called consumer debt, like a credit card. You can’t do, a credit card company can’t evict people and neither can you. So, at that point, you can sue them in small claims court, even while the residents. In California, it’s a little different than other states where you can have attorneys in small claims court and and there’s no limits on certain things in stuff. California is different that you can’t have an attorney and neither can they, which is great, because they always tried to threaten their attorneys were like, okay, we’ll see them in court. Ha-Ha-Ha. So, the, basically at that point, you can sue them in small claims court even while the resident the caps have been lifted, which is normally 10,000. The amount of times you can take someone’s if you have eight residents. Normally, there’s so many times you’re allowed as a, as a housing provider, as corporations or things to take them to court, those are gone as long as as rental related. Now the reality is is do these residents, will they ever be able to repay back $30,000, $20,000, $10,000 in rent? And the answer is is almost definitely not. You could try to garnish their wages. And you know, maybe you get back, the best case we find and, and Bruce and Joey again, being in the investment world, you know how this works. What do you do when you have a problem resident and you really want them done? You offer cash for keys. You try to find ways outside of the court to deal with it, because the courts right now probably aren’t going to help you.

Bruce Norris  Okay.

Joey Romero  Okay. I have a question. So, you talk about, you know, knowledge is power. How much do you spend time educating your owners the property, you know, the owners that you’re managing for, and at the same time, how much education goes to renters, you know, like how to be good renters how to take care of things, how much time you spend on that?

Matthew Tandy  So, a significant amount, it starts first with education for ourselves. This is a big part, as you can tell by my long winded ramblings, I have a lot of information in my head and I just kind of put out a fire hose with it. I, so we educate ourselves a lot. We have a policy to read something together as company, a legal article or things every single week and review it. I, and with that the first part of education is being able to integrate it into daily situations and conversations with our residents and our housing providers. I, versus I don’t know. But hey, there’s a seminar coming up in a week or in a month or two months. We want to be able to do it in the moment. Now as for formal things we do routinely reach out and educate people. We do go and speak at different events. We trained several of our staff go and speak at these things. Again, we’re not attorneys, I should state. Do I have to give that legal disclosure, Bruce? We are not attorneys, is not, to be construed as legal advice, please consult with a licensed attorney. That said we do point people to the right resources, the right attorneys who specialize in things. We do have connections within the industry. So, when something important comes up, if it’s very specific, we do get a call, on a conference call with our attorneys that we use routinely. And with our clients and our residents, even, we do educate our residents. And this is an important part of the dynamics, the shift between what it used to be when I first started to what the market is today, which is much more residents centric. Give residents a good experience. And that includes education joy. So, when, yes, our fiduciary is to our client, our clients, our fiduciary client is to basically have the best analyzed returns we could possibly have for them while reducing their legal and financial risks, right. That’s what fiduciary duty involves. So, if I treat residents poorly, and a landlord says they’re just residents and just, just keep quiet, just don’t tell them, then they’re going to be terrible residents, they’re going to destroy the property because it’s going to be fight the man right, you know, we’re not going to do that. So, what do we do when something comes up, we will educate the landlord. And we say, you know, I’ll tell you one way we do that here in a moment. But we educate, a landlord would say, look, Joey, I appreciate that you want to do that and you’re right. Technically, we could go that path. However, let’s run through several case studies of this. I’m a big fan of case studies. Let’s run through several case studies, let’s run through several scenarios and possible outcomes. And with that Joey, what do you, what do you really want? Is it? Are you looking for vengeance? I mean, if you’re looking for vengeance, I guess we could pursue that. But are you, are your real goal here is to run this as a business, take the emotion out of it and figure out how to maximize your returns. Now, what do people say? I think I’ve had one person say that it was personal. And we dropped them, by the way, because they started to going into non-legal methods. And we said no, I, most people when they, when in this goes back to again, the whole, you know, thing that Bruce, you were talking about that you were in the category of not raising a good resident? Well, look, rental properties is a business. And it, the amount of people would say things like, early on, would say things like, well, I find, ‘If I treat my residents, like family’ is like, Okay, I have family, I would never rent to. You know, not everybody’s definition of ‘treat them like family’ is actually that good, right? And you, people will be friendly up until you deny them for something. And then all of a sudden, you’re the, you’re the enemy. And so, we tried to be as dispassionate as possible on that. And we educate owners and we say, look, let’s raise the rent, let’s do these things. Here’s how it affects things. Here’s how it’s gonna affect your bottom line. No, you don’t need to worry about these risks. I, and so we do run the scenarios. When COVID things started hitting, we did send out routine emails, we say, look, there’s a new law being proposed. Here’s some links to your to your representatives, here’s some links to your senators, we encourage you to, to write to them. And now I’m very big, I should note, I never, ever, ever tell our clients or our residents how to, how I think they should vote. I know many trade organizations say ‘Oh, you need to write them and tell them this.’ But I don’t know if you’re Democrat or Republican, a communist or anarchist. And frankly, as long as you do good business and treat your residence right, then I don’t care on that level. But I do want you to be aware of what’s happening and be engaged civically. So, we do, take efforts to engage all of our clients and residents civically as applicable, primarily our clients just be clear, and let them know here’s what’s happening, here’s what you can do. And by the way, this pass, and here’s how this affects you. Now, the other part on education, and this is one of those hallmarks informatics. Education starts from the beginning with our clients and our residents. Our leases are extraordinary long as our management agreements. There’s a, there’s an old saying that every rule exists because someone did something to make it happen, or to cause it to exist. Well, that’s exactly how our management agreement is over the years over 1000s properties. And Joey, Bruce you might like this. I, I’ve done many AV testings on different ways to do management. Do you charge them a minimum fee for maintenance? Do you not charge them admin admin fee for maintenance? Do you have the late fees on the third you have it on the fifth? We just have groups of hundreds of properties and try them, right? Because unfortunately, property management real estate investment is full of a lot of focus. Don’t focus on the stuff that sounds good. It works. But it only really works probably because someone has a force of personality to make it work. And sometimes because they don’t really think about how it could work differently. So, we tested it, and we created our management agreements, not full of legalese. We’ve made all of our management agreements and leases as plain-speak as possible. 12 point font, lots of whitespace is clearly organized. But when we talk to our clients when we say, Bruce, it’s been a great conversation today. Thank you. for chatting with me about your property, I’m going to send you an email. And it’s going to have all my contact information, it’s going to have links to parts of a website, you may find helpful. It’s also going to have three documents, it’s going to have our service level selection brochure, it’s going to have our lease, and it’s going to have the Formatic way, the owners Handbook, three different documents. Now, I’m going to give you a heads up, it’s going to be long, please don’t be scared of it. And the reason why it’s this way is because everything we do several years ago, we realized that most disputes, most issues come from people not knowing why we do or what we do, we do. Most management companies are blackbox, you give them the property, you sign a short agreement that says, Here, Matt, here’s, here’s the keys to my property and all the rights and thank you for not promising me anything. And so, you don’t, there’s really no commitments in our case, we put down exactly what we do, how we do it, and why we do it. The causes the reasons, sometimes case studies are built into our management groups or built into our leases. And we take the time to review them with our clients and our residents. And that education has reduced dramatically. I mean, we really have any problems because if a problem pops up, we simply say, ‘Well, as you can see in Section 72-5-A subsection C, you sign your initials right here,’ and it has this and it works fantastic. And we’re not overbearing about it. We’re very pleasant about it. But Joey, its education comes from the beginning, you put it into everything you do. I, and I know many, many investors who do great with that, too, when they’re looking to buy a house, buy an apartment complex, especially from distressed people. There’s always the sharks here, just, just sign, just sign. And then there’s people walk them through, talk about the goals, figure things out and explain what they’re doing, how they’re doing, how they’re going profit, transparency, education really gives everyone a better experience.

Bruce Norris  Matthew, I wanted to ask you this about migration out of California, as far as the people that own properties, are they feeling any concern about their rights as an owner? Not seeming to matter?

Matthew Tandy  Yes. That’s my short answer.

Bruce Norris Okay.

Matthew Tandy Yes, Yes, they are. I think on some levels. I, let me share some of my thoughts on, that on why I think it’s a concern, but not quite as big of a concern as people make it out to be. Let’s start with the migration issue. We constantly see news about, there’s more people coming in, they’re coming out or things like that. We’ve seen that for years. And yet, despite every year for many years, assuming that we have a negative migration, California’s population is higher every year. Well, how…

Bruce Norris  Could you have more babies? We have more babies being born than people die. That’s where all the population. That’s, that’s where it’s going.

Matthew Tandy  That’s exactly right.

Bruce Norris  If you can rent to a two-year-old, you’re in business.

Matthew Tandy  Well, yeah.

Bruce Norris  But you know, what’s funny about that? So, that is that’s an accurate statement. More people will leave, and it’s growing. But the inventory and this is, this is my short answer to that. But I was really concerned about the attitude of people. Are they concerned about feeling like they’re, their property rights matter less than other people’s rights? But the, the answer on the migration front, why it matters less that we’re losing people was we’re not building anywhere close to a significant replacement. And so that’s, that’s, I think, a big factor why prices are still so supported. By the way, how many vacancies do you have right now? I’m just…

Matthew Tandy  Zero.

Bruce Norris  …what you manage. That’s what I got. I went to your website, and there were no vacancies. That’s an astonishing statement.

Matthew Tandy  In fact, every time we get a rental, it’s now, and I’ll be clear, our, our rental qualifications are very strict, and we do not vary from them for anybody. For no landlord. No, no housing provider, no resident or applicant. They’re strict and we maintain it dispassionately. That’s part of fair housing, by the way, always, always do it right. Now  that. I like to shake my hand and look in their car kind of stuff. No, that’s how you get sued. So, the despite our, our qualifications, being strict, everything’s rented within a week, but on the market, and the reason it takes a week is sometimes it takes us that long to get the documents that we want to verify. So, going to answer, to answer that are firstly reinforced that Bruce when I was looking to start my, my next company gonna be Formatic. And I was looking across the country because that operate across country, knew how to evaluate different markets. I looked and I chose the Inland Empire area, in the entire country, I chose the Inland Empire, not an area that people mostly countries even aware of. But you know, LA is out of land, San Diego is out of land, they can’t go into San Diego can go to Mexico or the ocean, LA can’t go into the ocean, they filled up all the valleys in between. And there’s two freeways, so two of the largest cities in the entire country, and then the globe, they both have freeways and having to meet right at this intersection, right in the middle of the Inland Empire, or western side of the Inland Empire. We’re just not building nearly enough. And people keep saying it’s gonna collapse. People are saying the sky is falling out, just be clear. There will be reductions and slow downs and things like that. And I know you have way more data on that, Bruce, I’m not trying to educate on that. But I will say that this is an area where there’s, it’s a concept that I call land bounding, where migrations have to happen have to happen because they’re out of land and reasonable prices in other areas. And in some areas, it can spread out across the plains of Dallas and Texas. But LA and San Diego, they each have only one direction to grow, that they can grow. And it’s right into our area. And so we’re our prices are skyrocketing, and demand is up. Now, property rights are is some migration happening. Yes, we have helped our clients still several their investment properties, I to, because they want to take it out of state, they’re concerned about that, we have tried to educate them on some of the advantages and disadvantages of different areas. And by the way, I love investing anywhere in the country, that where the numbers make sense, and everything else makes sense. But I love California, we have this issue that, this when it comes to investing in California in real estate, that, that makes us unique in terms of how you’re positioned yourself. And this is part of the whole investment portfolio on diversity. I can go and take $200,000. And I can go buy a home in Kansas, parts of Kansas not all Kansas, and I can cash flow from day one. But my property taxes also go up every year. And my appreciation isn’t much both in rent and in actual value of the asset. In California, we have something different. You may not be able to buy a property that cash flows on day one. But does that make it a bad investment even with all the laws and everything else? And the answer is not necessarily. If I can buy a property right now, in California, and let’s say it’s 500,000. And yes, there’s a higher barrier to entry. And I acknowledge that. But if you’re going to spend 500,000 on two properties in one place versus one, then you’re going to do apples, apples using cash on cash analysis. So, ultimately it comes down to are you looking for a short term or long term holds? Well, if you’re looking for long term holds, the advantage in California is that because of the laws that make it where taxes don’t go up more than 1% per year, on our properties, from the basis of which you purchased it, that means that our rents are increasing dramatically faster, as, as general appreciation than our property taxes are, the longer you hold a property, the better off you’re in California. So, a property that is more profitable, an equal amount of money invested in say, Kansas or Texas, or I’ll say even Florida Bruce, that, you know, in five years, the California one is most likely going to be outpacing the, the actual annualized returns, I, of what you get in Florida or Texas, especially Texas, where the taxes are insane on properties, I, and in 10 years, you’re going to be making significantly more money, where it’s not even in the same asset class anymore. So, the concept is you can buy here and hold here, and you’re going to be good. And we will probably never see that go away for residential, four units or less properties. It’s still exists for residential and up and other things. But eventually, I think they’ll try to make inroads against apartment complexes. I should be clear on that on the legal side of things. We know there’s efforts for that, but there’s no way homeowners will ever give that up once they got that no matter how liberal California turns that will never go away. I, so, you know we can invest here. And yes, the property rights matter less for the, for the homeowner and that does need to be clear. That said it’s not that hard. And what are most of these property rights come from? Well, they come from the reality that, you know, Joey, Bruce, who my biggest problem is, or used to be before we got more picky about who we took on as clients? It’s not the residents. You know why it’s not the residents because except for when people bring us a problem to solve, which we do, I, we get to pick our residents, right? We have the strict qualifications. Our residents are great. We have these amazing leases, we educate them, we do all those amazing things. And our residents are amazing. But the landlords and I got to call them landlords in this case, versus rental housing providers. The landlords are the people who say, I am the ‘Lord of the land. And what I say goes, and I don’t care what the government says, and you know, we, well, my bus manager’, who is really just a real estate agent moonlighting on the side, I, ‘They never had me do that they didn’t have to have me sign these forms.’ Well, you know, why can’t I have seven estimates on the air conditioning and to take five weeks? Because it’s 120 degrees in the desert? That’s why so it’s though it’s these people say they’re just renters, they think you know, I’m going to, I’m going to cut off my nose to spite my face kind of stuff, right? I, this is why these laws exist. So, the reality is, most laws just aren’t that complicated. I, most of them revolve around areas like LA and San Francisco in terms of how much you can raise the rent. But hey, you know what, we have these things like AB-1482 which put a cap on how much we can raise rent, when there’s a duplex or higher on an on property on parcel. You know what that amount of raising is more than most states ever will see even close to having the rents raised and you know what happens? Well, now that we have a cap, everybody’s raising their rent. It’s not just me now everybody’s doing it, now all the rents are raising. And so, you know, it’s actually pretty advantageous, rents are going up, and the laws aren’t that hard. As long as you take care of maintenance quickly. You do it right. And you don’t go trespassing. Please don’t show up and like unannounced and your residence taking a shower and you’re like, I’m here to fix it. I knocked on the door. No one answered. Yeah, let’s not do that. But frankly, the laws just aren’t that complex, and they’re, they’re fairly easy to follow. As long as you have the time to do it.

Bruce Norris  Okay. Well, Matthew, we are out of time. Can you give us your website please, I have people can they can go to that.

Matthew Tandy  You bet it’s the long version is Formaticpropertymanagement.com but the short version is formaticpm, like property management.com you can go there you can reach out to me anytime you can email me at hello@formaticpm.com that will get to me.

Bruce Norris  All right. Well, Matthew, thank you very much for the, for the education on what is actually one of the most important things that anybody has a rental portfolio is the correct selection of a property manager.

Narrator  For more information on hard money, loans, and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.

Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

 

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