Property Management for Real Estate Investments with Matt Tandy Part 1

 

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  Thanks for joining us. My name is Bruce Norris and today our special guest is Matthew Tandy. He’s the chief executive officer and founder of Formatic Property Management. 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 provide 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, that’s a long title, which also covers property managers in the Inland Empire area of California. NARPM is the primary trade group for residential property managers. Before President, he was President-Elect in 2019, and Treasurer in 2018. Matthew, we welcome you to our show.

Matthew Tandy  Thank you very much, Bruce, I appreciate the introduction.

Bruce Norris  You know, everybody’s the best property manager until they’re not so and it’s a, it’s a big difference and it’s a big responsibility. And it’s a, it’s an important choice for investors because especially out of state, nothing is easier. Every repair and replacement of tenant every decision, you’re really more reliant on the honesty and integrity of who you’re dealing with. So, you know, your company has a tremendous reputation. How did you land there? What are some of the things that keep you there?

Matthew Tandy  Well, let me, let me start by saying I don’t believe in saying we’re the best, we’re number one or anything like that. Number one, that’s lazy branding. I just, and the problem with lazy branding, like we’re number one, we’re the best. We’re things like that, is that, I find that the people who say that, hey, they tend to be a little bit uhm, I’m not sure what the word I’m looking for. But they’re, the biggest attribute is they tend to not be forward thinking. I, they get stuck in this thing of we’re the best. And they don’t say why. There’s a great boo,  I don’t know if you’ve heard of it, Bruce, but it’s called the 22 Immutable Laws of Branding, it’s older.

Bruce Norris  Yup.

Matthew Tandy  Excellent. And he talks about says, ‘Don’t ever go in and say we’re number one. That’s not a brand”. Number one in what? Number one is sales? Number one in sucking?

Bruce Norris  Number one, in the opinion of ourselves, there you go.

Matthew Tandy That’s right, in the eyes of our clients who have not left us we’re number one. So, so, that I’d say that’s the foundation is I just don’t believe in saying we’re number one, we’re the best. The reality is, is being part of NARPM or NARPM, I, the group is all about working together with other managers, and improving the industry as a whole. You know, property management, and this is long we’ve answered the question, I think is a good foundation, property management, on a professional level, through licensed real estate agents hasn’t existed for residential homes for very long, it’s actually really only came to be in the 60s, mid-60s, late 60s, which in terms of industries is very, very young. Really the only other industries that are much younger, that are much younger than that are tech-related. And the issue is, is that when it started and for a long time, property managers didn’t have a good reputation at all. In fact, my biggest challenge isn’t trying to compete against the property managers is trying to compete against the bad reputation property managers developed over the first 30 or 40 years of management. I, and you see that a lot in the investor communities where these people say “Oh, I would never use a manager, they stole my, my, they did these things.” And there’s a lot of background to why those things happened. But ultimately it came down it comes down to how do we get the reputation, well, looked at everything and said how can we continuously daily improve? And, you know, just like the whole concept of goals versus wishes is you write it down and you make daily strives for it. Same thing with improvement. We reach out, we listen. I will say one of the defining factors of Formatic one of the reasons people like us and come to us is that I am a very legally and technically minded person. I’m not going to be the person that you neccessarily can be like ‘You know, hey, I’m gonna go have a drink at the bar with Matt because he’s the life of the party.’ Unless the life of the party is hearing me spew a bunch of data, in which case guys I am I’m thrilling.

Bruce Norris  Well, you and I are on the same page on that one. You know, me and data. So, um, what is the scope of what you manage? Is it all in California? Is it all concentrated in LA County? Where do you manage most of the inventory?

Matthew Tandy  So, right now, we have offices in Big Bear, Riverside, Ventura, and actually also Mexico City, Mexico. And so, the and we’re looking to continue to expand the goal for Formatic long term is to in the next eight years is to have about 100 offices domestically and 20. International. I, in my past, I have outstart start a company that, uhm, manage a company that before I sold my partnership in that, you know, started from little closet, basically, to 3500 homes in 14 cities in 11 states before I sold that to start Formatic, which is a much more customer centric and data driven company. So, but right now, we focus in Southern California, managed anywhere in Southern California, including LA except for, we’re not in San Diego, and we do not go into Lancaster. But eventually, probably in the next year.

Bruce Norris  Okay. What would you say the mix of single-family rentals that you manage versus apartment units?

Matthew Tandy  So, our focus right now is on the single and small multifamily. So, fourplexes and below basically, of course, we’ll do condos and things like that. I have in the past managed 100 plus unit complexes, 300 plus unit complexes, turned them around, we are going to be opening up an apartment division in the next 18 months, probably between 12 and 18 months. We do have demand for it and people are asking for it. But Bruce, one thing, going back to the original question differentiation, I don’t believe in being a jack of all trade. I don’t believe that’s a way to deliver great service. If you, brand dilution is just a major problem with many people in real estate, they think, ‘Oh, I’ll do a little bit of this, I’ll do a little bit of that.’ We sit with investors too, write people who they, every investor conference to go to, ‘Oh, I’m going to do flipping.’ ‘Oh, I’m gonna do flipping multifamily.’ ‘Oh, I’m going to buy apartments.’ ‘No, I’m gonna buy duplexes only.’ ‘No I’m going to do notes.’ or I’m going to do you know, first position only second position, and they’d never make much progress. So, eventually, we’ll open up these other brands I have in this. This is part of the grand scheme of math is I have 18 companies that are all tied together that I’m working on developing. They all tied together and support each other. But they are separate companies, and the apartment company will be a separate one.

Bruce Norris  Okay. A lot of investors, we know manage their own properties. Could you give them a couple reasons why that could be more dangerous than they think?

Matthew Tandy  Well, I’ll preface by saying that I support that, for some people. I think it’s a mistake to tell people that you’re not smart enough or you’re not capable of doing it or things like that. The reality is, is that A. depending on the state, you’re in, matters significantly, again, I’ve managed in about a third of the United States. So, I you know, I’m familiar with how it works in Texas, in North Carolina, in Colorado, and Arizona, all over the place. That said, it is becoming more and more complicated. Property managers used to be viewed as kind of like used car salesmen. They were there, they’re always trying to get there, find a way to get the buck nickel and diming. And really they just collected rent and overcharged maintenance, often didn’t even check on the property. And frankly, I’ve taken over properties I, for your listeners who are, who know Hemet in and stuff like that. The smaller outlying communities where there’s even less professional management and things are a little more dated, and how things are done, where I would go in and it had been ‘professionally managed’, quote, unquote, for, for five, six years and I go in and the house is destroyed, there’s literal carpet missing from the hallways in patches, there’s dogs running around and birds, one of them had like five birds running around pooping on the ground. And I said no question at all, you do nothing. You just you just stare the people in the eyes and you don’t look around you and you just shake, you shake your hand and remember never to let that hand touch your face, so, you get back to the put the sanitizer on and you, and you talk to the residents and you say ‘Oh hey, it’s so great to meet you. When’s the last time you, your manager was here before?’ ‘Oh, I never saw them except for when I signed the lease.’ Oh, that’s interesting because the owner thought that they were visiting every year. So, so I do want to, when I, when I talked before I want to talk about managers I wanted to and why you should not do it on your own in most cases, I do want to be clear that doing it on your own is a whole lot better than having a bad manager. So, that’s an important point to to make. Now, that said, managers today- professional managers who participate in trade groups such as NARPM or National Association of Residential Property Managers, for, for information purposes, kind of like the National Association, Realtors, but specifically for residential property managers, and far more focused on education and legal issues and protecting private property rights for their clients, which is a big deal for us. If you’re not aware that National Association of Realtors has a long history of not caring about real estate investors, even mom and pop landlords and not really caring about them, they have token classes token things. But really, it’s all about getting that sale. I, and you know, and unfortunately, when it comes to rights, the rights that they fight for are typically in combination with apartment associations, associations, which I should be clear, I love the California Apartment Association is fantastic. But you’ll find that most of the laws and most of the lobbying is to protect the giant landlords, not the small time investors with a few properties that rely on that income. So, NARPM is key part of that. So, property managers, their main focus today is really to be as a legal and social and financial buffer between you and your residents, and all the liabilities that, that it encompass. And so, when we talk about why use a professional manager, it really comes down to how much risk are you okay, having? I, do you know the laws. And if we take COVID as an example, the amount of lawsuits that are being applied to landlords is phenomenal. And in the eyes of the law, in the eyes of California, especially and their judges, most of the judges, because each one’s different. I even said the law is not a justification for violating the law. It’s not an excuse. And these fines can run, couple 1000 an incident, I bet they don’t just look at the first incident and say, okay, landlord, I, there’s been a discrimination claim against you. Now, Bruce, let’s say, I know you never discriminate anyone. And you know, we’ve talked several times, but let’s say that someone “claimed” they discriminate against you, well, what would they do? Well, the the Fair Housing comes out and they say, ‘Bruce, we have this claim, it’s probably nothing. It’s okay, Bruce, relax. By the way, we need the records of the last two years of every single person who’s ever applied to any of your properties, whether you’ve approved them or not even took more than 10 seconds to look at them, we want to see your processes for each of them and how you did it. So, Oh, and can get that to us in the next seven days?’ And then, it, they’ll look, it’s not just whether that one, they’re gonna look to see if you ever did anything in the last two years. And so, you know, systems, processes, legal awareness, we go through legal training every single week in our company. And we bring in attorneys, and we bring in all sorts of specialists to make sure we know what’s happening. So, the big thing is that liability, the another element is that we pretty much always get higher rent, the amount of people and this is a general investment concept here. One of the things that just makes me scream and die inside, but while trying to keep a straight face is when I talk to investors, and they say, ‘Oh, you know, I don’t need a manager I have, I have this great resident.’ But just verbiage here, I don’t call people tenants. They are residents, and they’re not landlords, your rental housing providers, or housing heroes. You’re not a landlord, that’s an archaic thing. And you’re not going to win favors by being called the ‘Lord of the land’.

Bruce Norris  Let’s, let’s circle back. Okay, ’cause you’re talking about I think you’re talking about they have a great tenant probably didn’t raise rent for the last 10 years. Yeah, I’ve been I’ve been guilty of that. I haven’t because it was, okay I don’t want them to leave. So, I have actually landed on that square sometimes. I’m not there now. But I have done that. And, you know, it’s interesting. I’ve never managed my own properties because I don’t enjoy that phone call. That’s for sure. And I, so I, but I think that’s, that’s good information for people to realize that there’s a lot of legal ramifications to very Innocent things. I’ve got a question connected to because you’ve had experience in other states. Do you consider California the most owner unfriendly state?

Matthew Tandy  Absolutely not. Now, I think…

Bruce Norris  Really?

Matthew Tandy  …that. I think that’s a complete misnomer, complet- ish sort of a misnomer. You know, I’m gonna head here. It depends on where you live. The issue of California isn’t the state so much. It’s the local municipalities.

Bruce Norris  Okay.

Matthew Tandy  So, being a landlord in Los Angeles, or San Francisco is a completely different experience than being a landlord in Riverside or in Yucca Valley, or in San Diego. I, it’s night and day. It’s like two different countries. Because those places I, places like Los Angeles, the City of Los Angeles, and also the County of Los Angeles unincorporated. They have these rent control boards that were existed before. And the act just totally slipped my mind. But it was the Prop, Prop 8 in 1968, where the state came out and said, ‘Hey, no more rent control boards. But if you had them before, then you’re you get to keep it.’ Well, LA had it before so did San Francisco and they exercise immense control. So, for instance, we’re able to kick people out right now in Riverside, for all sorts of violations. We can raise rent, and we have in with, with limits, this goes back to legal protection. One of the big fines that are happening just for your California listeners is people aren’t aware that we have been under a declared state of emergency most of California since COVID began, it’s set to expire, I think June 5, or thereabouts. Somewhere on there. And that means that it’s illegal to raise rent prices more than 10% in the 12-month period, anywhere in the state, and the fines can include jail.

Joey Romero  So, would you say some of the issues that uhm, because I deal with investors, you know, with The Norris Group all the time, and we have some very savvy, very professional investors. Would you say that most of the problems with people that you have to maybe help out or takeover with are, you know, new investors or maybe accidental investors, people that just inherited a house like ‘Okay, I guess I’m gonna rent it out.’

Matthew Tandy  Let me answer your question. Let me circle back real quick to Bruce, though. And your question on the unfriendly laws, I do want to simply say that the bigger issue and you’ll find this everywhere is I have been, I used to be mocked relentlessly for speaking up and speaking across the country about the coming tide of tenant laws. You know, we call it people residents, but the laws are typical tenant laws, I that would be sweeping the country. I saw this happening, because when the recession happened, I, back in 2008 2009, the amount of people there was this dynamic shift and this important thing and understand the laws and what’s happening and why nobody is, is safe from this, and no one can rest on the laurels on this. You had, when people were losing their houses, when people wanted, had been living in their house, their three-bedroom, four-bedroom house with the, with a yard, nobody wanted to then after that foreclosure to go live in an apartment. It’s hard to give up the dog, the cat, the space for your kids. And so, the rentals of single-family homes exploded. With that came the market, the market demand for that and so you saw hedge funds, and large private equity groups and rates, all buying up single-family homes. Some of those are my clients, I have some national clients, and we do all the leases for them and they own 1000s of properties in California. I, and so, and they do things very different. And frankly, some of them aren’t so great at following the laws and or even just doing common business of maintenance and resident care. So, the issue is, is that now you have people who of course they bounce back, they make a bunch of money, their renters’ price has gone up some of them bought homes, some of them haven’t been able to keep pace with the price with the downpayment requirements and other needs. And so, they have disposable income. This is different because before 2008 rent, rent, renters were typically viewed as, and there’s a phrase is that we used to hear a lot, ‘Oh, it’s just a rental’. ‘Oh, they’re just renters’. Well, when you’re dealing with only people who rent because that’s all they can do, you can get away with that. But that attitude if you have that attitude, you’re putting in low quality stuff and low, and low response times. And now you’re doing it to people who have just supposable income and are now renting by choice. The renting by choice is a massively growing category in the United States, because people like the flexibility. Well, do you think that attorney who makes $500,000 a year is going to accept the concept of ‘you’re just a renter?’ No, they’re going to go push, and again, make advocacy, advocacies. And then we also have a legal dynamic that happens across the country. And this is the other part. And the internet helps feel this. Most landlords used to live in around the same neighborhood as where their rentals were. And now they don’t, if you own a property in Nebraska, how much awareness are you of the laws that are being pushed there? And secondly, let’s say you’re completely aware, how much voting power do you have there? And the answer to the first is very little knowledge in most cases. And the second part is, it doesn’t matter because you don’t have a single vote. But who does have a vote, your residents have a vote. And if you’re not treating them extraordinarily well, then guess how they’re going to vote when it comes to something about your welfare versus their welfare, and you can make all the arguments you want about how they’re tied together. But for a lot of people, it’s in my putting food on the table, or, in some cases, kind of make that Disney World vacation. So, this is why I think the laws are spreading across the country. And we’re seeing that, to answer your question, Joey, who do we generally see more of, I, frankly, we get mostly investors who’ve been in in a long time, I, we find that a lot of the new investors, they get on Bigger Pockets and other other places, which are great resources, for people trying to get some information. But they, you know, there’s always that those groups that tend to, tend to attract the self made millionaire, right, I have nothing, but with nothing, I can make something, I just have to really put in the hours putting the time, figured out, we see this in wholesalers and flippers and, and all sorts of people. So, they give it a go. And they think they’re doing really well. And they lie to each other. And this is the biggest thing I gotta tell you guys, I’m sure Bruce and Joey you’ve seen this too. The amount of people who lie to each other and lie to themselves about how successful their, their investment properties are. Because they won’t run the real numbers. They feel uncomfortable, and sometimes even get upset and angry if you try to dive into it. And it’s, it’s a tough thing, education is an ongoing, constant process. But we find that once people start to get more educated and really understand the numbers and really dig into it, that’s when they hire the property manager. So, you know, it’s mainly people who’ve been in a little while and realize, you know what, I kind of suck at this or maybe I made a bad investment. But I’ve learned enough now to know I made a bad investment. I can now go make good investments. But I can’t take the time to go make good investments if I still have this albatross around my neck. And then they come in hire a professional manager.

Bruce Norris  When you will you manage this diverse inventory of properties. And the laws changed about maybe an option not to pay. Were there, were there types of real estate that did better than others? Where you had, and by the way, what’s, first of all, what’s the overall percentage of people paying versus not paying? Just curious.

Matthew Tandy  So, there are no good numbers on overall percentage of paying and not paying. And that’s because none of the trade groups are big enough to really track that in a meaningful way on a national or even a state level yet, and they don’t communicate enough. That is one of my things that I’m pushing for long term. That said, I would say that the numbers we hear are generally conflated or missing perspective, you hear those on the national news about all these many people. The reality is, is that a lot of the buildup is just because with the normal evictions couldn’t be done, not just the non-rent ones. The cases, for instance, in California when they just shut the courts down to any kind of eviction, where they said, ‘Okay, well, technically you can evict them Joey if you if they move in 10 people and five dogs and do all these other things.’ I say, so, you’re absolutely allowed. That’s an exception that’s official release. By the way, the court, courts are closed for the next six months.

Bruce Norris  Right.

Matthew Tandy  So, you couldn’t do anything. And so, there’s just a backlog of standard people who shouldn’t be allowed to remain at all. And we find that when you average it out over that period of time, the amount of people late and pending possible eviction is the same as always, in fact, there’s really no change at all. From everything that we’ve seen on our side, less than 5% of our residents were affected or claimed to have been affected by COVID, we do have them sign all the forms every month. And we go through all this as part of the legal side that we handle, I, have those, only two of them are residents that we placed. And they were both genuinely affected, and they verified it and everything’s good there. And they have applied for aid immediately whenever it’s available. And, and everything is good there. So, the, the bigger issues have been the bad actors, the bad apples from the beginning, in terms of what class of real estate, frankly, it’s the bigger houses, the bigger the house, the more likely they seem to have chosen to not pay rent. Even when the good we have a property, I’ll just share this story. I have a property in Ventura actually just sold yesterday. Thank goodness, I, on the on the beach, private dock, rented for $6400 a month. They owned one boat. And you know what they wanted Bruce is they wanted to buy that house and they want to buy it for a significant discount, they already own several houses.

Bruce Norris  Okay.

Matthew Tandy  They wanted to buy this house. The owners didn’t want to sell it to them for that price, but the owners decide they did want to sell. So, the resident starts causing problems. And then they wouldn’t allow people in saying ‘Oh, we have COVID’ you know, they say ‘Oh, we have COVID’ and then literally that night the neighbor calls us and says the throwing up block party next door. And, and they’re all out there, right? So, COVID but you can’t come in for to show the home for sale. I, they stopped paying rent, they claim COVID they hired attorneys, they did everything. Now, one of the advantages of property managers, I’m completely unfazed by this. They were threatening and breathing fire and you know, we’re going to sue you and you’re going to go to jail. And, and you know, we, I read, I’ve read all the COVID laws, I personally read all those COVID laws, I, all the way through about once every week to make sure I’m on top of it. So, the but they didn’t pay rent, we couldn’t do anything really about it for six months, we finally got them out through a settlement. I, and the owner, you know, for sure real estate prices were going up, the owner actually made money by having to go longer. But these people, what do they owe? You know, one of the times ‘Oh, we don’t have any money for rent. What did we see next month? They bought a second boat, cash, brand new, sitting on the dock. So, that’s one example. But I’d say that makes up the majority of the cases we’ve seen of actual people abusing not paying rent.

Bruce Norris  Well, what’s interesting about what you just said, and this is I have had very little experience in court. But what you just basically said was that there’s a lot of I don’t know if people get sworn in. But I think I kind of do whenever you’re in a situation like that you promise everything’s going to be truthful. So, really? Is there ever any ramifications for someone boldface line? Ever?

Matthew Tandy  No.

Bruce Norris  Okay.

Matthew Tandy  Now, there are things I mean, look, the CDC, which is the National one and California, they both have these things where they have to sign that what they’re saying is truthful. Otherwise, they’re committing perjury, and that’s, you know, that’s a natural fit, you know, that’s a that’s a felony and all these things. Bruce, if that was your resident, and then you want to sell the house, and you’re just tired of their crap, you want them out, you’re going to not pursue them for that, you just want them out. You need your property back. And that’s why there’s no accountability, because ultimately after they cause you all that money, how much might you have to go pursue them and file charges against them? And how likely are the prosecutors going to be focusing on that case for a private housing provider or landlord, right, the lord of the land, versus dealing with much more pressing issues. And, you know, we, I once had an extensive five-hour conversation with the Riverside County DA, about, about dealing with fraud and real, in rentals and real estate and, and dealing with it. And he said, the reality is, is something like 95% of them, they won’t take up, even though they seem pretty clear, because even the most clear cut case and he gave several examples. I, he gave one that did just finally closeout, and it started six years before and you know what the consequence was, like two weeks in jail, so no, there’s no, there’s no justice for it.

Joey Romero  Well, that’s gonna do it for this week’s episode. Please be sure to join us next week for part two of our interview with Formatic Property Management’s CEO Matt Tandy. See you then and thank you for listening. Hope you enjoyed the show.

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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