On this episode of the InvestFourMore Real Estate Podcast I interview Sarnen Steinbarth who is the founder of TurboTenant. Sarnen went to school to become a pilot, ended up in the air traffic control business, and along the way bought multiple rental properties including a 29 unit complex in Montana.
Sarnen ended up starting his own property management company to manage his properties, which was expanded to manage properties owner by other investors. Sarnen was a real estate agent in Montana, taught real estate classes, and eventually started TurboTenant to help landlords manage their properties. TurboTenant comes with tenant screening tools, free property management software, and free marketing for rental properties. We talk about all of this and more in this awesome interview.
How did Sarnen get started in real estate?
Sarnen grew up in a real estate family with his parents owning hundreds of rental properties. However, he decided to go to school to become a pilot. Unfortunately when Sarnen graduated 911 had just occurred and there was not much demand for commercial pilots. Sarnen ended up getting a job as an air traffic controller in Montana.
While Sarnen was in school he was already starting his real estate business. He got his real estate license at 18, and started buying properties shortly thereafter. He bought a single family rental, a duplex, a 13 plex and a 29 unit property. By the time he was 22 he had 44 rental property units.
Why did Sarnen decide to start a property management company in Montana?
Sarnen had 44 units and a full-time job, which left him little time for managing his rentals. He decided the local property management firms were not very good so he started his own company. He had to take a property management class to be certified to manage properties and was frustrated that there were very few classes available in Montana. Sarnen started his property management business to manage his properties and began to take on other clients as well. Eventually his company was managing over 200 units.
Sarnen also saw a need for more property management classes. He got certified to teach the class as a real estate agent and taught other educational classes to real estate agents as well.
How hard is it to start a property management business?
Sarnen believes starting a property management company was not terribly difficult, but it takes some planning. You cannot make much money from simply charging the landlord a monthly fee for management. When Sarnen had his own management company he had his own cleaning crew and maintenance people. He could make extra money from those crews as long as he disclosed he was making money to the landlords. Sarnen mentions you can have your own legal team, and contractors as well to make even more money. Sarnen mentions the first step to starting your own property management business is knowing the rules and regulations for fair housing, evictions, maintenance, and of course the best tactics for getting great tenants.
What should you look our for in a great property management company?
Sarnen also gives a lot of tips on how to find a great property management company. He suggests asking a lot of questions when you talk to any property management company:
- How often do they inspect their properties?
- How do they screen their tenants?
- How do they determine market rent?
- How many properties do they manage?
- Do they have their own maintenance and cleaning crews?
Along with interviewing the property management company, you should also check your state licensing authority to see if the property management company is licensed. Most states require property managers be licensed real estate agents to manage properties for other people. You can check with the state licensing authority to see if any complaints have been filed against the company.
Why did Sarnen start TurboTenant to help landlords manage their properties?
With today’s technology it is much easier to self-manage properties than it has been in the past. There are online tenant screening services, online marketing services, and property management software. When Sarnen was managing properties he was paying $400 a month for property management software. He thought that was way too expensive and not suitable for the landlords with fewer properties. He created free property management software, free marketing for rentals, and would make money by taking a small chunk of the tenant screening charges. Charges that most landlords would pay for anyway to get credit reports and background checks. The awesome part of his business plan was he did not have to charge landlords any more for those services than they would normally pay, because TurboTenant could negotiate a lower bulk rate.
You can check out TurboTenant’s services here.
[0:00:58.9] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore, and welcome to another episode of the InvestFourMore real estate podcast. I have a really cool guest for today’s show, Sarnen Steinbarth, who is the CEO of TurboTenant. He has been a real estate investor most of his life, done a lot of really cool things in the industry, and had an interesting way he started out in real estate as well.
I’m excited to hear his story, learn about him, and then learn about what TurboTenant does as well, which is a free property management software for real estate investors. Sarnen, thank you so much for being on the show. How are you?
[0:01:31.1] SS: I’m doing great Mark, thanks for having me. Yeah, it’s great, you know, we’re only less than an hour away from each other as well.
[0:01:36.5] MF: Yeah, no, it’s very cool. I’m in Greeley, Colorado, you’re in Fort Collins, and we get to do this show in person, which is rare. I’m usually doing it on the computer, so very cool. You have an interesting backstory on how you got started with real estate. You did not go to school for real estate or anything like that. How did you get started?
[0:01:54.5] SS: I grew up in a real estate family. My dad was a real estate broker, my sister has a real estate license, my parents have owned over a hundred rental properties, so I kind of always grew up around real estate properties, in real estate properties. My dad would be painting the walls with the roller, my mom would be doing the trim, I’d be taking off electrical plates as a little kid, trying to get the apartments ready to go and ready for turnover of tenants.
I grew up always around real estate, then actually got my real estate license when I was 18, and when I was going to college at University of North Dakota, I was actually going to college for commercial aviation, but bought a house when I was 19, rented it out, rented the rooms out, lived there myself and made a little bit of money while I was in college, and I bought it for $92,000. Had it for three or four years, sold it for $130,000, $135,000 right there.
Made a little bit of money off that. Learned that it’s not real fun to be a landlord and a roommate at the same time. I don’t know that I would advise that, but that was an interesting kind of first purchase. Wasn’t the best timing to be in commercial aviation, during the time of September 11th, so I actually switched to air traffic control.
I was an air traffic controller for a handful of years in Helena, Montana, so at that time the FAA, would kind of plop you down at a spot, so Helena, Montana is where we went. I’d made a little bit of money off of that first house I had in college and was looking for a four plex or an eight plex to try to buy and have on the side as an air traffic controller.
Ended up seeing a 29 plex. It was just great deal, I kind of penciled out the numbers and it seemed to make sense. So I went from one, to the next purchase was a 29 plex, and then the year after that had a 13 plex, and then the year after that got a duplex. I was up to 44 units. Cashed out not long after college. I was 22 at the time.
[0:03:48.5] MF: That’s a pretty huge jump. Were you buying those in Montana, locally where you worked, or were you buying in other areas?
[0:03:54.6] SS: Yeah, they were all within about a one-mile radius, right in downtown Helena, Montana.
[0:04:00.1] MF: Very cool. It’s funny, because when I grew up, my dad was a broker, got license in ‘78, my sister had a property management business, so she is in real estate as well, but when I was growing up, I thought, I never want anything to do with real estate. I didn’t get involved in it too much, but I found my way back.
[0:04:16.9] SS: Yeah, you know, it wasn’t necessarily the plan. The plan was to be a commercial pilot, and then it was a couple of months after I was accepted to the University of North Dakota, one of the largest pilot schools in the US, and September 11th happens.
It was the buying that house in college was kind of a side thing to have cheap rent. When I made a little money off that, and when I looked at doing that a little bit more, it started to get to a point where I was doing pretty well off the rentals, so starting a property management company was much more to help manage my own properties, because 44 was just kind of right on the line of hard to work a full-time air traffic controller job and do all the functions needed for rental units.
I really kind of hired somebody for the purposes of mainly helping with my own properties, and then it just made sense to start managing for a few other people, since we had the capacity. With two people we could easily go up to a hundred or so.
I started a property management company while I was an air traffic controller, and grew that to a couple of hundred units. Interestingly, at the same time, I wanted to get my real estate license in Montana. Montana is one of the few states in the US that has a property manager license. There’s only three states in the US that have a property manager specific license. Most states, it’s just a real estate broker’s license.
There was only one guy in the state teaching the course, and I couldn’t believe it, and they weren’t teaching it in Billings, Montana, and they weren’t teaching it — and it was hard to actually get your property manager’s license. I went to the state of Montana and I said, “You know, what’s up with your rules that this one course to get a property managed license is so hard to find? It’s not being taught in the largest city in Montana. What’s going on?”
They said, “Well, nobody else has ever wanted to teach it.” For a few months, I was trying to get other people to teach this course, because I want to get licensed. Eventually I just decided, you know what? I will try to apply to the city of Montana to teach this course.
Long story short, in addition to starting a management company, I started a real estate education company. That grew to the point where I believe I was the largest real estate education company in the state of Montana. I was teaching thousands of real estate agents, property managers, so they could get their real estate license, I was teaching the required, the state required curriculums so they could keep their license, and continuing education courses.
That portion of my business really expanded, so for a period of time, I was working as an air traffic controller, I had a property management company, and I had a real estate education company. That was just a little bit nuts. It was great at the time. Had a wife, no kids, it was easy to work 80, 90 hours a week. The great thing about my education company is I could set my own dates, I taught at hotels all around.
One of the things that I really learned with that is every time I teach a class on property management, I had some enterprise rated property management software that I was paying $300 - $400 bucks a month for, and it would do automatic rental marketing for me. I was in the top results, all the major websites, I could do online payments, I could screen tenants easily, they could apply online.
I was teaching this classes to thousands of real estate agents, and I would talk about the different technologies and everything you could do to make property management more efficient, more effective, so that you could use this new kind of — at the time, they were really kind of new emerging technologies of online applications, screen a tenant in 30 seconds and get the credit report automatically, and not have to retype in all their information.
Every time I took a break in the middle of teaching a class, I’d have a line of 10 or 15 real estate agents and licensees that would come up to me and they’re like, “Sarnen, how did you do this? How would you market it? How do you build this website? How do you allow tenants to take home rental applications? How do you set it up where they can pay online?”
It dawned on me that there was this really huge need. There was software out there for larger management companies with a hundred plus units, but there was really nothing out there for the little guys, or the investors that had 10 properties, 20 properties. That was kind of the initial idea of what would eventually become TurboTenant.
[0:08:29.1] MF: Very cool. Now, we’re going to talk about TurboTenant a lot. I have a couple of questions before we get into that that I think might help some of the listeners. One thing I thought of, we thought about doing our own property management company. Justin, my team manager, manages some of my properties, and that’s all.
There’s a lot of account things, there’s a lot you have to go through to start your own property management company. How hard was that, and would you do that again if you had the chance?
[0:08:53.6] SS: Yeah, I think there’s two main things in starting a property management company. A, being familiar with all the things related to being a landlord, being a property manager, and kind of the real estate side of things. Knowing your fair housing laws, knowing your landlord tenant laws, knowing kind of the basics of an eviction, knowing the maintenance and repair side, you have vendors, you have plumbers, you have electricians.
Is that portion — a lot of those things you learn in being your own real estate investor and landlord, if you’re staying up on laws. You need to know that, but then there’s the complete other side, and there’s the business side. So I think to be successful in property management, you really need to know both. You need to know the employment, the insurance, the general marketing of a business, where to hire, how to hire, how to get pay roll setup, things like that.
If you’re in an industry, maybe you’ve owned a restaurant, you probably know that business side pretty well, so you really need to go out and learn more of the landlording, property management, real estate side of things. If you’ve been a landlord, and know your tenant laws and your security deposit laws for housing really well, you know, you probably want to go out on the business side. I think to be successful in doing property management, you really need to kind of have both, that’s the key.
[0:10:11.5] MF: Do you think there’s a certain amount of units we need to get up to for it to be worth the effort?
[0:10:17.7] SS: Yeah, there’s a lot of different ways to make money in property management. When I was first kind of deciding on management fees at our company, I did a lot of financial modeling. If I charge this, what’s the return to me if I charge this? Typically, everyone would call, and everyone just thinks of what’s your fee, and they just think of what’s the percentage, or are you 8%, 10%, and that’s pretty simplistic.
I think if you’re looking at maybe flipping it around, if you’re looking to hiring a property manager, things you should be asking is, “Okay, what is your monthly fee, but what’s your current vacancy rate,” you know? “How good are you at filling the units? How many evictions do you have? How many delinquent accounts do you have? Do you charge extra for maintenance services? Do you add money on top of that? Do you have in-house maintenance? What’s your maintenance hourly?”
So there’s a lot of ways to best decide the best property management for you, or if you are the property manager yourself, there’s a lot of different ways to make money in property management. There’s obviously the management fee, but we had cleaning. We hired in-house employees, and they would do cleaning of properties, and we would make a margin on that. We disclosed it to the owners, and they were very happy with that, because it was in-house controlled.
We could go, send them through an hour before somebody’s going to move in and make sure that the unit’s all totally ready to go. Not an hour to flip the house, but an hour to just kind of do the little things and making it ready.
We personally tried to have employees do things that didn’t require licensing, so we didn’t have on our staff like a plumber, electrician, we hired those out, but we did have general landscape, general maintenance, cleaning, things that were not regulated by licensure in state. A lot of management companies have very successfully hired on a full maintenance team, and there’s a lot of ways to make money on that. I know a lot of management companies that even have a legal team, so they’ll do the legal work for an eviction, because they’ve gotten to a large enough scale. I think depending upon how you set it up, back to your question of how many units do you need, it really depends on the setup of your company.
The one thing I talk about is when I’m teaching new property managers, we usually have a discussion on virtual office versus a physical office. Are you going to actually go and have a physical place where a tenant can walk into your office? A lot of property managers don’t. They meet on-site for everything. They work out of a home office, they have a Google voice number for their phone, they have an online presence, you can get websites made pretty easily these days.
They use tools like TurboTenant or other affordable landlord software to kind of get going and have that larger presence, and to get on the major sites and have features that 10, 15 years ago weren’t available to even small property management companies.
There are a lot of ways where we can get going with fewer units, but you know, if you have 10, 20 units, and all you’re doing is managing, and you don’t have any ownership interest in them, you’re probably going to need to slowly start and have another side job and work your way up, right?
[0:13:26.6] MF: That makes sense. That’s a really good point about all the tools available now for landlords. They don’t have to spend so much time managing themselves with all the tools available. It makes it more feasible today, right?
[0:13:39.4] SS: I saw a recent survey, there was a survey that said, the number one thing that landlords want in a property manager, or the number one thing they’re looking for is their ability to screen a tenant.
Now, it used to be a pretty complicated process for a landlord to have good methods to get credit scores and things like that. You had to get an association with the credit bureau, maybe had an onsite inspection at your location, and make sure you had the locked file cabinets and this and that, and fax in forms and wait three days.
Now you can get setup online and do it in minutes, you know? Fully automatic, and so technology has definitely — it’s actually been very slow to change the rules in property management process. If you think of the number of tenants that are still paying with a paper check in the mail, it’s funny, I had a tenant that the first month she moved in, she paid with a paper check and she forgot to sign it.
I called her and I said, “You know, you dropped off the check, but there’s no signature on it. You’ll have to come by the office and sign it, or drop off a new check.” She said, “Oh, I’ll drop off a new check.” The next day she dropped off the second check. No signature on the second check. She walked into the office, and I handed her the check, and I said, “You forgot to sign it.”
She holds the check up, to this day, I remember exactly what she said. She said, “It doesn’t say signature anywhere, and there’s no X on it.” This was her check. It was a new check, just opened a checking account, and it’s true. If you look at checks, it doesn’t say signature anywhere on them, and there’s no X on them, and she had absolutely no clue.
She was in college, she had absolutely no clue where or how to sign a check, because it was the first check she had ever written in her life. It’s amazing how many tenants that I’ve had, and I know that we’re the only person really ever receiving checks from them, because on January I’ll be taking check number 1001, in February it’ll be check 1002, and we can go through the entire year and they’ve written 12 checks out of their checking account.
Back to real estate kind of being a slow to adapt this in the industry, I mean, when was the last time somebody mailed in a check to book a hotel room to the hotel. This is an industry that’s behind, but now, technology, going back to your point of your starting a management company, there’s technology out there that makes this a lot easier in the last few years.
Certainly the last five years, but really their price has gone down where you used to have to pay a lot for this stuff, price is going down, the technology’s getting better, getting faster and you know, even a few years from now the check in the mail for rent is going to be the minority. And not the majority.
[0:16:04.8] MF: My sister has a bunch of college rentals, and so she deals with brand new adults who have never been outside the home, and she has so many stories of they go for a Christmas break and they just turn the heat off. I’m going to save money, I’ll just turn the heat off. They don’t think about the pipes freezing. There’s a lot of things that you have to think about that you kind of think is common sense, but some people just were never taught it, don’t know how to live on their own.
[0:16:30.8] SS: Yeah, it’s interesting, because there’s a lot more renters renting, and it’s kind of on an upward trend, and a lot of millennials, and yeah, a lot of these things that seem obvious or things that maybe to millennials seems like you can’t take on, or something like that. It’s totally out of their mindset.
[0:16:51.9] MF: Speaking of property managers, you run a company, have your properties, I know one of the biggest headaches a lot of investors have is getting hooked up with a bad property manager. Do you have any advice or signs to look out for those bad property management companies?
[0:17:06.9] SS: Yeah I do. You know, I think I would certainly meet with them and ask them questions, like obviously, get a full breakdown on their fees, look at their management agreement, this should be things that are very easy for a manager to throw out.
Look at the management agreement, what does it say? Ask how often they’re inspecting the property. Ask what methods they use for tenant screening, because often times, a bad property manager, when somebody says I had a bad property manager, usually there’s some other rue. When they’re saying they have a bad property manager, they put a tenant in that had five evictions, and they’re having this legal issue, and the property manager doesn’t really want to deal with the responsibility.
There’s usually other root things. It’s a bad property manager, the bad property manager led to bad tenants. Things like what methods do they use for screening? Are they getting credit reports, what’s their criteria? How are they deciding on tenants? Are they calling on past landlord references? How many evictions have they had? How do they deal with an eviction? Who does what?
Getting referrals, talking with other landlords, go to a landlord — most towns in the US have different landlord meetups that are not necessarily a professional property manager, they are the actual investors and the owners of the property. Go to those and say — if you’re not familiar with property managers in town, say, “Hey, what do you guys recommend, or who do you not recommend?”
Look online, and you can look at reviews. Reviews are a tough thing for management companies, because management companies are in this unique position where they’re hired to represent the owner, but almost every review online you ever see is not by the owner, so it’s not actually by the person that you’re working for. The reviews are by what you would technically consider a third party, the tenant.
Partly because of age differences, where most of the tenants are younger, and most managers are older, and the younger people will typically go to the online sources to do the reviews. Reviews are tricky, because you could be doing a great job for your owners as a property manager and still have marginal reviews, because you can get some insights to that.
You could see if they responded. Did they respond to reviews? Did they get back to the people that have concerns online about them? You know, I do think one of the best ways is to get some referrals from other people you trust.
[0:19:22.4] MF: That’s great advice, and I know there’s one company around here, I won’t name any names, but I bought a rental from them. I guess it was 2015, and I paid $90,000 for that house, because actually the agent who sold it, he valued it based on the rent, and they were getting $700 a month in rent. As soon as I bought it, we rented it for $1,100 a month.
I mean, it was worth $130,000 - $140,000, with $2,000 in work. I think you need to pay attention to the rent they charge, too, because some property management companies will charge low rents, rent them easy, and make their job not so difficult.
[0:19:58.4] SS: Yeah, that’s a good point. One other thing that I just thought of, but it’s something that not a lot of people think to do but almost, if you are a property manager in most states in the US, you have to have a real estate license. Almost every state, if not every state, will have licensing information. You can look and you can see, you can contact the state or you can typically go public search to see if that licensee has ever gotten in trouble with the state, and get details on what that was, and that’s something that we do.
[0:20:28.1] MF: Yeah, that’s great advice, because they should have the complaints. There was a complaint filed in the state, it would be public, especially if they were censured or fined or whatever, and you can see that. Nope, great stuff.
Speaking of Colorado, do you invest in Colorado at all yourself?
[0:20:43.1] SS: I do. When we sold the 13 plex in Montana, we sold — moving down here, my wife and I and actually our family moved from Helena to Fort Collins about two and a half years ago, and it’s actually a quite a long process,
We did – backing up a little bit, after three or four years being an air traffic controller, I was making more money in real estate, and I was just running out of time. We’d had our first kid, my daughter, and I decided that I can’t do the three companies and air traffic control. So I got out of air traffic control, and then we decided, you know what? Real estate, there’s real estate everywhere in the US. Where do we like to go? Do you want to keep buying in Helena?
Do you want to start buying somewhere else, where else do we move? So we decided we want to go to Fort Collins, and I looked at a lot of cities. I came to visit Fort Collins, loved it, so we started selling our properties in Montana, and so the 13 plex that we had, we did a 10-31 exchange into some properties here in Fort Collins. So we current own — and then the 29 plex we just cashed out. So we currently own seven units in Fort Collins, and there’s still two up in Montana.
[0:21:51.1] MF: I imagine prices are a little bit different between the two.
[0:21:54.2] SS: They are yeah. We bought the 29 plex in Montana, and so this was a few years back, but bought the 29 plex in Montana for under a million dollars. I would love to have a 29 plex in Fort Collins for under a million dollars, but I don’t think that’s going to happen.
[0:22:12.5] MF: No, I stopped by in rentals here a couple of years ago, just because prices got so crazy but no, it’s a different market for sure.
[0:22:20.8] SS: Yeah, I think we put in four or five full price cash offers that we didn’t get, which in most places in America, that would be almost unheard of, but full price, cash, close in 15 days, not accepted.
[0:22:33.9] MF: Yep, that happens all the time. It’s great, and they are not building enough houses here, and that’s just really what it comes down to. I don’t know how to fix that until they do. So going back to TurboTenant, how did you start this company?
[0:22:48.8] SS: It’s this combination of things. We knew once we got to — backing up to the management company, the management company was something that we started to manage our own properties. It was extra money. We had an opportunity to probably grow beyond the 200 units we’re managing. I’m sure it could have gotten larger, and maybe started a second location in another town, but we really wanted to have the control of our properties.
So once we got to a financial point where we didn’t need to be managing other properties, we wanted to go back down to our 40 some units, and I loved all these features that I had in the software I was using for our management company. Like the automated marketing, the online applications, the screening, the rent payments, but I didn’t want to keep paying 300 or 400 bucks a month and so then, that was one of the ideas of what are we going to do?
Are we going to keep paying this? And again, I’m teaching real estate classes all over the state of Montana, have all these people coming up to me, “How do you do this? How do you do that?” and so we thought you know what? There should be a free software out there where you can do this. So one thing that I knew in my management company is that management companies, back to different ways you make money in a management companies, if you get to enough scale you can make some money off of tenant application fees.
Because you can get the prices of those fees down. However, the smaller landlords of 10 to 20 units, you are probably paying the retail price for credit and credit reports, which is about typically, retail price for a credit report is about 20 bucks, and national criminal report is about 20 bucks. So if you’re charging 40 bucks, landlords aren’t making anything off of application fees.
So the whole idea with TurboTenant is allow, if we have this software, and if we can scale it as a company as TurboTenant, we could then go to the credit bureau and we could probably get wholesale or very cheap credit and criminal report rates than an individual that has 10 or 20 units can’t get. We could charge a retail rate for the tenant application fee, so we actually have two application fees. We have a $35 application and a $45 application, but $35 includes credit and criminal report, and the $45 includes credit report, criminal report, and a national eviction search report.
So the idea is we will charge a retail rate, a normal average application for your rate, we’ll negotiate wholesale rates with the credit bureau, and we’ll keep the difference. In return for us keeping the application fee, we’re going to give the software away 100% free to landlords. So it’s this natural thing where, because it’s free, people like it. They use it, they love it, they’re not having to pay a monthly fee, there’s no upfront fee with the landlords, there’s no reoccurring fee.
So whether you’re a one-unit landlord that uses us once a year for the screening portion, or we have people with 100-plus properties using TurboTenant, and they’ve always had the side accounting, or maybe they’re using QuickBooks, and so they have that accounting portion done, and they were manually faxing in forms to screen tenants, and now they can do it online. So we’ve built this platform and we added a lot of features that we don’t make money off at all, but they are features that are very useful to landlords.
Like our marketing. When you add a property in TurboTenant, we will market it for you. We’ll push it out to all the major websites out there. We’ll write a Craigslist ad for you that you can copy and paste into Craigslist and tenants can apply. When you have a website, tenants can apply right from your own property listing website, and they can apply to your property. You’ll get an email when the applications in, we have text message features, so you can text them details, tenants are going to apply from a phone.
So the whole idea of this is the easier it is for people to find it, the easier it is for the landlord to collect the applicants, the faster it will turnover, the less vacancies management will have, the more applications we’ll get, the more revenue we’ll get, so really, that was the whole idea behind it. It’s never meant to be just the tenant screening software. We are continually adding features in. We’re just launching our online rent payments.
So same idea. It’s been historically very difficult for a landlord to set up automated rent payments. When I did it as a management company, it was a two week process of having to fill out those forms, all these tax ID’s, and faxing it to this company and waiting for two weeks, and getting these approvals. We use cutting edge technology to take a process that took me two weeks as a management company to reduce it down to about 10 seconds.
So a landlord can add in their information, add in a little bit of their — what bank account they are using, upload a photo ID, and we can immediately be able to start processing rent for someone. Same idea, free for landlord. We do charge a transaction fee on the rent payment side. So this is how we’re able to create a software, we flipped it around for the traditional model where you pay X amount a month to you paying nothing and we keep some transaction fees.
[0:27:40.6] MF: No, that makes sense, and it’s really a cool business plan idea, because people are paying the same they would otherwise, but they get all this other stuff for free as well.
[0:27:50.1] SS: Yeah, I mean when we pulled users in our group, our target market, and asked them, “Do you make money off application fees?” Nobody is making money off application fees at this level. They just want to get tenants, and so it’s really a win-win, because the tenants have wanted to apply online, I guarantee you. Tenants love applying online. They love being able to walk through the property, get out their phone, put in the details right then.
Put in the details at three in the morning, whenever they want to apply, have it be there. They don’t want to have to take a paper application, write all their personal information on this paper application through the mail, mail it to the landlord, wait three days for them to get it, and get a response. Instant applications is definitely what the tenants want. Landlords love it, we got everybody right there, it’s easy, it’s all in the Cloud, so if you’re travelling and you want to find tenant details and information on somebody, you can log in from anywhere.
That’s the site, I think we really created something that’s special, and I think the growth has proven it. We launched basically a year ago, last January, and I am happy to say in the last year we’ve had 25,000 landlords sign up for the service, and the number one question we get is “When does the free trial end?” That’s a fun question to get, because we tell people it’s not a free trial, it’s totally free, you know? Whether you use all of our features or not, it’s totally free.
[0:29:13.6] MF: Yeah, that’s great, and one thing too, as a landlord, I stopped managing my properties once I got to seven, and having to handle those paper applications and social security numbers is just like, you don’t want to do it. You don’t want to mess with it, and to have them all done online without you being involved is so nice. It really is a huge benefit.
[0:29:32.7] SS: Right, you know we integrate for tenant screening with TransUnion. They are the largest rental screening company in the world, I believe that’s in the US. The same company that integrates with California Association of Realtors, and a handful of other major brands, and their rental screening division is also Florida based. So they’ve been great. Our rent payments are I think the fastest in the industry, two business day payouts on online rent payments, and we’ve got a lot of other cool features planned, like maintenance and other things to help landlords out.
[0:30:03.4] MF: Right, I was going to ask you about maintenance. So are you creating a database where people can find their own maintenance people, or are you trying to actually do maintenance within your own company? How is that going to work?
[0:30:13.8] SS: Yeah, we’d be more in the database side, where a tenant can log in and make an online maintenance request, and landlords can choose to use an apartment vendor, but basically if the maintenance request comes in, and a landlord doesn’t have the plumber, doesn’t have an HVAC person, doesn’t have a window cleaner, we can help to partner them with that, but the feature itself would just be an easy way for landlords and tenants to really communicate back and forth.
Like here’s what’s going on, here’s a leaky faucet, here’s a picture of it, and here’s a good time to enter. Here’s accounting information, and notify the landlords. So the landlords gets a notification. The landlord can get an email with the issue, they can log in, they can see it, so that’s really the idea.
[0:31:00.2] MF: Great. I’m curious, you had a lot of experience in property management with your own properties, what do you think the biggest things to look for as a landlord are when you’re selecting tenants? I know they give you credit and background check, do you look at the income? How much money they make as well? What are some of the big factors to screen on?
[0:31:18.1] SS: Yeah, I’m still a believer in the classics of credit, criminal, income, what their current job is, do they have prior lender references, and depending upon the state that you’re in, either requiring if they don’t meet your ideal criteria, then requiring a co-signer, or perhaps a higher security deposit. I know some states, you’ve got to be careful with the security deposit limits and caps, but I’m still a pretty firm believer in asking about the references, credit, criminal, and recently, eviction reports.
Eviction reports, I think 5 or 10 years ago you could hardly, there wasn’t a whole lot of data on them. Now, there’s database nationally of 10 million eviction reports available if you search eviction records, so certainly looking at that. I would say being able to read through and understand different things in the credit report. If someone has a $50 medical collection from three years ago that’s been paid, well you know, medical bills in the US is a little bit confusing.
You don’t always know, you could go to an ER and get eight different bills. However, if they have outstanding Verizon Wireless for a $1,000 that still hasn’t been paid, that’s a little risky. A lot of people are scared to lose their cellphones these days, and believe it or not there are people that are homeless that still have a cellphone and still pay their cellphone bill. So it’s not just — the number is helpful, but really looking at the full scope of what’s going on.
[0:33:03.5] MF: Yeah, that’s great, and we had a property where the tenant was behind on rent, and we got a call from a local Ford dealership because he wanted to buy a new car. Like a $40,000 car, and they want a reference from us. I was like, “Sorry, they’re behind on rent, so we’re not going to give them very good reference for buying a brand new car.”
[0:33:20.9] SS: Yeah, I know. It’s crazy with some people.
[0:33:25.6] MF: Awesome, well I think those are all the questions I had on my side, really great information. You’ve had quite the interesting story, from Montana to here, and buying your own rentals, and exchanging them into Colorado, and starting a brand new company as well. Do you have any advice for landlords or people who want to start out in the business? Do you think it’s wise to manage your own properties? Do you think they should start out with the property managers? Does it all depend on the person and situation?
[0:33:53.8] SS: Yeah, I think it does depend on the person or situation, and I think starting out, I think it’s good to learn as much as you can about real estate and being a landlord, and I think it is healthy to manage them yourself and understand it, because then if you do go and grow, if you eventually hire a property manager, you’ll know from your own experiences the best thing to do.
So I like understanding it, real estate, I don’t know that it’s ever a fully passive investment. It can be a little bit passive if you have a property manager, but I think if you want to do nothing just starting out, I like getting involved in managing it as a landlord, understanding it, and I think you will learn a lot that way. I think it would be helpful in future real estate deals and purchases. That might not be your long-term goal, but I think understanding the full cycle of the process is certainly healthy, and at some point if you want to hire a third party to do that, that makes sense.
Learning the basics and using tools to help with you those, I think, is very helpful, and whether it be TurboTenant or whatever else, tenant screening is huge. Getting a good a tenant, and they’re learning how to market your property is huge, even little things like taking pictures. I mean it’s amazing to me that some listings will come to TurboTenant and don’t have a picture on it. I mean, learning what people like, and want, and pricing it appropriately will lead to the best income for you.
There’s a lot of tools out there where you can get great rent comps, so just learning as much as you can, whether it’s reading books, going on blogs, going on InvestFourMore blog, going on our blog, there’s a lot of information out there that you can learn, so I think educating yourself on it, using the right tools, and just figuring out an efficient system and what works for you.
[0:35:52.5] MF: Yeah, that’s great advice, and like you said, it is a lot easier with today’s technology to do it yourself, especially the tenant screening, because that is so important, and we use the TransUnion reports, and they tell you a lot. They give you a lot of information.
[0:36:06.6] SS: They do, they give you a score, they give you payment history for different credit cards, and student loans, and mortgages, if you’ve had mortgages. They’ll give you a criminal background so you can see all sorts of different criminal information. It could be collections, what type of account is in collections, whether it be medical, or Verizon Wireless, or whatever else, and if nothing else starts as a good launching point to ask questions.
Why did this happen? Some other flags that I would like to say is be careful if somebody needs to move in immediately. If they need to move in tonight, that is always a huge red flag for us and our management company. Like, why does somebody need to move in tonight? I guarantee you there’s a story there, and maybe they just had gotten in a huge fight with their past landlord, and they got locked out, and there’s some weird thing going on.
So one phrase that I say is that most good tenants don’t need to move in tonight. It’s just learning those little things, and one of the things that I’m at a really fun position is, the things that TurboTenant offers are really things that I truly believe in, like doing a good job marketing the property and getting it out there is going to get you the most leads. The most leads gives you the ability to have a higher criteria in selecting. A higher criteria in selecting will allow you to have better tenants.
Having better tenants will give you less headaches, and less headaches will allow you to buy more real estate property. So typically, a lot of times people will say it starts with the tenant screening, and I would even argue it starts with the marketing. Marketing gives you the best leads, then that allows you to have better tenant screening. So we’re in a place where TurboTenant is really something that I fully 100% believe in, that by doing the marketing, doing the screening and having good online abilities will lead to the best experience with the tenant, the landlord and everybody.
[0:38:05.8] MF: Right, that’s great. Great advice, and with the whole marketing side, that’s so important. We’ve always tried to price our rentals not at the very top of the market, to get one or two marginal applicants, but either at market, or even below so we can choose from the best ones, because I feel like when you are stretching your criteria to find tenants, that’s when you get in trouble as well. You’re trying to justify why you should rent to this person.
[0:38:29.9] SS: Right, yeah, and another phrase that I will often use when I’m teaching property management class is a vacancy is better than a bad tenant. Vacancies don’t do damage, vacancies don’t have parties, you don’t have to evict vacancies, you may not get paid with a vacancy, but you also don’t get paid with a bad tenant. A vacancy is better than a bad tenant. So I would never lower your standards just to get full. I call it, if your property isn’t moving, I call it the six P’s of moving real estate:
Price, promotion, policies, property, people, and place, so maybe your price is too high, maybe it’s your promotion, maybe you are not doing a good job getting it out there and nobody knows about it. The policies, maybe your policies are too strict, you are saying everybody needs an 800 credit score, and that’s not realistic. So price, promotion, policies, property, maybe the property itself is a dump, you know?
People, some markets are cyclical. Fort Collins, you got huge turnover in July and August when everybody is going to CSU, and it’s hard to find someone to move in, so maybe it’s just not the right time, and then place itself. Is this right next to a local transfer station? Was the actual real estate, was the place of the real estate not the best choice? So I think those are kind of, if you are not able to move it whether you’re selling it or renting it, one of those is probably your issue. If you know the price is good, maybe it’s something else, maybe you’re not promoting it well. So I would look to that criteria, but don’t just lower your standards.
[0:40:04.4] MF: Right, great advice. Again, we had a property where it’s priced right, it comps showed with plenty of people looking at it, but it had no real dining room, so nobody wanted it. We had to lower our standards, and then we got a bad tenant, and yeah, yada-yada-yada. I ended up selling that house because it was so hard to rent, and it was a house. It wasn’t the price, it wasn’t anything else, it’s just you’ve got to make sure the properties that you buy are good properties.
[0:40:29.2] SS: Right.
[0:40:30.1] MF: Well, Sarnen, thank you so much for being on the show. I really appreciate it. I know I learned a lot, I’m sure you helped out a lot of our listeners as well. I’ll have a link to TurboTenant in the show notes, so people can get there easy. Again, it’s completely free, so no reason not to sign up, and yeah, thank you for all the great information.
[0:40:47.3] SS: Yeah, thanks for having us. Thanks for those who are listening, thanks to all the viewers out there.
[0:40:50.3] MF: Great. Have a great weekend, and yeah, let’s stay in touch.
[0:40:54.6] SS: Yeah, have a good one.