Professionals (Pros) VS Amateurs (Joes)

Who would you rather be?  The Professional or the Amateur?

As in everything, there is a tangible difference between a professional investor (Pros) and the amateur investor (Joes).  The mindset of a professional is predisposed to treating his home as an investment, versus the amateur who treats it as more of a hobby.  In our experience with property management, we have taken over a lot of homes that were previously managed by owners trying to save money or real estate agents trying to make a side income, but they all ended up doing more harm than good.  Here are four differences between Pros and Joes:

Market Data

The Pros know how to aggregate information from professional databases to perform predictive analysis on home values and the rental market.  This timely “market intel” can help the investor minimize acquisition costs and maximize rents.  The result:  Higher cash flow and better negotiation leverage

The Joes take information from Trulia, Zillow or any other website that gives choppy real estate information and doesn’t have complete access to accurate SOLD data.  Joes may just keep rents low to rent a home out quicker and not have to worry about maximizing the market value or listing the home on the MLS for that matter.  They base their pricing off information they know, rather then seek out up-to-date market data, and therefore end up conducting business in a vacuum and attracting less qualified tenants.

Maintenance

The Pros have experienced first-hand knowledge resulting from vendor relationships that have been field-tested through hundreds of work orders and tens of thousands of dollars.  They know who to use and who to avoid.  They may even have leverage for better pricing and can be given priority of work through strategic partnerships with vendors or their own in-house maintenance team.  The result:  More money saved, less time spent and happier tenants due to quicker turn around times

The Joes usually feel they are doing a great job in this area.  They try to save money by doing the work themselves but risk complicating a relationship when the work is not done to standard.  They may get multiple bids for a project, but soon run out of vendors who hate being used for just another quote.  The volume of work simply isn’t enough for the amateur investor to use vendors just for quotes and the vendor pipeline will run dry quickly.  When in doubt, they get a home warranty, but now they have yet another premium to pay, lose control of vendor quality, and anger impatient tenants who have to put up with it.

Systems

The Pros learn from their mistakes and refine their systems and contracts, resulting in best practices for the industry that can reduce an investor’s exposure to a lawsuit.  Pros have the experience that can only be generated from hundreds of leasing contracts, move-in walkthroughs, move-out walkthroughs and applicant processings.  They invest in technology that allows work orders, leases and all financial accounting to be tracked, transparent and timely.  They have the personnel, the expertise and availability to service both the property and the resident.  The result:  Less risk, more efficiency and expertise

The Joes don’t typically have much of a system other than what is on their excel spreadsheet.  They can’t afford to hire personnel or invest in technology and are more prone to being overwhelmed when it’s time to collect rent, conduct a walkthrough and service a work order all at the same time.  The complications grow as their portfolio grows and their system is not scalable.  If somebody gave them an additional 25 properties, free and clear, their system would break.

Negotiation Expertise

The Pros understand that their ability to negotiate like an expert can mean the difference of thousands of dollars over the life of an investment home.  Therefore, they work hard to perfect their tools for negotiation by taking coursework and training for the Master Certified Negotiation Expert designation and understanding the principals of being a collaborative negotiator.   The result:  Residents know they are being treated fairly and Investors know their interests are put first

The Joes are competitive negotiators.  They try to take as much as they can and leave the other party with as little as they can.  Joes don’t understand that positional bargaining may help you win one negotiation, but you could end up losing a relationship or “hidden” value by not properly communicating with a resident or their agent.  In the end, you’ll get less.