If you want to run an efficient real estate business, you have to assess and understand your rent roll. This episode of the Property Management Mastermind podcast features Tarsi Hynes coming to you live from Australia! She and Brad discuss the details of what distinguishes The Tarsi Way and how to maximize your rent roll and streamline how you do business.
Connect with Tarsi at www.thetarsiway.com
Connect with Brad's team at www.rentwerx.com!
BRAD: Everybody. On today's episode, I have Miss Tarsi coming at us from Australia, and she's going to be talking to us about business valuations and health checks that she performs for businesses and how she's growing that into the US market. It's a great listen. Got to tune in.
ANNCR: Welcome to the Property Management Mastermind show with your host, Brad Larsen. Brad owns one of the fastest-growing property management companies in San Antonio, Texas. This podcast is for property managers By property managers, you'll hear from industry-leading professionals on best practices, new ideas, success stories, and lessons learned. This is your opportunity to learn about the latest industry buzz surrounding property management, as well as tips and strategies to improve your business.
ADVERT: Pasture, a pest control amenity for your resident benefits program. Starting at just $5 per door, you can give your residents the pest control coverage they need. Pest share will even pay for the expensive infestations like bedbugs and cockroaches, and the debate over who pays for pest control while Pest Share turns an expense into added revenue. For more information, check out their website at pestshare.com/propertymanagers.
ANNCR: As a property manager, it's important for your business and your bottom line to work with the right insurance partner. But getting the right coverage for all parties involved isn't always easy. That's where Steadily.com comes in. Steadily. Is the industry leader in landlord insurance, offering fast, affordable coverage online in just a few clicks. Steadily works with property managers nationwide to ensure their portfolios of managed properties and provides guaranteed listing as additional insured with easy online visibility into property insurance coverages with top of market referral fees Steadily also helps you drive extra revenue per door while bringing tremendous value to your clients. That's why property managers nationwide rate Steadily 4.8 out of five stars. Find out how Steadily can save you time and help you earn extra revenue. To get started, visit steadily.com/partners/pmm or email us at Partners@Steadily.com and mention that you heard us on the PM podcast.
BRAD: Welcome, everybody, to another edition of the Property Management Mastermind podcast. I'm your host, Brad Larsen, and today's guest; I have a very distinguished guest out of Australia. Miss Tarsi she's going to jump on, and she's going to be talking to us about rent valuations and the service that she provides. It's like a spot check, a health check for management companies, and there's a lot of good conversation pieces we're going to throw out here. Fascinating to hear what the Australian market is doing because it does relate to the US market, and I just think it's going to be a good conversation. So in the pre-show, she's got lots of energy. You're really going to like her. So without further ado, I want to introduce Miss Tarsi and give us a few minutes of your time and tell us who you are.
TARSI: Hi. Thank you for having me on the show. I really appreciate it. So my name is Tarsi, and I am the director of the Tarsi Way. I have been specializing in real estate business valuations for over 18 years, but I've been part of the business brokerage transaction space for 25 years. Through that, I've also owned my own real estate agency up in North Queensland, and so I've done I've learned roles from this to statistical analytical. I've run them, I've earned them, I have seen the good, the bad, and the ugly. And through that, I've created every I've evolved, every one of my services to specialize and assist business owners in running an affluent and efficient business.
BRAD: Now, the service that really got me intrigued was your health check service. Now I might have butchered that name, and that's why I reached out to you on the Facebook, because I saw that I'm like, Oh, this would be a really cool conversation because we as as what you do, I thought was really interesting. I only know maybe half of it, but I want you to kind of tell us in full what that entails and how that works even for an American property management company. So how does that work?
TARSI: So, with property management, we have so much legislation that we have to adhere to. It's not just real estate legislation or tenancy legislation. We have building legislation, smoke alarm legislation. There is just so much built around property management. And as a property manager, we have to tick so many boxes, and boxes get missed, and that puts us at risk within the business. You know, we could we could be sued. I mean, I don't in in Australia; we're one of the most sued industries. It's just an easy target, basically. So for us to have all of our ducks in a row is really important, and a lot gets missed because property managers or business owners are just time-poor and because their time for things get done incorrectly, or that we're not utilizing software correctly, we're not utilizing the people around us correctly, and that leaves us open to litigation basically. So my job is to come in and find the problems and the discrepancies and go, Hey guys. Here's what's going on in your rent roll. Here's what you need to look at. So a lot of areas that I find bonds aren't being correctly, correctly collected.
TARSI: We've got inspections that aren't being done because, again, proper property managers are time-poor and things get missed. So if one thing is not done so you don't close off an inspection in the in the software, it won't trigger the next inspection. Well, that's just a human error, but it happens all the time. And if you're not inspecting that property, say something goes wrong, the tenant moves out, you know, and they've got holes in the walls, and you don't have those inspection reports, and you're not, you're not seeing it. Well, then, it's on you. It's on you as a property manager that you haven't done your job properly. So my job is to protect my clients and make sure they're not paying thousands of dollars out. That's the last thing we kind of want to do. And then you've got disgruntled owners. So if things aren't being done, if you're not correctly completing your management agreements. And the owner gets really disgruntled, and they want to go you for something. They can find loopholes anywhere. So it's one of those where it's like, I'm making sure that you guys are safe.
BRAD: That's correct me if I'm wrong. You're taking a sample of, I think it's 18 files, and you're doing a full-blown analysis on those 18 files. Now, I've already told you we're going to we're going to hire you at RentWerx, right? So it's going to happen because I think the service is needed. And here's why. Specifically, just one example of rent works. So I know I've talked about this story before, Maybe, maybe not, but we had a leasing coordinator, and when they execute a lease agreement, you're supposed to add the fees that go with it, and that can be a leasing fee, that could be a risk mitigation fee, that could be any of those fees that you get arrested for in Australia. We charge on a daily basis here in the US, but she had not placed those fees to be charged, meaning that we were missing out on thousands of dollars, and it happened over roughly two months. So I think we found 60 transactions where that fee had not been charged. And so it literally was five figures that was never charged to those particular owners. Now, we caught it, and we went back, and we charged it, and the owners were ticked off. But, you know, we want to catch those. So this service, from what I'm hearing, is you come in, and you take 18 samples of files, and you're going to check from 360-degree degrees the entire lifecycle of that file to see if all those charges are being hit if all the lease agreements are initialed if all the lease agreements are signed. I mean, you probably everything that you can think of and write a checklist; you're going to do that on behalf of that company, is that correct?
TARSI: Correct. And anything that you can't think of, that's where I've already got the procedure to do it. I can say that we did a it wasn't a health check. I did a full due diligence on a company, and I found over 19% of additional income that they were missing out on 90% like it was. It was insane. And because we were able to then start collecting all these fees, obviously their bottom line got better, but also their goodwill, their sale price was was much better because they were able to achieve a top dollar, a top multiplier. So it's one of those where, you know, if you're not utilizing the software correctly and you're not matching what's going on in the management agreements. And that's part of my role. My role is to make sure that those fees are being charged.
BRAD: Myra. I love it because.
TARSI: It's in there.
BRAD: That's a big deal because the owner fees can be missed just the same as the tenant fees. So, for example, you're checking on a management agreement, and let's say someone's getting charged X percent. Well, they're not being charged X percent. They're being charged something significantly lower or significantly higher. You can catch that and correct it. Now, I'm a firm believer in outside parties taking a look at our management agreements, excuse me, at our management process, especially the accounting side. So I think that's a fantastic service for us. Like we use a third-party CPA to engage with profit coaches, which is a third party, and we have them come in and take a look at our business on the accounting side, and we have that. We also have two in-house accounting coordinators, so it's not like we're missing the accounting piece. We have the outside sources that come in and actually take a look at what we're doing to make sure we're doing it correctly because we do miss things now. And again, we can make improvements here and again. And so I think that's a really good scenario. So what are some of the things that you often catch that is just like the most blatant? You should have been doing this from the very beginning, like what is what calls it causes our task to lose sleep at night because people aren't doing it.
TARSI: It's a really simple one, but entering in the management fee incorrectly into the software and all of a sudden you're losing out in, you know, I mean, here we, the majority of hours are done on a percentage basis, like it's a management fee of a percentage basis. But, you know, 1% is a lot of money. Long term, that's a lot. You could be losing hundreds. And if you're doing that throughout the whole rent roll, well, you're losing thousands, and then if you're not charging. So charging fees is definitely a big space where a lot of people are losing money because they're not actually overseeing it. Because to go back and and match what's going on in your software to to every single management that's time-consuming, who's who's got the time to kind of do it. But it's something that goes wrong all the time.
BRAD: Another thing I think you're going to really excel at here in the States as you really start to kick off the service and get really good at what you're doing is the form compliance. So, for example, in the state of Texas, we have these two new forms that have come up out of nowhere. One's like a flood addendum form, which to me, is hokey and worthless, but we're supposed to have that in every single file. Another one could be the lead-based paint addendum form, and a lot of lot of states have that to where it's mandated. Now it's a federal form, so it is mandated throughout all the states. But if you have a property that was built in 1980 and they have the form or they don't have the form, I mean, there's some debates there and the merits of it, but that's just a small example of what you're going to see as you start to develop more of a checklist here in the States. And I think it's a great service. I think everybody should have this spot check, and I think it's worth it because health check has been around for a long time.
BRAD: You and I were talking preshow about Bob Walters. So Bob Walters is one of those guys that used to do these health checks. And he's been on the show several times. He helped us with the management conference. He's one of my mentors. In fact, a side story for you to see, not to derail your thoughts, but if you can see behind me, you see this dump truck, right? So the Bob Walters dump truck is behind me, and it's actually a Leggo dump truck that my son and I built together. But Bob used to say that you've got to be ready for a dump truck to back up to your office and unload 100 new contracts on your front door at any minute. And I took that to heart as I started to develop our business and grow up into this space. And I've always felt that was important because your business has to be ready for a big client to walk in and say, Here you go, here's 100 new management agreements, go. And if you're not ready, you need to get ready.
TARSI: Well, that's about building the foundation of the business. And what I say to my clients is, you should be so ready. Not even just about accepting business. You should be sell ready at any point in time. From the minute you start the business, the foundation of your business should be set. And from there, that's where you grow. So when you're especially if you're about to purchase another role. So let's say you're you're a business; you want to buy business because you're going to grow your rent right through through a transaction. If your foundation isn't solid and you don't know that you're doing everything well in your own business, how are you going to know that business BE is doing everything well in their business. So it's about having solid foundations in both and then being completely sell-ready. So yes, if you get 100 contracts, jump in tomorrow. You're confident that, yeah, I can take that on because I've got everything covered. I know that I'm collecting all of my fees. I know I'm doing all of my routine inspections. I know I'm all my maintenance is on board. You know, I'm constantly going through my maintenance, and it's reducing all the time because it's always going to increase because we've always got stuff going on, but at least we're closing things off. And I know that I'm I'm compliant in I don't know. Do you guys have pull-pull legislation where you have to have fences around pools, and it needs to be checked every couple of years? Like is that something that you guys do as well?
BRAD: Yeah, and there's kind of in between the lines. But yes, there is typically insurance requirements for that. So to have a home with an in-ground pool to meet the insurance requirement, you have to have an enclosed right. I mean, just so you know, some three-year-old can't walk in and trip and drown.
TARSI: So we there are so many agencies that I go into and do health checks or full due diligence. And I can tell you now that that gets missed quite often. And it's just because property managers are doing so many different roles. Sometimes they've actually done the maintenance, like the jobs out there, like I need you to go and inspect it. And it still hasn't been done, but it hasn't been chased up. So there's that that we catch. So it is about building the foundation of your business so that you can grow because everyone wants. The majority of us want growth. And let's face.
BRAD: Now, you were. You are trying to segway this into business valuations. A minute ago, I caught you trying to go that direction because we. Yeah, because we're actually going to go there. Now, I really want to talk about the business valuation side of what you do because we're fascinated with that here in the States. And we are just everyone wants to know what is the multiple, what's the ratio for how to evaluate a management company. We've seen everything from 1 to 1 x one and one half X revenue to 4 to 5 x profit to X dollars per door, right? Right. Thousand to 10,000 per unit. I mean, there's all kinds of methods of valuation and it really kind of comes down to the two worst words I hate, and pricing is it depends. Right. I hate that because we all want to know exactly what it's going to be priced at. So I want to hear, I mean, I kind of know where your answer is, but I want to hear you talk about the valuations of what you're seeing in Australia now for management companies.
TARSI: Okay. So with valuations, it is it it does depend. So I'm just I'm just going to put that out.
BRAD: I know, I know. I know. I didn't expect a concrete answer, but it is a squishy answer.
TARSI: Go ahead. It does depend, but it depends on multiple factors. It's not just one. When when we talk in Australia, we determine our our goodwill value over our multiplier on the management fee income. So it's on the management fee collected. Of course, we take into consideration in my valuations, I will take into consideration all of the income streams that are earned through that portfolio. What happens, though, that additional income stream assists the multiplier in going up or down. So better or worse, right? So the more you're, the more you're collecting. So let's just say you have business A, and they're getting all of their fees and charges, and they're collecting everything. But you've got business fee, and they're only collecting, say, a management fee, a letting fee, and an admin fee. But you've got this guy over here collecting a fourth page of fees and charges, which I used to do in my agency. Which one do you prefer? Like this one will have a higher multiplier versus this one here. And there's also it determines, you know, you've got to look at the location of the agency. I actually have a book. I've actually created a book. Nine Factors that Affect the Value of Your role, which I'm happy to send out. If anyone wants a copy of it, you can get a copy of it, you can download it, and then that way you've got that as well because these are these are the imperil factors that actually affect the value of the role when it comes to sale. So here in Australia, we determine everything on a multiplier based on management fee income. Here in Queensland, the multipliers depending on where you are in the state, depending on if you're rural because obviously we're quite spread here. So here on the Gold Coast, you can collect a multiplier anywhere from about a 2.8 to a 3.25.
BRAD: What? Oh, my God. Are you kidding me? I'm moving to Australia.
TARSI: I'm saying it's so dependent on so many factors, but my job is to go through and determine the statistics of your portfolio. Number one. Number two, I need to look at all the income streams that you're generating from that portfolio, and I need to do a bunch of checks and balances to make sure that that what I'm determining through your statistics is true and correct because I can say that I've done valuations where I've gone through, and I found 60 managements that were on the portfolio but weren't actually managed and the business owner had no idea. But the checks and balances find everything right. So that's, that's the cool part about what I do. I get to I get to do that. So I'll go through, find out, make sure everything matches, and then from there, I'll go through and do the accounting methodology, which is a super profit. And I have a look at how the portfolio on a standalone basis what the expenses would be to manage that portfolio. I'll go through your staff. I make sure that you will have conversations around your staff because sometimes you might be too staff heavy, and then it's all why you do staff heavy. What are your processes and procedures? And we can go into the business side of things where we get to have a look at that structure, and then I come out and determine the yield. So what your return on investment is going to actually be?
ANNCR: Solve your communication problems and save an hour a day every day with CompanyCam. CompanyCam is a visual first job site communication app that allows you to have all of your properties right in your pocket. CompanyCam automatically organizes unlimited property photos by date, time, and location, while easily creating and sending reports to renters and owners to save time and money. Keep vendors and clients up to date on property projects from start to finish with live project timelines, every project, photo, video, and conversation all within one app, CompanyCam visit CompanyCam.com and make your life easier today.
BRAD: But you're doing the valuations, and you're actually doing the escrow to close these two transactions, am I correct?
TARSI: Yeah, Correct. So I'll bring them all together, make sure that everything's online, make sure that the multipliers being paid is correct in line with what market is because I'll go through transactions and sales to make sure that those what I've determined statistically is what's kind of correct in the marketplace to make sure that the multiplier matches what's currently going on in the market. Because at the moment in Australia, our market's going up, our rent roll market is going up. We have so many buyers in the marketplace who have cashed up, they're ready to buy, and we don't have enough sellers. So what's happened is we've come through a buoyant sales market. All of a sudden, sales are slowing. Now everyone wants to buy a rent roll. Well, there's not enough at the moment to go through. So our multipliers are now increasing. Again, it always changes as a cycle that it goes through. That's in my book as well. And you can you can have a read of that, the actual cycle of a row. But we're at the moment just here on the Gold Coast specifically, we're going through a 2.8 multiplier to a 3.25, depending on where it is. In Brisbane, I've seen rent rolls transact at 3.4. Not saying anyone in Brisbane is going to get that, obviously, but because I always make it sure that, like I always hear, but that guy got three, so mine's worth three. No, it's not. But come show me. Show me your numbers, and I'll tell you what it's worth. You know, it's one of those. So that's.
BRAD: These are the numbers are more where you are. Let's be real, frank. But I'm going to say it's not that much more because let's say we get one, two, one and a half times revenue, but we can charge tenant fees, we can charge owner fees, we can have maintenance fees, we have vendor fees, we have all these other things coming in. Our management fees roughly, are 50 to 60% of your revenue for a well-run company here in the state. So the extra 40 to 50% of their revenue for every dollar they make are ancillaries from tenants or owners or whomever. And so it's a different market, but they're similar in that regard. Now, you guys, this is really different in the Australian market. Seven out of ten investors use a management company, Correct? Here, only three out of ten use a management company. In your culture, you're at a cocktail party, and you have ten investors standing around, and they look at the investors self-managing like there's something growing out of their forehead, like their what is wrong with you? You know, why would you not use a property manager because of all the regulations and stuff? You've got to go through the headaches, etc. And here, there's a little bit of a subculture to where they all want to self-manage. You're right, but they don't get the value of having a management company. So they go they can go out and find their next property to buy. They would rather manage toilets and do that on a low scale. It's weird, but I.
TARSI: Just I.
BRAD: Just I.
TARSI: Can't comprehend that because seriously, I know I've got time to do that crap. Like, don't you want to get on with your life?
BRAD: Exactly. That's the exact attitude that people in Australia have about management companies is why would you not hire a management company? Well, and your reaction says everything.
TARSI: It's a professional, and as a professional, you have professional development that you have to do. You're constantly having to keep up with legislation. And let's face it, legislation changes all the time. I mean, you just said they've implemented two new forms. Well, having to know that constantly. The property manager, knowing that, can inform the owner of, Hey, we've got these new forms, we've got, we've got to do this, we need X, Y, Z from you guys. Why would you not want that? That's something that is so valuable to an investor to allow them the opportunity. Because because we exchange current currency at the moment is time, right? So we exchange that. I exchange for money. That's, that's what we do. So to to teach landlords that you know, you're getting your time back where it's time that you can go and spend with your kids while we fix the toilet. We have to know that the tradespeople that that they've got that insurance, that they're actually tradespeople, you know, that they've got their license. There's there's so much more that goes in the background of property management that people actually realize that you need to do instead of going in and self-managing. So at the moment, I'm not too sure what it's like in America, but here in Australia, especially for right now, we now have to have tradespeople that are fully licensed. You as a you, as an owner, can no longer go to a property to fix a toilet. You have to be a qualified tradesperson. You have to have a license to be able to do that. So our landscape is completely changing. I love that rule. Like, I really love that rule. You should be licensed. It should be a tradesperson going out. It shouldn't be the owner because the dodgy things that happen because the owner just bandaids it instead of fixing it happens all the time and leaves the agency open to so much risk.
BRAD: Now, you mentioned earlier, too, that how much of a seller's market is turning into for management rent roles, and that's very much true here in the States as well because part of what we have developed here at the property management mastermind is we started the property manager broker, which was a brokerage services for rent roles, So for management companies, but be very frank, it didn't go very well as far as being being taking off into the world because a lot of property management company owners if they want to sell like I said in the pre-show, it's a Facebook post away. They'll get ten offers in a minute. We've seen it happen where they go into the mastermind group. You know, we have 11,000 members in there. Hey, I'm interested in selling my rent roll, and you name the obscure town in whatever state there is. And people from everywhere, every part of the country, is paying them. I'll buy it, I'll buy it, I'll buy it, I'll buy it. So it's the valuation is going to come down to basically what it's worth to them. Now, here's one of the big variable.
TARSI: That people buy something like that. So they're not using a brick; they're not using a brokerage service. They're not using a valuation service to determine the multiplier or the goodwill value of that portfolio. I feel they're missing out on more money. They are missing out on sale price. That's just that's absurd to me because when you utilize a broker or a valuer to come in and value, you've got a document or the broker who can then negotiate on your behalf to get you a higher multiplier like that's that's their job. Their job is to do that. Whereas when you're negotiating one on one, you're both. I don't mean to be rude, but you're both salespeople, and it's like it's your baby; that's your investment. You wouldn't go sell your own home. Like, that's just insane.
BRAD: Yeah, that's what we thought when we developed this brokerage myself, and we've had a couple of partners that have stepped in, and that's been pretty well received as far as the valuations, we did get a little bit of traction, but it's kind of faltered since then, and naturally I haven't been pushing it too much because, you know, when people just want to go do it themselves, they don't want to hire a broker. They just you can't get in the middle of that transaction. So I fully agree with you. I would not sell my own home. And so I would never sell my own brokerage. I think that somebody needs to hire anybody who's more familiar with the property management world. And, you know, here's another thing is you hire a regular off-the-street business broker, you spend half your time educating them on what property management is.
BRAD: And they have.
TARSI: They have a.
BRAD: Real, they have no idea what the valuations are.
TARSI: Yeah, I, I'm really passionate about this space only because I get to be part of transactions all the time. I consult in the back end. If business A is buying business B, I can do it from valuation through to due diligence, through coming in and making sure that the settlement goes really, really well and being part of that and doing the pre-settlement audits and the after settlement audits and then and assisting with the communication. But I'm so passionate about that space because I've seen it go so wrong, but I've seen it go right if everything's done correctly. So when you're utilizing it, if you want to do the transaction business to business, you still have to have somebody involved, whether it's like, you know, well, you don't have to. I'm just saying it's preferred that you know, you get someone who can do a sales documentation or a sales proposal for you. I do that for my clients here. If they don't want to utilize a broker because I do have a buyer's agency service. So, in other words, a business owner is extremely time-poor. They can't find a role. I can go and find them a rent roll. So I do have that service as well. I don't advertise it, but it's available if it's needed. But I will also help because I deal with so many business owners. If they go on to say, Look, we've been approached by Business B, and they want to buy our rent role. Can you do like can you give us an opinion? I'll go through and do the sales documentation for them because I've actually had a client, and this is very recent, like a month ago, and the buyer was saying that they're earning annualized management fees per property.
TARSI: I've only 1200 dollars or 1250 dollars, and they're like, Tassie just doesn't sound right. And I'm like, Look, let me do the analysis. Let me do a sales proposal for you. So I put that together. They were actually earning 1350 dollars per property per annum. That's $100 extra per property per annum that that multiplier was going to be attached to. That's thousands and thousands of dollars. Like it's when you when you're talking money. We all want to make money. We're all in the business to make money. You know, we're not a charity, but charities still make money. So it's one of those things where you've got to think outside the square of how do I do this? How do I make more money while I'm running my business? Well, I build a strong foundation. How do I build more wealth while I've got my strong foundation? Well, then I go and implement better fees and better fees and structures. You know, there's great BDSM coaches out there. I mean, we both spoke about Dennis and Darren. You know, they're out there doing their thing, and they're great medium coaches. So you've got you've got people who can help you build your rent role, but it is one of those, well, where's the space of I'm going to buy a rent? Well, what happens in that transaction if your auditing business B but you own business A? How do you know what you're doing is right? How do you know what they're doing is right? That's where that's where the professionals come in. That's. That's the space where you go all Hang on. Somebody else needs to look at this because I need eyes over it. And that's not my role.
BRAD: We always kind of lag behind Australia. You guys have always been the tip of the spear, the innovators, as far as this industry. And here's another couple of examples to solidify this point. As you mentioned, business development. Well, the business development coaching thing really didn't happen in the States until after Darren Hunter was killing it and over there in Australia and creating that whole business and creating a small little industry inside of a niche industry. And so he's done that. And then there's been several players here in the States that have followed behind that. Same with Darren as well, Darren and Dennis. Darren creating the fee structure. So maximize your fees. Well, there's been a couple management companies, a couple of management company industry players that have come in and created programs like Todd Orchard created his PM assist program teaching people how to charge fees. Now it's a lot longer than Darren's because Darren had, let's say, 100 fees, right? Which is funny. I was cleaning out my garage the other day. This was eight years, ten years ago. I found a clipboard, and it had Darren Hunter's 100 best fees for management companies. I mean, just the concept of them still hold true today. It's just a matter of how you apply them. All right. Going back, just a step. Bear with me. My mind kind of goes ten different directions sometimes. I want you to talk about hold backs. So in the design of a management transaction where you're purchasing another management company, we typically do an asset sale. So we're buying the cars, not the dealership if that makes sense. So we relate that to a property management company. We're buying the contracts, not the LLC or S Corp or corporation or anything like that. We're not. We're just buying the contracts. So talk to me about a typical or what you've seen as far as a hold-back scenario inside these management transactions.
TARSI: Okay. So we call it a retention period here in Australia, So I'll use the same terminology if that's okay. So in the retention period, the standard, the industry standard is for 90 days, 20% of the sale price will be held in the seller's in the in the seller's trust account. And at the end of those 90 days, basically, you have to as the buyer, you have to provide proof that the landlords who have left you or over that period of time they left because they've chosen to leave, not because you mismanage the property or you get an increased fees. And that's why they've decided to leave over that period of time. So you need to prove that that landlord has left on good on good terms, basically because they decided that they didn't want to; they just don't want to be with you, or they've sold the property. So over that, 90 days is an adjustment. So that 20% that is held in trust is for the adjustment. So anything that has. So the buyer will get back money for anything that they've lost over that period of time. And the seller will get the balance. But the whole back period. I mean, it's, again, dependent on a few factors. So say you've got multiple landlords within your portfolio, you might have a different retention period over that one, that one landlord. So say the landlord owns like 50 properties. I'm just going to use that. Actually, let's use one that was 40 properties. Because this actually happens. So I'm going to give you a scare thing at the moment. But it actually happened and. You need to know what can happen. So they had 40 properties in one of the in one of the transactions.
TARSI: There was a 12-month retention period on that on that landlord. Right. So they can go up to that which it's fair. I think that's fair. But the landlord left just after 12 months, so they still like it's, so there's no when when we talk retention there's no guarantee that it's going to. You just have to be willing to take that risk. But it does that's that's the worst-case scenario. But it has happened. So when there is a multiple landlord, you definitely want to have a higher a longer retention period over that one landlord because if that landlord leaves, you know, you kind of want to recover your money. However, after five months, there was no way of recovering that money. That was a worst-case scenario. But I had transactions where it can go like six months for 180 days, 20% held in trust. And that's just to build. It really is up to you once you buy the rent roll, though, to build that relationship with your landlords. And that's what I, I really, really with my clients. I'm like, you need to constantly be in contact. You need to be sending out your emails. You need to be picking up the phone, making sure they're okay, you know, do surveys. How are you finding your property manager at the moment? Is there anything we can help you with? Give me a phone call if you need to. You're still the owner of the business. The onus is on you to make sure that that relationship gets built not just with your property management team but with you as well. Because if your property manager leaves tomorrow, they're staying with you. That's what you want.
BRAD: That last unwrapped there. I think the 20% is spot on. That's roughly what I would see here in the States. As you take 20% of that that potential roll and you create an escrow account with a closing company, it could be a title company, it could be an attorney. And then you put that off to the side. So if you're paying cash, you take 20%, put it off the side somehow. Now, smartly, you should equate that every unit inside of that 20% equate that to a dollar amount. So there is no fuzziness. Yeah. So if it's 1000 bucks a unit or 10,000 bucks a unit, you need to equate that to a dollar amount and the potential number of units. Now some cap those because, let's say, it's more than 20%. Well, okay. Does that mean the the seller is going to owe back money? Right. There's. Well, my point being is that could be, I mean, deals are structured however you want to structure them, I mean, between the buyer and the seller. But I would say no because, a lot of times, the seller has no they have no control over what the buyer is doing with those management contracts. They could be force-feeding those owners to sign their agreement or else. And that's another fun factor is a lot of times, the management contracts do not convey legally like because they might have a closet. I'm like the Texas; the standard Texas management agreement does not convey without all parties permission. Well, our all parties is the owner. And so now you have to go to the owner and say the management company that you've loved for years and years is retiring, and we're taking over by force, and it just doesn't work like that.
TARSI: I, I love that because I do try and encourage my clients to get. So here in Queensland, we automatically can assign our form sixes over, which is our management agreement in the form six format to, to the buyer. But it takes away that relationship, you know, that conversation and the the onus on a seller like you want to be part of that transaction. It shouldn't just be like, Oh my God, too hard. I'm going to, like, that's it. It's horrible. It's one of those where you go, okay, I'm going to I'm going to help this relationship be built because that's why it was your client for so long, and all of a sudden, oh, my gosh, they're leaving. Well, there should be a conversation. Hey, I've decided to retire, or I've decided to focus on sales. It's better that you're going to go with business. Be They're fantastic. You know, they've got a really great property management department. You're already building the rapport, right? And then you're handing them over. They sign up. Can you please just sign this agreement? They're going to look after you from from this date onwards, and you have that none of your fees and charges are changing like it's all going across the same. So there's those conversations that get to be had, and that's building that's the handshake between buyer and seller. And there's nothing wrong. I think it's so special like it's a special time to to create that for your to create the the first initial step and meeting to that new relationship. So I actually really like I like the fact that you have to get new management agreements done. I think I think it's great.
BRAD: Yeah, that's a fun conversation because you don't want to go force those particular owners to sign here or else. And so sometimes you might be running a little loosey-goosey in a gray area to where you may not have a updated management agreement until a certain point in time where you just tell all the owners of, say, look, the seller is gone, they're retired, they're on a beach, we got to get this new agreement just to make sure we're all shored up with with our legal paperwork—so having said all that, I want to switch gears a little bit. I want to talk to you about the Property Management Mastermind conference. Okay. So that's going on in the end of March 20, 23 in Nashville, Tennessee. I think you should come be a part of that as a vendor to talk about your spot check and your health check systems. Now, here's a fun presentation I'm putting on that goes right back to the conversation. So I'm putting on a presentation main stage. It is titled Build your Company to Sell but Never Sell. And so you talked about this earlier. You should always be ready to sell. So I'm going to go in there and make the case this is what you got to do to get ready to sell. One, two, three, ten, 20, like all these different bullet points. And here's why you should never sell. And so I'm trying to make the case to where, you know, people are going to make up their own minds.
BRAD: Right. But if you position a property management company correctly, you may never have to sell it. It could be a legacy you can pass on to your heirs, and it can run itself and produce a lot of income for you. At the same time, you just got to set it up correctly. Step A is one, setting it up correctly. Just sell right because there's nothing that's going to make you become a better presenter is if something if you have to teach it, and there's nothing that's going to make you a better seller is if you have to prepare to sell tomorrow. So that is number one lesson learned, and lesson B A step B is going to be okay. Why you should never sell, Set it up to where it's going to run itself correctly, Put good people in place, have good procedures. They have good systems. Now the. Players that are going to be there, they're all going to hate me, but it's really not a presentation to where I'm encouraging everybody to never sell. I'm putting both sides of the fence on people, and they're going to make their own decisions because I think if people prep their business to sell and they have a life change, they're going to need to sell and they've got to be ready to go. So I think it's a good presentation to get people ready to make that change.
TARSI: Well, I think you should always be ready, full stop. Like if you if you've positioned your business like that from day one, you don't have to then sell. But if you get sick and you have to sell tomorrow, it is ready to go. And I can say I have been part of those transactions. They're really sad because I always feel that empathy for people. So I will feel that for them. But it's they're the ones that are so messy because they've never thought of selling. They've been in business for 50 years, haven't considered selling. You know, they're running their business, and then all of a sudden, they get sick, and they've got to sell tomorrow. And it's it's not ready to be sold.
BRAD: So it's very important to you.
TARSI: So prepare for the worst. Expect the best. Right. Like that's how life should actually be live. You know you prepare for the worst. You expect the best.
BRAD: But exactly.
TARSI: So prepared your plans, your you're ready to rock. Maybe you'll never need it.
BRAD: So here's what I want you to do. Get your contract ready for RentWerx. We're going to engage with you to do our health check. Right now, I want you to tell all of the rest of my American peers how to reach you.
TARSI: Okay. So you can reach me at email@example.com or reach me at firstname.lastname@example.org either email is completely fine. And then from there what I can do is I'll send you through some information. I can send you our flyer, I can shoot. You can also download the book because it will have it on the bottom of my email. You'll be able to download the the nine factors that affect the value of the of the role. So you'll be able to get that, have a read of it. And if you want to engage me in the due diligence health check, then we can work together in that area as well.
BRAD: thetarsiway.com, tarsi with an I
BRAD: Got it. So t-h-e-t-a-r-s-i-way.com
TARSI: That's it.
BRAD: Perfect. Now tell me how much it's going to cost.
TARSI: Okay, so it's I'll tell you, in American dollars, it's a roughly about 700 American dollars. In the USA market. It's 997 in Australia. But obviously, you guys get it cheaper because your dollar is better.
BRAD: Yeah. Or you know, or your dollar is better depending on how you look at it. But I think that's very affordable. I think it's very wise to do that. In fact, I think it's something that we should do every year because I'm telling you, gang, I could I can go time and again an example of things that were missed that could be caught in this format, implemented back and back, charged, and you'll make the money back from what he's going to spend and doing the check for you. So I think that's well worth it. And I definitely think you should come to the mastermind conference, put up a booth and tell people more about what you're doing because I extremely see the value in this. As mentioned, we're going to engage with you on networks. I think you've got to tell the rest of the world; you've got to get that face-to-face time. So if you can make it, if you can escape prison in Australia, and you can make it to the states, do it while you can before they lock it down again.
TARSI: Well, they've opened everything up, so we should be right to make it. That'll be fantastic. Thank you.
BRAD: So much. Awesome. Thanks for coming on the show. It's been a real pleasure talking with you, and I can't wait to meet you in person soon and we're definitely going to use you at RentWerx. I think that's going to be a fantastic service.
TARSI: Thank you so much for having me on the show, Brad. I'm looking forward to working with you.
ANNCR: Need a repair at 2 a.m.? EZ does it EZ repair, coordinates, maintenance and nothing else and takes after our maintenance calls for property managers working with your property management software so you can see exactly what EZ is doing without leaving your own software. From Las Vegas, Nevada, our full-time maintenance coordinators will dispatch your work orders directly with your vendors. Give us a call at 800 4886032 or visit our website EZRepairHotlineLLC.com.
This has been a podcast episode by propertymanagementmastermind.com .Be sure to subscribe to our podcast, leave us feedback and come back for our next episode.