Creating Standard Operating Procedures For Your Business

Ready to be a serious rental property business owner?

This episode is all about creating Standard Operating Procedures.  What are those?

That’s your Operations Manual, you know, the written procedures of what you do for every task to manage your rental properties.

Why do you need them?  Give this episode a listen where we give you plenty of solid reasons as to why these are of utmost importance.

We cannot stress enough what being an organized, forward-thinking entrepreneur will do to take your investment portfolio to the next level.

No matter where you are in your rental property journey, THIS episode might be the most important one you ever listen to.

LINKS:

Book: The E-Myth Revisited; Why Most Small Businesses Don’t Work and What To Do About It.

E-Myth \ 'e-,'mith\ n 1: the entrepreneurial myth: the myth that most people who start small businesses are entrepreneurs 2: the fatal assumption that an individual who understands the technical work of a business can successfully run a business that does that technical work

Our Blog: Make It A Family Affair; How Landlords Can Employ Their Children for Tax Breaks, has a pretty solid list of all the items you should consider including when you implement this manual.  

FREE Download: Your Landlord Resource, Landlord Verification Form

Our Landlord Verification Form is perfect to use when inquiring with previous landlords during applicant background checks. 

This PDF form can be emailed directly to the previous landlord or used as a guide when calling the landlord directly.

We have left room at the top for personalization. Just add your business logo and name!

This form will help landlords:

·         Learn exactly what's needed to know about the applicant's behavior with the previous landlord(s).

·         Streamline your background check process to be more efficient and consistent.

·         Look professional in your landlord business.

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Transcript

Stacie: 0:00

Orchestration allows you the time to work on scaling and improving your business rather than wasting time and mental energy trying to remember what you need to do for a particular task, or if you have employees having to tell them what they need to do. Having standard operating procedures allows you to work on your business instead of working in your business.

Kevin: 1:17

hey landlords, welcome to episode six. This is Kevin. I am here with my co-host and wife, Stacy, and today we'll be discussing creating standard operating procedures for your business.

Stacie: 1:29

This is a fun one. So this episode is one that defines the mindset for a successful landlord. We believe that operating a rental property business, whether it's done alongside your nine to five or if it's your full-time gig, should be done in a professional and systematic manner. Small business, generally operate every aspect of their business by themselves, and doing so without a repeatable and systemized. But small businesses can learn from those bigger businesses who already have systems in place. You see, as you scale and you add properties to your portfolio, you will need certain systems in place to avoid stress and overwhelm. By planning for how you or your employee or maybe your future property manager are to handle events that occur within the business, you can feel confident that you are prepared for most anything that is thrown at you or your. And what this preparation of a streamlined and smoothly operated business model creates is a calm, confident mindset. Think about it. When you visit a national fast food chain restaurant, you are witnessing systems that were tried and worked, then implemented over and over every time a franchise owner. They are handed a standard operating procedure guide to follow and grow their business.

Kevin: 2:51

That's exactly right. Think about it. When you go by either a Taco Bell, maybe a McDonald's, they're set up the exact same way for every restaurant. Yep. Now they look the same When you drive by, so you recognize it, you order from the same menu that shows consistency, and you go there because it's easy as a customer. You don't have a big decision to make about what you will be eating. It's simplified and the price is inexpensive. So you know what to expect. I

Stacie: 3:19

want fries now.

Kevin: 3:22

So think about this from the business owner's perspective. They know exactly how much ground beef they need how many napkins to order because of sales. Now employees also know how to operate the fryer, how much salt to put in the fries. The machines even know how to add the same amount of ice to every soda. And the opening and closing procedures can be completed by most employees because there are systems in place for every single task the employees and managers make during the day. That's why I believe it's 95% of franchise businesses succeed and 20% of small businesses fail within the first two years, and that number jumps up to 65% within 10 years. That's a lot.

Stacie: 4:09

let's put this in perspective of a rental property owner. Think of the tasks that you complete for your. You have a way of doing things that work best for you and for the properties you own. And is there someone else out there who knows how to do the tasks that you do day in and day out? Life happens. Accidents and illnesses can take a person out for long periods of time, much like a will or a living trust you create to designate what others are to do with your assets. If you pass away. Standard operating procedures are those for your business. What would you do if you got into a debilitating accident and were no longer able to run your properties? Would your spouse or your child be able to step in and handle the operations on your behalf? Standard operating procedures is your handbook or your operation manual. That's your step-by-step and how to guide that describes how you or someone else should be completing tasks associated with your business. Now, according to Michael Gerber, who wrote the E Myth Revisited, Building the prototype of your business is a continuous process. Its foundation is three distinct, yet thoroughly integrated activities through which your business can pursue its natural evolution. They are innovation, quantification, and orchestration, and this is a great book for anyone who is starting out as an entrepreneur and creating a small. We'll put a link in the show notes to it. It was a good read.

Kevin: 5:34

It really was. So let's break those down a little bit now. Okay. Innovation that would be anything you see others doing that would work well in your business and then implementing them When something isn't working as well as you'd like the natural question to ask, how can I do this better? It's the reason you listen to this podcast, to read our blogs. Hopefully. You might learn one thing that can help run your rental properties better or easier. It can be things like verbiage and a lease someone else shares with you that can help clarify something between you and your tenant. For example, you talk to a friend who was also a landlord, and you express how frustrated you are because your tenant is always paying the rent late. They pay your$25 late fee, but you rarely receive the rent before the 20th of the month. Your friend suggests changing your late fee procedure and shares what they have written in their lease. Instead of a flat fee, they might suggest giving the tenant a three day grace period, and then beginning on the fourth day, they will start to accumulate a$10 late fee per day. This process is clearly defined and while it does not guarantee the rent will be received on time, I believe it'll definitely deter the tenant from being late as often. When you add this to your next lease, you have now added an innovation to your process. This is why we really push landlords to go to local real estate investor meetups, join online groups or associations. You get a lot of great

Stacie: 7:08

tips. Yep. That's where we started.

Kevin: 7:11

The second goal is quantification. This takes your innovation and translates to how it affects your bottom line. It allows you to measure the success or failure of what you implemented. Okay, let's go back to the late fee example. When you update your lease and ask your tenant to sign it upon renewal, you'll be able now to financially quantify if that implementation works now, did they continue to pay late? If so, how often? How much did you earn as a result of implementing that procedure? your previous late payment of$25 has potentially been replaced by a late payment of couple hundred bucks. Hopefully they stop paying late altogether, and you receive a rent on time each month.

Stacie: 7:56

So I'm gonna jump in here and let you guys know that the story of the late payment is actually what happened to us. We had a tenant and we had a$25 late fee that we would. This is going back several years. Yeah. And that tenant would pay on the 2020 fifth of the month and they would pay the late fee. And here's the deal, we did serve notices, we did talk to them. It was straight up, just an issue of the person was completely unorganized.

Kevin: 8:27

Yeah. Great guy. But yeah, no organizational skills

Stacie: 8:30

at all. Yeah, he had the money and everything. So you know, we knock on his door. We do the whole, the whole. He kept the unit nice. He was respectful. And that whole other part is a, is a whole different story. Bottom line is he paid the rent late every single month. When we renewed him, we told him that he had to pay the rent on time, and then we were putting a new late fee policy in. Let me tell you, the late fee policy really didn't make a difference. He still paid. The difference is we pulled in an extra 200 bucks a month off that rent. So at some point we kind of had to ask ourselves, all right, do we like getting an extra 200 bucks a month or, you know, do we wanna kick the guy out? Eventually he moved on and it was fine. But that is our, that is our late fee policy to date, and I will tell you with that late fee policy, we rarely get someone paying.

Kevin: 9:28

Exactly. Now the third foundation is orchestration, and really that's what today's podcast is really all about. Now, consistency and systemization creates stability. as Michael Gerber goes on to say in his book, if you're doing everything differently, each time you do it, if everyone in your company is doing it either by their own discretion or their own choice. Rather than creating order, you're creating chaos.

Stacie: 9:57

Yeah. and that's the truth, because even Kevin and I will go back and forth sometimes and I'll say, you're doing it wrong. And then he'll go, well, this is easier for me. So then we just kind of have to, you know, talk about what the process should be and how, how it's handled. And this orchestration is exactly why we push our inspection checklist on you guys, on you landlords. We're trying to get you to help create systems that have worked well for us, and orchestration is essentially creating a checklist for each and every task that you do in your business. It's why we have a landlord verification form and we have a background check form that we use when we vet applicants. It's so we won't forget to ask their previous landlord or their employer or their references the questions we know that are gonna give us the overall picture of what kind of tenant this or this applicant is going to. Orchestration allows you the time to work on scaling and improving your business rather than wasting time and mental energy trying to remember what you need to do for a particular task, or if you have employees having to tell them what they need to do. Having standard operating procedures allows you to work on your business instead of working in your business. Now we understand you're likely a pretty small business, you know, like we are. And at this point, if it's just you working, then why do you need to have every detail about decision making document? Is being a one man show the way you plan on continuing operating your business forever. So here are some reasons to consider as to why it's important to have a standard operating procedure manual. As you scale and add properties, do you think you'll be able to manage all the units on your own? Maybe so. But if you really think about it is doing what you're doing day in and day out, what you desire to do for the rest of your. I mean, let's, let's face it, just fixing that broken toilet handle really light you up, not me, not me either, or would you rather build your business up and have more time to hike and travel and spend time with your kids, your grandkids, or maybe even learn a new craft by creating standard operating procedures? When you are a young business and fresh to the entrepreneurial space, it positions you to be available to spend more time doing the things that bring you joy, systemize your business from the start. Because with growth comes responsibility. If you're on a path of growing your rental property business so that you can supplement that nine to five job or your retirement, then your level of management will constantly be changing. Owning a couple single family homes is way different from operating multi-family dwellings. Multi-family brings in more money, but it requires more time, more energy, and more know-how. So you can hand it off to pro property manager. But what if you haven't budgeted for that expense? What if you can't find a property manager that's gonna work as diligently as you do, whether to a property manager or a family member or an employee that you decide to hire? The goal is to eventually hand your business off. And when you do, don't you think it would be helpful for that person taking over to have a guide to follow?

Kevin: 13:09

And besides that, you're gonna wanna take a vacation from time to time, right? Yes, I do. Now, most of our vacations are up to our place in the mountains, so we can still field phone calls, but do we really want to? No, exactly. but we do because they are few and far between. Now, when we take a little more extensive vacation, maybe Hawaii or Europe, yay. We hand the operation over to our team. Each knows the task they're responsible for. And how to handle most scenarios when they arise. Now we, if the landlords should prepare for anything, prepare for the worst case scenario. Now, unfortunately, we've experienced car accidents, illness, sudden death of loved ones. When these circumstances arise, having standard operating procedures defined allows you to hand it off to almost anyone to pick up the slack. Have someone you can forward your work calls to so you can let work go and take the time you're gonna need to help heal or grieve. Yep.

Stacie: 14:15

We've had to do that a couple times now and they're all good points. Consider this if, if you ever are gonna sell your rental property, do you think a newbie investor might find value? Because you have all your systems spelled out where someone else can just step in and take over and you, you don't see this often, but it does add some value to your sales price. Also operation manuals are not only critical to the operation, your business, but they're often the focus of lawsuits and can contain evidence in several variety of claims. And these claims include personal injury and fair housing claims. So when you meet with your attorney, one of their first questions is gonna be, do you have a standard operating procedure booklet, or do you have a standard operating procedure manual? Or do you have a standard operating procedure binder that's all written and available for your staff? In small claims court, a judge can ask to see your written criteria on how you've vet a tenant proof that you have done safety inspections and that you've done pre preventative maintenance. Or they can ask how you handle tenant move-outs in security, deposit refunds if you have one, and show that employees follow procedures carefully and use checklists to perform. You go a long way towards showing that you either have done nothing wrong or have done all that you could to avoid a situation. so we've discussed why you should have an operations manual stating all your procedures. Let's talk now about what and how you do. It's a lot of information and we ask you just to sit back and listen cuz we got you covered

Kevin: 15:56

here. We do. And like stay said, there's a lot of information here. But we wrote a blog about this subject and in that blog we have a very detailed list of all the items you should include in your rental property, standard operating procedures. We'll link it in the show notes. So check it out. It it's great. So here are some of the basics. When marketing and advertising your vacancies, where do you advertise and how long do you run the ad? How many photos do you include? And where are the photos and images? What information should be included in the ad? What are your criteria for acceptance? What's the process for showing a unit Now when you vet your tenant, what's the process for background checks? Where do you get the credit report? What forms do you

VoiceMeeter Output (VB-Audio VoiceMeeter VAIO) - 1-9: 16:45

use?

Stacie: 16:46

I have a, I have a tip. I'm gonna interject with a tip. Download our free landlord verification form. We'll put the link in the show notes, but it's basically a form that you can use when you are calling a an applicant's. previous landlords and has all the questions that you should be

VoiceMeeter Output (VB-Audio VoiceMeeter VAIO) - 1-9: 17:02

asking.

Kevin: 17:03

That's very helpful. And going along with that, you, you go on with what's the process for acceptance? What's the process for denials? You should have one of those two. How does a new tenant sign the lease in person electronically? What's the process for either of these? What do you do when the tenant moves in? Is there a walkthrough to show them around the property and you know, what they should know? Do you provide a welcome basket? Is there a unit binder? What's included in that?

Stacie: 17:33

That's a lot. Yeah. But I'm gonna rattle off some more, some more ideas for you guys to think about. So do you do periodic inspections? When do you do'em? Who does? What do you inspect? Do you use our six page checklist for that inspection? A

Kevin: 17:51

shame. Hope so shameful plug.

Stacie: 17:53

How and when do you notify the tenants of inspections? How do you handle if lease violations are found or if maintenance needs to be performed? What do you do for preventative maintenance? When do you service your h? And who do you call to do this? When do you clean the gutters? Who trims the trees? And who does your landscaping? And what are the tasks performed that you do each season? Is there a maintenance log? Where's it kept? Who's responsible for keeping it up? And a judge can ask to see this if you have one. How do you handle maintenance requests? How should the tenant notify you? What are your scripted responses, depending on what their issue? Who are your repair persons and what's their contact information? What formula do you use to decide if you're going to repair or replace something? What do you do if you need to perform maintenance and the tenant has a pet on the property? How do you track tenant renewal dates? How do you determine if you will renew or not renew a tenant? What lease do you use for those renewals and where is it located? Are there any addendums that you need to add to your lease? What do you do if a tenant has to break their lease? And when a tenant moves out, do you offer a pre move out inspection to advise them of potential issues that could result in a deduction from their security deposit? What items does a tenant need to claim to receive their security deposit back? If you deduct from that security deposit, what form do you use? Do you have a specific time allowed by your state for that notification?

Kevin: 19:29

So you think we're finished? No, almost hang with us. When you flip a unit, what do you do? Is there a checklist to follow? Where is it located? What supplies might you need? Who re-key the locks. Operating procedures are also not just for the rental properties, they're just as important for the office. Where's the mail sent your house? A PO box. Where's the PO box key? Where are the tenant files? Are they locked? Where's the key? If you have electronic files, where are the files located? Is there a code to access them? Where are the master keys to your units? That's very important. Highly important. Yeah. Do you do fair housing training? How often? Whereas where is the certificate capped? Where do you bank? What bank account is used to hold your security? What's the process for returning the funds to a tenant after move out? How do you account for reserves? Where are the reserves held? What bookkeeping software do you use? How do you process evictions? What is your late fee policy? How do you handle emergencies? Or if someone unfortunately dies in your unit, how do you handle emotional service animal requests? How do you handle section eight requests? What kind of underwear do you wear and where is it located?

Stacie: 20:53

Stop. Holy oli. That's a lot of info. We wanna make sure you were listening. Yeah, I was listening, but we only covered about half of what's actually in the blog, so go and and check that out right now. We're gonna talk a little bit about creating the actual manual. So consider what level of technology is comfortable. Many young people are very proficient with computers and some of us older folks, not so much. You can create a hard copy, which helps with the visualization of how the manual will be laid out. Start with a large binder and some old fashioned tabs and divide it into sections As you work along. Submit info as you complete it behind the related tab and include copies of blank leases, checklists, and anything that you use to complete a. And keep in mind, you're likely gonna have duplicate information behind several tabs. We have our criteria for acceptance falls under the marking section and also under vetting the tenant. Yeah, we realize that many of you would prefer to use electronic copies and that's fine, but be considerate of whomever will be accessing this in the event of an emergency or an untimely death. Will they know where to look on your computer? Are there passwords they need to know? Google Drive is a great option. You can allow people to access the files. You can send'em the links that they have'em in advance. If you have employees, they can access these files from their phone. So if there's any questions, they can consult the manual before they actually contact you to find out how you wanna handle. Consider having a manual binder just in case. if you prefer to hide it, make sure at least one person knows how to access it, like your spouse or your attorney. Update it once or twice a year, or as you make the changes. I know we've thrown a lot of items at you to include in your manual, so our advice is to start small, begin with what you know, and then build off of that. It's a, it's a huge undertaking. But if you work on it a little every week, you'll be completed in no time and you won't regret it. And just think about how awesome you're gonna feel. It's like training for a marathon and, and actually completing it.

Kevin: 23:09

This episode feels like a marathon. Oh, by the way, boxer briefs, bottom drawer.

Stacie: 23:15

Stop. As long as it's not those ugly orange ones. So thank you for joining us and listening along. If you have not done so already, please subscribe or follow us on your favorite podcast platform and we would really appreciate it if you could leave a comment as a new podcast, comments and downloads or what. Help us move up those charts and get noticed by other landlords like you. There's gonna be a lot of links in the show notes, so please make sure you check those out. As always, we are grateful for you taking the time to listen. And this is Stacy, and this is Kevin. Until next time you got this landlord's.