How do you use SOPs?

16 Replies

My day job involves launching and operating satellites, so SOPs are near and dear to my heart. We basically don’t go to the bathroom without a procedure.

I am still new to real estate investing as a landlord, currently self-managing 1 single-family rental. I have written 4 SOPs (making offers, listings & showings, tenant screening, and turnover). Most of their content comes from experienced investors' lessons learned shared here in the forums, and Brandon's book on managing rental properties. I've definitely pulled off the road during a podcast to jot down notes too.

So, how many SOPs do you use in your business? How often do you review and update them? What is an example of an event that caused you to?

SOPs are Standard Operating Procedures.

Basically they are a way to write down exactly how to do something so that one can repeat it consistently and, potentially, give it to someone else to follow so that they do it the way you want it done.


IMHO it is a very smart idea to write SOPs in any business where procedures are repeated.

@April Adams

@Chris Buhler ’s got it - a set of step by step instructions on how you accomplish each aspect of your business. So that eventually some or all of it could be outsourced. Another benefit is to take the mental legwork out of repetitive tasks. Some investors use email templates similarly. Being new, I feel like I am updating mine pretty regularly. The power of good SOPs comes from getting bit (or learning from those who have) and incorporating lessons learned.

@Tom Harkins Although I understand your sentiment because my day job also involves procedures (nuclear industry) I can't bring myself to do the same thing with my rentals. There are just too many variables that every step would be if/then statements and it would quickly spin out of control. Maybe when I get to the point of having lots of employees i will do it but for now there isn't any reason to. I do have standard forms I use though. Then I can just print them off and give them to tenants (or email them). When I start a new lease I give the tenants a folder with move in/out form, parking rules, pet policy, rent payment guide, troubleshooting tips etc. I update them as necessary, keep track of the rev and archive the old ones. Mostly its just little tweaks with the lease and I usually don't do it until turnover time.

That makes sense @Peter M. I also have a few tweaks noted for my next lease. In my experience, once momentum is built it can be difficult to pause and go back and document the way things "should" be done, and why. I am far from that point with real estate though. Good note about permutations and added complexity. Usually one's larger strategy/goals help inform how to proceed in those types of situations. Leaning on the BP community is obviously a huge resource too. I like to think that reading other folks' horror stories helps mitigate the "failure of imagination" risk.

We have created about 8 SOP’s in the last 1.5 years. They are extremely helpful for all tasks. Some SOP’s are step by step instructions to complete a task like screening a prospective tenant. Others are simple checklists to make sure nothing is missed like a checklist for flipping an apartment. SOP’s come in many shapes and forms and we highly recommend them.

Originally posted by @Tom Harkins :

So, how many SOPs do you use in your business? How often do you review and update them? What is an example of an event that caused you to?

I am also a user of SOPs.  I have about 25 SOPs.  I call them Systems. I update my Systems continually on an as needed basis.   

My Systems cover such things as Accounting, Move-Out Checklist, Move-in Checklist, Notice of Past Due Rent, New Tenant Set Up - QuickBooks and Rentec Direct, Lease Extension, etc.

One event that caused me to create a system was Meghan (made up name). Meghan's rent was due on the 1st of each month. Meghan asked me if she could pay the rent in two installments per month. I agreed. Thereafter, Meghan faithfully made two rent installments each month. However, each month she paid more rent than was actually due. This created an accounting problem for me. After researching how to handle this matter in QuickBooks, I created a system called Accounting for Tenant Rent Deposits (Prepayments). This system allows me to quickly and easily account for Meghan's rent deposits and to determine the amount paid for rent and the amount held as a deposit for future rent. At the end of Meghan's lease, I will be able to give her an exact accounting of her rent deposits and refund any overage to her.

@Jill Iwanski Checklists are a smart way to go. The Checklist Manifesto convinced me how powerful it is to simplify complex tasks into simple, repeatable steps

We have a specialized niche renting out greenhouse space, equipment, and services to R&D companies. We use many dozens of checklists, but we have lagged in our writing of SOPs. We have some but need many more. It is, coincidentally, a project that we are focusing on currently.

I find that SOPs are only good when they are used, and it isn't always easy to figure out how to make checklists and SOPs most useful. I know that we have written some SOPs that are in binders that likely never get opened.

One thing that we just started doing, at the recommendation of a coach, is to make index cards for tasks that need to be done monthly or less often (maintenance of boiler equipment, changing of filters, etc). I keep the index cards in a box labeled for each month (so the same one gets used March 2021 and 2022 but April has it's own set). In March a stack of about a dozen cards get pulled out and put up on a board. 

On one side of the card we have the name of the task and a reference code to any SOPs and checklists required for the task. For example, I just completed a card for running our backup generator which has a reference to an SOP #8.01.31 and to a checklist #8.01.31.01. (In our system 3 sets of numbers are always SOPs, 4 sets are supporting documents and checklists). The checklist requires many things including checking oil, fuel and battery charge levels and then requires one to turn on the system and make sure it runs properly. The SOP has the location of fuel, oil, and the checklists as well as instructions. But the SOP also tells you what checklists need to be filled out. In this case we also have a field manual that we wrote which has additional information on how to run the machine and for more usual cases. We went through the original machine's manuals and made sure that we had all of the recommended maintenance (they have monthly and annually required tasks) and then we have our own ideas of things that need to be done (like starting it monthly).

On the flip side is room for a list of dates and a signature. So once I finished the backup generator project, I (as the person who did it) would fill out the required checklists stored elsewhere and then flip the card to initial and date the backside. By the end of the month, they all need to be flipped and signed before I can bring out the next set. 

For annual tasks, we just chose a month. For example, we have pumps that have to be oiled annually. So they are in the August set of cards. Taking inventory is in March (our year end).

We are audited and/or inspected for some of our processes, so we need to keep good records and some tasks absolutely cannot be missed. But we find that even on things we aren't audited on, it is helpful to have records like this. (We use other systems for daily and weekly tasks.)

I am not in the residential rental market so I don't know how helpful that is for you, @Tom Harkins . I almost didn't write anything because what I do is so different, but it's what works for us and perhaps something similar could be useful in some way.

@Chris Buhler Thanks for sharing, I appreciate the level of detail! I like the idea of index cards as a tangible progress tracker. Many people (myself included) use a calendar app similarly, though probably not as effective as a physical reminder. You’ve set a high bar. 

Thanks, @Tom Harkins .

We have used calendars in the past but they don't work as well (for us--but that may not be true for others). There are a few reasons for this. 

1. The cards include a record-keeping element as a part of the system.

2. The cards make the work that needs to happen/has happened visible (something we are trying to do in all the work in our organization). This could be done with a shared calendar--especially in a virtual/distant team. But in our workplace--where people are present--we have found that index cards are more visible. 

3. We found that we were assigning tasks ahead of time to certain days in a calendar. But then if something unexpected happens that disrupts our anticipated work, important things get missed. I am sure that more tech-savvy people can put things in place that would prevent this, but we found that we occasionally missed things when our calendar was interrupted by an emergency. Not usually, but sometimes. With the cards, no one has to remember to reassign a task to a different day--it is glaring when we are not finished items.

4. We can organize the cards in order of importance so that the most critical things are done first. I am sure there is a way to do this in a calendar, too, but it is dead simple with cards.

I don't necessarily think this is a superior system in general, but it works significantly better in our system.

Originally posted by @Tom Harkins :

My day job involves launching and operating satellites, so SOPs are near and dear to my heart. We basically don’t go to the bathroom without a procedure.

I am still new to real estate investing as a landlord, currently self-managing 1 single-family rental. I have written 4 SOPs (making offers, listings & showings, tenant screening, and turnover). Most of their content comes from experienced investors' lessons learned shared here in the forums, and Brandon's book on managing rental properties. I've definitely pulled off the road during a podcast to jot down notes too.

So, how many SOPs do you use in your business? How often do you review and update them? What is an example of an event that caused you to?

 Hi Tom, real estate is not rocket science.

When you can accurately project the wave flow of a cat chasing a mouse in Jello, overcoming the Heisenberg Uncertainty Principle, you will be able to do as you suggest.

My understanding is we can accurately predict where the moon will be 3 years from now. With real estate, there is no such animal. The best SOP is to assume you are wrong and have all contingencies available to you and at hand. It's kind of like Dorothy in the Wizard of Oz when she's on the Yellow Brick Road and comes to the intersection of 6 different directions. Which way to go? You need a Tin Man who knows, to point the direction.

@Tom Harkins everyone is free to run their business as they see fit. I can tell you this: the Landlords and Property Managers that utilize business tools like checklists, SOP, and standardized forms are the ones that do better, period.

The situations are not as different as others claim. For example, when a Tenant stops paying rent, they may have very different reasons than the last tenant that stopped paying rent. However, the basic problem is still the same: the tenant is in violation of the lease by failing to pay rent. So your response is always the same: serve notice that they are to pay or move out. If they pay, they stay. If they fail, you go to the next step. 

I have many checklists:

- Onboard a new owner or rental

- Marketing and screening applications

- Onboarding a new tenant

- Lease violation

- Lease renewal

- Add or remove a Tenant to an existing lease

- Add an animal to an existing lease

- Eviction

...and so on. Each of those checklists also has a policy attached to it that explains how we go through the process, how to deal with unique situations, etc. 

Your SOP and checklist will never be perfect, but it will cover at least 80% of the situations and simplify your life. Then you only have to think about the 20% that are unique. To be honest, it's probably more like 96% are predictable (pareto principle).

I recommend making a list of potential issues (non-payment of rent, tenant breaks lease early, tenant requests a pet, termination and turnover, etc.). Rank them according to which ones you are most likely to encounter first, then start building your checklist and SOP. If you get one a week, that's over 50 in a year and you'll be done.

When the tenant stops paying rent, most Landlords will be jumping on BP or reading a book or scouring the internet for answers. Meanwhile, your answer will already be researched, developed, and implemented in a business-like manner before they even accomplish the first step.

I appreciate your reply @Nathan G. , extremely helpful. I like the emphasis on having a calculated response prepared for addressing the most likely issues, rather than being reactive.

You mentioned attaching a policy with each checklist – does that also document the “why” behind the order of operations? I have found that preserving the rationale behind a procedure can be useful, for example when outsourcing some or all of it, experiencing turnover on one’s team, or to avoid re-hashing decisions that were made in the past but never written down.

Originally posted by @Tom Harkins :

I appreciate your reply @Nathan G., extremely helpful. I like the emphasis on having a calculated response prepared for addressing the most likely issues, rather than being reactive.

You mentioned attaching a policy with each checklist – does that also document the “why” behind the order of operations? I have found that preserving the rationale behind a procedure can be useful, for example when outsourcing some or all of it, experiencing turnover on one’s team, or to avoid re-hashing decisions that were made in the past but never written down.

Yes, mine tend to be err on the side of too much information. However, I want to remember the "why" behind my decision, both for myself and for my employees.