Tips on managing the management company

[Gary Dezoysa]

Hello, for the investors who've decide to use a property management company for any number of reasons, can you share any tips you have for managing the management company?

I will share a tip from the online world that I'm sure has carryover:

A good friend has an online business that depends on pay per click marketing. He would hire a PPC manager to take care of his campaigns. Each month 20% of the campaigns would be allocated to a different manager, to see if the new one could outperform the current one. 

• If the current manager won (results wise), he keeps his job and above market compensation after bonuses.
• If the new manager won, he replaced the current one.

He found this to be a highly effective way of keeping his pay per click managers highly motivated  to continue optimizing the campaigns to the best of their abilities.

This is more easily done in the online world, but I wonder if such a competitive incentivization scheme would work between property managers as well. Just a thought.

[Chris Kennedy]

That sounds like a good strategy for PPC campaigns, but fairly impractical for property management. I have worked with the same PM company for 2 years, and they have been excellent. Not a single month's rent missed on any property since I hired them, and they keep expenses very low. However, I have worked very hard to build a relationship with them and I am in frequent contact with them - and I believe this is key to the success I have had with them. 

You must let the PM know your expectations, and address issues promptly if expectations are not met. I think that too many investors give their portfolio to a management company and think their job is done. 

Accountability and transparency create a good relationship. So every month I receive the following from the PM:

1. Financial report showing profit/loss and balance sheet for every property for the month and year to date.

2. Copies of all rent checks along with deposit slips.

3. Copies of all invoices and receipts for materials and labor from all vendors for any work completed. 

4. A list of any potential problems or issues that we need to deal with.

I pay a flat percentage of gross rents collected to the PM, and they do not charge anything on top of repair costs or sub-contracted work. That means they only collect a fee when the property is rented, and they do not profit from maintenance/repairs being done. Our goals are aligned: keep units rented, keep costs down. 

It also helps that they have been in the business for a long time (10+ years). 

On a final note, if there is a problem or something seems out of place, you have to call them out or they'll know you're asleep at the wheel. Trust but verify is the motto that comes to mind.

Hope that helps!