Need guidance: Property manager transparency & high expenses on old property (1910)

[Artur A.]

Hi Everyone,

I'm facing two issues with my rental property and would appreciate your insights:

1)Property Manager Transparency: My property manager doesn't readily share details or invoices for expenses, instead asking me to contact them directly. Is this lack of transparency normal or a red flag?

Examples:

2)High Maintenance Costs: My 1910 property's maintenance costs are about 30% of its income. Is this typical for such old properties, or excessively high?

Thanks for any advice or experiences you can share

[Michael Smythe]

@Artur A. common issues unfortunately. Seems many PMCs deliberately don't want to give too many details to owners about maintenance.

1) You should be getting bids with supporting pics/videos for your approval. Then the same for completion of work. Small things, like snaking a sewer, won't justify pics/video.

2) Not uncommon. Did you have the property professionally inspected when you bought it? What did the inspection state about the overall condition?

[Jessie Dillon]

i know a lot of old school PMs just have never done things in the way that many do now, with software like appfolio and such. if i know and trust them, and they're amazing otherwise, and there aren't any concerning numbers on my properties, and i know other investors who use them and have great experiences, i wouldn't worry but would ask that we meet in the middle with expectations on this. but if that is NOT the case, i'd probably worry. i don't think it's unusual for repairs to be 30% of the gross rents one year, especially if it's your first year owning it and the previous owner didn't really take good care of it, but if that's the avg over multiple years of ownership it doesn't really sound normal. however, is that 30% inclusive of ALL operating costs? like repairs/maintenance, PM fee, utilities, taxes, etc? 'cause that would be way more understandable long term. 

[Artur A.]

Quote from @Michael Smythe:

@Artur A. common issues unfortunately. Seems many PMCs deliberately don't want to give too many details to owners about maintenance.

1) You should be getting bids with supporting pics/videos for your approval. Then the same for completion of work. Small things, like snaking a sewer, won't justify pics/video.

2) Not uncommon. Did you have the property professionally inspected when you bought it? What did the inspection state about the overall condition?

 Thank you for your input

1. Even for smaller orders?

@Jessie Dillon @Michael Smythe

Maintenance expenses are 40% (without PM).  Sorry, images didn't load

[Bill Schrimpf]

@Artur A. 

I dont really know the scope of work, but the repairs numbers don't seem crazy high for one-off situations.  Sending every small job out to bid/quote is a waste of everyone's time.  Your PM should have good trades people on speed dial.  If you really want to micro-manage, then self-manage and save the 10%

A good PM would have explained their documentation procedures related to repairs before signing.  It appears you did not have the conversation, so consider having it now.  At a minimum, you should get copies of invoices or work orders to cover your butt if a tenant issue comes up.  

Did you skip the inspection before buying?  If you did, please consider getting one now.  It may be better to cut and run now (sell).  Maybe the property is generally OK and Murphy's law was working overtime.  Inspections are not designed to find everything, but should typically let you know what to expect so you can make an informed decision.  

Because it's an older house, the near-term cashflow outlook is bleak if maintenance and updates (HVAC, roof, plumbing, electrical)  have not been kept up with.  

That being said, talk to your CPA about accelerated depreciation and consider spending the big bucks to fix big systems/problems now.  You will get the tax break in 2024 and reduce your repairs and maintenance, which will help cashflow.

[Jessie Dillon]

Quote from @Artur A.:

Quote from @Michael Smythe:

@Artur A. common issues unfortunately. Seems many PMCs deliberately don't want to give too many details to owners about maintenance.

1) You should be getting bids with supporting pics/videos for your approval. Then the same for completion of work. Small things, like snaking a sewer, won't justify pics/video.

2) Not uncommon. Did you have the property professionally inspected when you bought it? What did the inspection state about the overall condition?

 Thank you for your input

1. Even for smaller orders?

@Jessie Dillon @Michael Smythe

Maintenance expenses are 40% (without PM).  Sorry, images didn't load

 @Artur A. i'd set a dollar amount with your PM for 'projects under this dollar amount do not need my approval, projects over this amount i need 3 broken-down bids for'

[Becca F.]

@Artur A.

I am going through the same issue with a renovated 1920 house - the seller did the renovation. I had a full inspection and minor issues in the inspection report were fixed before the tenant moved in. When I talked to my PM they said once someone is living in the house things may not work properly once items are used everyday even though it was renovated and was fine during the inspection. My PM company's software system notifies me by email when the tenant submits a repair request (6 times in 7 months). For example: no hot water but it's a brand new water heater, faucet leaking and brand new faucet, kitchen sink leaking and it's a new sink and pipes underneath. If it's under $500 they go ahead and do the repair. If it's over $500 they call me. The house is in Indianapolis and I'm 2000 miles away so I can't self manage or go over and see what's wrong. The Maintenance Coordinator is very responsive when I text or call. They asked for a copy of my inspection report in case the inspector missed anything. 

It's my first year so several people have said first year expenses can be high. I'm losing $300 to $700 a month instead of being in positive cash flow (which it was supposed to be on paper). 

Is this your first year owning it? Can you be very specific with your PM on communication with repairs? How do they communicate with you?

[Michael Smythe]

@Artur A. Most management contracts have an Owner Approval Threshold where the PMC doesn't need owner approval to do the job (unless an emergency).
---It's too time consuming and frustrates tenants to have an owner approve everything.

NOTE: we have a local competitor that is known to break every maintenance request into separate Work Orders, so they all fall under the Owner Approval Threshold. This is ""Death by 1,000 papercuts".  To avoid this, our contract only allows us to have 2 such events/month.

Regarding documentation for repairs, who do you know that doesn't have a cell phone with a camera? So, there's no excuse to take pics/video of before & after work. 
---We're not perfect and some of our ServiceTechs occasionally forget, phone batteries die, or they take worthless pics, or like with a sewer snaking sometimes nothing is pulled out, but we deliver at least 95% of the time.

Regardless, you should automatically be receiving an invoice with a decent description of the work performed.