Avoid having property managers be your rehabbers.

[Timothy W.]

I thought about putting this in the landlording forum, but the general lesson here really is important for landlords, flippers and anyone who works with a property that will need repairs (i.e. most of us).

This isn't the first time I've seen this problem though it's the first time it's impacted me directly. I mentioned before I have a little rehab company for some self-employed income. 2 guys I know bought some property that needed both rehab and on-site mgmt. I advised them from the get go that no matter who does the rehab - when they do a pre-rehab walkthrough of the property with the property manager to have the property manager create a scope of work with them and to bring this scope of work to the rehabber after it was determined. After the rehabber finishes the work, the property manager can inspect the property to confirm the completion of the scope of work.

They were testing a property manager who mentioned he also had a rehab company. I advised them strongly against this on the principle that the person who determines the scope of work SHOULD NOT be the same person who profits from that scope of work. The property manager's expertise is in making sure the property is in rentable condition. Not profiting from the rehab maintains the integrity of the prop manager's advice on scope of work.

Here's why this is important. For the past 3 weeks the property manager has been lambasting the condition of the rehabbed properties claiming they are not up to code for various innoculous reasons and/or cosmetic repairs. I finally had enough and gave him the code enforcement officer's name and badge number who approved my properties for occupancy with the same "needed repairs" he listed on my friends' properties. That shut him up for a bit. This was last week.

2 days ago I get a call from my cleaning lady that a person came up to the house she was cleaning the yard at - wanting to rent it. I talked to this person for a bit only to find out that she filled out an application 3 weeks ago and has been calling the property manager since then to get into the property. The property manager apparently told her to leave the application in the rental house's mailbox and that he would come back the next day to get it. This is actually not legal (SEC I think?) as you are now required to have a locking cabinet or safe if you take down a person's private information. She came back after 4 days to find her application with her name, social security number, address, etc.... STILL sitting unprotected in the mailbox. She obviously removed it and then attempted to get the property manager by phone - during which she was ignored for 3 weeks.

During this same 3 weeks, this is when the property manager was trying to say that the rehab wasn't enough to rent the property and that no one wanted it. The clients were screwed out of a month's rent on one property that they know of. Luckily these guys were savvy enough not to take the prop managers salespitch to have his rehab crews out there. Lord knows what that would have cost them.

What are the lessons here? There is the simple one - seperate the person who determines your scope of work from your rehabber who profits from the scope of work. The greater lesson is in creating systems with checks and balances in place keep you from getting screwed by people's greed.

There are greedy people out there and as real estate investors, people have an assumption that you have money. Anyone who truly invests in real estate knows that while you may have wealth rarely is it in cash form, and that you are never in a position to spend recklessly. The day you do is the day you begin your failure as a real estate investor.

Tim