Options to deal with incompetent property management company
Mountain View, CA · Member since 2015 · 8 posts · 2 votes
Options to deal with incompetent property management company
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
8yYou should also start looking for a new PM. I'm not saying your current one is doing anything wrong, but if they are and you decide to go with someone else, maybe the information below will help.
You can start by going to www.narpm.org and search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start.
1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.
2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.
3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!
4. Review their lease agreement and addendums. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.
5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance or problem tenants. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.
6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.
I hope this basic guide helps. If you have specific questions about property management, I'll be happy to help!
The DIY Landlord Book4.7247 Reviews
26 Replies
- Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes8y
Re-read your contract. See if there are any clauses for breaking early with no fee due to their inability to perform/hold up their end of the contract. Otherwise, it's better to eat 1k upfront and move on than to have an empty unit for 3 months that should rent at $750/month. $2250 is a lot more than $1000.
I would agree with @Bob Okenwa and re-read your contract with them @Deepak Bhadauria. YOU are the owner of the property and if you are not happy with the PM company, it is in YOUR best interests to find another company who you feel will do a better job for you. Of course, you have to make a business decision on the costs to break early with the current one, but if you're not satisfied, it would probably be better to at least start interviewing other PM companies.
- 8yLuther Wilson IIIPro MemberReal Estate Broker · Kansas City, MO · Member since 2017 · 537 posts · 292 votes
Have you seen pictures of the property since that last tenant left and now that it's vacant? You may want to have someone else, here on the ground, evaluate things a bit and perhaps go in and take a look at the property to give you feedback. Normally, when an investor or management company has trouble renting a place it's because the rent amount they're asking for is too high or the place isn't quite ready to rent yet.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
1. I would start with a quick "motivator" to my PM. "Dear PM, I have made several attempts to contact you regarding my rental and would like you to respond and tell me why it is taking so long to rent. If I do not hear back from you by Monday, October 1st, I intend to file a complaint with the state board for your failure to uphold our agreement." Usually, a threat of being reported is enough to prompt a response. If not, file a complaint and watch how fast they respond or terminate your agreement.
2. Do some research. Talk to other property managers about how the market is doing for your area and how long you should expect a property to sit on the market.
3. Read the contract. It's normal to have termination fees but that's for breaking without cause. If you break the contract because the PM fails to perform their basic tasks, then you should be able to break the agreement without penalty.
The DIY Landlord Book4.7247 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
You should also start looking for a new PM. I'm not saying your current one is doing anything wrong, but if they are and you decide to go with someone else, maybe the information below will help.
You can start by going to www.narpm.org and search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start.
1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.
2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.
3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!
4. Review their lease agreement and addendums. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.
5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance or problem tenants. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.
6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.
I hope this basic guide helps. If you have specific questions about property management, I'll be happy to help!
The DIY Landlord Book4.7247 Reviews - Mountain View, CA · Member since 2015 · 8 posts · 2 votes8y
This is great information. Thanks all!
- 8yAlex ShaughnessyPro MemberReal Estate Investor · Spring Valley, CA · Member since 2016 · 288 posts · 98 votes
which turnkey company did you buy from?
- Investor · Phoenix, AZ · Member since 2015 · 485 posts · 384 votes8y
@Nathan Gesner has given you a ton of awesome info on your challenge. From experience with human beings, we always scout at least three other alternatives who can jump in and take over at any given time. Explore over 23,000 real estate-related companies here on BP, you will, after some time and vetting, find your next property manager in your area. @Deepak Bhadauria
- Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes8y
@Deepak Bhadauria
$1000 fee for breaking contract with them early!!!! This is something I would advise you to refuse in the future, and seems like an overt deterrent from firing the PM company. Is the PM company also the provider of the TK property too? This would worsen my opinion of the company. Either the condition of the property, the market rent, or the marketing & leasing operations are failing completely here. I would pay the thousand, lick your wounds, and find a company that will serve you well in the future. That $1000 savings now is going to cost you a LOT of stress and, ultimately, money in the future. Take your loss and keep moving.Side note- markets like KCMO have such a high rental housing supply that tenants can be picky. This makes your property rely more heavily on a strong management company to get it filled. May I suggest you find an OOS market that has higher rental demand, so that imperfections in management don't translate as directly to lost rents. I'm a CA OOS investor also- we're never going to see these properties. Choose them in a manner that allows us not to think about them as well.
All the best!
- Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes8y
Welcome to the beautiful world of turnkey investing, where the PM takes care of all the work and you just get to sit back and collect rent checks.
Back to seriousness, I would question whether or not the $1000 early termination fee is even enforceable. In your position, I would likely fire the PM, hire a competent team and put the challenge to the current PM to take me to small claims for the $1000, with the understanding that I would retaliate with a complaint to the state.
- Property Manager · Jacksonville, FL · Member since 2018 · 514 posts · 470 votes8y
@Deepak Bhadauria How long does the PM have to rent the property before you can cancel? Or is it a one year contract whether or not they rent out the property? I would ask them for hard feedback. Ask how many times they have shown the property each week for the past 3 months. Ask what are the potential tenants telling the PM as to why they are not applying. Ask where they are marketing the property. You are entitled to some answers here. My PM took 3 weeks to get my property rented out. He gave me updates on a weekly basis. Just when I was about to ask for an update, I had one in my inbox. I thought 3 weeks was a long time but 3 months is pretty ridiculous assuming your property is in good condition and at a reasonable price. Best of luck!
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes8y
Originally posted by @Deepak Bhadauria:
Hello, my property management company has not been able to place a tenant for last 3 months. I bought this turn key property in Kansas City, MO, few months back. Property was previously rented but the tenant was evicted because of missing payments. I always get a lacklusture response from the PM company that they are actively marketing the property. They provide no details or insights in why they are not able to find a tenant. I personally feel that they dont care. My contract with them has $1000 fee for breaking early. Also, the property should rent around $750 per month. So it seems reasonable to find another PM company that can rent the property out. But without knowing the reason of not finding a tenant, I am not sure if others will be able to find a tenant quickly.Any suggestions from the experienced investors here?
Was this 3 months after the rent ready renovation was completed? If after 30 days of a rent ready renovation being completed you still have no hits you need to make some adjustments. Typically a price drop or an improvement to the unit (or both) will get the trick done.
I second the advice of @Luther Wilson III
If possible, have someone contact the PM to view the property as a 'potential tenant'. You'll see how the PM responds to them and how quickly the 'potential tenant' can view the property.
Also, as Luther mentioned, your potential local contact person (heck, maybe you can locate them on BP if you don't know of anyone where your rental is) can see if there are any issues with the unit or property as a whole.
When I bought my first multi-family, the seller had two units that were vacant. After buying the property and viewing it I quickly realized why noone had rented either of the vacant units: both units had what looked to be mouse crap on the floor and the other unit had a broken window (not cracked - a literal hole in the glass) and there was a hole punched in the drywall (covered using cardboard).
And both units were vacant for over a year (though the PM in question had only been managing for roughly 5-6 months - prior to them they had a previous PM who stopped PMing multi-family properties so she could run a mobile home park instead)!
3 months is a long time since it will be year end and winter soon.
Many here have similar experience near MV and EPA, CA. With EPA outside FB that took 2.5 month and reductions to fill. The one outside Goog the owner did not wanting to lower the price citing his mortgage has to break it even. It is off the market.
I'd cancel with them, and I'd challenge them on the $1000. I've never once signed a PM contract that has something like that in it. When you own a property, essentially a PM is like your employee and if they don't perform, you should never have to pay them to....fire them.
In my experience, and turnkeys are a large portion of my experience, the worst mistake I've ever made (and sadly made it more than once) was letting a bad PM linger too long. That is literally the only thing that has ever cost me a significant amount of money.
- Huntsville, AL · Member since 2018 · 578 posts · 864 votes8y
Another consideration is that they simply aren't very interested in your business. You are an out-of-state investor to start with - if you only have the one property with them with a $750/month rental, how important do you think they value your business? Let's say they manage 7 properties for a local investor with a rental range of $900 to $1200/month per unit - the reality is that they may put minimal effort for your business, versus much more effort for someone who is a significant local customer at a notably higher price point.
Obviously, this may not be the case, but I would not be surprised if this is the reality of your situation. Now, if you have multiple properties under their management, I think that could change the situation quite a bit.
- Whittier , CA · Member since 2013 · 176 posts · 96 votes8y
Lots of almost fraud level "turn key" companies out there. I would NOT pay the fee, move on and find a motavated PM who can place a tenant fast. $1000 is insane!
Most likely the "turn key" company inflated the your expected rent. Look up your address on rentometer.com You may have to lower you expectations.
- Rental Property Investor · West Palm Beach, FL · Member since 2018 · 19 posts · 10 votes8y@Deepak Bhadauria - without knowing what the contract says it can be tough, but here’s a thought. If two months go by without a tenant, that’s $1,500 and so the $1,000 termination fee is cheap by comparison. Check the contract and see if there are any obligations that they aren’t fulfilling (do they have to send specific reports each month that they aren’t doing) that could be grounds to terminate without a penalty. Good luck!
You need boots on the ground to view the property immediately. Maybe they have someone in it and are keeping the rent for themselves. Or the place is a mess as mentioned previously. Or they don't care about your business also previously mentioned. Whatever it is, the PM sucks and needs to be fired.
If it was me, I'd be getting on a plane and going there myself. Then I'd drop in unannounced on the PM to have the termination discussion and talk about whatever was observed at the property. I would also use that trip to interview 3 other local PM candidates and hire the best one before getting on the plane home. A 2-day trip probably.
I refuse to sign a PM contract that ties my hands on termination. I also only sign up a PM if their compensation is aligned with the financial performance of the property (e.g. % of rent collected vs monthly flat fee).
I've lived through multiple hiring/firing of PMs and they can really cost you a lot of time, money and calories. But it's part of the gig if you must have someone else managing the property. So stick with it and leverage the unpleasantness of the experience to improve the performance of your investments going forward.
Good luck to you!
- Real Estate Investor · Marysville, OH · Member since 2014 · 242 posts · 196 votes8y
Originally posted by @James Wise:
Originally posted by @Deepak Bhadauria:
Hello, my property management company has not been able to place a tenant for last 3 months. I bought this turn key property in Kansas City, MO, few months back. Property was previously rented but the tenant was evicted because of missing payments. I always get a lacklusture response from the PM company that they are actively marketing the property. They provide no details or insights in why they are not able to find a tenant. I personally feel that they dont care. My contract with them has $1000 fee for breaking early. Also, the property should rent around $750 per month. So it seems reasonable to find another PM company that can rent the property out. But without knowing the reason of not finding a tenant, I am not sure if others will be able to find a tenant quickly.Any suggestions from the experienced investors here?
Was this 3 months after the rent ready renovation was completed? If after 30 days of a rent ready renovation being completed you still have no hits you need to make some adjustments. Typically a price drop or an improvement to the unit (or both) will get the trick done.
I'm going to second this. Time of year, conditions of the unit, and price are going to matter a lot. Most of my vacancies have not taken too long for my PM to fill, but I did have one that was extraordinarily longer than the average. It was a combination of factors. 1.) It went vacant at the start of winter, when nobody in Ohio wants to move. 2.) Being in winter, when nobody wants to move, the price needed an adjustment down to account for that. 3.) When the unit was fixed up, the carpet was cleaned instead of being replaced. It was borderline, and the wrong call was initially made to clean and keep the previous carpet instead of replacing.
After a few months of WTF is this still vacant? We made adjustments, replaced the carpet in a hurry, dropped the price $50/mo, and it got filled that month. Naturally the months of vacancy destroyed the profitability for the year but it was an important lesson which will be carried forward on our plan for future vacancies.
- Mountain View, CA · Member since 2015 · 8 posts · 2 votes8y@Alex Shaughnessy USREEB
- Mountain View, CA · Member since 2015 · 8 posts · 2 votes8y
Originally posted by @Elenis Camargo:
@Deepak Bhadauria How long does the PM have to rent the property before you can cancel? Or is it a one year contract whether or not they rent out the property? I would ask them for hard feedback. Ask how many times they have shown the property each week for the past 3 months. Ask what are the potential tenants telling the PM as to why they are not applying. Ask where they are marketing the property. You are entitled to some answers here. My PM took 3 weeks to get my property rented out. He gave me updates on a weekly basis. Just when I was about to ask for an update, I had one in my inbox. I thought 3 weeks was a long time but 3 months is pretty ridiculous assuming your property is in good condition and at a reasonable price. Best of luck!
1 year contract. They have not provided any details and that is why I don't intend to work with them. I was hoping to strategize based on the details they provide.
- Mountain View, CA · Member since 2015 · 8 posts · 2 votes8y
Originally posted by @Ali Boone:
I'd cancel with them, and I'd challenge them on the $1000. I've never once signed a PM contract that has something like that in it. When you own a property, essentially a PM is like your employee and if they don't perform, you should never have to pay them to....fire them.
In my experience, and turnkeys are a large portion of my experience, the worst mistake I've ever made (and sadly made it more than once) was letting a bad PM linger too long. That is literally the only thing that has ever cost me a significant amount of money.
Thanks for sharing your insights. I appreciate you feedback.
- Property Manager · Jacksonville, FL · Member since 2018 · 514 posts · 470 votes8y
@Deepak Bhadauria >=O I don't have a PM so I don't know if having a full year to rent out a property is standard or not, but I did sign a PM just to rent out my property and then I'd self manage and they had 3 months to get it rented. I hope you can find a way to get out of that contract!
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