How to manage relationship with PM who is also a realtor.

Question

Hi, I am new to BP for about a week. I have been investing long-distance in one state for a year and a half and wonder if anyone have good ideas for managing relationships from out of state. I use a PM that is a realtor and an investor. His team have managed my properties well, so well that I moved over one of my properties managed by another PM to them. I decided to use this PM as a realtor also to look find new purchases. But I am finding that he is sometimes too busy and is slightly bias to toward his firms’ listings. One of the deals he was too busy to look at is townhouse in an association where I already own 2 properties. So, I contacted the listing agent directly and told him I didn’t mind him being a dual agent. This turned well as I was able to win the deal even though I was not the highest offer largely because the agent was getting a higher commission from me and, provided that I ask all the right question, he gave me all the information I need to write an offer that pleased the seller. When I told my PM that I have a new property for him to manage, he was a bit disappoint that I used another agent. He said he will let it slide and said I did get it at a good price. I also found a good wholesaler that has a very steady inventory. I need someone to scope out these properties and at the most moment the most capable person is my PM. My PM did agree that looking at wholesaler properties is a good idea. I told him that I know he does earn commission on these and therefore I would pay for his time to look at them. My PM’s insight of the area and referrals for lenders (and potentially contractors when I find good rehab deals) are instrumental to the growth of my business. But I worry that he may not have the time or incentives to look at everything I want to look at. Do I find another point person to scope wholesale properties for me? Can I work with other realtors and not hurt my relationship with my PM? If so, how?

Jenni Utz · Answer

@Charles Situ a few things stand out to me about this. 1-If the listing agent helped you get a good deal on the property you just bought, I would be weary. They are supposed to be representing the seller and should never have given you information to make a "good deal" on the property. The fact that it was a double sided commission should have absolutely nothing to do with how they structure the deal. Commission is between agents, and should not be a factor in the contract.

2. I understand that your PM may be busy. Especially if they are good at their job and also handle Real Estate transactions. If he truly is a gem and will help you build your portfolio, I would have an honest conversation with him. Maybe offer to pay him for his time to run the analysis of the properties- if the deal doesn't go through. If the deal does go through his time should be compensated in his commission.

3. I have seen other Realtors show properties to people with little understanding of the rental market, and told the buyer what they think they could get for rent on the property. Once I got involved on the property management side and run my analysis, those numbers were off. Stick with a Realtor who does great Real Estate work, AND also solid knowledge on the rental market.

Drew Sygit · Answer

@Charles Situ all goo dstuff!

We do charge $150 for site visits to take an Evaluation Video (not inspection), which is credited back if they buy the property.

Bird Dog Compensation: be careful how you pay finder fees as many states typically would label such a transaction a real estate fee -- which can only be paid broker-to-broker.

Bird Dogs: you have to build your network, no shortcuts. Join a real estate investment group in the area, evern if only virtually. Network your way to the players.

Charles Situ · Answer

@Drew Sygit You are totally right about 1. be grateful that I have a good PM, and 2. I need to find ways to source below market value deals. Do you have any good suggestions on finding & hiring bird dogs. I was able to find a few wholesalers, a couple of which I found from BP, that emails me deals. But I guess a bird dog is different. I pay him or her a fee for finding me deals and therefore would have a bit more of my interest in mind versus a wholesaler that sends deals to a whole pool of investors. Lastly, I too believe in running a property by the PM before purchasing them. Fortunately, with the one I purchased from the listing agent, my PM said it is a desirable area (plus he already manage the other 2 I have in the association). But he did tell me to check with him first before buying something for him to manage. With that said, my PM really demonstrated how knowledgeable and instrumental he can be, and have my interest in mind. A wholesaler emailed me a duplex with 2-bedroom that was converted to 3-bedroom on each side initially asked at $220K, but then reduced to $199K, which at that point I was tempted. But my PM told me I should only pay $185K and he showed me all the comps to backed it up. I asked the wholesaler if they could do $185K. They initially said that didn't work. But in a few days, they said they got the seller to come down (along with wholesaler's portion) to $187.5K. So at that point, my PM agreed to take a look at it. One of my biggest concern was conversions of enclosed porches to bedrooms were not be permitted or not done to code. Even though wholesaler told me that no permits were required because the lay out was changed, I contacted county building dept. and looked at the lay out. It seem that permits were actually required because square footage were added to the living area and HVAC had to run to it. With the concern that I would be fined or have to convert it back while I have tenants occupied, I backed out. Also just yesterday I had a  conversion with my about the fee structure that @Jenni Utz suggested (flat fee for fully analyzed deals that he visits but not successful and a commission for successful deals). He said "Okay, but I don't just want to get paid more for getting you to do more transactions."

Drew Sygit · Answer

@Charles Situ you have someone that is a good PM, but not so good at sourcing deals. Be thankful!

Many investors get screwed by turn-key providers that sell them houses and then poorly manage them.

What the real problem you have is time versus money. It can take a LOT of time to locate a "deal" for an investor. Investors rarely want to pay market value, so a motivated seller has to be found. Or you have to look at ugly properties most owner-occupant buyers aren't interested in, but then you have to estimate rehab costs - again a lot of time.

We're open with our clients and freely tell them they should have as many bird dogs as possible looking for properties for them. If we find something for them great, otherwise we don't care where they get a property.

What we do care about is that they buy good rentals! So, we ask them to run a property by us before buying it and we'll let them know what we think of it as a rental. Put another way, why would an investor buy a property their PMC doesn't want to manage?

See if your PM is open to something similar.

Charles Situ · Answer

@Jenni Utz On 1) I didn't mean to make it like listing agent did anything ethically wrong. Rather he was able to make it a win-win for both side. He told me all of seller's concerns and I was able to address them. She had prior agreement fall apart because previous buyer ask for $4k of credit after inspection, she was afraid of a similar situation, and she wanted some flexibility to buy a bigger place with the sale proceed. She also provided me the prior inspection report. I baked into my offer the major items that needed to be fixed, gave an as-is offer, and offer a longer closing and option to rent after closing if needed.

On 2) great suggestion on how I can structure paying my PM for his time. There some times where I sent him wholesale deals that he can quickly provide data that allowed me to eliminate it as a candidate where he didnt ask for any compensation. I guess I could pay him the fee for the ones that he actual goes out to visit and doesnt result in a sale and figure out a commission % for deals that do go through.

On 3) you are definitely right about the type of realtor I should hire. Even though my PM is busy he knows the rental market much better than some other realtors i worked with.

How to manage relationship with PM who is also a realtor.

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