What would you do? How long do you give your PMs?

Question

Hello everyone. Just a question... How long do you give your PMs before firing them? I have recently hired on a PM in the Cleveland area who seems to be all show no go. I think I have been fairly clear with my requests and they have not even considered actioning them. They are actually shutting them down. Some context. I am an overseas investor and I recently bought a duplex that I learned was being under rented AND I pay all the utilities. As you can see as an investor this is a no-go. The price was good for the duplex but I can pay all the bills and let them live there for under-market rents. What would you do in both these situations?

Kim Meredith Hampton · Answer

@Anthony W. What type of requests are you asking of them; are they legal in the area, can they be accomplished within the scope of the lease you inherited, is there a moratorium in your area, is the rent you want too high and beyond the market rate for the area or condition of the property? just trying to understand exactly what you are asking?

Account Closed · Answer

Call other property management companies and get opinions.

I've owned (still own) several businesses more than 50 years and I've always been amazed in regards to how long it takes other business owners to either make a decision to fire someone, or business owners are too squeamish and can't fire someone. For myself, I look at the dollars and cents and when someone working for me can't produce, or someone can produce better then I am a cold-hearted business owner and the health of my business is very critical. Otherwise, if you lose a few dollars here and a few dollars there then your empire can come crashing down like a set of dominos.

Your PM may be doing a great job and you need to get his (or her) side of the story. PM's have their hands tied in many ways so they are paralyzed. PM's don't have the latitude to make decisions like you would if you was a hands-on owner. I did quite a bit of research for rental units in the Cleveland area (I am in Los Angeles) and I find that the rents in Cleveland are something like only $850 for a 2-bedroom home or apartment and $850 is not a lot of money in today's world where the cost for materials and repairs has almost doubled in the past few years.

One serious problem with hiring PM's is you don't pay them enough money to manage your property like a hands-on owner. I am guessing that the average PM does not earn much more than $20 to $25 per hour for each property they manage and even if you are paying them 8% (they usually charge 6% to 8%) then the PM is is earning $68 per month for managing an $850 per month unit. If you break that $68 down by the exact number of hours a PM spends collecting rents, doing the books, dealing with you, dealing with your maintenance issues and deducting their operating expenses ho far does $68 really go and how many hours can a PM dedicate to you for a whopping $68.

I know PM's charge additional fees for re-renting units, advertising and maybe they charge 5% to 10% for handling contractors for maintenance, but I would never work for those peanuts.

One more serious problems PM's have is the have to be highly motivated to manage your property so their clients accounts are 'in the green' at the end of the year. Otherwise, if their clients' accounts are 'in the red' then they would lose all their accounts. So, to keep the account 'in the green' PM's defer a lot of maintenance and cut a lot of costs that are counter-productive for keeping properties in pristine condition.

I think the way you communicate with a PM is super critical and I always believe the best way to speak with your current PM is to ask many questions and hear their side and try not to speak like you are totally unhappy with their service. Then, if you don't like the answers you hear and you find a better PM then make the switch without hesitation, but when interviewing everyone for every type of service everyone puts on their best game face.

I managed 28 single-family homes in Las Vegas (280 miles from Los Angeles) all by myself without a PM. Then, for the last two years I owned the homes I hired a PM and the company was very organized and tried their best, but since it takes 45 minutes to get from one side of Las Vegas to the other and since my homes were spread throughout every area in the city the PM did not get paid enough money to do frequent inspections and every tenant destroyed every home. The average cost to clean every home was not a penny less than $6,000 and a few were close to $12,000. So, I gave my children 6 of the homes and sold all but two. I am a firm believer in investing only the areas I can be hands-on and currently don't have one PM even though I still own a few homes in Idaho and Las Vegas. I can manage from a distance just as well as a PM. Especially, since PM's don't do frequent inspections for cleanliness and destruction of the properties.

Nathan Gesner · Answer

There are too many unknowns to answer your question. You need to give us some specifics. For example, you may be demanding the PM to increase the rent when the Tenants are under a term lease and changes to the lease would be illegal.

Whatever your issue, you should treat the PM the same way you would a Tenant:

• State the expectation
• Establish a deadline for completion
• Have a consequence for failure to perform

"Dear PM, I've been studying the market and believe the tenant in [ADDRESS] is approximately $175 below current market value. I understand they are on a month-to-month lease, so I would like you to issue them a 30 day notice that rent is increasing $125. I would like this completed no later than February 1, 2022 or I would like you to send me a written explanation as to why it can't be done."

If they don't perform, then the consequence could be that you give them written notice of termination. Or maybe you write a letter to the company Broker asking them to investigate the performance of their PM. Think of how important the issue is, how you can push them into compliance, or how you can get away from them.

Allen L. · Answer

You said ALL utilities. As an actionable item you should be able to unload elec and gas onto the tenant upon lease renewal or turnover. Water might be hard if it’s not separately metered. Lawn care for duplex is typically handled by the owner. However, if your property manager doesn’t want to raise rent for whatever reason, then consider firing them. Pms should let you set your own rent if you wanted to.

The other consideration is if the tenants are great, unit has severely deferred maintenance, and this is a D area where it is hard to get long term paying tenants, then it might make sense to keep them at a below market rent, but utilities should be unloaded on them.

Account Closed · Answer

You have to do the math. A few weeks ago, I sent a tenant in Long Beach California a Notice To Terminate Tenancy. I gave her 90 days to move. She is currently paying $1400 per month for a 2-bedroom unit and I can easily get $2100 per month. That is an $8400 per year increase in gross income, or $84,000 in 10 years and that is how you need to do the math.

I don't have to remodel the unit, but it has a 1960's kitchen and bathroom and I like to re-wire the units with an upgraded electric panel, 110-volt smoke detectors and I always install an 18,000 btu air conditioner through a wall (not in a window. The cost to remodel the unit will be about $30,000 plus I will lose 3 months of rent = 34,500, but I will still be ahead by $54,000 in 10 years and then ahead more than $84,000 every other 10 years.

The tenant called me and told me that the city of Long Beach is in the process of passing some rent control buillsh...t where if a landlord wants a tenant to move so the landlord can remodel an apartment the landlord has to pay the tenant $4500 and the city put a freeze on evicting tenants to remodel until the new rent control b.s. is finalized. I am super angry because I don't believe the city council should have the power to meddle in people's business affairs and the $4500 is like getting a $4500 traffic ticket, or some sort of court-ordered fine when landlords are not doing anything bad. The city of Long Beach also passed an ordinance where grocery stores had to give their employees a 25% pay raise for hazardous pay due to the virus.

Bill B. · Answer

Unless the tenants are on a month to month lease none of these things can be changed.

When the leases expire you ask them what they think current market rents are and if you think they’re higher explain why and maybe try those rates. If you’re right from out of the country that’s a bad sign. But if they just sit it may turn out they are right about market rates.

Assuming these renters have leases there is almost nothing they can do now.

Ps. Even if you’re right, be ready for a month or two without rent and some big turnover expenses that might eat up all the additional rent if the current tenants have been there more than a couple years. If you’re wrong it could end up costing you thousands to be back where you are now.

Scott M. · Answer

Few questions

- "Recently hired on" was this a transfer from one manager to another or were you managing it prior?

- Do you know the state of the property/tenant relations prior the new manager coming on board?

- What requests are you making?  What requests are they shutting down?  Can you give examples of each?

- How long have they been managing it now?

- Are you providing the PM company with what they need?

- Are things that you are asking for reliant on the city, sec 8, courts or other places that have been mostly shut down for the 2 weeks of the holiday and or COVID?

- How much of this is a direct result of you not doing your research prior to buying this duplex and you are taking your anger/frustration and disappointment out on the PM that your post makes it seem like you hired post purchase?  You see, you should have learned this prior to buying the duplex, not after

- How familiar are you with the laws, not just generally but specifically in Cleveland and is what the PM shutting down is your attempt to illegally raise the rent or get the tenant out?  Are you sure you can do what you are wanting to do in this city/state right now.  Not just generally but also during COVID rules?

Your PM may be great, they may suck, I have no idea.

Not accusing you of being a bad client to your PM but the parts of the story you have given so far lead me to believe you have left the key parts out.

What would you do? How long do you give your PMs?

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