Rookie property management situation and questions

[Jessica G.]

We've used a property management company to handle our D/FW 3/2/2 SFR for the last three years. (It was formerly our personal residence and this has been our first experience as landlords.) I am not completely happy with the PM company for a few reasons.

One is that they charge tenants what I have come to believe is under-market rent. In fact, a line in our PM agreement says they reserve the right to lease the property for as much as 10 percent under market and they will make an "effort" to communicate the price reduction to the owner. The upside to that is there is literally never a period of vacancy -- it was leased three days after we put it on the rental market and hasn't been empty more than a day since.

After two years of the property leasing at $1,150, for this last lease, I specifically instructed the company (in writing) to lease it at $1,200. When the time came, I was sent a lease for $1,175 with a self-congratulatory note about getting an extra $25 for us. When I complained, they apologized for forgetting my instructions and offered to tell the new tenant -- who was already on the road from California with his family to sign the lease and move in -- that the price had changed. I declined because I felt it was not fair to the tenant.

When I started lurking on BiggerPockets, I checked our rent on rentmetrics.com and rentometer.com. We are almost the only 3-bedroom property within a 2-mile radius that rents for less than $1,300.

Anything we're saving on no periods of vacancy, we're losing on re-leasing fees. Not a single tenant has stayed past his one-year lease in three years. I am wondering if the tenants don't like this management company; a friend I referred to this company said she had to switch after her tenants complained about the way they were treated.

Also, I worry about the quality of our tenants. The last tenant moved her formerly estranged husband into the house without putting him on the lease. When I brought it up to the management company (who was aware that he had moved in), they put him on the lease, but I'm irritated that I had to ask. These tenants also incessantly parked on the grass. After two warnings, they finally stopped. (Our old neighbors told us it was maddening and made the street look awful.) The current tenants seem nice, but during a visit to the house for reasons unrelated to the tenants, I realized they had two adults living there who were not on the lease (one of the tenants' parents, I think). I haven't brought it up with the management company yet.

Lastly, after three years, I'm still disgruntled by how little input we have into decisions about our own property. The PM company decides on the tenants and just presents us with a lease. They ultimately decide on the rental amount. They make fixes and charge us beyond the $300 threshold in our PM agreement. They even made an appointment with a foundation company without asking us when the tenant reported cracks (at least they told us at all -- we had them cancel it because we have a lifetime warranty with our own foundation people). I've been unsure if this is normal and I'm expecting too much communication.

The day-to-day stuff is fine. They file the correct paperwork, they direct-deposit the rent, they respond (kind of slowly) to emails.

Anyway, here are their costs:

5% management fee (I know, super cheap. I happened to be looking for PM while they were having a special, and, being completely new to renting, that's the reason I chose them)

75% of a month's rent for leasing to new tenant

No charge to re-sign tenant

No penalty for canceling contract

So they have their issues, but they have reasonable fees, at least.

Today I called another management company who has great Internet reviews on Angie's List, etc.

I talked to the owner for a while, and came away pretty confused. He completely dismissed my research about neighborhood rents and said those sites are not accurate (which may be true) and said his company would not run comps until we signed an agreement with them. He sent me a sample agreement, and here are their numbers:

10% management fee

100% leasing fee for new tenant

25% leasing fee to re-sign tenant

If we change management companies at any point during an existing lease, we pay them the equivalent of the rest of the lease's management fees

This seems quite high to me. If they are better, are they SO much better to be worth so much more money?

I would appreciate input (as well as recommendations for amazing property managers in D/FW).

The bottom line is that I don't feel like we have much control over our property when using a PM company. We are paying them to collect rent and handle maintenance requests, but not make important decisions about the property such as the amount it will be rented for. Yet that's exactly what they do. So who sets the rent -- them or me? Who decides on the tenants? Do I just need to be more assertive? Is this experience typical?

(Managing the property ourselves is not my ideal solution. My husband and I both work full-time and we have two little kids. Handling maintenance requests and worrying about collecting rent is not something we really have the energy for.)

[Bill S.]

Lots of places to start so I'll start with the rent amount. I agree with the agent you spoke with, those sites can be dead wrong. You need to follow the local method of advertising and see what's available. Here it's Craig's List. Maybe something else there but you need to watch it for a couple of months. The places you see posted over and over are over priced. They maybe over priced for a number of reasons but you can sometimes get a feel for it from the add. Bad pictures, dated property, and bad management are reasons some properties languish on the market.

Agency - You need to read your agreement with the PM you hired. I'm guessing that you basically signed the property over to the agent to make all decisions related to it. Get out your agreement and re-read it with eyes for what has happened over the past 3 years. Probably the only thing they did outside of the agreement was do work for more than was authorized. Something to consider is all agreements are negotiable. If you want more control, negotiate it with them. They might not go for it and it sounds like they might not honor it but you can try.

Quality of tenants - this happens all the time with owners who rent their former home. NO ONE will treat it with the same love and care as you did. You have to know that up front. Your old neighbors will hate you for bringing in people who don't love the house the same way you did. It's a fact of life. Tenants renting a family home are usually of a different socioeconomic class (lower) than the people who own and buy homes. Unless you get someone relocating that is just looking to test the area before they buy then renters are renters and they are different than owners. Now all that said, parking on the grass is usually a violation of local code so is not acceptable. If it's not a violation and it's not in the lease, you can't keep them from doing it so you may want to check the lease and local code. This is true of many tenant behaviors. Again owners rarely do them and think of these things as "bad" behavior socially. Tenants lack that gene so you need to spell it out in black and white.

PM Company - Angie's list - you should be aware upfront that Angie's list is funded by charging companies to "advertise" there. I consider it to be an expensive place to find a contractor of any kind. Whether or not they do a "good" job apart from price I can't really speak to. Your current PM is a volume company, they have lots of properties and keep all the balls in the air. They have a cookie cutter approach and everything else gets trimmed away. The one you contacted on Angie's list only has to work half a hard as the company you have now to make the same money. I have a couple of issues with the current PM. I find it a bit concerning that they can't keep a tenant for more than a year in your 3/2/2. Personally, I would want much more control over the tenant selection process. That seems to be outside of the capacity of your current PM (see cookie cutter). I would want to review their criteria and I would want final approval on all tenants before an agreement is signed with them until I am 100% certain of their capability. If you want to find another PM, you should screen them like you would any contractor that you use. The first thing is to figure out what you want and what you are willing to pay. Write those things down. Then I would select a list of at least 10 PMs (if that many exist in your area). Visit their websites, call their office inquiring about rentals, check their online reputations, and your state board for previous issues. Pick the best 4 or 5 from that and meet with them and let them give you their sales pitch about why they are the best PM. Short list 2 or 3 and do a second interview where you grill them with everything you can think of and can find here on Bigger Pockets. Pick you PM from that process. If you don't have the time to do this process, seriously consider selling. You are trusting these people with hundreds of thousands of dollars you should take the time to fully check them out or find an investment that fits your lifestyle better.

Truly it takes more time and effort to find a good PM than to rent a place and find an excellent tenant on your own.