Managing property manager

[Ian Fisher]

Hi all

I'm sure I'm not the first person to deal with this issue and hoping for some advice from all the great experience on BP. I'm a SFR buy and hold investor who is very remote from my properties and so I retain a professional property manager. This manager is very competent but I have two issues:

- our contract is structured as a percentage of gross rent plus a leasing fee, which I understand is fairly typical. However, the PM also runs a maintenance company and uses this company to handle any maintenance needs that arise, which are then billed to me of course. Not sure that the rates aren't competitive, but the issue is that the PM will obviously be incentivised to keep these amounts (number of callouts and price per callout) as high as possible while I'd obviously prefer the reverse. It's made a significant negative difference to my returns, and conversely is where I believe the pm makes the majority of their revenues from me rather than from management fees. How do you deal with this? I've suggested a pm fee to be a percentage of net rent, but pm has no interest and I understand this isn't standard in any case

- along similar lines, when a tenant moves out and leaves property trashed (beyond what security deposit will cover), pm has little incentive to recover these funds and so I'm often left out of pocket again - with the repair costs in the pm's pocket

Thanks in advance!

[Jay Hinrichs]

@Ian Fisher 

  Property management to be profitable for the PM needs the revenue from maintenance.

If the PM is only generating their income from the PM activities IE no brokerage actives or flipping IE TK.. The PM company won't stay in bizz by just charging a monthly fee or lease up fee.. they must charge all the other fee's to make any kind of real money.

I think your heading down the right path though... in your thought process... diversify and Notes can be a great way to do that as long as you choose your notes Very carefully. A very good First Trust deed will cash on cash out perform most of the Assets in the so called Cash flow markets.. Because of consistencies of income .. Same income every month no expenses at all. No vacancies No maintenance etc. But there is no leverage either. So if your investing for cash flow and paying cash in a market that you know the values will never really go anywhere.. Then a Note that makes 8 to 12% interest could be a great vehicle for you.. There are some tax implications for Foreign investors buying notes. But there is a tax exemption form that can be utilized as well.

The other point you made about JV with local partner works.. In my mind if your going to live 12km from the property and you have SFR's not Multi then this works well. We were west coast based I bought 350 SFR's from 09 to 2012 and that's exactly how I did it.. My PM and maintenance were my partners. No leasing fees no management fee's no mark up on maintenance etc etc. And even at that cash flow was never what we all thought it would be going into it... The reality of cash flow in SFR's in many markets is just does not match pro forma or marketing materials.. Your experience's are very typical and normal.

It also depends on the Asset class. I have GO Zone rentals in MS  that I can self manage no problem.. I pay a realtor a one time lease fee then handle everything else myself. But these are white collar rentals No sec 8  all tenants with professional type jobs.. I could not do this in the Blue collar areas at all there you need someone on the ground or you will have it far worse.