Managing my property manager

[Hernan B.]

Hello,

I have a question about how to go about managing my property manager. The first property I bought was a four unit building located in a rougher area of Milwaukee (not extremely horrible). Going into it, I knew there was going to be a lot more trouble than what a typical property might have. More difficult tenants means more repairs which decrease NOI.

This past year I decided to get a property manager to take it off my hands (I handled it for about 9-12 months before it started bumping up with my work schedule). I'll be honest, I don't know what a good property manager is supposed to look like. After reviewing my numbers for 2014 (in light of tax season), I see that I am about breaking even from a cash flow stand point. It looks like I received 26K in rent (23.9K after management fees), however repairs and maintenance was 16K! I realize that this includes basically turning over each unit (new carpet in some, paint, 1 set of new appliances, etc) but I still find that number to be very high. After taxes, water, common electric, and insurance it was about cash flow even. 

My question is how do I go about letting my manager know this number will not be acceptable for 2015? Do I start looking at new property managers (I've only had the one)? My biggest concern is getting tenants to pay rent (difficult in the area in general) and keeping expenses low (which I would think has to do with the tenants), any ideas how to accomplish this? Should that question be put on my PM's shoulders? 

As always, I appreciate any and all feedback!

[Steve Rozenberg]

You have to remember why you hired a PM in the first place. Normally it is in hopes of leveraging your time with paying for their service and expertise. There are a-lot of things that one may do differently but I can tell you there is no right way or wrong way, It is just a way.

I know that when I was running my portfolio of homes there was a lot of things that I had no idea that I was breaking many laws and regulations. Not intentionally but just because I did not know they even existed. You have to remember you own a business, IRS, Fair Housing and Discrimination, and state property code all say that you are a business. Normally the person that does not think they have a business is people like I used to be and come very close to getting sued and lose everything. Sometimes spending your money is not always for them to make a profit but to do things right. For example we no long use the guy in the truck like we used to with our own properties. We make sure everyone has insurance if the walk into an owners house. Why? Because if that guy in the truck slips and falls off a ladder and cant work guess who gets sued, basically anyone and everyone including the owner. So did we really do the owner a favor saving them some money but potentially getting them sued? Its a tough call, we manage over 400 homes and that means we have over 400 personalities and 400 tenants. That is a lot of people, the only thing as a PM can do to keep it straight and legal is do it correctly.

Again just my opinion, I am an investor just like everyone else and understand cashflow is important, but making sure not to get sued is more important in my eyes to make sure it runs like a true business.