Setting up rent collection - in case I switch property managers

[Dan G.]

Hello,

I am just getting started with buying out-of-state single family home investment properties (I still haven't done my first deal yet) and one thing I keep seeing over and over again is that a bad property manager can kill you, and that a good one can be hard to find.  So, if your property manager is bad, you need to switch as soon as possible.  My question is, is there a way that rents can be paid in such a way that in the unfortunate event I have to change property managers, I won't have to contact all of my tenants and make them change where they are mailing checks?  I was thinking about setting up a mailbox that forwards mail, but that would delay delivery.  And how does this work for switching over automatic direct debit/ACH out of the tenants' bank accounts?

Are there property managers that will allow me to receive the rent payments, and then allow me to pay my management fee to them each month?  If I receive the rent payments, then I don't have to worry about switching the tenants over when I change property managers.  I'm not sure if this is realistic.  If it's not, I welcome any suggestions.

Thanks!

Dan

[Dawn Brenengen]

@Dan G. I wouldn't worry too much about the rent payment confusion.  I have taken over management accounts numerous times, and I just send a letter to the tenant letting them know that I am the new manager and to please send payments to....  I also follow up with a phone call to introduce myself, and have had no issue with it.

[Dan G.]

Originally posted by @Dawn Brenengen:

@Dan G. I wouldn't worry too much about the rent payment confusion.  I have taken over management accounts numerous times, and I just send a letter to the tenant letting them know that I am the new manager and to please send payments to....  I also follow up with a phone call to introduce myself, and have had no issue with it.

 Thanks. I'm still concerned because I'm planning on buying C class properties where tenants tend to be less on the ball and are more likely to miss the letter or not return a phone call. Is there nothing I can do? And what happens if they mail a check to the old company and the old company cashes it? Since I fired the old company, they may not send it to me so fast. 

[Dawn Brenengen]

@Dan G. I always time the change so that it's after the tenants pay rent for one month and well before it's due the next month.  If they mail a check to the old company, that company needs to send it to you, and if they don't then you should report them to the real estate commission in your state.  You can hedge your exposure to a bad company by getting some recommendations from other investors. Check reviews, ask Bigger Pockets and interview a few companies.  

[Adam Willis]

Hi Dan.  Yes, bad property managers (PM) can ruin Terminating a property manager and having the rent sent to you is actually pretty easy. Just make sure the PM doesn't have early termination fees. If you do have to terminate a PM here's the steps. Get copies of all pertinent docs (leases, rental applications, ledgers), give the PM notice, make sure the PM sends a letter notifying the tenant they're no longer involved, and you also make contact with the tenant making sure they have your info.

Yes, bad property managers (PM) can ruin cashflow and good PM ones can be difficult to find. But I think you're asking the wrong questions.  Don't try to manage the property manager -- you're wasting either time or money.  The important part is to interview/vet the property manager and make sure they're good to begin with by asking  the right questions.  Who knows, they might even be a resource on helping you locate a property outside your state and should be willing to give you rental analysis.  A good resource for locating a good property management company in your market is  NARPM or IREM.  You can sift through the chaff pretty quick by hiring PM company on that site. 

 I'm not aware of any property managers that will allow you to collect the rent directly and then send them the management fees.  Rent collection a large portion of what PM do and if they don't have access to your funds, they may be slow to take care of repairs.  Maybe you could allow the PM to keep some money in their account to cover maintenance.  

Hire slow and fire fast.  

[Sarnen Steinbarth]

@Dan G.

In answering this question: 

Are there property managers that will allow me to receive the rent payments, and then allow me to pay my management fee to them each month? 

I know that some PM's will do this, but it is very rare. (I think out of the 2000 property management students that I have had, I have had 2 that do it this way) Most PM's are set up to take in the money, pay out any bills, then disburse the remaining to the landlord.  

Some state regulatory laws require that it is done this way as well.

[Dan G.]

Originally posted by @Adam Willis:

Hi Dan.  Yes, bad property managers (PM) can ruin Terminating a property manager and having the rent sent to you is actually pretty easy. Just make sure the PM doesn't have early termination fees. If you do have to terminate a PM here's the steps. Get copies of all pertinent docs (leases, rental applications, ledgers), give the PM notice, make sure the PM sends a letter notifying the tenant they're no longer involved, and you also make contact with the tenant making sure they have your info.

Yes, bad property managers (PM) can ruin cashflow and good PM ones can be difficult to find. But I think you're asking the wrong questions.  Don't try to manage the property manager -- you're wasting either time or money.  The important part is to interview/vet the property manager and make sure they're good to begin with by asking  the right questions.  Who knows, they might even be a resource on helping you locate a property outside your state and should be willing to give you rental analysis.  A good resource for locating a good property management company in your market is  NARPM or IREM.  You can sift through the chaff pretty quick by hiring PM company on that site. 

 I'm not aware of any property managers that will allow you to collect the rent directly and then send them the management fees.  Rent collection a large portion of what PM do and if they don't have access to your funds, they may be slow to take care of repairs.  Maybe you could allow the PM to keep some money in their account to cover maintenance.  

Hire slow and fire fast.  

 My concern with asking all the right questions is that I might not receive honest answers.  If a property manager does bad business, there's a good chance, in my mind, they won't do good business during the up-front sales process, either.

Does NARPM or IREM show complaint history against the companies?  Is there more to these organizations that just paying dues?  Why is a NARPM or IREM member going to be a better property management company than a non-member?

Is there a resource I can check for complaints lodged against companies?  I know the State of Florida has this for real estate agents at the Florida Department of Business and Professional Regulation.  Is there something like this for property managers?

[Adam Willis]

Originally posted by @Dan G.:

Originally posted by @Adam Willis:

Hi Dan.  Yes, bad property managers (PM) can ruin Terminating a property manager and having the rent sent to you is actually pretty easy. Just make sure the PM doesn't have early termination fees. If you do have to terminate a PM here's the steps. Get copies of all pertinent docs (leases, rental applications, ledgers), give the PM notice, make sure the PM sends a letter notifying the tenant they're no longer involved, and you also make contact with the tenant making sure they have your info.

Yes, bad property managers (PM) can ruin cashflow and good PM ones can be difficult to find. But I think you're asking the wrong questions.  Don't try to manage the property manager -- you're wasting either time or money.  The important part is to interview/vet the property manager and make sure they're good to begin with by asking  the right questions.  Who knows, they might even be a resource on helping you locate a property outside your state and should be willing to give you rental analysis.  A good resource for locating a good property management company in your market is  NARPM or IREM.  You can sift through the chaff pretty quick by hiring PM company on that site. 

 I'm not aware of any property managers that will allow you to collect the rent directly and then send them the management fees.  Rent collection a large portion of what PM do and if they don't have access to your funds, they may be slow to take care of repairs.  Maybe you could allow the PM to keep some money in their account to cover maintenance.  

Hire slow and fire fast.  

 My concern with asking all the right questions is that I might not receive honest answers.  If a property manager does bad business, there's a good chance, in my mind, they won't do good business during the up-front sales process, either.

Does NARPM or IREM show complaint history against the companies?  Is there more to these organizations that just paying dues?  Why is a NARPM or IREM member going to be a better property management company than a non-member?

Is there a resource I can check for complaints lodged against companies?  I know the State of Florida has this for real estate agents at the Florida Department of Business and Professional Regulation.  Is there something like this for property managers?

 Hi Dan. 

 I agreed, you should interview and ask lots of questions.  My caution is that property management companies (PM), like any profession, will have sales guys who are awesome through the dating phase and tell you everything you want to hear and subsequently fail you.  

Honestly, I don't know much about IREM.  However, *NARPM has strict standards and code of ethics that PM must follow before joining and are quick to boot out the bad guys.  PM can earn accreditations and training to better themselves, their staff, and their office by being members.  The premise of NARPM is to improve the property management industry as a whole.  Which should benefit you as their client.  So while PM companies pay dues to join, it's not fluff or BS to glean more business - although it helps :).  I definitely recommend starting your search for PM on NARPM's site, then vet/interview the companies using the questions others have suggested.

Yes, NARPM has a platform for filing complaints about its members but it's not public as far as I know.  Again, the bad companies get the boot.  However, if you want the dirt on PM companies go to Yelp, Google+, Better Business Bureau, and Facebook for candid reviews.  If they get bad reviews from tenants, that means they're doing their job and protecting you as their client.  If a client/investor gives them a bad review, then take heed. 

When I look to invest out of state here's what I would do.  Go to NARPM and locate PM companies in that market>research them on online using the review sites above>then call and interview them.  It will save you the most time and yield better results in my opinion.

*Disclaimer: I, by no means, benefit from promoting NARPM or IREM but I'm a member.  I wish I made millions because it sounds like I'm the huge advocate.

[Tilo Schroeder]

Good evening Dan,

interesting... I just got this question from one of our new clients. He asked the very same questions if it was possible for the rent payments to go directly to him.

Now, I don't think many PM companys do so because of the explained above, slow in repairs, service etc due to unavailable funds. Since we try not to say no we have settled on the owner receiving the rents but we have access to a certain amount of funds at all times for the unforeseen repairs that need immediate attention. If you correctly explain you thoughts and concerns to the potential PM I am sure the right one is willing to work with you on this.

Have a great rest of the week

[Dan G.]

Originally posted by @Tilo Schroeder:

Good evening Dan,

interesting... I just got this question from one of our new clients. He asked the very same questions if it was possible for the rent payments to go directly to him.

Now, I don't think many PM companys do so because of the explained above, slow in repairs, service etc due to unavailable funds. Since we try not to say no we have settled on the owner receiving the rents but we have access to a certain amount of funds at all times for the unforeseen repairs that need immediate attention. If you correctly explain you thoughts and concerns to the potential PM I am sure the right one is willing to work with you on this.

Have a great rest of the week

 Thanks Tilo. I have no problem giving the property manager full access to my bank account funds so they can take out all the fees and costs for repairs. How would I go about setting that up at the bank? 

[Tilo Schroeder]

Originally posted by @Dan G.:

Originally posted by @Tilo Schroeder:

Good evening Dan,

interesting... I just got this question from one of our new clients. He asked the very same questions if it was possible for the rent payments to go directly to him.

Now, I don't think many PM companys do so because of the explained above, slow in repairs, service etc due to unavailable funds. Since we try not to say no we have settled on the owner receiving the rents but we have access to a certain amount of funds at all times for the unforeseen repairs that need immediate attention. If you correctly explain you thoughts and concerns to the potential PM I am sure the right one is willing to work with you on this.

Have a great rest of the week

 Thanks Tilo. I have no problem giving the property manager full access to my bank account funds so they can take out all the fees and costs for repairs. How would I go about setting that up at the bank? 

Good evening Dan,

sorry for the delay in response, had been a busy day.

We kept it really simple and our client opened a joint checking account at his bank and keeps a certain amount in it at all times. If there is a repair on maintenance expense we simply use his account to withdraw the cost.

I am sure there are better ways to go about this, however for us it seemed to be the easiest and simplest solution at the time. Has been working out great for both parties so far.

Have a wonderful rest of the day