Using a Property Manager But Finding My Own Tenants?

Question

Hello BP,

Just wanted to see what people thought of this... I like the idea of using a property manager - I really don't have much interest in dealing with tenants, collecting rent, scheduling maintenance people, etc. so I've decided that it's worth it for me to pay a property manager 8% of the rent to handle these things for me.  However, I do have an issue with the fee of 1-month's rent for placing a tenant.  I talked to the PM company and they said they do not recommended going in this direction, but it is still allowed.

Just wanted to see if anyone has done this and what is your experience?  Would the property manager look at my situation any differently since I'd like to find my own tenants?

Wesley W. · Answer

I've mentioned this in previous threads, but @Brie Schmidt has a great method for incentivizing the PM so their goals are aligned with the owner's.  She outlines the written contract with her PMs on one of the BP podcasts.

It's something like this...take 25% of gross monthly rent and use that as an annual "vacancy bonus."  So for 10 units renting at $1000 a month, owner pays the PM $2500 vacancy bonus over the year. So each quarter PM would get $62.50 if that unit had no loss of income.

Max T. · Answer

There has got to be a better way.

Paying the PM a lease up/turnover fee is a skewed incentive.

They are rewarded for finding tenants who don't stay long term. NOT in the owner's best interest.

I don't know what the answer is, but the model is flawed.

Dawn Brenengen · Answer

@Michael Campbell I agree with @Christian Hansen.  I have allowed clients to find their own tenants, and then I take over management, and every time, I regret it.  Often, the owners regret it too as the tenants now have their contact info and will often bypass me to go straight to the horse's mouth when they want something

Thomas S. · Answer

Landlords are required to manage their property managers. Having a property manager does not mean you sit back and do nothing. You need to allow your manager to do their job but at the same time you are responsible for monitoring what your manager is doing. If you are not on top of everything you are not in control of your business.

You own the company and you need to stay on tip of your employees (contractors).

James DeRoest · Answer

We found tenants for some friends properties a couple of years ago. Decided that we had too much on our plate, and handed them to a property manager.

What could go wrong?

Pretty much everything. 12 months later, of the 5 properties we gave to the PM, only 1 still has a contract with them. The two owners spent a whole year wondering if the PM was ever going to send them money, or whether they would get another bill for yet another repair. This was meant to be one of the best PMs in the county.

If you live near the property, and can go to the trouble of finding a tenant, you may as well run the property yourself. So the AC goes wrong, you call the AC company and ask them to call the tenant, there is a plumbing issue, pass numbers along. It's really not a big deal.

It is your investment after all.

The corollary of my story is that 2 landlords, and 3 tenants want us to manage those properties again (something we're not about to do).

Michael Campbell · Answer

In the PM agreement I was given, it states that if they find a tenant and they move out within the first 9 months, they will find a new tenant free of charge.  Is this common?  Seems like more of an incentive to use them for placing a tenant.  Still, the cost seems high to me.

Michael Sherwood · Answer

The property manager usually makes money in 3 ways. Management fees for collected rents, placements or lease fees, and marking up repairs. The actual management fees usually just cover overhead so you don't make much on those where they usually make the money is on placement and repairs but if you have a good property manager they won't rake you over the coals. The approach I have is the following.

1. When placing a tenant if they move out in the first 6 months to a year because of non payment or some other issue I should have screened for I will usually waive or cut in half. For example, we had a tenant move in and after 6 months left because they were having a baby. I shouldn't have waived the fee because obviously I can't do anything about that they just needed more room. For good long standing customers I don't have a problem with this.

2. Recommend repairs that will keep the place clean, safe, and hardened against damage. For example recommend not using carpet.  If you have a PM that is worth their salt they just won't go 'looking for repairs' just to make money.

At the end of the day when the owner and tenant are happy things go a lot more smoothly.

Michael Campbell · Answer

@Peter Mckernan Thanks for the input!  Sounds like the right approach.

Peter Mckernan · Answer

Hey @Michael Campbell

I would say that if you have a full time job, but are able to spend some spare time researching and getting a quality tenant into the unit/home on your own it should not be an issue. The management company should have sounds like they do not have an issue with this process. It will save you some money in beginning, so if you have the time and do not want to spend the money I would say handle it on your own.

If you did not have the time to perform that task, I would suggest to pay the management company for that fee even though it is high.

Using a Property Manager But Finding My Own Tenants?

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