WHAT TO DO: Constant Evictions, High Maintenance Costs, Poor MGMT

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WHAT TO DO: Constant Evictions, High Maintenance Costs, Poor MGMT

Becca Cross
Auburn, CA · Member since 2016 · 5 posts · 1 vote

To say the least, we're overwhelmed. My mom has owned her rental property for the last 12 years located 2 hours out of state. She's been an absentee landlord for the duration, and we continue to encounter problems with our property management. Some of the issues are: rent rates are way below market, poor tenant screening, frequent evictions, excessive damage and repair costs. Our property management contracts work out to his father's company, who specializes in repairs. He charges $45/hr for labor. We receive constant invoices for poor quality work at high prices. This property is on a shared lot with a 5-Bdrm, 3-Bath, 2000sq foot rental home. Behind the home is the 6-unit apartment complex.

Within the apartments, we get approx 3-4 evictions a year. Each apt unit is 600sq feet, 2bdr with month/month rental agreements. They rent for $495-695/mo. for unclear reasons. Reno NV rental comps are about $650 for a 1bdr, and $750+ for 2bdr. Turnover costs per unit go as follows: Painting $550, Patch/Repair $1100, Materials $500, Cleaning $130. The eviction process typically exceeds it's rental income for the month. $600 for the most recent: for locksmith, rekey, lockout, multiple eviction notices etc. The grand total repair/eviction costs for a single unit totals over $3000. This last particular tenant lived there only 5 months. Among all the disrepair, trash litters the property due to management neglect. We've recently noticed all of this in the last few months during our frequent visits to the property. We currently have 2 vacant units, and we're using this time to determine where we go from here. At this time, Reno NV is only experiencing a 1% vacancy rate. Considering our property's prime location, we are attempting to reconfigure the quality of tenant and price of rent. We are considering upgrading everything from exterior paint and light fixtures, to interior floors and faucets.

All that said, we're optimistic with this upcoming downtown area. The lot is walking distance from new cute breweries, restaurants, shopping, coffee shops, entertainment, etc. We'd hate to have seen this little gem fall into disarray.

Bottom line, we're ditching our property management company. Our feelings are mixed; we feel this could be a great opportunity, but this could also be a sinking ship. What lengths should we go regarding renovating to rent vs renovating to sell? What should we be renovating? What is recommended for calculating rental finances and expenses? How much should we invest before we abandon ship? How do we prevent hiring another terrible property management company? How do we determine rental agreements? How do we know our invoices are accurate and honest? We want to crunch all of these numbers, but we don't know who or where to acquire them from. Any input is very much appreciated!

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Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
9y
Becca Cross - If you want to understand the situation, you have to get more hands on with the property. Can you afford to stay there 1-2 weeks? After you patch up an apartment unit (or if you have a pretty one currently lived in by a neat tenant), stage it with nice looking basic furniture, post it on CL yourself and see what response you get. Run applications yourself. Offer it furnished and unfurnished at different prices. Who applies? Who offers to sign? At what prices? Sometimes the ambiance of a place will decrease your rental rates or your amenities don't meet the needs of higher quality tenants. Cap rates are at an all time low if you want to sell. It's generally better to be 100% occupied when you sell since you're effectively asking for a multiple on NOI. When you're on site, check with local people to see what certain activities should cost. How much can you hire someone for? I usually estimate $15-20/hr for handymen, and try to turn it into a fixed price ($100 for painting a 10x12 room + materials). From all the evictions, it's clear whatever you have currently isn't working. (Unless some tenants talked to each other and all stopped paying at the same time.) If you don't trust your current PM to improve, then interview a bunch and hire another. Or self manage and train your tenants to autopay rent to your local bank account, schedule repairs with you directly (then you call a service provider), pay existing tenants a commission for showing the units, and report on weird activities by other tenants. Who can you trust to talk to and handle activities on your property for reasonable compensation?
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  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Becca Cross - If you want to understand the situation, you have to get more hands on with the property. Can you afford to stay there 1-2 weeks? After you patch up an apartment unit (or if you have a pretty one currently lived in by a neat tenant), stage it with nice looking basic furniture, post it on CL yourself and see what response you get. Run applications yourself. Offer it furnished and unfurnished at different prices. Who applies? Who offers to sign? At what prices? Sometimes the ambiance of a place will decrease your rental rates or your amenities don't meet the needs of higher quality tenants. Cap rates are at an all time low if you want to sell. It's generally better to be 100% occupied when you sell since you're effectively asking for a multiple on NOI. When you're on site, check with local people to see what certain activities should cost. How much can you hire someone for? I usually estimate $15-20/hr for handymen, and try to turn it into a fixed price ($100 for painting a 10x12 room + materials). From all the evictions, it's clear whatever you have currently isn't working. (Unless some tenants talked to each other and all stopped paying at the same time.) If you don't trust your current PM to improve, then interview a bunch and hire another. Or self manage and train your tenants to autopay rent to your local bank account, schedule repairs with you directly (then you call a service provider), pay existing tenants a commission for showing the units, and report on weird activities by other tenants. Who can you trust to talk to and handle activities on your property for reasonable compensation?
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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    It would be wise to physically assess the property and interview new property management while there.  If you can schedule painting/repairs, etc., while you are there to oversee things, that would be beneficial as well.   It took a while to find a good out-of-state property management company when we got tired of dealing with ours as well.  We were across the country, and old management took advantage, charging us for repairs that never happened, cleaning fees during vacancy that when we flew in to check why it wasn't renting, had never been cleaned.  The $45/hour may not be a bad rate if they are doing professional work, not for calling their dad to come do a patch job.   Now that we are closer (3 hours) to our property, we visit at least once a year for a long weekend and do maintenance, repairs, improvements, etc., and line up help beforehand if needed so we can get the most done while we are there.  It saves us a lot of money on what we call "stupid trips" that have been greatly reduced since we started our own yearly inspections.   If you are not able to check up on your property or the management to make sure they are doing a proper job, at least once or twice a year, then you might need to consider selling.      

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Your situation is not that uncommon. It arises from investors that treat income properties as a passive arm chair investment. Nothing could be farther from the truth. The only difference between self managed and hiring a PM is in regards to who the investor manages.

    To correct your present situation you need to be involved, on site and educated.

    Not knowing the class of your investment make it difficult to determine where you can take this property but you defnatly need to upgrade your tenant base, lipstick reno, higher rents and higher screening standards. It appears that to this point in time your PM has not done any screening or at the best has no standards.

    If you do not have the desire or time to be hands on for a extended period of time to work through the transition you may be better off simply selling as it is and be done with it. There is likely extensive buried equity that selling would free up for better use. 

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  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I read your BIO on BP.. If your serious about what you wrote, you need to move into one of the apartments and start managing the property  yourself for awhile and get things under control. You are to far removed and have limited experience in knowing what expenses should and shouldn't cost.

    The PM company your using sounds as if they are using you.. you can do some research on new PM companies but basically you need to research rent rates for your type and size apts. If all the current tenants are on month to month start by getting them up to current rent rates. and do the work needed in any vacant units so they are ready for rent. Look at your leases make sure they are well written, and set your rental criteria for new incoming tenants within guidelines for income, credit, ect a better pool of tenants to rent to more stable.. you could have good tenants now, but the PM has trained them not to care or pay on time.. Give notices that late rent fees will be assessed and that rents are due on the 1st. 

    Baisally roll up your sleeves take a hands on I'm in charge approach and steer the ship. Study up on landlord tenant laws for your state and if you really want this to work your going to have to spend some time there to turn it around.. if after this it's to much at least your in a better situation to find a realtor and put if up for sale, or know your next PM will need more direction and supervision. Not easy from a distant location to monitor.

    good luck.

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  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    @ becca cross What you described is "standard" and " normal" for C properties .... Every C class property is like this....
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  • Becca Cross
    OP
    Auburn, CA · Member since 2016 · 5 posts · 1 vote
    9y

    @Natalie Schanne, Thank you for the great ideas! I think at this point, you're right, we really have to help a higher quality tenant visualize the opportunity of this space. Furnishing a unit, updating the exterior of the property, and posting those photos on CL is a great way to explore our options.  

    I made appointments to speak with 2 different property management companies, painters and handymen, thanks to you. We won't be able to stay a full week, but we'll stay 3 days at the property. We also just found out there are 2 big roof leaks at the apartments, and many storms in the next few weeks, so diligently trying to process all of this chaos. I believe our flat roof has had it's last day.

    We have to hire a new PM. I'm no accountant, but I've flagged 20-40 questionable bookkeeping items in the last 6 months. I can only imagine what the past 12 years has looked like. We found out yesterday that they "renewed" a lease to a tenant that had broken her lease 1 month prior, that cost us $1200 in property damage. Now she's back in the same apartment with newly broken window shades and blankets covering her windows. 

    Enough stewing! We just need to take control, whether it be by self-managing or hiring a more reputable, higher quality PM company. Thank you for all your input! 

    @Lynn McGeein, Thank you for sharing your insightful experience! It's atleast somewhat satisfying to know other landlords have gone through the same PM neglect as we have! It's kind of bewildering to think that people/companies like this exist. It's not the end of the world, just a really good eye-opening, very expensive experience! We'll definitely be much more involved as we go through this process. As I mentioned above, I have appointments lined up for this week to interview/bid various jobs throughout the property. No more "stupid trips," we're taking hold!

    PS: I was told that it is a great idea to have repair people (or your PM) take before and after photos of completed repair jobs. That way, it's documented, concise, and explainable to your bid price. Smart!

    @Thomas S., Very helpful, definitely a C propety in a B neighborhood! Thank you!

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  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    9y
    Diane G. No it isn't. Even in class C shouldn't have near that many evictions a year with only 6 units.
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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Diane G.:

    @ becca cross

    What you described is "standard" and " normal" for C properties .... Every C class property is like this....

     OVER GENERALIZATION.  Issues are with very poor PM, conflict of interest and worthless screening.

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Yes ditch the existing PM.  With the new one, insist upon using licensed contractors unrelated and unknown to the managers.  

    For a while, 

    • INSIST upon review AND approval of all new tenants. 
    •  Also demand itemized invoices for all repairs 

    Be up front "We had a terrible manager experience before and we hope we can work together  to our mutual benefit". 

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  • Tobias Falzone
    Real Estate Agent · Orlando, FL · Member since 2015 · 126 posts · 74 votes
    9y

    @Becca Cross - It sounds like screening is not being taken seriously by the PM, and your turnover costs look way too high as well for 600 sqft apartments that aren't being upgraded on turnover.  I would grill the PM about the work, but I wouldn't be afraid to fire them, and quickly.  I've heard too many horror stories about bad managers and it sounds like they are not managing the property well, to say the least.  However, It sounds like from your description you are well positioned in terms of location and with proper management and upgrades the property can probably be turned around.  I don't live too far from you or the property.  If you want a second set of eyes on this project, I'd love to help you out.  

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  • Becca Cross
    OP
    Auburn, CA · Member since 2016 · 5 posts · 1 vote
    9y

    @Jeff B. Those are just the pertinent details I've been looking for! It seems that many PM's have additional cleaning, repair, maintentance "companies" built within their infrastructure. Wouldn't that create a conflict of interest? Perhaps in some cases it's easier, but it's extremely frustrating to feel bamboozled by those that should be supporting your interests. I'll gratefully take both of your recommendations as we go through this cleaning-out process! Thank you so much for the support!

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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    9y
    Incintives matter. How about hiring a young, smart PM wanting to "turn around" a property for a percentage of profits...just an idea, but someone may want the education/experience, the ability to claim a turn around to partner up on a future deal and the profit share would somewhat incintivise making money the correct way (add value and manage well, etc.) and not by scamming the owners. Never done something like that...but it does sound like a good opportunity for a local and plenty of businesses use % profit as partial compensation.
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