How to manage the Property Manager

[Michael G.]

I may be the only one with these property management issues but it seems to be a recurring theme.

I've owned 4 rental units in a particular farm area. Almost without fail every single property management company I've hired has had issues with at least one of the following:

a) Creating repairs and invoices for ficticious repairs.

b) Charging us for repairs done to another property.

c) Not managing the tenants properly in terms of them paying the rent late. ie - US- What happened to Mays rent? Them - Oh, we forgot to tell you that the tenant is having some issues and said they wont be able to pay til June.

d) Not communicating the cost of repairs and charging us for them unexpectedly. ie - the stove broke we had to replace it.

Im sure I will think of some other things after I write this memo but Ive learned that the property managers need managing. I thing that if left unattended the tendency is for them to use your rent rolls as a license to print money.

Ive gone through 3 different property mangement companys and it almost seems like there is a common theme amongst them which is that they know you are an out of town investor and the likelyhood of you showing up to inspect your property is very, very low. The further away the better it seems.

I've taken some precautions lately like asking for a phone call prior to making any repair more that $100. Asking for before and after photos of repair work that needs to be done. Closely watching the expense column for charges (hidden, mistaken and otherwise)

Please share your prop mgmt thoughts and experiences with me. I'd love to hear them.

[Marc Freislinger]

Originally posted by Eddie Ziv:
I'm sure Rich Weese doesn't manage his own properties and his are all over the US and Mexico....

I believe I've read him advise moving to a location that works. :cool:

But, I agree. Some places just will not cash flow, and trying to force them to will only make you go broke. I don't see anything wrong with investing out of state, if you can find good management. If there isn't good management in the area you invest, then it's time to hire someone locally on the ground to work for you.

[Jeffrey K.]

Eddie,
If all goes well I will have 150 units by next year. I plan to manage them all myself. 150 units does not make you a big player. In the SFR world that is a lot, but in 10 buildings that should be no more work than a 40 hour a week job (if you know what you are doing).

[Marc Freislinger]

Originally posted by Jeffrey Koenig:
Eddie,
If all goes well I will have 150 units by next year. I plan to manage them all myself. 150 units does not make you a big player. In the SFR world that is a lot, but in 10 buildings that should be no more work than a 40 hour a week job (if you know what you are doing).

You're a brave man. I work for an apartment community that has 211 units. We have a PM, a leasing agent, and 2 maintenance techs, all full time.

[Michael Rossi]

You're a brave man. I work for an apartment community that has 211 units. We have a PM, a leasing agent, and 2 maintenance techs, all full time.

That's more than double the number of people that is really required, although it's pretty typical for an apartment complex of that size.

The reasons that you have so many people working for the apartment complex are:

1. Inefficiency - many large apartment complexes use complex computer programs for managing the property. The PMs end up doing a RIDICULOUS amount of unnecessary computer "work" that adds absolutely nothing to the bottom line.

2. Employees don't work at the same pace as owners.

3. As the number of employees increases over 1, the amount of screwing around goes up.

IMO, Jeff is absolutely right - managing 150 units is a full time job for 1 person.

I watched my father for over 20 years have his dinner interupted and work endless weekends. He was tied to the properties!

Why would he have to work weekends or any other time when he didn't want to work? That's one of the best things about the rental business - being able to set your own schedule. The ONLY reason that I can think of to work when you don't want to is an emergency - like a water line break; heating and cooling emergency when the outside temperature is extreme; or a refrigerator going out. These things happen VERY infrequently - if you keep your property properly maintained.

I hear people frequently say that they don't want to manage their own property because they dread the 3 am call that a water line has broken (or some other crisis). In the 7 years that I've been in business, I've NEVER had to go fix something in the middle of the night - and that is with several dozen rentals. The 3am (or weekend) emergency is more of an urban legend than reality! Furthermore, if you did have that elusive 3am or weekend emergency call, you always have the option of simply calling a plumber to fix the dreaded water line break or calling the HVAC contractor to fix that furnace/air conditioner.

[Dale Osborn]

Good Luck on finding a competent property manager. Most have so many properties they can only give each property a "lick and a promise". They are supposed to be licensed realtors, but just passing a real estate license course does not teach them any property management skills. A newbie realtor can be placed in the property management section and not know a thing about property management. We have taken over numerous properties that were professionally mismanaged by a management company. For us, it is a way of getting a better deal as to the condition of the property. When you do decide on a property manager, everything needs to be in writing covering every little detail. If repairs cost over $50 then your permission is required. Of course the agreements are forms drawn up by the management company so who do they protect - the property manager, not you! We had the same problems you had for 3 months - then we took over the leases, deposits, keys and did things ourselves and found that instead of being in the red each month, we were actually making a good profit. Any time you have the control of money and power under the same person or company, you are bound to lose money from your pocket into someone else's pocket!

[Mark N.A]

Originally posted by Eddie Ziv:

It is not about the business model, it is about finding the right way to adapt that business model.

Eddie, my business model is to make money from day one with my RE investments. My goal is not to 'be' in Real Estate, but to 'be' in a profitable business, whatever that may be.

In one of his books John T. Reed analyzed the many, and potentially very serious, liability issues that are associated with owning RE (not including Black Swan events). For me it was eye-opening, scary and depressing.

Even utilizing the 2% rule I AM NOT GETTING PAID ENOUGH for all the risks I potentially face (not even counting the tenants and toilets hassle).

I would trade REI for another business in a heartbeat if I could find something I was halfway as good at (and that was half-way as profitable).

In the meantime I watch my business like a hawk, pray no Black Swan comes swimming along, and never fail to buy a weekly lottery ticket in hopes of a stress-free and early retirement.

[Eddie Ziv]

Originally posted by NC Mark:

Originally posted by Eddie Ziv:

It is not about the business model, it is about finding the right way to adapt that business model.

Eddie, my business model is to make money from day one with my RE investments. My goal is not to 'be' in Real Estate, but to 'be' in a profitable business, whatever that may be.

In one of his books John T. Reed analyzed the many, and potentially very serious, liability issues that are associated with owning RE (not including Black Swan events). For me it was eye-opening, scary and depressing.

Even utilizing the 2% rule I AM NOT GETTING PAID ENOUGH for all the risks I potentially face (not even counting the tenants and toilets hassle).

I would trade REI for another business in a heartbeat if I could find something I was halfway as good at (and that was half-way as profitable).

In the meantime I watch my business like a hawk, pray no Black Swan comes swimming along, and never fail to buy a weekly lottery ticket in hopes of a stress-free and early retirement.

Mark, Liability is an issue of every self employment business, whether you are a plumber, doctor, or an engineer. Structuring your RE business properly and carry sufficient insurance would limit the cost of liability. If you look at real estate (Buy and Hold) as a long term investment like I do, then the business aspect is small, For the long run, it is better then cash or the stock market. If you already retired and you rely on that income to live on, it is a different story, but then, you also have more time to deal with it..

The funny thing is, that if I win the lottery tomorrow, I'm still going to use big chunk of that money to buy... real estate.

[Eddie Ziv]

Originally posted by Jeffrey Koenig:
Eddie,
If all goes well I will have 150 units by next year. I plan to manage them all myself. 150 units does not make you a big player. In the SFR world that is a lot, but in 10 buildings that should be no more work than a 40 hour a week job (if you know what you are doing).

Jeff, read again my post. I didn't say 150 units. I said 10 apartment buildings with 150 unit each....that would make 1,500 units. IMHO, I don't think a person can manage it properly alone. Having said that, one can form his /her own company to do it, but we already covered that.

[Michael G.]

My father would spend alot of his weekends doing maintenance and repairs. Now maybe I didnt mention that he worked a full time job as a govt employee so time was an issue. If someone is a full time REI than I can understand their mindset. If they are not I can't conceivably understand how the concept of not wanting to get calls from tenants escapes them. I think I posted an example of getting a call from a tenant (irate at that) that there was a flood in the basement, it ruined all her belongings, blah, blah, blah. No matter how sympathetic and customer friendly I was she was just irate. Now how old your properties are or whether you have a, b or c type properties makes a difference however I know from personal experience that I am not the only owner of rental properties that has problem tenants. Further more I sure I'm not the only owner of rentals properties that would rather not deal with difficult tenants. Obviously there are people here on this forum who choose to spen their time engaing in the management of their own property. I'm more of a Michael Gerber E-Myth type person who owns a business that works independently of me. In other words, if I'm not around the business still runs. Now I wonder if something should happen to one of you guys that manages your own properties, who manages the properties? My buddies property manager called him with "oh your pipes broke last night". I got a call one morning from my handyman saying that the sewer is backed up and its overflowing into the back yard. As a person who works a full time job you know I don't want to spend 60 minutes trying to find a plumber thats a) available to do an emergency call b) not gonna rake me over the coals for the emergency call. If you've never had the experience than I guess it would seem like "simply calling a plumber". PM is a reality of owning rental real estate for a lot of investors. The question at hand is what techniques do you use to keep them in check and manage and control how they spend your money. My property manager just sent a bill for replacing a hot water heater. No picture, no receipt, no detailed description as to wether it was new or refurbished and no warranty info. And worse yet...no authorization from me to purchase. Since I just hired this PM firm 2 months ago I obviously needed to set the record straight on when they can spend our money and when they cannot. Maybe there is an unwritten PM rule that says you need to charge your customers something over and above the montly management fee in order to run a successful PM business. I don't know....

[Suzanne Pratt]

I am a newbie --- first post here.

I own only one rental property, a single family house in a suburb of Detroit. The house is currently rented. Since I am in Georgia, I have a management company. (Would love to sell the house, but not at today's prices, and a family member may need it in a couple of years.) My only complaint with the rental management company is the cost of repairs. I have paid hundreds of dollars for simple repairs I could have done myself if I were there. Are there any websites that would let me know what I should expect to pay for minor electrical and plumbing repairs? I have a homeowners warranty for the appliances, primarily because the HVAC is a dinosaur and would be expensive to replace. The charges in MI are way higher than what I would pay here in GA. If the management company is pulling a fast one, I need some ammo to confront them with.

[Marc Freislinger]

Call some other contractors in the area and see what they charge. You should be able to tell your PM who to use, or tell them you want to pick your own contractors.

[Eddie Ziv]

Originally posted by Suzanne Pratt:
I have a homeowners warranty for the appliances, primarily because the HVAC is a dinosaur and would be expensive to replace. .

Suzanne,
This is a side not but check your homeowners warrranty policy carefully, some of those offer major appliance coverage but they exclude HVAC systems (Which would be extra premium)

[Suzanne Pratt]

Thanks for your replies, guys.

The HOW does cover the HVAC.

Suzanne

[Bryan Hancock]

How have you guys handled a property manager that pays late? The excuse I have been getting lately is that he had to lay some people off and that is why my check is arriving late.

Ideas? I am getting pretty close to firing them and/or writing TREC.

[Ben Kevan]

I probably annoy the living hell out of my property management.

As others have stated, I first started with letting them know my exception. Prior to purchasing my out of state properties I first made sure I found a property manager that I felt was trustworthy (this was a long process).

I email constantly, even if it's small talk (i.e., discuss the recent earthquakes) to make them realize I'm a real person, and if they feel I'm not disconnected, they'd be less likely to try and rip me off.

I also make sure they provide invoices for any repairs, no matter how small of how big. I've also had them have the maintenance guy call me directly to discuss the issues, to see how they align with the original diagnosis.

Sometimes all these horror stories makes me want to become a property manager.

[Ben Kevan]

Originally posted by Bryan Hancock:
How have you guys handled a property manager that pays late? The excuse I have been getting lately is that he had to lay some people off and that is why my check is arriving late.

Ideas? I am getting pretty close to firing them and/or writing TREC.

That's the ONLY problem I've had. Sometimes I get the payment a few days later then I'd like, or what's in our contract.

After 2 months of that, I asked if we could amend a clause for penalties for late payment to me from my PM for dues already collected.

I was informed that they'll make sure payment goes out on time, or they'd inform me prior to the date if it will be a few days late (for the reason of final sign off is out of the office OR if I have a pending repair that should be deducted).

[Bryan Hancock]

I talked to him and I think they are planning on exiting the property management business. Hopefully that will happen soon.

[Phillip Dwyer]

It looks like you're asking the wrong questions. How have you selected your previous PM's? Did you put in the same amount of due dilegence selecting your properties? Referrals and testamonials go a long way. You should be contacting other investors in that area, and ask them who the reputable PM's, contractors, Realtors, etc are. I wouldn't just start by calling numbers from the yellow pages. Call some Realtors, and ask who they refer their clients to and why.

[Joel Owens]

The level of management needed will depend on the age of the property and what type of repairs have been completed along the way.

If you buy a property with deferred maintenance getting it turned around the first 6 months will take a ton of time.A manager should be compensated for the extra work in that case.A 10% fee simply will not cover or make worthwhile all the work involved.There will be eviction,court dates,trash outs,re-conditioning,advertising,tenant apps with criminal and credit check,ongoing repairs with tenants that are staying,etc.

For all of you that want to manage other people's properties you need to check with your state's real estate commission.In many states including mine you will have to hold a license with a brokerage or be a broker.Some exceptions is if you are an employee of the company etc.

I think often times investors have a high expectancy of PM work.Simply it's like owning a restaurant and having an 8 hr worker.To expect that worker to be just as excited and diligent about the business when they get nothing but a small check is a pipe dream.

If I pay 100 for a steak then I demand service.If I go through the drive in at Taco Bell I expect the food to be correct and nothing else.

Managing 100 properties yourself without help is the exception and not the rule.This is based on my experience dealing with apartment owners.One had about 210 units over 10 buildings all within a few miles of each other.Vintage stock and unit mix was all different ages.

They ran it themselves BUT had a full time leasing manager,bookkeeper,and about 3 maintenance guys.There is no way without the help they could run them selves.

I have seen basically one person locally could handle up to about a 20 to 30 unit by themselves.After that it becomes really difficult.Many investors buying in this range are not purchasing a new building.These are older buildings that need constant upkeep and have problems.

Typically the mechanicals,plumbing,electrical all start failing at different intervals.

I have a 20 unit and have a live in PM.It lets me focus on my real estate deals and I check in with them every 2 days or so to see how things are going.I don't want to do 10 hr work when I can make hundreds per hour selling real estate for my clients.

If you want to invest out of state you could do triple net leases for mail box money.The CAP is about 7 to 8% where I am at right now.If you want higher returns then usually you have to take on more problems and risk.

[Bryan Hancock]

@Phillip:

This PM lead came from one of my good investor buddies in DFW. The company has done a great job placing tenants and keeping things in order. The trouble is that the PM business is really tough and he is questioning whether or not it is worth it to continue operating.

I have managed DOZENS of property managers over many years and have been consistently unimpressed. I have received referrals from Realtors, investors, seasoned folks, etc. and some have panned out for a while. Whenever there is a dispute or any incident that causes the PM to do more than the standard work to hang a shingle out, place tenants, and collect rent we end up not seeing eye to eye. They spend too much for repairs without permission and want you to reimburse them for it. They fall on some hard months, lay off staff, and want you to wait for rent. I could go on and on.

If anyone has had a lengthy positive relationship with a PM I would love to hear about it and how you screened to get the manager.

[Michael G.]

I've had the same exact experiences as Bryan and continue to have the same experiences with the new PM just to a lesser degree. I guess its just part of what comes along with managing the property manager. I would imagine if one had a property that was in pristine condition that the maintenance issues would be a dream to handle because they would be virtually non-existent. The late payment of the income is unacceptable in my eyes and is exactly the reason I fired the last PM. Its just not negotiable. I had to be cautious because i'm a long distance investor and I had to hire a new PM before firing the old one but that firing couldnt come quick enough. I also wonder if there may be a correlation between the type of rental properties one owns and the PM who manages those properties. All of the properties I own are in lower to low middle income neighborhoods. I wonder if there is a correlation?

[Matt R.]

I would guess there is a correlation.
Being a PM is a tough job and the pay can be low for the associated hassle.
For low income (and high hassle rate ?) properties it may be more trouble than most good PMs are willing to put up with.

Regardless, like all business relationships they should honour their contract with you. Layoffs, drought, hurricanes - doesn't matter - that's what they are paid to deal with. Pay me MY money on time.

[Townsend Derick]

@Michael, You are not alone. I moved to DFW three years ago and I have been dealing with bad PM's the whole time. I have rentals in Virginia and they think that you won’t come around to challenge them but you know what, you have too. Plus when you travel to tend to your home it’s a write off so you’re not losing all the way around. No matter if your home is in the lowest income area in the world, it is the PM's duty to treat your property equally and professionally. I have fired 6 PM's over a three year period. I had lost hope at one time. Most PM's try to wear too many hats; they manage 300 homes with two assistants. They try to sell homes and manage your properties etc.... You just have to educate yourself on what to look out for and experience will help you also. I am now at the point now that I keep all correspondence that I have with PM's no matter how small it may seem. If I’m paying you every month then you need to do what you are asked within your job description. It’s a sad reality, but know this; no one is going to take care of your own like you. Many mean well but it’s not their property, so you have to stay on top of them. I have tried every approach be nice let them handle things, but if you don’t do things right then it ends up most times costing you money. I got to the point that I began suing PM's and that’s effective but its time consuming and costly but it proves a point. I have a checklist when I interview PM'S and from past experiences with other PM’s, ask them how they would handle different situations. It boils down to that gut feeling if you should use them or not.
Great questions to ask a PM are:
How do you like to communicate? I.e. by phone text e-mail.

How fast do you normally respond to e-mails phone calls etc?

Do you have a template of how my monthly statements will look?

Will you notify me if my tenant is late paying the day it is first late?

There are many more, feel free to message me if you have any questions it’s much more to it than this but I was trying to keep it short...

[David France]

Hi everyone1,

I have a property near detroit i bought last year i live in England (UK) and its been a rollercoaster, up and down finally got a tenant in.

I know what everyone is thinking 'why have i entered into the us Re market when i live out of the country' thats another story in its self, but all i can say is you have very good properties at very low prices unlike the uk.

So my experiences so far with management companies well i got some recommendations and went with one i felt would do the job properly. Hae they let me down? not as yet but i really dont trust any of them, i have had major problems here in england with some property managers that bad i had to take over them before i went bust!, iv learnt lessons but still learning, i need to be more assertive and show them im the boss like you guys are saying however i find it hard to belike that and worried it could affect my rental in the US if i dont start being assertive!

i do have a thought though if i buy more RE in the USA it may work to my advantage as i get leverage and plus i get to go to the US regular as its more finacially viable but with 1 rental its not viable, so i guess i need to look at expanding to hedge my risks, i want cashflow and long term capaital growth but need to be able to sustain these properties in that time.

Hope i havent rambled on too much.

dave

[Chad Raggio]

Eddie Ziv You mentioned you have a PM in Birmingham, AL. I live in Birmingham and looking for a good PM. Could you let me know who you're using? Do you have a multi family here? Thanks