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.

[Michael Rossi]

The ONLY way to stop having problems with the property manager is to manage the property yourself!

[Shanti S.]

I can't help but think that if you're having that much trouble finding an honest and competent PM that there's quite an opportunity there to start such a service :-) We are negotiating a multiple property deal with some owners here who have done just that - after managing their own properties for years, they started doing it for others and the demand for their services is exploding. Multiple streams of income...

[Jon Klaus]

Michael, you are far from alone. Most landlords that outsource property
management seem less than satisfied. I manage my own even though I have another fulltime gig. Fortunately it doesn't take too much time

Mike, I wonder what you think of the opportunity of starting a property management company where the landlord's best interests were paramount?

[Marc Freislinger]

It's not hard to run an honest property management company, but there are times when owners can be very unrealistic about costs.

We started our management company for the same reasons you've mentioned. There is a huge lack of honest, reliable, property management in the area. The investors we work with all have horror stories of being billed for phony invoices, having tenants living for free for months on end, and having calls to management go unanswered for days and weeks.

So far, business is great. The only real problem that we have is with owners who are used to doing their own management, or who are unrealistic about costs. Property management is a convenience, and like any other convenience it costs money to use. Like any other business, it costs money to run. To demonstrate, I'd like to use the example of installing a toilet.

Installing a toilet yourself will cost you roughly $100.

$70 for the tank and bowl
$5 for the wax ring
$10 for the stainless steal braided contector
$15 for one hour of your time (You consider your time as money right?)

Having a property management company do the same repair has some additional costs.
$70 for the tank and bowl
$5 for the wax ring
$10 for the stainless steal braided contector
$10 for one hour of install time (paid labor)
$10 for hour of driving to the store and picking everything up (paid labor)
$5 in gas

Add in general overhead costs of plating the work truck, insurance, phones, etc and the $150 billed to the owner for a new toilet doesn't leave much profit. If we pull the toilet, and the flange is broken, your looking at another hour and a half to go back to the store, buy the part, install the part, and the price might go up another $50.

Even honest property management companies can't work for free. One of the posts I saw on the board before was complaining that their PM charged them hourly while going to a store, but someone has to go, and someone needs to be paid for their time. It's a small charge that gets passed on with any company you go with, whether they tell you about it or not.

I guess my point, is that when you go to the store, and see that a toilet is $70, and your PM is asking $150 to put one in, don't immediately jump to the conclusion that you're getting ripped off.

To Michael: I do recommend starting a PM company if you live in the area. There is definitely a need out there for honest managers, and owners who like your services, do tell their friends.

[Mark N.A]

Originally posted by Marc Freislinger:
One of the posts I saw on the board before was complaining that their PM charged them hourly while going to a store, but someone has to go, and someone needs to be paid for their time.

INVARIABLY I get that complaint when doing security deposit repairs for tenants. "Yes," I tell the tenant, "the switch plate you broke cost under a dollar to buy -- BUT YOU PAID MY HANDYMAN $25 AN HOUR TO SHOP FOR IT!!!"

As for PMing, my hope is to one day scale up enough that I can hire someone in-house (another can of worms, of course, but hopefully a little bit more under my control than outsourcing).

[Michael G.]

Thanks for the responses guys. I get the whole "if u want something done right" thing....i get that. Problem is I a) live hundreds of miles from my properties b) I really dont want to deal with tenants/and or toilets. c) doesnt every basic premise of real estate investing tell you "dont manage the properties yourself, its rule # 1 in owning rental real estate.". I dont have a problem with the cost of repairs per se. I do have a probem with the cost of repairs that never occurred. I wish I could open up a property management business in the region that I invest. It just seems like a messy business that I personally would not enjoy. So..I thank you for the comments and will continue to search for ways to manage the property management.

[Marc Freislinger]

Sorry it got a little off topic Michael.

It sounds like you're doing most of the things I'd suggest. Ask the manager to give you notice before spending money. Though, make sure you allow for emergencies. It's very, very frustrating to get yelled at for spending money on an emergency. Define emergency. I consider a flood, feed-line water leak, fire, clogged toilet (if only one), and broken fridge emergencies. There are probably others. These things will cause much more damage if not taken care of immediately.

Be available. If you want work approved, then you need to be available to approve it in a timely manner.

Get pictures. I'll admit that this is a pain in the butt for us, simply because our guys are busy, and often forget to take the camera with them, or forget to take pictures. But, it's the best way to be sure the work is needed, and that it's fixed properly.

Check the invoice carefully. If they can't explain something, or explain why they didn't get permission, then they need to cover it.

Get all of your agreements with the management in writing. Emails do hold up in court. Been there, done that. When writing a check, use the invoice number that the check is for, and write "Paid In Full."

If your management won't agree to these things, or won't work with you, keep searching. There are decent people out there, they are just getting harder to find.

[Jeffrey K.]

I dont know where you learned about real esate, but the number one rule is not dont manage real estate yourself. It might be buy low sell high or location, location, location. Those can be debated. Your rule is just not correct.

[Michael G.]

Jeff Koenig - i mispoke actually. Its not the number 1 rule. In fact maybe I shouldnt even call it a rule at all. Its more like a very stong suggestion. But since you felt the need to correct me on it, do you have any other valuable contribution to make on this topic regarding property management and the issues I've raised? Are you pro or con on property management? Your profile says you are a buy and hold investor. Surely you have something more valuable to offer on the the subject...

[Eddie Ziv]

Michael, I work with two different PMs. One in Round Rock, TX and the other one in Birmingham, AL. The TX one I barely hear from, but the properties I own in Alabama are old and there are more service calls than avarage.
However, I am in a unique position since I brought in to my PM at least 6 investors with more then 20 other properties so I must admit that I have some leverage. Here is the lesson I learned. You must show the PM who's the boss. Don't accept or agree to repairs that you feel are unjust, unnecessary or not your responsibility. I told my PM from the beginning. I want pre-approval on any accumulating jobs per months with a total of over $100.00. I want to know in advance what is needed and why it is needed.
I'll give you two examples. My PM e-mail me not long ago, that one of my tenants complains that the hot water coming from the water heater are not warm and don't stay warm. I e-mail back that electric water heaters either work or they don't. There is no in between. I also attached a picture of the water heater wich I had claiming that the WH is almost new.
I haven't heard from the PM since.
Another example.which happened last week - Another tenant complained that the sewage is flowing from the septic tank into the yard, the faucet in the kitchen is leaking and she has a problem with the neighbor and want to have a fence.
I e-mailed back the following:
1. The septic tank was inspected and cleaned prior to the tenant occupation less than a year ago. If the tenant stop flushing baby wipes or other prohibited materials, it won't happen.
2. The faucet was brand new (Also attached picture) when the tenant enter the property less than a year ago (The house was completely renovated back in June last year)

3. Unless I know exactly why the tenant have a problem I have no intention to build any fence.

I'm still waiting for responce.

[Account Closed]

My biggest concern with out-of-state investments has been property management. I manage my own properties and do most everything. I will be hiring some help in the future.

In time, I will probably have to look into property management. Good luck with finding a good manager for your out-of-state properties.

[Ingrid Nagy]

This is a problem I've been pondering now for the past year and I am a Property Mgr by profession. I've had leasing agents, repairmen and assistants pull fast ones on me over the years when I was 30 minutes away so I know how easy it is to get over and I've learned the tricks of the trade. The cost to an out of state owner can be devastating. Experience this as an owner/landlord just a few times and you become a true believer in do-it-yourself or oversee-it-yourself. In a SFR rip-offs can be limited; multi-family dwellings are "open season" for an out of State owner and can severely affect your bottom line. I could tell you stories that would make your head spin. In multi's the repair factor is a given on places to be ripped off be it labor or materials. When the income end is sabotaged, it severely affects your bottom line.

[Eddie Ziv]

There is no doubt that if you can manage the property yourself, it is preferable. However, for those of us who own out-of-state properties, it is simply impossible. Obviously, if you own one or two properties, you are more venerable to PM abuse, but the more properties you own, the more leverage you have.

The math is simple. If your PM gets 8-10% as management fee, that is $80-$100 for every $1,000 of rent. Lets say that your average PM needs around $8,000-$10,000 a month to run his/her business. That translates into about 100 units (or SFRs) on his/her raster. That's a lot for a minimum. So as long as my PM and I have an understanding that it is a business for me as it is for him, there is a margin of tolerance that we both can work within...

[Bill Gulley]

As Eddie mentioned, get off on the right foot and establish yourself as the boss of this arrangement! You might start off by having your own contract! It's usually the fine print where the PM gets the authority to gig you for living. Some PMs will say that since they are a memebr of the Board of Realtors, all preprinted form contracts must be approved by them and those are the only contracts they can use...that might be right, but you can begin by modifying the contract, in its entirety if needed, and abide by the addendum.

I suggest agreements that include examples, like unauthorized repairs will be the responsibility of the PM.... couple these issue with faduciary responsibilities of the PM and end the agreement with a nice hold harmless and indemnification clause.

I have only had to use a PM a few times and without much problem. However, I have been involved with about a dozen in other matters and most thought they could get away with some small gigs, a few times it was not worth the effort since they were getting canned soon anyway. I like Eddie's approach, obtain leverage to give them incentive to do the right thing, take command early on and eleminate the open doors to gig fees by controlling the contract. I think others made the same points too, but Eddie was the last reading so I guess he gets credit...Good Luck, Bill

[Jeffrey K.]

I dont have any advice for you other then to buy local and manage your own property. That is what I do and know nothing about PM companies. I dont really think we are in the same business. I know most of my tenants by name. I manage about 5o residential units. I have one handyman I work with and I buy all of the materials and go to every service call. My mom handles the books. I dont trust people for the reasons you state, so if I were going to buy and hold I would do it all myself.

[Dennis Treacy]

I have always wondered why a small investor would buy a property that is to far away to personally manage or oversee.

The whole idea seems like a recipe to be scammed.

I have several properties, and I manage all of them, I actually enjoy doing so.
I personally do all the high ticket repairs, and leave the common stuff to a handyman.

I don't know where the saying tenants and toilets originated, but neither bothers me. I can change a toilet in 20 minutes, they cost me $50.

All of my properties were bought at 25-30% of ARV, and then brought up to code so to speak, this makes management easy as all major systems are new.

All of my properties are within the same two blocks, and are one block from office.

[Eddie Ziv]

Originally posted by Jeffrey Koenig:
I dont have any advice for you other then to buy local and manage your own property.

Jeffrey, there is nothing I'd like to do more (In real estate) than buy locally and manage it myself... However, here in California, I could neither afford nor cash flow any property... :cry:

[Michael G.]

The reason I buy property in other regions is because its so affordable. My metro NY dollars go a long way in certain markets. If you look at any site that detalis the estimated median house values of Milwaukee WI or Phila, PA vs Bay Shore NY or Studio City, CA you will quickly realize why investing long distance is attractive to some. I can get the same cash flow or better from a rental that I paid $35K-$60K for than a rental in my region that cost $200K+. Thats after expenses. Long distance investing is a different business model than your locally owned rental business model. Tenants and toilets is an old term. I watched my father for over 20 years have his dinner interupted and work endless weekends. He was tied to the properties! I think even if I had properties that were local I may consider property management unless I were a full time investor which I am not. Thats the other reason that I personally use property mangement. I am a w-2 income earner and that provides by bread and butter. I trise the way of PM vs no PM. I had tenants calling me about sewer emergenices at 11 am while I am in meetings. I would have to call around to find a plumber and schedule the visit with the time the tenant was home....u get the picture. It only makes sense to go the way of property management. One day I will be able to say goodbye to corporate america but I need at least $100K to do that...

[Eddie Ziv]

Michael, you are doing the right thing. There is no practical way of managing a property or properties in long distance. PM is a must. The trick, of course is to find the right one. Another option is to find someone locally, train him/ or her (I would prefer her, but that just me...) and pay that person a monthly lump sum to do the job...

[Michael G.]

Is it common to charge taxes for repair labor or installation? My property manager says that they can unless its for capital improvement?

[Marc Freislinger]

Absolutely not. Taxes are for items only.

[Steve Babiak]

There could be a sales tax on the materials AND the labor in some areas - but I can't see what that would have to do with a capital improvement vs. maintenance / repairs.

[Bill Gulley]

Hi, a municipality could have a sales tax on labor and exclude capital improvements since the city would be assessing RE at market value, maybe plus improvements at value off the building permit. To check up on the manager, go to the horse's mouth, the tax assessor(s) in that area and ask. I know most places don't tax labor, but I can't say all places. Bill

[Mark N.A]

So here's a question: if you owned a McDonald's restaurant (or any other cash flow-based business) and it was your main income source would you want it local or distant? LOCAL.

With all due respect to everyone, there is a large majority here who practice a business model consisting of deferred profits and neutral cash flow. I cannot say whether that will work or not but --

-- that is the same sort or reasoning used by goldbugs. And they don't have tenants, toilets or PMs to worry about.

What I love about investing is that it is a true 'meritocracy'. If you can swing the cover charge come on in -- and we'll meet in 20 years to see who's done best!

[Eddie Ziv]

Originally posted by NC Mark:
So here's a question: if you owned a McDonald's restaurant (or any other cash flow-based business) and it was your main income source would you want it local or distant? LOCAL.

Mark, Once again, we all agree that managing local properties
is better than differing it to PM out of state, but what you are suggesting is that if you cannot find and manage a cash flowing property in your area, JUST DON'T BUY! Well, I beg the differ. The solution is not abstinence but finding the right method. Many, many investors do it that way successfully. I can reply to your question with a scope question. If you had 10 apartment buildings with 150 units each (locally) would you run it yourself? No! You would either turn it to another company to manage, establish your own company to do it,or train someone or hire someone to do the job. At the end of the day you'd do the same. I'm sure Rich Weese doesn't manage his own properties and his are all over the US and Mexico....

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