Family member as PM turning out to be incompetent

[Mariah Jeffery]

I have 19 units out of state, 14 of which are "managed" by my father in law a 5-plex that's managed by a PM co. My FIL really doesn't know much about the legalities or care to learn, so I do a lot of the work myself from a distance. He shows the properties and collect the apps, while I process the apps, place the ads, and do the paperwork. We pay my FIL 5% and the PM company 10%, since my FIL does (at most) half of the PM duties. He's not very familiar with the law so I always remind him what he can.

We had 4 vacancies in March and April, and he leased them out. I had known before that a few times, the tenants planned to move in on the first and he went ahead and gave them the keys a few days early so they could "move in a little here and there" but not pay rent until the first. I gave him a stern talking to, and I think it may have sunk it.

I just found out his method of getting the lease signed was to leave it with them and ask them to drop it off in his mailbox when he got done (because they were "so busy moving!"). Of course, one of the tenants still hasn't gotten around to doing that from March. We have a tenant living in one of our units with effectively no lease!! I pretty much tore him a new one for that. I can't believe he could be that dumb. I think the tenant is just lazy to bring it back and will do so with some reminding, but it still bugs the **** out of me.

To be fair, my FIL hasn't been doing this all that long. We've had one property since March '07 that we bought with tenants and it only had the first vacancy in Jan '10. We started buying more in Oct. '10 and he really never dealt with vacancies until Feb.-March '10. He's made a few other dumb mistakes, but nothing this serious.

The extra PM fees would eat into our cashflow seriously (the 14 units he manages bring in almost $10,000/month in rent, so the extra 5% to pay the PM co. would be ~$500/month). On the other hand, getting sued because he does something dumb or having to evict a tenant without a rental agreement would be pretty costly too.

I'm looking for opinions - should I keep him and work harder on trying to "train" him, or fire him and go with the PM co. despite it being twice as expensive?

[Peter Giardini]

Mariah, I think the key to your entire discussion was your statement that your FIL "doesn't care to learn" how to be a good PM.

It doesn't matter how much you pay him or how much you train him... if he doesn't care you will still have the same problems.

While the PM may be more expensive on a monthly basis... in the long run they will be less expensive as follows... you won't find yourself in court and you will be able to continue to expand through acquisitions.

Your risk posture is very high with your FIL attitude.

Best of luck!

Pete