Property Managers - Why do they always Overpromise and Underdeliver?

[Mat Lewczenko]

I hear this ALOT...
"I had a great PM company, paid them $X but they are gone, had to fire them. They were great in the beginning and then..."

What makes them great at the beginning?
What are the biggest let downs?

I ask because my partner and I are putting together a business plan to start managing other investor's properties as well.

What do you all think is the best Value Proposition that we could offer that the current management pool is lacking in.

Very interested to hear everyone's perspective.

[Bryan Hancock]

The property management business is very tough. You have to deal with all of the crap that investors don't want to deal with, owners angry about stuff breaking, tenants paying late, evictions, placing tenants, etc. That is a lot of crap to put up with for 7-10% of gross rents.

Having said that...I have had almost universally poor experiences with property managers. They just don't care for your property like you would and they are really more concerned about THEIR business instead of yours.

[Mat Lewczenko]

Ok, thanks Bryan.
When you say that "they don't care for your property like you do", specifically what service/actions from your management company would make you feel otherwise.

I know many people bring up expenses. How could your management company handle expenses in a way that would be not only satisfactory but just plain "make sense"? In turn, making you feel like they care as much about your property as you would.

Just looking for ways to set ourselves apart.

[Account Closed]

Mat,

Here is an example of a recent experience with our PM company:

We have a duplex and there was some kind of problem with a backed up sewer pipe. Our PM calls Roto Rooter and they want to charge $200 to $300 to clean it out.

I then call a different company and they will do it for $90.

The management company had no problem wanting to use Roto Rooter? They don't want to waste time looking for the best price.

This is how our profit was getting eroded away every month. We were netting $200 to $300 per month for duplexes and they would eat it up with inflated repair costs.

Chris

[Mat Lewczenko]

Chris,

This is great. As investors ourselves, we feel like if we offer our network of qualified service people at our "investor" prices, we would be able to satisfy our clients, thus create more business.

Does anyone else have stories like this? How could your company have handled it in a better way?

[Paul B.]

I find this thread quite interesting, as I am also considering getting into the property management business -- much with the same philosophy as Mat.

Although I'm hardly a cheapskate in my personal life, I am tenacious about getting things done as cheaply as possible while still getting good value, and I've gotten pretty good at it over the years. (And anyone who makes Roto-Rooter their first call for plumbing issues must have more money than they know what to do with...)

Plus, I figure since I am a landlord myself, I am more understanding of another landlord's point of view.

My plan would be to charge 8.5% of collected rent as my fee, and that's it. No intake fees or anything like that. I don't get paid until you get paid, period. I would also reduce the fee by 0.5% for each year that a client stays on, down to some minimum number, maybe 7%.

And I would apply those same cost-cutting skills to my clients' properties...I never understood why property managers don't understand that the smartest thing they can do is to dazzle their clients so that they stay on. It's always cheaper to keep 'em then find new ones; retention is where it's at.

And yet, all I hear are horror stories about how inept many property managers are. Does it turn out that it's really not worth it in the long run to be a property manager?

[Allen B.]

The problem with proiperty management is that if everything works out perfect, then you are just doing your job. If a tenant is late, then you aren't living up to expectations. If a furnace breaks down at Friday night at 6 PM... etc.

I have found we have to screen the owners we work with just as much as tenants. I know there are bad property managers out there, but sometimes expecations are too high.

[Mat Lewczenko]

I think Allen brings up a great point. Setting up owner expectations, very interesting. How would you decline working with certain owners, what criteria would you use? Then would you have to publish that and then screen all owners under the same rules like you do tenants "Fair Managment" hehe.

Paul, I am totally with you! I like that, Dazzle them. We believe that superior service will create enough business. We also talked about a multi unit discount, something like first door = 9% with a .25% discount per door with a discount floor of say 6.5%.

[Bryan Hancock]

I can't really think of specifics Mat. Over charging for services or being lazy when finding cheap solutions is a constant problem. I have also found that many managers want to bury their head in the sand instead of deal with late pays or evictions too.

Some of the smaller companies constantly have turnover or "upgrade" their system causing trouble with money hitting our bank on time. They also want to sign new management contracts midway through a tenant's tenure because some new crisis came up they didn't expect. Recently it was owners being foreclosed on, which necessitated kicking out tenants.

Another major problem is cash flow. Managers collect rents at the beginning of the month and take forever to send the money to me because of how their system works. That would be something I would stress if you are trying to differentiate yourself. Owners with many properties will really appreciate not having tens of properties where they have to shell out the mortgage prior to collecting rents.

Some simple statements each month are very helpful too. I don't want to read through 15 journal entries to see what happened for the month and I certainly don't want to trace balances across months. Give me something simple to understand with a common sense breakdown of how the property is performing.

For larger properties this seems to be less of a problem, but a lot of the problems described above are very common for smaller property managers...from an owner's standpoint.

I am sure I can think of other things...I'll try to post about them as I can think of them.

[Mat Lewczenko]

Bryan,
Unfortunately I'm only allowed to vote once for that last post.

Thanks for those delicious nuggets.

[Jeffrey K.]

Does anyone have a copy of the contract they have with their managers or the reports they use? Are these reports sent by email or can they be found on the web through a portal?

[Steve Babiak]

Originally posted by Paul Broni:
... (And anyone who makes Roto-Rooter their first call for plumbing issues must have more money than they know what to do with...)

...

Or, their REIA has given them a discount card to Roto-Rooter - so they think that is the way to go ...

[Bryan Hancock]

@Jeffrey....Yes

It depends on the property manager. Some of mine have online portals and some don't.

[Steve Babiak]

One thing that becomes a worry to some, is a problem to others. What am I talking about? Whether the PM owns rentals or not. To some, if PM does not own rentals, how can they know what it's like? To the others, if PM owns rentals, when there is a vacancy in both PM's and mine, how do I know if mine will get any showings?

That's just one point where the PM can't win!

[Joel Owens]

Yeah it's tough.property management is on the back end of the business. I do the front end of purchase and sales.

You have different levels of property management.On the large end you have specialty turnaround groups that have teams of people (consultants) for shopping centers and multifamily,hotels,etc.

Their job is to do a forensic analysis and to try to squeeze every last cent out of the property.

Property management is highly litigous and usually the owner and the tenant want to blame the broker and then the broker has to clear their name.

Pay out is low and time consumption is high.If rent on a SFR home is 600 a month and to manage that property you are getting 60 bucks a month so 720 a year isn't squat.Most of those property managers are working for a company and do not get all that money anyways.

So if managing a property gets you say half of the 720 which is 360 a year and you put in 5 hours a month.360 divided by 60 hours in a year equals 6 bucks and hour gross before taxes and other expenses!!

All that for dealing with the tenant and writing down the date,time,complaint,etc. and tracking expenses making calls and sending payment and reports.

As a property manager it is much easier to control a larger project than with a bunch of smaller parcels with multiple owners and expectations and fee structures.

The problem with most small investors is they don't utilize a full time property management company.Instead they use an agent that focuses on sales and does rental management on the side as an afterthought.

It is real hard to find a great property management company and even if you do they might only service a few counties.So you can use them for some of your properties but not others.

I think what happens sometimes is new investors underestimate the time involved in managing a property and dealing with issues.So when they buy they say I will manage myself.

Then they find out how much work it is and then want to use a management company.By then they try to go with the lowest company as cash flow is tight because they bought to high.

Then they use someone based on lowest cost and the problems start to mount.I am not saying you will not find bad service at the higher fees just you will definitely find many more problems in general getting a PM company with the lower fees.

You pay for service it's just how much will you pay.Some things I do myself as I see the value in it and others not.

For instance I could save 3 dollars by changing my own oil,getting filthy dirty,having to dispose of the oil or I could just go somewhere and have it done for a few bucks more.

On larger projects of 50 units or more with multifamily or large retail projects 5% is common with built in bonuses based on hitting costs savings and performance numbers.

[Joel Owens]

"I had a great PM company, paid them $X but they are gone, had to fire them. They were great in the beginning and then..."

You have to have PERFORMANCE CONTROLS.

Example most workout clubs sign up people and slam then in there.They could care less if they show up as they get the fee.

This is why I like the YMCA.I pay monthly and can cancel anytime with no contracts.It keeps the YMCA honest.If the facilities aren't clean,staff friendly,machines kept up they won't get my money.

Just like some of my sellers put their landscaping crews on monthly.If they give poor service they are gone versus if they know they have a 1 year contract they slack.

[Account Closed]

just bought a property from an out of state landlord who used property management..the manament was responsible for paying the water bill for the owner...they paid late every month and all the late fees and interest were charged back to the owners....

my problem with property management is that they earn more money when things go bad....they make more money on tenant turnover due to application fees, 1/2 of 1st month's rent, etc. to stand out, show landlords how you're different...split the application fee with the owners, only take your 8% for the firs month...

[Brandon Kamm]

Some very good points here, especially Allen. Property management sounds easy until you run into a problem. Unruly tenants, evictions, holiday late night floods in apartments, I could go on for weeks. Owner expectation is a huge area to focus one. For many owners they do understand that maintenance occurs and expenses are incurred, others have a problem any time they are charged for a service call. When we have a service call, I have a wage to pay, gas, insurance, tools, taxes, etc. Keep in mind I am running a business and also trying to make a profit. Yes, there is a huge problem when service issues are blatantly over billed, but maintenance issues do occur and have to be fixed. With some owners we spend lots of time explaining why it was 85 bucks to service a condensor and charge it up...these things happen when you have investment property. Inherently one of the biggest responses I here is that "I cant afford the service issues, my mortgage is xxx", if I didn't work with you buying the property I can't help you with the fact that you overpaid for the property. It is my job to ensure a tenant pays timely rent in return for a safe habitable home.

It is true that a manager won't pay as much attention to your property as the owner would if they were managing it themselves. It also shouldn't be expected that they do without being compensated for it. Managers have certain inherent responsibilities, collect rent, lease units, handle tenant problems. These should be handled timely and correctly, and if not there is a problem. There should be basic responsibilities expected of he manager, ones that in all honesty are not as thorough as an owner would do themselves.

This is a great topic and I apologize for any sort of negative rant. We have been around nearly ten years and the one thing that sets me off is when the " my manager sucks" discussion comes up. If you haven't been actively, not on the side, involved or your just thinking of starting a management company because it sounds easy you wouldn't understand. This is a much more difficult than many realize. I believe the one poster had it correct above in that most use a manager because they don't want to deal with it themselves.

[Justin Herrema]

Here is an example of past companies I used: tenant moves out of one of my properties, I purposely emailed the property management to make sure to winterize the property asap and not turn the gas on. My email went out the day I found out the tenants where moving. Well 2 weeks later and all the pipes are now froze. So one problem you have is as you get larger and manage more you are Dependant on others and will have to hammer home your same ideals and give little room for employee error.
Most I have used nickel and dime you to death and simply do NOT go the extra mile if it is something they are not making money on like a vacant property. Also slow with evictions and turn around of the property.
Another big issue I have had is using people that do not give a detailed break down by property every month and online access to review the accounts.
Make sure to give the owner a copy of applications you receive and have them sign off....eliminates the blame if the tenant stops paying right away.
I know property management is a huge pain so I try to give some room for the poor guys to breath. The co I use now has a great system down and seem to be the best I have used. Maybe bum some ideas from them. http://www.altpropertymanagement.com/

[Account Closed]

it would be nice if a management company was big enough to have a full time maintenance man on staff....this way you don't sub out and get ripped off for little things...i have seen a 240 dollar bill for caulking a bath tub...c'mon...that should be illegal!

[Joel Owens]

Hey for those rates I will be a contractor.Bryan do you have some tubs that need caulking???LOL

[Account Closed]

ya right joel...i would never pay that!! this was an invoice found when going thru a seller's maintenance and repairs records for the past couple years....and he wondered why he was desparate and motivated?? the managers screwed him!

[Brandon Kamm]

BryanA,

You make a great point, we use an in house maintenance staff. I would recommend to anyone that is searching for a manager or looking to become one to have this. It is much cheaper for the property owner when in house maintenance can take care of a problem. I can bill $21.50 to $40 per hour for various issues, while a subcontractor may have a minimum of $65 per hour no matter how big or small. Also, when management performs there own maintenance they can be sent immediately to rectify a problem vs. having to work off of a subs schedule.

[Mat Lewczenko]

These are all really great responses.

What I'm seeing is that the biggest bone of contention is mishandling of expenses, or a bad job at explaining why those expenses were incurred and then getting a competitive bid to rectify.

Making the owner feel like a partner and not a client to be milked.

Handling turnover, keeping it to a minimum, and owner communication with transparency in billing.

Am I missing anything? Thanks everyone who posted so far.

[Brandon Kamm]

One other thing i feel inclined to throw in here. Property Managers are not perfect, we do make mistakes. Over the years I am certain I have incorrectly billed, misposted rent, screwed up a service call, etc. we all make mistakes. The owner should always thoroughly review monthly reports and charges and question any that look odd or unexpected. With that being said many times when an owner has questioned a charge or something that looks incorrect we are happy to correct and make things right. The owner should have a responsibility to review the monthly reports and ask questions if they aren't sure about an issue or charge. Unfortunately there are many "manager's" who are very unethical in their work, many of us work very hard to make real estate investments work, but do make a mistake here or there. You should have a good working relationship with the manager and they should be accountable at the end of the day for property activity.

[Josh Tollenaer]

As a Service Manager by trade I can say one of things you could do to "1 up" yourself from the competition is to know what things cost and to have a Service manager on your team. Seems that alot of complaints here are paying high repair bills. I cannot speak for the company I work for but, I can say in the 15 years i've been doing this is most people do not have a clue what it takes or costs to complete certain jobs. If I were going to start my own PM group I would definitely have someone on the service side to look at EVERY property you were going to manage in your portfolio, this may give your owners and yourself a better understanding of where they are on how much life is left in certain areas including, roofs, hvac systems and electrical. We cant foresee every problem, but off the top of my head, series I polybutylene pipe will cause more issues than series II.Generally it was ran incorrectly to start with, instead of adding 90s in the wall it was just bent. Little stuff like this can add big problems later. I dont know many property managers that know these things, So having both ends of the PM spectrum could save you alot of headaches later and potentially save a client when something breaks b/c they will already be aware of areas you let them know about up front.