Trouble w/ Property manager - options for me?

Question

Hello! This is long, but I really do need help, so if anyone's dealt with similar issues, I'd love to hear input on options.

I closed on my 1st ever rental property (SFH) in Indiana November 2018. Got it fixed up and chose a well-reviewed property management company based on BP reviews and my own conversations with them and I signed an agreement about a month ago.

Issue #1) We agreed that prospective tenants would have no evictions in their history. This was not in the property management agreement itself, but was stated in emails from the prop manager. They found a tenant quickly, provided me the screening report which showed no evictions. I did my own check on the Indiana court site and found the prospective tenant did indeed have an eviction that went all the way to judgment. The address matched, and the tenant has a unique name. The lease is to be signed on move-in day which happens on 2/18, just a few days away. I contacted the property management company and said that this was a disqualifying issue for me, I did not want to proceed with this tenant. They balked and said that because the deposit had been taken, there was no way to back out, claimed that the placement of a deposit was somehow legally binding. I know time is short now, but I don't feel good about this. I have tried contacting a local real estate/landlord attorney regarding this issue.

2)  Finishing touch was a simple repair (inspector had pointed out the dishwasher gasket had needed to be replaced). Property management company said "we don't do work on appliances" - disappointing since this could be done by anyone who's remotely handy with a $15 gasket and 20 mins tops. Instead, property manager contracted their vendor (a very well known local appliance shop). I was supplied the *property manager's* invoice which merely said "gasket repair: $240.50."

Whoa. Everybody's got to make money, but this struck me as...high. I called the appliance shop itself and said "I want to follow up on some work you did at my property, here's the address, can you send me over the invoice?" One time I got "I'll have someone call you back with more info on that", one time I got another brush off but not before they let slip that the repair was billed at $180 *hmm* and the third time I spoke to a gentleman who said he was the owner and couldn't get me that info because he just changed to a new records keeping system and yada yada yada...

Then I get an email from the property manager saying "[appliance store] s calling me saying you're requesting the invoice for the repair work. You get our invoice. Not theirs. Sorry for any confusion."

I re-reviewed the property management agreement and found no mention of markups on maintenance work that's done in or out-of-house, and a vague description that "property management company will provide bills and invoices." I have not yet paid the repair charge for $240.50.

So:

Questions on issue #1) Has anyone else been in the position of wanting to override the property manager's tenant decision (based on solid factors such as eviction history)? Can you?

Questions on issue #2) Has anyone else tried to do due diligence on repair work by getting the original invoice from a vendor? Do I have a right to this info? Does a property manager have to disclose any markup on work done by a vendor that the property manager initiates?

I feel like blind trust is never the answer: trust but verify, right? but...what can I do?

Ultimately, all I want is: to have a tenant that meets the previously agreed upon criteria, not: oops, our screener says this tenant is good to go, don't know what to tell you about that eviction, can't back out now.

AND

A breakdown of parts and charges on repair work from the original source so that I can see what happened and know that the property manager is not pumping up the total by (potentially) 33%.

I'd love to hear from anyone with insight on these matters. Thanks!

Dustie Zvolanek · Answer

I am so sorry you are dealing with this especially so early on in your investment future. I am a PM in Memphis, TN and my advice is to get out now. This is not the way you want a relationship to start and will most likely only get worse. By no means is accepting a deposit grounds for moving forward with a tenant that most likely lied on their application. I know it is common to ask for eviction history and if they say "none" and we find in the court system they have had evictions in the past that is immediate grounds to refund any deposits or cancel any applications. The alternative is the tenant told the PM company and they did not pass that info along so either way it's not good. Your property is still vacant meaning most PM agreements allow you to cancel effective immediately verse a 30-60 day notice (look over the PM agreement to see what it says) and hire another company.

As for the maintenance issue...This is a primary reason I started a PM company because my investors were getting  ridiculous bills. I have a strict policy that I forward the quotes I get for repairs and charge a set agreed upon percentage of bills I coordinate once you approve. I supply photos and videos of all work done and only release funds once investor approves. Of course emergencies come up and smaller repairs do not require approval (although I get it anyways). I think you absolutely have the right to ask what the contractor charged because any mark up should be disclosed and agreed upon. The exception to this is if the PM company has in house workers that perform the work instead of a sub-contractor. This is something you should for sure outline in any future PM agreements. If you decide to stay with the company maybe ask now if you can add a maintenance billing clause to your agreement and everyone initial and spell out any other clauses you wish so everyone is crystal clear on your expectations.

Best wishes!

Kenny Dahill · Answer

Hi @Brady Miller, lot's to cover and sorry to hear about your difficulties.

Issue #1: Tenants with evictions history.  Hiring a real estate/landlord attorney is the correct move here because regardless what your Property Management Agreement (PMA) says, the law will always supersede.  Every state/city have specific real estate and landlord laws.  Perhaps receiving security deposit is a form of executing the lease.  Or perhaps it's a BS line from the PM so they can move onto the next property that needs leasing.

Issue #2: Overpaid Vendor.  $240 is a ridiculous amount to pay!  Last week I paid $145 for an electric range to have a new mini-electrical panel be replaced and that sounds more complicated.  That was a $65 labor and $80 part, which seemed reasonable to me.  At $240 you would've been better off buying a brand new dishwasher through Lowes!

Read your PMA to understand what limitations your property manager has regarding costs.  One of the questions we always have the property managers address on their proposals to landlords is their mark-up on vendor invoices and whether their maintenance is internal or external.  As @Dustie Zvolanek indicated, a great quality and trustworthy property management firm should be transparent on their maintenance fees.  Majority of PM's don't have mark-ups on their vendor/maintenance coordination.  Regardless if a PM has mark-ups or not, the more transparent the PM firm is the better.  Such as Dustie having a mark-up but clearly sharing the actual direct cost.

You are very early in this business partnership and it doesn't appear to be starting off strong.  Not blaming either party here.  Some management companies are terrible.  Some landlords are difficult.

How realistic is your "0 evictions" policy given the property?  If this is a C-D class property then perhaps you're setting yourself up for failure with a strict zero policy.  My 1 advice to everybody in real estate: be honest with yourself.  If this is D class property then you must expect frequent late fees and occasional eviction.  Or very high vacancy while you search for the perfect tenant.  If you don't want those headaches, invest in A or B class properties.

Add tenant selection / lease clause to PMA:  If you want more control of the tenant selection then have it in your agreement that Brady makes the final tenant selection.  They can't proceed without your approval and you execute the lease.

Ignore their evictions; 10 in 2019:  Their other landlords are not your worry and concern.  Perhaps they manage 1,000 rentals.  10 isn't bad.  Perhaps they only manage D-class properties, prone to higher eviction rates.  Part of being honest with yourself is knowing why you hired this firm.  Which leads me to...

Understand their tenant placement policy, guarantees and eviction policy:  Landlords want the best value and shop management fees.  That's not the full story though.  We purposely have property managers detail their fees and services on proposal to help expose what the landlords are actually buying.  This property management firm might have evictions but who cares if their PMA specifically addresses a tenant placement guarantee and they cover all eviction policies.  Majority don't offer this but the ones who do might charge an additional 1% higher in fees to cover their liability.  As a landlord we see 8% monthly fees, but aren't exposed and aware that the 10% competitor essentially has a "cap" built into their PMA to protect the landlord.  You need to understand the following:

• How often will I be charged a leasing/placement fee max?  1x per year, 6 months, any and every time for a new tenant.  That's important because what if the tenant moves out in 9 months.  That could be another month's rent to the PM or the liability is on the PM to find another tenant with a year lease.
• Will they cover eviction costs?
• Will they represent me at court?

Understand and re-review your PMA:  Do this before the tenants move in, re-read your entire PMA and highlight questions of concern.  Before you get too entrenched with this tenant, make sure you understand every possible way you might incur fees.  What their limitations are and if they have breached anything yet.

**If still unhappy, find a new property manager:  Take this as a learning lesson and now ask specific questions to other interested property management firms.  As Dustie mentioned, their might be a termination clause for being such a new client.  Do this quick!  Some PMA's have clauses that state they earn all fees from a tenant they placed, so you'll want to avoid their tenant moving in and owing the PM a year's worth of fees if you do intend to terminate them.

This is very long but hopefully helpful.  Understand your PMA!  Be honest with yourself.  Have realistic expectations.

Adrien C. · Answer

If I'm the property manager, I'm dropping you before you drop me. You hired them to place tenants and take care of the unit. If someone is going behind me back to do background checks after I've been trusted to place a tenant, how many other things are they going to nit pick about. I'd be concerned about this person calling daily and questioning every decision I made. Who's the expert in that area- you or her? Maybe the eviction was many years ago and they had a legitimate story and their situation is find now? Maybe for that class of area, it's unlikely to find a tenant that meets your A class requirements. As far as repairs, again I'd be annoyed you're going around my back to vendors to get prices. Can the PM not mark stuff up to make a little profit. It's not like the 10% they get each month is making them millionaires. As far as the mark up amount- $60 isn't going to kill your profit. Some people cry when they mark it up $10 so it's impossible to keep everyone happy. I'm not reflecting on the PM's integrity because we only have your side of the story but chill out dude. It sounds like you are a control freak and should self manage.

(I'm not trying to be adversarial but giving people a different side to appreciate)

Laura Kayes · Answer

Hi @Brady Miller... FIRE them. It’s your property, your investment, and your business. You have a gut instinct from what I read that’s saying fire them.

As a PM myself, I only became one because of the crooked PM companies I worked for. Not all are bad, but go with your instinct!!! Great job for doing your own research on the company and tenants.

Kenny Dahill · Answer

@Brady Miller, do what you feel most comfortable with since it is your asset, investment and liability.

Take this lesson learned and whomever you select for the next property manager, make sure they agree to your tenant criteria's and due diligence process.  Have them incorporate an addendum if needed.  It might cost you higher fees but if it makes you feel more comfortable then it is worth it.

Bill B. · Answer

@Brady Miller

Hey Brady, I have final say on all my tenants it’s my place. They have minimum standards before they even contact me and then say here’s their credit score, income, employment and rental history, yes or no?

Any repair over $250 I get a description of the problem, even photos, a quote from their preferred vendor, and the option to have someone else I choose to give a quote or do the work. Of course their vendors know that and I do get an “abundance” of $190-$240 repairs, but I could lower it to $200 if I felt I was getting hosed. With the cost of labor I’ve told them ‘no repairs on appliance over 5 years old or not stainless steel”. I’d rather just replace/update the appliances and therefor the entire property.

You should enjoy working with the PM, your supposed to be partners.

Brady Miller · Answer

Hi - thanks for your input - Here's the update, nothing too flashy.

I did hire a real estate lawyer who searched the person's name and came back with: she'd had 3 evictions started, one that was completed (the one I found) and a charge of check deception.

I emailed the property manager and I notified him of my intention to terminate our contract. He didn't put up a fight (like he had before when I had resisted the placement of this tenant). So, I'm back on the hunt for a new PM in Indianapolis. I appreciate everyone's thought-out help, and @Adrien S. - if you (as hypothetical PM) can't handle if I'm doing due diligence during the very first tenant placement (especially considering I found three strikes: eviction, check fraud, and shadiness around disclosing repair costs), I really don't want you as my PM.

Anthony Bellesbach · Answer

Well you should of worked out if they get a bad tenant. That they wave the fee of the next one. And first month rent to hold them on people they get .   But i would try to find a new pm if you can. If not call them out on repair cost they can charge a mark up but should be in your contract.  I will say im newer to rentals as well but thats my take.

Trouble w/ Property manager - options for me?

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