Property Management - Cleveland

[Bob Collett]

A couple of weeks ago I picked up a new property management client with a number of properties in the Cleveland area. As I began onboarding the existing tenants, one of the tenants was quick to say: “Oh, I just wanted to let you know that the former property manager just made bail”. This led me to do a review of where my property management clients and where come from. Here are the results:

• Referrals from REIA – 7%
• Referrals from other Real Estate Agents – 10%
• Directly from Property owners with bad property managers – 82% (about half of these owners seeking urgent help come from bigger pockets)

I follow a lot of the debate on Bigger Pockets regarding unlicensed contractors, pros and cons of wholesale, and so on. If someone chooses to work as an unlicensed contractor, that is there choice. There is no law against it in Ohio. An investor can choose to use only licensed and insured contractors or not. The only real requirement is to follow the law with respect to reporting to the taxing authorities and not pay “under the table”.

However with property management it is another thing altogether. All property managers in Ohio must be licensed real estate agents in the state of Ohio. There are a number of reasons for this. Anyone who conducts property management for anyone (even friends) else’s property in the State of Ohio must do the following:

• Be a licensed real estate agent
• Place all retained rents directly into a State of Ohio audited Trust Account
• Have a written property management agreement with each property owner stating the start and end date of the agreement among other things
• Deliver regular financial periodic reports to the property owner.
• Display Fair Housing language and logo where required
• Maintain a ledger sheet for all transactions including name and address, name of all parties to the transaction, amount and date of all deposits, amount and date and check number for all disbursements, running balance for each property
• Register each property owned by an out of county owner, with the county auditor
• Broker may not co-mingle funds

Further, a Broker may use an unlicensed assistant only for certain administrative or clerical duties, maintenance, showing a property and other specifically defined tasks. An unlicensed assistant is specifically prohibited from negotiating leases, interpreting a lease, or claiming to be in a position of authority or approval. The unlicensed assistant must be closely supervised by a licensed Broker.

There are many fine property managers in northeastern Ohio. We regularly and happily compete with each other. Occasionally we even refer business to each other when it is in the best interest of our clients. Hiring an unlicensed agent is asking for trouble. Not only do they not follow the rules... they do not know the rules... and probably do not know that it is a criminal offense to hold yourself out as a property manager if you are not properly licensed in Ohio. Sooner or later, they will end up out of business with your money in their pocket.

The first thing to do I when considering hiring a property manager in Ohio is to lookup up the individual’s real estate license. Even some well known licensed property managers allow unlicensed individuals to pretend to be property managers. Be sure to check on the status of the individual agent who will be handling your property, check on their license at:

After you check the license status, then continue with your due diligence. We all make mistakes and have different strengths and weaknesses. Some otherwise great property mangers get themselves in a bit of trouble simply because they grew too fast or spread themselves too thin. Some do not have enough back end support. Some do not have enough experience. Some are great, are honest, work hard and care about their clients.

If you had a bad experience with a property manager here in Ohio, please let us know what happened. I prefer that you do not mention names in a public forum. Just let fellow BPers hear the kinds of horror stories that go on.

[James Wise]

Good points made Bob.

We see lots of investors come to us with portfolio's that were managed by unlicensed property managers as well. The common theme with these investors is that they get caught in the penny pinch trap. They pass over dollars trying to find dimes.

They try to go the cheapest route with everything from the property to the contracting and then the management. Often times they loose money because the management was subpar as was the condition of the property. Even quality management can't do anything for you if you have a subpar property. They then have to spend twice as much as they should have to get their property performing even then it's usually a dud of a property that ends up a being career looser as they went in and bought the cheapest possible property they could.

When weighing the decision on whether or not to hire a cheaper unlicensed property manager investors need to step back and ask themselves these two questions.

For the property managers who do not know the laws.

• "If this property manager is ignorant to real estate law, are they actually qualified to control my investment?"

For the property managers who know the laws and choose to ignore or break them.

• "If this property manager has no respect for the law, will they have respect for my investment?"