Problems with my property Management

[Adam Galal]

I recently closed on my 1st property in Cleveland and it has been a nightmare dealing with the property management company I hired. They haven't been able to rent it out claiming that I am asking for too much rent and the bigger issue is they keep doing unauthorized work and billing me. Although the agreement indicates that they can do work for less than $500 without my prior approval, I asked many times that I would be at least notified before the work is done. Recently, they are billing me $850 for lead inspection in which I said to them I would do it a later time but they went in and did it anyway. When I expressed my displeasure and said I won't be paying they threatened me with putting a lien on the property.

They claim that the pending balance is $1066. But I strongly feel I don't owe this because I didn't authorize the work. Can they really put a lien on the property? and what is the impact if i don't pay, does it go into foreclosure?

I would appreciate your help and advice.

Thanks

Adam

[Eric Fernwood]

Hello @Adam Galal,

While I have little to add to what others said about your current situation, I can offer some guidance to help you select a good property manager down the road. Before I talk about the process I’ve successfully followed, I will discuss the value of a property manager.

Many people believe the only value of a property manager is just collecting the rent. A good property manager provides far more value. Below are examples of what a good property manager provides.

Property Manager Contributions

Local knowledge - Real estate is local, not national. Databases and websites provide general information on a location but not the hyper-local knowledge you need to evaluate the location. The property manager is your one-stop source for the local information you need, such as:

• Tenant and landlord regulations including time and cost to evict
• Best rental areas for a given tenant pool.
• Rental trends.
• Best tenant pools for reliable income. The right tenant pool is critical.
• Referrals such as an investment Realtor, handyman, contractors, etc.

Property Selection and Evaluation - Once you find a potential property, you need to know things such as:

• Rent - What is the after-renovation rent range for a given property? Your offer price and initial return are dependent on getting this right. No website or software can match the skills of a good property manager.
• Time to rent - A property might generate an excellent rate of return, but what if it takes six months to rent the property and the average tenant stay is only two years? This property would be a disaster to own. There is no database with this sort of tenant pool specific information.
• Renovation items - Renovation is tenant pool specific. There is no source other than the property manager for this knowledge. Without the right renovations, your property will take longer to rent, rent for less than full market value, or may not even target the right tenant pool.

Execution - This is another phase where the property manager provides value. Below are some examples:

• Marketing - Only an experienced property manager will know the best channel(s) for your target tenant pool.
• Tenant selection - Tenant selection is the most important skill the property manager provides. You only make money if the property is continuously occupied by someone that pays all the rent on schedule, takes care of the property, and stays for many years. Only a good property manager can select such tenants.
• Compliance - There are multiple federal, state, county, and city ordinances concerning rental properties. A violation of any of these regulations can result in fines and legal costs. A good property manager is a member of NARPAM or a similar organization, so they always have the latest regulatory information.
• Lease agreement - The lease agreement is the number one tool for controlling tenant behavior, protecting the property, collecting the rent, and protecting you from litigation. Property managers use regulation-compliant lease agreements, not a generic form from a stationery store. They also know how and when to enforce the lease terms with the tenant.
• Rent collection - This goes without saying, but it may not be as simple as you expect. Some tenant pools will pay online, others by credit card and others in cash through a local 7-11 store. The payment collection method must match the tenant pool demographic.
• Control maintenance costs - A good property manager will control your maintenance costs. They know which vendors to use and sources to buy from. Also, they know how to control tenants who turn in excessive repair requests.

I could continue, but I trust you see the value that a good property manager provides is well beyond just collecting the rent. In the next section, I will describe the process for finding a good property manager.

How to Vet a Good Property Manager

Below are the steps I follow when I am evaluating potential property managers.

Make a List of What You Need

The first step is to list what characteristics your property manager must have. For example, suppose you plan to purchase one or more single-family properties on the southwest and southeast side of the city. Knowing this much enables you to eliminate property management companies with few properties in this area, ones that focus on apartments or commercial properties. Also, most property managers focus on a certain class of properties. A property manager with many B and A Class properties under management may not know how to manage C Class properties.

Searching for Prospective Property Managers

There are many potential sources, and each has pros and cons. Below are a few.

Search Engines

If you Google something like "Las Vegas Nevada property management," you will get many hits. Too many to be practical. With Google or any other search engine, ranking is more of a popularity/marketing contest than any measure of quality or service. In short, I do not believe a search engine will enable you to narrow the number of property managers to a reasonable level in larger metro areas. However, a search engine might be a great starting point in a smaller city. All you can do is try it.

Contacts

Read message boards on sites like BiggerPockets or other real estate investment sites and connect with people who already have properties under management in your area. The recommendation you receive should be a reasonable starting point. Important: just because someone tells you that XXX is a great management company does not mean they will be a great management company for you. Your needs or location may be different.

Property Manager Websites

Once you have property manager candidates, check their website. You may be able to eliminate many due to their service area, their focus on different types of properties, etc. Select the best 5 or 10 property managers for further evaluation. Next, it's time to make some phone calls.

Initial Phone Screen and Questions

The primary goal of the initial phone screen is to get a feel for the property manager and their company. Before you make the first call, have your questions (no more than 10) ready. Below are the types of questions I would ask during the initial phone screen:

• “How long have you been managing properties full time?” (No part-timers)
• “How many properties are you currently managing?”
• “What is your mix of property types?” (single-family, condos, commercial, etc.)
• “What geographical area(s) do you service?”
• “Do you have a staff? Please tell me about them. How many are full-time?”
• “If you were buying your first property, what type would you buy? How much should I expect to pay? Where should I look for these properties?”

Second Interview Questions

Once you narrow your list to 2-3 choices, make a list of questions that will enable you to determine if there is a good match between your needs and their services and skills. Below are some example questions grouped by topic. Contact me if you'd like a complete list of property manager interview questions we've built up over the years.

General Questions

• “What is your mix of properties?” You want a property manager who primarily manages the same type of properties you are buying.
• “Who are your typical tenants, and where are they employed?” You want to know which industries to determine how stable their jobs are and their market segment.
• “What is the average length of time your tenants stay in a property?”
• “What is your typical time-to-rent?”

Contracts

The contract is your protection and can help keep costs low. Get a copy and read the contracts.

• Property management agreement
• Rental agreement - Pay particular attention to what costs the tenant is responsible for and what the landlord is responsible for.

Fees

• “What is your startup fee?”
• “What percentage of collected rent do you charge?”
• “Do you charge a lease renewal fee?”
• “Are there other fees?”

Maintenance

• “How do tenants contact you for maintenance issues?” They should have a 24-hour answering service and a member of the property managers team on call.
• “How do you handle tenants that request multiple frivolous repairs?”
• “Do you have an in-house maintenance staff?” If they answer yes, I would probably end the call. You can not afford an in-house maintenance staff. For most property managers, maintenance is where they make the most money, not collecting rent. I never want my maintenance expenses to be their financial advantage. The property managers we work with all outsource repairs to independent companies.
• Ask, “Under what conditions do you contact me for prior approval before you make the repair?” Usually, this will be $200 to $300. Above this amount, I would become cautious.

Renovation

• “Will you manage the initial renovation?” Very few will do this.
• “Typically, what is the cost to turn a property between tenants, and how long does it take?”

Rent/Rentals

• “How do you estimate the rental rate for properties?”
• “How do you estimate time-to-rent?”
• "If I am considering a property, will you provide estimated rent and time-to-rent based on the MLS data plus a video or photos?"
• “How do you collect the rent, and on what day of the month?” (Is the property manager set up to handle automatic payments, credit cards, 7-11, and checks? The method that matters depends on your target tenant pool.)

How Do You Market to Find Prospective Tenants?

• “Where/how do you market properties?” Where they market your property should match your target tenant pool.

Tenant Screening

The most important duty of any property manager is to keep your property filled with good tenants. In my experience, good tenants are the exception, not the norm.

• “What is your process for screening tenants?”
• “What are the top 5 things you look for in an application?”
• “What regulations govern tenant screening.”

Physical Visit

If you cannot visit the property manager's office in person, ask them to give you a video tour of their office.

• Is the office neat and orderly?
• Is the staff busy or sitting around doing little?
• Ask for a demo of the software they use to track maintenance requests and rent collection, and generate monthly statements.

In Conclusion

Most property managers I've met are mediocre rent collectors and service dispatchers. You must find the (very) few that can provide the services and skills essential to your success. These are not easy to find. Hopefully, the process I described in this article will help you find a good one.