All Forum Posts by: Ed Lopez

Thanks for input @Calvin Thomas. Just to clarify, I do pay separate moveout inspection fees that are not included in the above charges.  Also, a 10% markup to all repairs is added to the PMs pocket separately…..which seems like a conflict being that he is now using his own contracting business. I’d hope that the inspection fee and markup would cover the costs you are mentioning.

He sells all the renters insurance.  Charges them all for parking passes (on the lots I own), charges for pets, charges to empty the coin op laundry, charges for credit checks etc.  There is plenty of meat on the bone for him so to speak.  

Thanks for the input @Rick Bassett .  I do see the point @Steve K. and others are making about the annual turnover and low monthly rent being in conflict.  At purchase they rented for $350 and I’ve incrementally raised rent however this is a low income area and county overall.  My higher end apartments rent for $750, houses for $1250.  If you were to try and rent anything for $1,500 plus they would just sit vacant.  

My thoughts were that, if the turnovers are the same month, it is more like a 2200sf house being rented for $2100/mo. This is a SFH that was converted to four units a long time ago. However if you extrapolate the turnover costs across the four units I'd be paying 10k plus to make it ready. That's when the excessive charges really start to show.

Thanks @Dan H. I'm certainly not upside down on the property. When I ran my numbers initially it worked out. I purchased this fourplex in a deal with a couple other properties. This particular fourplex I paid $64k for fully rented. I spent another maybe $15k fixing the place up. It brings $2100 gross rent monthly plus whatever the coin op laundry adds. On paper that is a pretty darn good ROI but I've found when dealing with lower rent numbers the profits dwindle quickly especially when the PM has so much loose leash.
These are my lowest rent units and also my lowest initial cost units.  

Sometimes my portfolio in this area frustrates me. I feel like the numbers are great and I’m just missing something.  All I can figure is that it’s being mismanaged.  By me or the PM or whatever.  My total portfolio in this area I spent approximately $350k ($150k my cash, $200k bank carry). All together the units bring over $8k in gross monthly rent and we have no trouble keeping them occupied other that an annual turnover month.  For $150k out of pocket this seemed like a home run yet sometimes we barely break even.  

I sent the following to the PM's billing.  We'll see how it goes. 

Thanks for your help breaking down the charges. I appreciate you taking the time. This is an important example of a recurring issue that I thought was previously resolved. One of the units in which these repairs were made rents for $500-$550/month. That is a gross rent of $5,500 annually assuming one month of vacancy for turnover. I'm being charged half of that annual amount for what appear to be common turnover repairs such as filling nail holes and tightening door knobs. When you add on your new lease fees, lock box fees, inspection fees etc. the percentage creeps far higher. At that point the unit becomes no longer tenable to rent from an owner perspective as it is actually COSTING me money to have someone live there. That is one of the reasons we have set in place notifications for any estimate of repairs exceeding $500 of which these repairs were 10 times that amount in total.
Based on the excessive amount of hours spent and the lack of prior authorization as agreed upon and taking into account our prior communications regarding minimum acceptable owner distributions, I must insist at least the labor portion of the repairs be refunded. If (**redacting name of PM co**) Contracting would like to share the actual cost of repairs I'd be open to looking at those numbers as a reasonable cost. If these type of damages occur in the future, I would recommend holding the tenants deposit, or if there is a claim to be made through the insurance you sell them you could approach that avenue.
Once again...please authorize any repairs exceeding $500 through me for prior approval. Thank you.

I am curious what percentage of the gross rent is reasonable for typical turnover costs.  

@Drew Sygit The verbiage in our management agreement is as follows: 

make, contract, and/or supervise repairs, alterations, and/or decorations to Property; to purchase supplies and pay bills
therefore; Broker agrees to secure the prior approval of Owner for all expenditures estimated to be in excess of $500.00 for
any one item, except monthly or recurring operating expenses and/or emergency repairs in excess of the maximum, if in
the opinion of the Broker such repairs are necessary to protect the property from damage or to maintain services to the
tenants as called for in their leases; in the event that Owner is unreachable after multiple contact attempts for more than
forty-eight (48) hours to approve a repair in excess of the above amount, Broker shall be considered authorized to make
such repair.

I've been contacted about high ticket items in the past but these "make readys" are done without approval.  They just let me know I wont be receiving rent and the reserve accounts have been depleted.  I'm not sure if that is because they are considering it lots of little repairs so it doesn't fall within the guide line or what.  

It is a relatively small town, and there are only a couple of PM's...otherwise I probably would've made a change long ago.  

@Drew Sygit @Chris Seveney Thanks for the replies.  My concern us that the contracting company is owned by the property manager.  I believe he just sends his guys in and tells them fix whatever needs fixing and take as much time as you need with no checks or balances.  These units are in rural Illinois.  One of them in question rents for $500/mo.  What we run into is even if there are no major repairs for the year; you have a 15% management fee; $500+ in setup an inspection fees annually, and $2500 in make readys with basic repairs you are looking at nearly $4k in annual, basic costs for a unit which brings $6k in gross rent annually.  By the time you factor in insurance and any cap ex....it's already a loser...even if you aren't carrying a mortgage.  

I by no means want to be a slum lord or have units in need of repair.  I sunk a large amount of capitol into these when I purchased them just to make sure they were nice.  The costs are just ridiculous though.  Another example....last year on turnover, one of the refrigerators was missing two shelves.  The replacement shelves were ordered individually, I was charged the initial inspection fee to tell me the shelves were missing, the cost of the shelves plus markup by the PM, and $67 an hour to "install" the shelves.  It turned into a $500 ordeal to put two shelves in the fridge.  "toilet bolt caps" always make their way onto these repair orders too.  The nickel and diming has just gotten way out of control and I feel painted in a corner a bit.  To reiterate, I don't need huge profit margins off these and I do want to offer quality rentals but they do need to make sense.  

Thank you for the reply @Michael Griffith .  I agree that $65/hour for a plumber, ac repair or some other skilled labor would be a deal.  The $65/hour for patching nail holes and hanging blinds seems excessive. Especially when it’s times 2.  Most contractors here in California will charge their hourly rate and possibly ad on a smaller charge if they need an assistant.  For example I don’t know of any say plumber that charges $120 an hour but brings two guys and charges $240.  

Hello,

I've had some issues with excessive costs through my property management company over the years.  I'm a passive investor and these properties are in a different state than I reside in so I'm not there in person often.  These properties typically turn over once a year as they are mostly student rentals.  I put a significant amount into bringing all the units up to par when I purchased them several years ago and revisit anything that they need annually so there is no deferred maintenance.  This year I received a bill from the PM with the following line items and costs: 

- Bathroom 1 : Shower/Tub Caulking | Re-caulk tub
- Bathroom 1 : Toilet bolt caps | Missing bolt cap
- Bathroom 1 : Window Covering | Missing miniblinds
- Bedroom 1: closest to the front door : Door/Knob/Lock | Door know needs tightened
Needs deadbolt installed
- Bedroom 1: closest to the front door : Window Covering | Broken miniblinds needs repaced
- Kitchen 1 : Wall/Ceiling | Pull nails and spackle
- Living Room 1 : Wall/Ceiling | Nail and holes in paneling
- Living Room 1 : Window Covering | Miniblinds need repaired

Line Items
Description Amount
Macomb Glass Invoice $40.99
Sherwin Williams Invoice $40.60
Walmart Invoice $62.37
Total $2,271.27

1 of 2

Ace Hardware Invoice $82.93
Ace Hardware Invoice $28.33
Ace Hardware Invoice $42.50
Macomb Glass Invoice $188.58
Walmart Invoice $135.30
Ace Hardware Invoice $65.19
Ace Hardware Invoice $9.78
Shop Supplies $3.00
Labour hours 24.18 @$65 rate $1,571.70
Total $2,271.27

This is a very small, one bedroom apartment in a fourplex.  I'd like to get other investors takes on these repair rates.  24 hours of labor seems excessive to me and $65 per hour seems excessive for non skilled labor.  These repairs are through a contracting company owned and operated by the PM.  When I inquired if they charged a flate rate per job, they said no, actual hours the jobs take.  I asked for actual days and times the repairs were done and they came out to 1/2 of the hours charged so I'm assuming they are using a 2 man crew and charging $65 per worker.  Here is another example.  

This is a small 3 br house.

Work Order Instructions:
- Entry 1 : Security/Screen Door | Replace Exterior Door Screen
- Entry 1 : Wall/Ceiling | Spackle and paint
- Bathroom 1 : Door Stop | Replace door stop
- Bathroom 1 : Light Fixture | Replace bulb
- Bathroom 1 : Shower/Tub Caulking | Re-silicone tub
- Bathroom 1 : Toilet bowl/lid/seat | Replace toilet seat
- Bathroom 1 : Toilet Paper Holder | Replace toilet paper holder
- Bathroom 1 : Tub/Shower | Relay loose shower tiles
- Bedroom 1: closest to the front door : Closet/Door/Track/Shelving | Install Closet Rod
- Bedroom 1: closest to the front door : Light Fixture/Fan | Fan light does not work - replace fan
- Bedroom 2: 2nd closest to the front door : Closet/Door/Track/Shelving | Replace closet rod
- Bedroom 2: 2nd closest to the front door : Window Covering | Replace blinds
- Bedroom 3: furthest from the front door : Switch/Outlet | Install smoke/CO detector
- Bedroom 3: furthest from the front door : Window Covering | Replace blind
- Dining Room 1 : Window Covering | Replace Blind
- Hallway/Stairs 1 : Light Fixture | Replace bulb
- Hallway/Stairs 1 : Other | Replace blind
- Kitchen 1 : Window Covering | Replace other blind
- Laundry Room 1 : Light Fixture/Fan | Replace bulb
- Living Room 1 : Switch/Outlet | Replace Outlets
- Living Room 1 : Window Covering | Replace Blinds
- Basement 1 : Light Fixture/Fan | Replace bulb
- Systems 1 : Thermostat | Reattach thermostat

Line Items
Description Amount
Labour hours, replace several blinds, screens, door stopper, replace toilet seat and toilet paper holder, reset shower
tiles, install closet rods, replace necessary bulbs, smoke detectors and outlets, touch up paint

$2,096.38

Shop Supplies $3.00
Ace hardware invoice I51016 $44.64
Ace Hardware I50619 $53.69
Ace Hardware I50569 $43.57

Total $2,552.16

The gross rents on these units are great but so much of the profits get eaten away by the turnover costs it just makes less and less sense every year.  Advice appreciated.  Thanks.  

Thanks for all of the useful input. REI is not my primary occupation. I usually take one month a year off of my w2 job to get entire deals in order. That is exactly what I did here, flew out to the area and stayed a few weeks, researched the area, met a realtor, opened a bank account and did a deal to purchase these properties (2 houses and 10 individual units). During my setup period I could only find three local PMC's. One was allegedly going out of business, the second was a party who previously owned some of the properties I was purchasing (and subsequently forfeited them to the bank). This pretty much left me with only the third option who I hired. I'm going to conduct a thorough audit as recommended. I also considered taking another trip out and trying to create relationships with handymen, contractors etc and attempting to take on more of the management myself remotely. I just don't know I feel comfortable with the time commitment.