All Forum Posts by: Pancham G.

If your PM is negligent and causes a claim your owner's liability kicks in protecting you, that coverage will "subrogate" against the PM for damages as to their professional liability. You weaken your rights to be indemnified by acts of the PM making them an additional insured, that's their purpose. If the PM thinks they are covered, they are wrong under an owner's policy, not the proper risk exposure to be covered.  :)

Keep shopping! :)    

@Pancham G.

The insurance policy price is quoted for the property and thats the standard cost to the owner. When an additional insured is added to the policy the rate dent go up. Its just like adding a mortgage company as an additional insured, its no additional cost. This helps keep the management costs lower for the owners.

The clause requiring full lease term payment is to protect the manager from doing all the work to get the tenant settled and then being fired by owners trying to get something for nothing. Usually the leasing fee is small up front to ease the owners cash flow and the company makes the balance over the term of the lease. It is usually safer to partner with a manager that gets paid when you do as opposed to just paying a one time leasing fee up front and then the agent gets paid and you may not have the greatest tenant. Remember, everything in life is negotiable. A good place to look for a solid management company is NARPM or IREM. Hapi investing.

Here is a real life example on a claim we had to handle.  An owner hired an unlicensed handyman to fix a heating boiler for a 4 plex.  It was "fixed," as in it was not really fixed, in-fact the fix was very flawed, but it had the appearance of fixed (the reason to always hired a licensed contractor).  The property now being in a rental condition, they hired a property manager.  The property manager gets all four units rented.  The boiler catches fire, damages property and hurts a few tenants.  

Keep shopping.  Look for a PM who will work for a flat fee, and they only get paid if rent is collected that month, and they must call you before any money is spent on anything, and you get to choose the repairmen.

Most will not accept that, because most PMs make money when there are problems.  They generally make more money if they put a problem tenant in place.  They get paid extra when there are problems, they spend your money on "emergencies" without having to call you first, and in my bad experience, they call anything an "emergency," and the next thing you know all of your funds are gone.  They use their own pals and maintenance people and charge you hugely inflated prices.

And these guys even want you to pay for their own insurance.  

If something feels wrong, or seems like a bad deal, keep shopping.  Trust your instincts.  Don't fall for the "it's standard in the industry" garbage.  Until the PM industry is better regulated, yes, it's standard policy to rip off owners.  

Of course, there are exceptions, and there are wonderful PMs out there.  But, look for a deal that suits YOU.  Or manage the property yourself.

I think the majority of owners who hire PMs do not make a profit.  They are embarrassed to admit it.  But, that's what I believe is the truth.

I was horribly ripped off by a PM when I rented out my home and moved to another state.  My daughter was horribly ripped off by a PM in her own state, but in a different town.  This is unfortunately common.

So, be in charge of your own investment.  Write your own PM contract, and look for a realtor or someone to show your properties for you, and pay them a nice percentage to keep an eye on things and coordinate maintenance issues - with repairmen that you choose yourself.

Just know that when you at first glance think, hey, 10% of the rent isn't bad at all!  Be aware that PMs for the most part, don't make most of their money on that monthly fee.  They make their money by charging you every time they find you a new renter, or by charging you full lease prices even if you fire them (gee, why would they need this in the contract?), or from using their own maintenance men, or for dealing with evictions, etc., etc., etc.

I'll leave you with just one example.  My daughter's tenants mentioned to the PM that the light was out on the porch.  The PM charged my daughter $200 to have a repairman go replace a lightbulb.

Now, does that PM have any incentive to help my daughter make money on her rental?  When my daughter fired them, and threatened to sue so they forfeited the clause in the lease saying she had to pay them the fee you're talking about - they offered my daughter's tenant another property that they managed.

So, they were expecting to collect full management from my daughter for firing them, then put my daughter's tenant into another property, where they probably got paid to evict the last tenant that they themselves put into place.

And the tenant they found for my daughter were problem tenants, and they knew it, and they were ready to put them into another owner's rental, where they planned to let this complaining tenant continue to make them money on all of the maintenance calls this tenant was likely to drum up.

So, my answer to your question - sure it's standard.  But, is that okay with you?  Be one of the smart owners who manages their own properties or hires someone under a contract they write themselves.  Yes, you can find someone willing to agree to a fair contract. The PM you are considering is someone you should not hire.  In my experienced opinion.