All Forum Posts by: Stewart Guthrie

Welcome to BP Rob

This is an outstanding community, you'll learn a ton and make great contacts, local and remote.

Mike, 

That is EXACTLY how it's supposed to work.

Have a great weekend.

"DISGUSTING?", (all caps again).

How is that different from the hundreds of BP podcasts and, (hundreds of?), thousands of forum posts teaching/discussing how investors and potential investors can be more profitable at the expense of a property owner on the purchases side or at the expense of the tenant, on the rental side.

The hypocrisy is breath taking.

The arguments being made here against property managers are no different than the arguments that tenants make against landlords, and they are about as valid. 

The only difference is that there isn't enough to be gained by a politician by inserting themselves into the relationship between property owners and property managers in the same way they have inserted themselves between landlords and tenants, and that always works out well, (see Controls, Rent).  The only reason they don't is that there aren't enough votes out there to bother.

We'll be much better off when people realize that PM's and RE Investors ARE allies, but they must, by necessity, look out for their own self interests.  

If I allow my clients to define what my service offerings are and the prices I charge for them, there will be no business.  They ask for discounts ALL THE TIME.  Why?  Because they want to be more profitable, just like I want to.  The difference is that I am not angry, nor do I accuse them of being a thief or dishonesty.

So, if you encounter a PM that is incompetent, dishonest or dangerous, by all means, shout it from the rooftops, post it here and everywhere, BURN 'EM, you have a moral imperative to warn others against real danger

But if you think your PM, (or all PM's), charge too much, find another one or manage the property yourself. The PM either did or did not make a good pricing decision and the balance between the inevitable loss of business higher profit will tell him which it is and market prices will adjust accordingly.

However, taking to a public forum and attacking the character, integrity and honesty of a business owner solely because you don't like their prices is childish and counterproductive.

You don't think you're paying that $5 to use the head in a bundled price?  

The likely strategy is that the airline in undercutting it's competition by some amount in the hopes of attracting enough additional passengers to compensate for the lost revenues.  If someone can make it through a flight w/o having to use the restroom, (not difficult between, say Portland and Los Angeles), they come out ahead.  If not, they pay to use the restroom.  

This truly is a captive audience, while they are in the air, but I bet that the fee for facility use was disclosed up front.  I don't know if I would make the same pricing decision if I were the airline, but they own the equipment and service you want to use, so they get to set the prices unless:

1)  Enough airline passengers vote with their pocket book and choose to pay a little more for the bundled, (airline + restroom), price because they don't like not knowing exactly what their cost will be, or they have a philosophical problem with being charged for such a fundamental service 

OR

2)  Enough airline passengers complain to their elected representatives and a law is passed saying that the airline cannot charge what it wants for it's services, nor can it segment it's pricing based on usage.

Should it not be the airline's choice to risk the potential loss of business using #1 above in the hopes that they will attract more business?  

By the way, #2 is a pretty fair analog for rent control.

Regarding your experience with the "collusion" you experienced with your PM.  

1)  Market research indicates that there are just under 500 property managers in the Sacramento MSA alone, (these are companies ID'd as PM's, doesn't include individual agents that manage a few properties on the side).  I don't know how this compares to where your properties are located, but I'm guessing that you could have made more calls.

2)  If a PM figures out how to be more profitable, the other PM's are going to figure it out as well, no collusion necessary.  I shop, (and get shopped by), my local competitors all the time.  That's business. I like to think that I have some pretty good ideas and I know that my local competitors do.

My guess is that your PM probably gained some experience and learned what it really costs to run an effective PM business and had to have a very uncomfortable conversation with you because they NEEDED to raise their price or reduce their service level, (and associated expenses), to stay in business. 

If someone does something that isn't in your best interest, it doesn't make them bad or evil, (which is kind of what I felt your original point was when you accused PM's of "gouging" in your original post), it most likely means that they are taking care of their own self interests, which is the basis of capitalism and a free market.  You don't have to do business with them, and you don't have to like them, but the whole character assassination thing is a little Alinsky-ish to me.

@Mike McKinzie

"Interesting that I have not received any defense comments from the Property Managers out there. No one?"

In my opinion, your original post sounds more like you're trying to pick a fight.

If someone stands up in a bar and announces that he can kick anyone’s *** in the place, and he goes unchallenged, does that mean he’s correct, or does it mean that the other patrons of the bar have decided that there is nothing to be gained by responding? To carry the analogy further, are the other patrons more or less likely to come back to this bar?

Accusing a fee manager of "GOUGING", (all caps), probably goes a long way to ensure a suppressed response by lots of people who may or may not agree with you. To me, the term "gouging" implies that the fees being charged are unnecessary and excessive; simply “additional profit” that adds little or no value to a client or customer. I don't know if that is your definition, but I think it's a fair place to start. The problem is that many investors/clients compare what they would charge to perform work on their own property, (nearly nothing in many cases), to what a PM is charging to perform the same work and assume that the delta between the two figures is excess or unnecessary profit.

So, a few points:

1)  The free market conservative/libertarian in me says, “So what?”

As long as my fees are disclosed, (difficult not to do in our state, but a moral and ethical imperative in any case), our clients can make an informed decision as to whether or not they want to do business with us or another PM down the street.

If I have more or different fees than another PM, each client must make a decision based on what they value: the product they buy from me has to be worth more, (to them), than what they pay me. If it isn’t, they can, (and should), take their business elsewhere when we have fulfilled our contractual obligations. For the most part, it’s still a free country, (Thank God).

If I conduct my business in a legal moral and ethical manner and my market still won’t support the fees I am charging, then I will either change my prices or go out of business, full stop.

2)  Is it not the obligation of any business owner to maximize profits?

If a prospect investment property is worth $200K but it was listed for $175K, “For a Quick Sale” because there is some sort of distress or trigger event, does a BP member offer $200K? Why not? My guess is that most folks on these forums would start at $145K, (many would start at $99K).

Why should it be different for a Property Manager? What if I can cover my costs by providing service of an acceptable quality at $75/month but my market research indicates that this level of service will consistently sell for $100/month, should I give up the $25/month because I’m better at providing service than my competitors? My good, smart, ethical hard working employees hope not, they’d like a raise, a bonus or a better telephone system. The Regents of the University of California hope not, because they want me to pay tuition for my 3 children, (though one of them is likely to join the Navy, everyone reading this will be on the hook for his GI Bill).

3)  Markets and customs are vastly different.

For example, a strong case can be made to charge a leasing fee along with the monthly management fee, (typically lower):

This structure more accurately reflects the work load on a rental property: taking new marketing photos, writing and syndicating marketing ads, scheduling/performing showings, tenant screening, acceptance of deposits walk-throughs etc. Taking half the first month’s rent, when the property is rented, reflects the heightened activity during this phase of management. The intensity level drops considerably, or should, when the tenant is in place and paying rent on time, reflected in a lower monthly management fee.

So, I made a case. I don’t know if you are convinced or not, but that is what is customary in this market, (to @Dawn Brenengen's point above).

I should also note that this doesn’t make this fee structure more “right” than another, it simply means that the vast majority of property owners and PM’s in our market have found it a comfortable/acceptable business arrangement. Just because it’s different does not make it dishonest or excessive, (or “GOUGING”).

4)  Most folks on BP recoil at the thought of paying any sort of markup on maintenance. Let me give an example.

You purchase in investment property, built in 2007; it’s part of a large development, middle class, good schools, mostly owner occupied.

Over the same long weekend, your brother, (who believes that the answer to all of life’s questions will drop out of the bottom of a spreadsheet), buys a property roughly the same size, built in 1971. Cash flow looks AWESOME because acquisition costs were so much lower.

Logic, and considerable experience, tells us that the home built in 1971 is going to need a lot more attention and will have a lot more maintenance issues than the one built in 2007. The solution advocated by many BP posters would have us simply increase our management fee percentage to cover the cost of managing maintenance. But is that fair to you, the owner of the home built in 2007? You bought a newer, likely more expensive, property. You were likely betting on having a smaller allowance for maintenance. Why should you pay, (through an increased management fee), for maintenance management services that you don’t need?

I think that your brother, the one that bought the 40+ year old property, (probably with lead paint and asbestos tile), should pay more if he uses more service. The maintenance markup is a fair way to do that. Is it the only way to ensure that costs are covered? No. Is it a valid way? Yes.

In some markets, with very high rents, management fee revenue really is sufficient to cover the additional management burden of all but the largest projects. That isn’t the case in all markets though.

5)  Finally, it would be foolish to ignore the fact that there are loads of opportunities for a dishonest actor to cause harm, especially on the maintenance side: Defer maintenance, Bill for Maintenance never engaged, Request unnecessary maintenance or Mark maintenance up excessively, etc. (this is by no means an exhaustive list of the ways a dishonest person can screw you).

In my opinion, the more pertinent question is if it is more rational to build a business plan around what is likely to happen, (assuming you take care in choosing your PM):

An honest, competent and imperfect, (Read: Human) Property Manager does their best to maximize your ROI while staying true to an ethical and moral standard that is in alignment with yours.

Or should you build your business plan around the worst case scenario:

A dishonest, incompetent, and imperfect, (Read: Human), Property Manager, not in alignment with your ethical and moral standard, somehow manages to fool you in the interview process and gets away with overcharging you.

Both scenarios are possible. But if you think the second is more likely than the first, you should probably manage your own properties, locally, where you can perform your own maintenance as well doing your own rent collection and accounting. BP is great at teaching people how to do just that, and I am a huge believer in being self-sufficient, so I wish you good luck and God speed if that is your choice, you’re in the right place to learn how.

So, while I doubt that I convinced everyone, (anyone?), I hope that I have provided some clarity as to why PM’s do what they do. Above all a PM is your agent and is supposed to act in your best interest as your fiduciary. We take that obligation very seriously as do the vast majority of professional property managers out there. 

Great way to start the new year @Alex C..  Welcome to BP, this is a terrific community.

@Gordon Cuffe is right; IMO, the sweet spot in this market is a 4 bedroom SFR. In terms of rental values in our market, we see a huge jump in value between 2 bed and 3 bed SFR's, a good size jump between 3 and 4 bed and very little jump between 4's and 5's. Many people will take the the 5th bedroom, but very few perceive a need for it.

Folsom is HIGHLY desirable; you'll notice that the acquisition costs will reflect that relative to other areas in the region.  Of course, compared to San Mateo, (or almost anywhere else in the Bay Area), I imagine it looks pretty good.

If you're interested in Folsom, I would recommend looking in Orangevale, Fair Oaks and Gold River as well, (all are Sacramento county and are very close to Folsom).  I think that Orangevale and Gold River rental rates REALLY benefit from their proximity to Folsom, but the acquisition costs are going to be better. There is less, recent development, so you're likely to find units in need of updating.

Fair Oaks benefits from it's proximity to Folsom as well, but it has been a prestigious, long standing community in it's own right before Folsom became super-hot.  Really nice community with a lot of large lots/rural feel in many cases.  There has been some in-fill development that make terrific rentals, but most is older, (50's through 70's), though I would guess that a fair amount of the inventory has already undergone some level of remodel already.

To the North, you can look at Roseville, Rocklin and Lincoln for many of the same reasons you're considering Folsom.

Hello @Geoff Eckert,

We manage properties throughout the Sacramento region.

I think we do a good job, but I'm biased...

Happy to get together with you and discuss your goals and to see if there's a fit.

Happy New Year.

Stewart

Welcome to BP @Kevin Yoder,

We are a PM in the Sacramento region.  We work with a lot of Bay Area investors; as you know, the acquisition costs of property anywhere in your neighborhood tend toward the obscene. Prices in the valley are a lot easier to take.

Our Bay area clients that invest in Sac tell us it's close enough to the Bay so they can be more involved during the acquisition phase, which is comforting when you're first starting out.  The more experienced they get, the more comfortable they are in acquiring assets across the country; many of them have sold their local, Sacramento assets during the recent market upturn, (alas...), and acquired property in distant markets.  

I don't get involved in the sales side, (I can refer you to a few, really good, investor oriented agents if it would help), but we work with investors and agents to get good rental analysis and neighborhood insights on prospect properties.  I'm happy to share insights on our market if you're interested.

Happy New Year!

Welcome @Janessa Rivera

BP is the best place you could have possibly come.  The amount of quality insight and discussion sloshing around here on any given day is truly inspiring.  Good luck.

That is a great, and inspiring, story.  

I had a boss tell me one time that you always overestimate what you can get done in one year and underestimate what you can get done in five.

Congratulations on figuring it out.