Hello,
I am a getting involved with fixing & renting single-family houses, and was wondering what the veterans here thought of using property management companies to look after the day-to-day for their rentals. I know that no one is going to take care of your properties as well as you are, but the proper delagating of authority, especially once you have a large operation going, is the hallmark of a well-managed company.
On the other hand, I’ve heard a lot of horror stories about property management companies…
If you get a good one - they are as good as gold - clearing your time so you can work at the things that will make you the most money. I had won lady in Tacoma I wish I could have cloned. Honest, reliable, great with tenants, handled calls and maintenance easily and with reasonable cost.
I’ve also handles management myself. Did okay, will do it again, but the 3am calls will PYO in no time.
I’ve also had some bad apples.
The main thing is if you want to go that way - make sure you have a good enough numbers in your property to handle the management fees - and interview and do checks on every PM you consider. I would only consider getting one with a CPM designation.
Interview as many as you can stand to talk to. Ask for recommendation letters from both owners and tenants. Negotiate discount on fees for multiple properties.
I would NOT use a management company if you can do the management yourself. You’ll just be throwing money away and your property will suffer.
I've also handles management myself. Did okay, will do it again, but the 3am calls will PYO in no time.
I’ve been doing this for over 4 years with dozens of rentals and have never had the mythical 3am broken water line call. You could count all the calls I’ve received after 11pm on one hand.
Are you worried about asset protection? Managing your own properties can allow a plaintiff’s lawyer to pierce the corporate veil, if you in the name of a business entity, and go after your personal assets.
I am always concerned about asset protection. That’s the reason that I have a multi-layered asset protection program and liability insurance. I’m being sued right now for a tenant that is committing a fraud. Being sued is a normal part of the rental property business.
In my current lawsuit, the tenant’s criminal mother claims to have been “severely and permanently injured” when the ceiling fell on here due to a mysterious water leak. It’s all total b.s. (the tenant pulled down a small portion of the ceiling but picked an area with no water lines above it - oops) and we will almost certainly win. The truly funny aspect of this lawsuit is that the scumbag contingency lawyer filed this case in small claims court, meaning her “severe and permanent injury” is only worth about $1,400!!! I would translate that to mean that the scumbag contingency lawyer knows that this is a scam and didn’t want to spend the money to file this in common pleas court.
At any rate, yes I am concerned about asset protection. However, the tens of thousands of dollars that I would spend on paid management each year are DEFINITELY NOT WORTH IT. In my opinion, paid management is one of the biggest wastes of money on the planet.
I manage my own. I don’t get 3am calls…but then again I don’t get 3pm call either. They call you because something broke. I make my units good before I put someone in them. New stuff dosen’t break. If it does break it is under warranty or the tenant broke it. If the tenant broke it the tenant pays for it. If it breaks on its own the warranty company fixes it.
Thanks everyone for all the great replies! This is a great website with a lot of active bloggers.
Property Manager, could you elaborate on your "multi-layer asset protection’’ set-up? I’m getting ready to start creating my set-up. I’m thinking about using a C-corp for the main business, which would include my higher risk activities like the day-to-day running of the rentals, as well as any dealer type activities like flipping. I would hold my properties in land trusts with LLCs as the beneficiaries, and them have the C-corp lease the homes from the trusts. I’m trying to think of a way to make them multi-member to ensure charging-order protection (I also want to control at least 10% of the LLCs to get my $25,000 Passive Activity Loss benefit from the IRS.)
I have found operating expenses to drop when a professional PM takes over. I will concur with the other and say you should manage on your own at first to learn the business.
However, the tens of thousands of dollars that I would spend on paid management each year are DEFINITELY NOT WORTH IT. In my opinion, paid management is one of the biggest wastes of money on the planet.
Hate to disagree with my mentor but the flip side is I would lose alot more than tens of thousands of dollars per year if I had to manage my own properties…And without kidding myself I firmly believe I couldn’t do half the job my PM does…Not all property managers are no good…The only reason I own real estate and continue to buy like I do is because of how confident I am with my current management…The amount of lost oppurtunity/earning cost I would incur would be astronomical if I had to spend my time managing…
Property Manager, could you elaborate on your "multi-layer asset protection'' set-up?
PRIVACY - keeping your name off the deed. Using land trusts for privacy. Being the manager, not the owner. Having unlisted home phone number. Using PO Box for business activities.
ENTITY PROTECTION - using LLC to own the property - directly for SFHs and as the beneficial interest for high risk, low income apartment buildings.
INSURANCE - self-explanatory
AGGRESSIVE DEFENSE - fighting ALL lawsuits so that deadbeats and their scumbag contingency lawyers will know that we are not easy pickings.
Hate to disagree with my mentor but the flip side is I would lose alot more than tens of thousands of dollars per year if I had to manage my own properties...And without kidding myself I firmly believe I couldn't do half the job my PM does...Not all property managers are no good..The only reason I own real estate and continue to buy like I do is because of how confident I am with my current management..The amount of lost oppurtunity/earning cost I would incur would be astronomical if I had to spend my time managing...
RookieNYC,
I agree with you. If you are making a bunch of money doing something else, then paid management is the right choice.
However, let’s look at what property managers do and what they get paid. A typical property manager gets 10% of the gross rents plus they often get additional fees for placing tenants and arranging maintenance. What do they do to earn this money? They answer the phone, show apartments to potential tenants, sign the leases, collect the rent, and send the owner a monthly report (and hopefully a check).
Let’s assume that the rental has a gross rent of $600 per month. Let’s also assume that the manager charges 10% of gross rents plus 1/2 of the first month’s rent for placing a new tenant. Let’s also assume that the manager only places one tenant during the year.
Therefore, the manager would charge you $720 for the year for the basic management plus another $300 for placing the tenant, for a total of $1,020. For that fee, let’s say that they showed the apartment to 6 applicants to find a tenant (15 minutes each); they signed a lease and other paperwork (30 minutes); they have answered whatever tenant calls they receive from this tenant during the year (let’s assume five 3-minute calls during the year, which is high) opened the mail box to pick up the monthly check, and completed a monthly report for the owner (5 minutes on the computer).
So, at the end of the year, the management company has worked 3 hours and 15 minutes and has received $1,020 for doing so (that’s $314 per hour). You might think I’ve forgotten the maintenance, but I haven’t. I left that out because one way or the other, most property managers receive extra income from arranging the maintenance (whether they use their own maintenance or get a fee for scheduling a contractor).
Multiply that by 50 or 100 if you own a lot of rentals, and you can see that this amounts to a lot of money for doing very little.
Yes I agree they get paid well for very little…All the same I look at my real estate income as found money because I do nothing for it…NOTHING…I do very little research about properties because on the internet I can’t tell how bad/good the area is etc…
The team I use for management could/should charge me for many things that they don’t…They advise me constantly ,they have taught me the ropes in the area I invest in,the rehabbing I do I feel is fairly priced (this coming from a homebuilders son),they have introduced me to many connections lawyers,brokers,re brokers,insurance brokers,rehabbers etc…Like I’ve said before my relationship is much different than just them being my PM’s…They have taken me under their wing and really taught me the business inside out…Looking back after all of my purchases I can honestly say I feel they did the right thing with me…My average is around 22k per unit on the buy side and my cashflow is good to very good,vacancy very low,amount of repairs extremely fair and I never feel taken…Keep in mind I met with these people prior to buying anything and let them know where I stand…I also shared my prior opinions of PM’s and the games they play (or so I’ve heard)…I was straight up with them and they are with me…
Currently I have 7 income streams…If I had to manage my properties I would have to eliminate 3 of my largest income streams…
I do agree with your post for the most part because I have read the horror stories about using PM’s…This was a topic I emphasized with my PM’s when we sat down for out initial meeting…Not getting rents owed,charging for vacancy,quality of tenants they are placing,overcharging for repairs and many other issues…I laid it all out when I met with them…
Let’s say the car accident liability results in a judgment in excess of your car insurance and umbrella limits. What prevents a creditor from going after your personal residence, bank account, and interests in your LLCs and other businesses? For example, does your state offer a homestead? Are you using UCC liens? Are the business interests owned by an entity you control rather than in your own name?
like its been stated, certain situations demand property managt. I have used them extensively over the years due to have a full-time job and out of area rentals.
Ask how they handle repairs. If they are calling a licensed plumber every time they got a tenant call… Good firms either have their own guys with reasonable rates or a good list of locals that will work for cash on odd jobs.
real estate agents disguised as property managers. yes they can both, but make sure that prop. mgmt is not a hobby
ask about tenant screen criteria, etc. good prop. mgmt folsk have figured out bad tenants are bad for them as well as they mean more work.
advertising…ask about what they “pipeline” of tenants look like, how folsk they place, etc. make sure they are not just advertising on craigslists.
ask about the mix of property being managed. personally, I found if they are doing a lot of big complexes or associations, they are probably not good for small, private owner. likewise, make sure they are not managing too many of their own properties such that they take all the good tenants…
That’s a few off the top of my head… see some of my old post if you are interested further as I’ve posted fairly extensively on this topic.
When you say “aggressive defense”, how do you do this if your insurance company is representing you? If they decide to settle rather than fight the case, what can you do? Do you use your own attorney instead of or in conjunction with the insurance company’s lawyers?