Prop Mgr vs Self Manage?

Rehabbing, Fix and Flip, Rental Properties
1

I have a delima. I am buying a 46 unit building with an onsite manager. He collects rents, shows properties, does the make redies, and handywork for free rent. Now I contacted a property manager today and asked if we can split his services, he wasn’t amused at all. She said he did not want to share liability with this handyman and that he should start paying rent and we pay him as an independant contractor.

Geeze hiring this property manager (and he was the cheapest and most highly recommended by the Apt Assoc), was $20,000+ If I continued on the way the current does and that to let this tenant/mgr do eveything I would be that much richer.

But the property manager said to have the tenant show property is a liaility, fix the property is a liability and to collect the rents when some people pay cash is nuts. He’s been there for 3 years and the owner is 2 miles away. I am 5 hours in a plane away.

What to do Property Mgr for $20,000+ or Tenant/Handyman $4740 annual rent.

Thanks Jag :help

2

Seems like you have a very good deal with your tenant manager. But using a property manager is no panacea either.

I’ve seen arguments on both sides. Some swear by out of state managers. As in anything else, you’re lucky if you found the right one.

Here are some of the downsides of using one:

  • Large PM firms handle many commercial, residential properties, and your building is of the smaller ones, and if you don’t like the service so what?
  • IF they select tenants, the better ones go to their own rentals, established customers.
  • Had a condo where the PM firm charges everything from changing light bulbs ($25/each and takes 2 weeks to get to), over $100.00 to place coverings on elevators for moveoout etc. with a weeks prior notice Went thru four PM firms and each dropped us when we had the nerve to complain. They told us the 104 units is on the smallish side, and don’t have time to babysit us.
  • Heard many horror stories of unresponsiveness to requests for documentation of repairs. For the $20,000 fee, they do not include small repairs, but bill you everytime they move their hands.

As to they comments on liability, rental brokers here laugh and tell me horror stories of doing my own showings. Someone can come by with a gun to shoot me. They do better credit checks etc.

Here in NYC, most small properties of 6 to 12 units use tenants with free rent. They’ll all go broke using property managers with the usual 10% fee. For the fee, they do nothing more than call a repairman, or a in house one, and then charge you for work done in addition.

3

You’ve got a real dilemma here. If you allow the tenant to manage the building, you’ve got several liability issues. The tenant-manager could get mad and steal an entire month’s rent (fairly common). The tenant-manager could get hurt and sue you. If the tenant-manager isn’t treated as an employee (with worker’s comp, etc), you could get in trouble with the state and void your insurance for claims on these issues. On the other hand, you’ve could pay a professional but it will cost you some serious cash.

The real question should be based at least partially on the cash flow situation and your tolerance for risk/ability to pay claims and legal expenses from your own pocket.

The best answer would be to move close to your building and manage it yourself.

One other thing to ponder. You keep saying that you are buying a 46 unit building, but then asked a question about looking at the building. It sounds like you have made the decision to buy before you’ve looked at the building. Instead, you probably should evaluate the property FIRST and then decide if it is worth buying. That’s a big difference psychologically.

Mike

4

Seems like this tenant-manager is such a gem, then it should be simple enough to:

  • Get a payroll service that’ll do one employee.
  • Put him on the payroll, work in the free rent, cash component, and have the payroll service deduct the WC, withholdings.
  • Get him bonded in case he runs away with a months rent.

As someone pointed out, the payroll service probably costs 20%, and employer contributions maybe another 20%.

If the guy is good, it’ll be much better control, at lower costs. If she does all the above, she’s miles ahead of most landlords around here using tenant managers.

Agree with “propertymanager” there’s no substitute for self management.

The best man at my wedding, and his dad were immigrants from Cuba, and took over a 30 something unit building from a local doctor who managed it through a management company. The Property Management firm also had a resident manager, called a “super” around here, living rent free besides, doing repairs, showing rentals. Rent checks are mailed directly to the PM.

For doctors looking for writeoffs, expenses normally is not a big issue. But apparently, bad selection of tenants resulted in losses due to vandalism, non payment of rent etc. for this doctor

This doctor, a tired landlord by now, sold it, financed it, and my friend and his dad moved in, took over two apartments, threw the super out. Then threw the management company out.

They then threw out half the tenants, and replaced them with quality working tenants. They knock on the tenant’s door on the second of the month if the rent is not received on the first.

Shortly after his dad passed away, he mentioned that they sold the place, now a money maker to a doctor. I commented that it was coincidental that he bought it from a doctor.

He said “oh yeh, it’s the same doctor that sold us the place to begin with”. He said the doctor knew the place should be a money maker if only it was run right.

So I asked “is the doctor using a management company again”?? My friend said “oh no, he’s hiring a live in super” and I taught him the basics of selecting tenants.

5

Thanks for the great advice - what key words should I type in Google to find a payroll person who can handle all this. How do I get this tenant/manager bonded?

In the meantime, I am meeting with a real estate agent (residential) to see if she would like to collect rents and walk the property once a week. This could cut the cost down to half.

Yes I did enter escrow and it is subject to inspection. I’ve been there 6 months ago and established a relationship with a commercial broker. This was the first deal that I saw that makes sense, so I went for it.
Jag

6

I use paychex for payroll. Paychex.com

7

Jag:

Type in

“Payroll Service” + “one employee”

and you’ll get a ton of hits, starting with Intuit, whose “Quickbooks” software includes a Payroll module that’s available separately.

Many payroll services allow you to enter data, setup on line.

As to bonding an employee, one other professional you should get to know besides an attorney, CPA, is an independent insurance agent.

The one I use was one my dad and granddad used, 3 generations, and I pick the phone up, and they’ll find out information for me. While I might pay a few dollars less for car insurance thru AARP, or GEICO for my insurance, being in business is another ball game.

For instance, umbrella policies are sometimes easy to get, sometimes hard, depending on market conditions. I always carried one, a million bucks years back, several million now, and from time to time, they tell me that the insurance carrier it is no longer doing it, and they’ll have to temporarily use a reputable out of state carrier, till one opens up again.

So I might pay $300.00 one year, then spend $1,200 the next on a commercial version. No sooner does a cheap one comes available, they notify me and switch me over. As a businessman, I have no time to follow the insurance market.

If I need bonding, all I’ll do is call up and find out what’s involved. You might ask the question of this lady who might want to be your “property manager”.

The business that I’m in, I have to post bonds to the state, and there are specialized companies that deal with it. In this case, I called the state and they advised me agents and brokers that handled it, called one, and got my coverage.

And if you’re in this type of business, or any business, being part of a REI group or chamber of commerce helps. I pay a few dollars to a trade association, and they told me things in one call, that might take me all day on Google and still not find out.