property management advice needed

Rehabbing, Fix and Flip, Rental Properties
1

I own a duplex that is consuming too much of my time and I’m considering hiring the services of a property management company. Anyone have any experience with good ones? Anyone had bad experiences with any? I’ve been quoted an 8% management fee and 80% listing/tenant screening fee. Does this sound about right? Any and all info and advice is greatly appreciated.
If you don’t feel comfortable bad-mouthing a property management company in a message board format, please email me at the address below.

Thanks,

Jeremy Ellwanger
jellwanger@hotmail.com

2

Where are you located ? 8 % sounds a little high especially the 80 % to rent a vacancy. shop around and you will find a better deal. hould be able to get 5% with 50% for reletting. If the broker is linked with MLS leasing you may have to pay a little more if you think that service is worth the extra. For higher end property it may be worth the extra to find better tenants. With the low income stuff I manage I will never get great tenants. If I screen too carefully I will always be vacant. I try to find a happy medium. Hope I helped a little.

Thank you,

Ted P. Stokely Jr

3

Hi -

Duplexes are funny varmints – not quite a SFH and not completely an apartment either.

I agree with Ted that you’re getting ready to pay far too much (in fees) for far too little (in the way of management).

Here’s the deal: Duplexes look like homes, but they often attract those folks fleeing apartments (for whatever reasons). Apartment tenants are trained to look for someone else to take care of their problems – mow the grass, fix the toilet, etc.

On the other hand, good SFHs attract tenants that expect to take care of these (and other things) themselves.

Guess which kind of tenant requires more “hands-on” management?

Why not take a look at your rents (or other inducements) and see if you can’t attract a better class of tenant? Rather than loosen my screening requirements, I’d lower my rents and tighten my screening procedure. Get the picture?

Research has proven that a renting to a higher quality tenant often translates directly into more restful sleep (peace of mind). :zzz

Take care,

Eric C

4

Jeremy,

Make sure you read the contract. That means EVERY WORD OF THE CONTRACT!!! If there is ever a dispute it always comes back to whats in the contract. Nothing else matters. :deal

Here are some things to look for in the contract:

They have to give you 30 days notice, you have to give them 60 days notice to cancel the contract. Unfair. If you’re unhappy with their service why should you have to wait 60 days to be rid of them? Why would they want to keep someone who’s unhappy around for another 60 days? It doesn’t take 60 days to unwind the bookkeeping.

They keep all the late fees. Unfair. You should get half the late fees each month at a bare minimum. If they get to keep all the late fees each month that creates a situation where its not in their best interest to collect YOUR rent on time. They can potentially make more money by collecting your rent late each month. That’s not fair.

Who keeps the pet fees/deposits? Assuming you allow pets.

Look for anything in the contract that looks unusual.

Additional questions to ask:

When do you get your money each month? What day do checks go out? If they say, “between the 5th and the 15th” then find another company. They should know to the day how long it takes to cut checks each month.

Get them to show you a copy of what their statements look like.

What happens when a tenant pays late or pays AFTER the cut off date? Do you have to wait until the following month to get paid or will they make the deposit even after they print your monthly report and checks have already been disbursed for the month? Why should you have to wait until the following month? That wouldn’t be fair. You’re mortgages won’t wait will they?\

Can they make electronic deposits to your bank?

How long have they been in business? Anything less than 10 years I’d stay away from.

Do they own property themselves? This may not be a big deal, but if they manage 500 units and 250 are theirs guess who’s properties get filled first. Hint, it won’t be yours.

Ask for a list of 10 of their clients you can speak with. Ask the clients how they like dealing with this company. Ask the clients when the money really gets disbursed.

Make sure that YOU do the interviewing. They’re going to be working for you. Make them EARN your business and make them prove to you they know what they’re doing.

Take your time, don’t pick the first company because you’re in a hurry. You’ll regret doing that. Go with a reputable company who’s been around for a long time.

Remember, nothing is set in stone and everything is negotiable.

Hope this helps.

5

Great advice Stacy. Like me you must have been jerked around by management companies before. I did not even know what was happening to the late fees and I had to wait the month for late rent. If I ever hire another company I will take every word of your advice.

Thanks for helping folks out. What a great site to be part of !!!

Thank you,

Ted P. Stokely Jr

6

I really do appreciate all the advice I’ve received regarding my dilemna. The knowledge and experience possessed by the members of this site is far beyond what one would expect. Thanks to those who have replied, I feel I’m prepared to make an educated decision on whether to use a property management company (and I’m leaning toward continuing to maintain the property myself for now).

Thanks,

Jeremy

7

Hi All,

I`m new to investing, but I have been looking all over the internet with different searches, trying to find out all that I can before I go into my first deal.

I just thought that this might be pertinent here, because I have seen some fantastic property management software out there that would save you loads of time. Instead of paying out huge fees to unscrupulous management companies (not saying that they all are!) you could invest in something for a one time fee.

Why not do a search for yourself, and see what you come up with, you might see something that you could use.

Just my one pennies worth.

Paula

Oh by the way, Im located in NE Dallas near Richardson if anyone would like to help me get started, Im looking to control properties for lease optioning. Any advice on the subject would be gratefuly accepted.

Thanks! :lol

8

There is a whole lot more to property management than just software. A pencil and a notebook is all that is needed as far as software. Someone has to get the property ready, meet new prospective tenants if they show up, file evictions, collect from those who do not pay, handle repairs, meet inspectors and any other number of problems. It is time consuming and a full time job if you own enough units. Just a few thoughts to help you and let you know that companies do earn their money and they are good to use if you need them.

Thank you,

Ted P. Stokely Jr

9

As both an investor and a property manager, I’m a little bit surprised seeing some of these comments here. First of all, duplex or not substandard housing in all parts of the country. Some people are very happy happy to live in a duplex, and they attract a high-quality tenant. I realize this is not true everywhere, but it is true in my part of the Midwest.

Second, anybody that quote you a flat rate based on percent isn’t paying enough attention. There is an inverse correlation between the amount of the rent on the unit and the amount of time required to manage it. 5% might be OK on a $1500 unit, but if your properties are $500 rentals that equation will look a lot different. What kind of service can you possibly expect for a property manager that is charging $25 per month? What makes you think that the property manager will have to spend less time on this property than you have been?

I’m pretty shocked at some of the suggestionshere. I do statements on the 16th of the month, or sooner if I know that I’m not collecting any more rent or bills before them. Statement dates go from the 16th of the month through the 15th of the next month and encompass all of the bills and rent collected. I’m having a bit of a hard time imagining the accounting system that would be required to be constantly paying out rent if it was collected late. The truth is it only in very exceptional situations do we collect rent later than the 16th anyway. By that time the tenant has been served three day notice and eviction is under way.

10

They keep all the late fees. Unfair. You should get half the late fees each month at a bare minimum. If they get to keep all the late fees each month that creates a situation where its not in their best interest to collect YOUR rent on time. They can potentially make more money by collecting your rent late each month. That’s not fair.

BEST EXAMPLE OF THIS.

A major, major bank got caught doing exactly that on credit card fees. They got the payment on the 31st and process it on the first and charged a one day late fee…they wound up paying 380 million in damages.

11

You can negotiate whatever you want with your property manager. Bring him a bunch of grade A rentals in good areas that rent for top money and I bet he is very willing to negotiate with you. Bring him a bunch of multi family in run down areas and I bet he isn’t.

I don’t know…I figure the late fees themselves are a deterrent to paying late. Late payers consume huge amounts of resources. I just got finished with an eviction, had this conversation with the tenant multiple times. She kept insisting that it was ok to pay late because she was paying the late fee (she was an inherited tenant who had been renting from the family member I p urchased from). It wasn’t ok because it took lots of time for me to collect her rent. That was time I should have spent doing other things. Technically I got paid for it but it was probably like $5 per hour or something silly like that, especially after you add in the trip to court for the eviction.

This seems to be the biggest problem with scalability of a business. There isn’t enough margin on many properties for a property manager to be truly successful. It creates a situation where the owner and manager seem to be at odds many times, which isn’t right. Quite frankly, I am happy that the owners who use me to manage the properties are selling them. I can’t charge enough to make it worth my time.

I always found the 80/20 rule to apply here. I try not to own the type of properties that appeal to low quality tenants, but I also try not to rent to low quality tenants at all. Whether you are the owner or manager those tenants are time and money pits. It seems like many times owners want to purchase low quality properties for the high returns, then use management companies to deal with them and get frustrated with them for the results.

12

Investors who invest in management intensive areas for cash-flow, will find there’s effectively no such thing as 3rd party management. Even if you’re properly managing the management company.

Owners just won’t pay for what it takes to deal with a demographic that generally does not respect themselves, much less others, and even less, the property of others.

That’s why you need to own a LOT of these types of units in order to amortize the extraordinary management and maintenance costs that go with these deals.

Let’s say you have a management-intensive unit that rents for $500/mo. Most property managers want a minimum of $150/mo, per property, and that’s on properties that don’t require “baby sitting.” That’s already 30% of the scheduled rent. That creates sticker shock for most low-end operators. Otherwise, who wants to pay 30% in management overhead …to start?

Of course, $150/mo is just 10%, or less, on a unit that rents for $1,500-$2,000/mo. Doesn’t seem so outrageous then?

13

You can run the math the other way too. Let’s say you want to be an independent property manager who wants to earn 60k per year (seems a little low for this area but makes math easy) and you need a 50% GRM to keep the doors open by paying taxes, insurance, gas, phone, software, etc. That comes to 120k per year, or $10k per month. Now, to come up with that you would need to keep 100 properties at $100 per month. But 100 properties is a ton of work, even if you are just scheduling maintenance. Plus why would you own your own business and only charge what you can get as an employee? A business owners risks their time and capital, should be rewarded for that. So it really should be $180k per year gross, or $150 per door st 100 properties. Lots of evenings doing showings and meeting with tenants, etc. in my area that means you’d need a $1000 property to maintain the 10% figure, which is a solid duplex in a good area or a single family home…not the type of property that managers get hired for. Lots in the $600-$800 range here.

Jay is right. $150 per month per door is what it takes to be successful, as a minimum. At that level I could scale the business by adding other managers and maintenance, etc. The question is why so many property owners get frustrated at managers who can’t be successful with the properties the owner brings them and the rates that they are charging. These owners are getting exactly what they are paying for.

14

As far as advice about hiring a property manager, look at what the contract says regarding giving you a way out if you are not happy in the middle of a contract.

15

Hi,
Great information Stacy.
I really appreciate your advice.
Thanks!!