Just Say NO To Property Management

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Just Say NO To Property Management

Saturday, January 14

Why? Because it sucks big time. Call me Captain Obvious, but I just recently came to this conclusion as I was shopping around for property management services for my rental house portfolio.

Let's look at how it works.

You hire a company to "manage" your rental house. They're supposed to collect rent, pay expenses like insurance and property taxes, and make sure that the necessary repairs and maintenance, including preventative maintenance gets done.

And for single family houses in my market, the going rate for this type of property management is 10% of gross collected rents. Most of the bastards will even keep the late fees all to themselves. Don't get me started on the up front, the exit, and all the junk "fees" that they charge. It's like working with a damn bank.

From my perspective, 10% is highway robbery. My houses turn over on average once about every three years. They're all also in spectacular condition, such that I rarely have maintenance issues. In fact the last time I had anything significant happen at one of my houses was three winters ago when an ice dam formed and pulled a portion of a gutter off of a house. So their work every month amounts to getting a check in the mail, depositing it, then sending me a check in the mail.

For that I would have the pleasure of paying them 10%, or around $100 per month per house. I'm shaking my head even as I'm writing this.

Then when you add to this the fact that the true impact to me is FAR greater than the 10% they quote, my blood boils. Let me show you two scenarios.

The first scenario shows the numbers from one of my houses with no property management. I generally put aside $50 per month for Repairs and Maintenance and about a half-month's rent per year as a Vacancy Reserve. (You ought to do the same thing unless you own one of those magic turn key rental houses in Detroit that never turn over or need maintenance. I hear they come with a free unicorn as well.)

You can see that it throws off about $350 per month in net income or net cash flow. Not great but it's at the lower end of what I'll accept.

The second scenario shows the same house, but it includes a fee for property management of 10% of gross rent collected. Or in this case, $100.

Notice the difference?

The net income is exactly $100 less in the second scenario because of the fee for property management. Exactly as expected.

But while the cost of property management is claimed to be only 10% "off the top", when you do the math like I did above, you see that the $100 fee actually amounts to a staggering 27.9% of the Net Income.

The fact is, you don't eat gross income. You can't feed your family on gross income. No. You do all that with NET income. And the impact of property management on Net Income is far more significant than you think.

A 27.9% reduction in Net Income. For doing what?

I'm still scratching my head trying to figure that out.

To be honest though, I don't think that property management completely sucks. I think it's more that the model is outdated and broken.

These days rents can be paid online. Marketing is done primarily online, and a lot of tenant screening is done via phone and email. A lot has changed with property management in the last decade. It can take a whole lot less time, effort, and energy to execute. But the way that property managers are paid has not changed at all.

I've been kicking this idea around quite lately with a couple of colleagues of mine, all together we have 44 houses. We'd all like nothing better to outsource property management so we could sit home and drink mai tais and play yathzee, but we're all of the same mind that you'd have to be smoking crack to willingly give up 27.9% of your net income to someone for not doing much of anything for you.

As a group we've even started seriously talking about starting our own property management company that specializes in houses like our that rarely turn over and that on balance don't need a lot of attention.

But we're still trying to get our arms around a payment model for property management that works. We're thinking along the lines of an a la carte type model, where there's a low base fee every month for rent collection, then the property owner pays something additional for each other service that the property manager performs that month.

But we still don't have it right. We will though.

What are your thoughts on it? How could the property management model be restructured? How can property management companies be incentive based rather than fee based? What's the right arrangement?

To be blunt I have no desire to hear from property managers about how they earn the money they make. They probably do in crappy areas with crappy houses. What I'm looking for is a new model that fits with the times. Not a new way to use a buggy whip.

Let me know what you think.

Comments

Sandra Reply
about 1 month ago

I hear ya. Only reason I put one of my properties with prop mgr was burnout. I took my properties too personal, and would get very upset when my new tenant would slobber paint on the newly refinished woodwork, or an outgoing tenant would steal the carpet. Solution: take an emotional step back & act like you're managing the property for a big corporation; know & follow the laws, make sure the unit is in good shape, and be consistently inflexible re: your rules. They'll always test you. My one experience with mgmt co was horrendous: They didn't ensure tenant put the heat bill in their name (I got stuck with it in winter), They rented a unit to tenant with judgment for skipping out on rent, They didn't ensure snow on public sidewalk was shoveled which ended up with me having an expensive ticket to pay, They didn't check up on the tenant to find if the # of tenants & condition of the house was being maintained, They did not do appropriate repairs (caused by destructive tenant), They overcharged for whatever they did, adding a 10% surcharge to inflated bills for their "management" of repair on top of the 10% of SCHEDULED RENTS, they never rented the 2nd unit, but kept charging me their fee based on scheduled rent for the vacant unit; They refused to release me from the contract early; They required me to list the property with them if I wanted to sell it during the term of the rental... I could go on.
Perhaps the management companies should be penalized out of their fee for non-performance, with property owner having the unilateral right to cancel the management contract for poor performance at any time.
Jeffrey K. Reply
about 1 month ago

I manage all of my own stuff. There is a reason that you guys sub it out. It does suck. This is also a ton of BS to deal with even if you have nice properties. I do. I know you don't want to hear that they are worth 10%. They are probably not. If you have 44 houses you should be able to negotiate a better price. You should be paying closer to 5-7%.

I was thinking about starting a 3rd party PM business and also thought about the structure. I think the current system is the best. I would love to hear ideas though. I think that with a good PM that you should feel that they are worth it. I also think you have been out of the business long enough to forget how much it sucks to manage property.
Joel Owens Reply
about 1 month ago

Dennis I have a bunch of tenants.I have a property manager on site as well as a maintenance man.

I have spoke on this before that in renting little houses you come across broker/agents who want to make a little coin on the side.As soon as they make a regular sale with a big check your property is NOT a priority. I personally believe for all the crap you put up with 10% is not bad. The 5 to 7% on houses you will get what you pay for.

Let me give you an example.Property management is the most sue happy category out there. Errors and Omissions insurance charges the highest amounts for coverage.The reason they do is because data shows it has much more claims and litigation than development,commercial,short sales,reo,and most safe is regular sales.

Whether it's your fault or not the tenant and the landlord both want to stick it to the property manager.Even with all the documentation to prove no wrong doing you still have time and lost income defending the lawsuit to get it dropped.

So as a broker owner if I wanted to do property management.First I would have to set up and separate brokerage with a separate E and O policy.This ensures in the event of a lawsuit that it would only affect the management company to shut down and not the E and O policy for the regular company and regular sales.

So setting up a separate brokerage cost thousands.You also need to check with your state as it is against the law (in some states)to manage other peoples properties for them unless you are licensed and active as a broker or under a brokerage as an agent.There are ways that you can be an employee of a company or a share holder etc. that would waive this requirement.You would need to see a lawyer in your state and talk to the state commission to make sure you are in compliance.

Example:Okay 150 rentals at 1,000 a month average. 150,000 yearly gross 150 properties times 100 is 15,000 monthly.

15,000 monthly income times 20% as the agent is given 80 is 3,000 to the brokerage before costs.

So the gross income stream to the broker is 36,000 based on rents yearly before costs.After you take out expenses to the broker for separate company,E and O policy,agent expenses,office,etc. that is a ton of work for a little return.

I know brokers that manage hundreds of properties and to do it effectively you have to use agents and you have to give them most of the split for the aggravation. To me for the liability the income stream is crap. This is why I HAVE NOT and WILL NOT do property management. I can do a few regular commercial sales and bring down much more than that.

Your property management model of a base fee won't work in my opinion.You have had great tenants but that will not be the case for every rental you handle.Some of these properties will need very intensive work.

Now managing commercial real estate is a whole other ball game.Professional tenants,regular business hours,higher income for the broker/agent.

We don't see 5% to 7% around here.You can get 5% for say a 40 unit or higher apartment building.One location and saving costs for the broker they can take less in that situation. The problem I see with most investors is they do not purchase right.They buy and talk themselves into a deal and say "I can manage this and save the fee".

Then all is fine until they get tired of managing and then want a manager.Since they overpaid by not factoring on the purchase they don't want to pay a market rate management fee because it affects the cash flow too much.Now reserve repairs,management fees,etc. kill the bottom line.

Better is to factor in paying a manager and then do it yourself if you want and if you get tired and need to hire someone you have compensated for it.

So between you and your friends you have 44 properties at say 1,000 a month. At 5% with what you want that is management fee of 2,200 a month.I can guarantee unlike an apartment complex your 44 houses are not on the same block.This means the manager will get different calls at different times and go all over the place.

I am an investor myself but I am also a broker and know the business very well.I think the way you think is just like some FSBO's in saving the money. If properties had zero problems and never needed management then we wouldn't have this discussion.
Tim Smith Reply
about 1 month ago

For some of us, there is no choice. We are too busy doing other things and need to outsource. And, personally, I think it is worth not having to expose yourself to potentially dangerous situations. I knew of a guy who was killed showing one of his rentals.
Brandon Gavett Reply
about 1 month ago

I agree with J O. most people are trying to negotiate a deal too late. They pay too much for a property and figure they can save a buck managing themself, get burtout and either give up or hire a pm and whine about it. My advice: buy right, self manage, and DO NOT get attached to the property. If you are getting burnt out, then you still have the cash flow to hire a pm
Michael Siekerka Reply
about 1 month ago

I've actually thought about this quite a bit. I was trying to think of a way to make PM a positive experience for the property owner while still giving the PM good incentive.

What I ultimately came up with is an approach where the PM has some skin in the game and also has a stake in the property. I have no idea how the numbers would work out to benefit both parties, nor have I really vetted the idea.

The current set-up for PM agreements gives absolutely no incentive for the PM to do anything other than collect rent and do $hitty repair jobs.

My thought is that a good PM could offer $x up front to the property owner to manage their property. In exchange they get $y or z% of net income per month and $z or b% of any increase in property value or rents.

Like I said, I haven't fully thought this through, so I don't know how the numbers would work best. I do think that a PM really needs to have some sort of skin in the game or upside potential or both in order to manage the property as though it is their own.

I know if I had 2 properties to manage, and one owner said here's 10% of gross rent per month and the other said here's 25% of net rent per month and you'll get a bonus of $x every year if the property is in tip top shape, it'd be a no-brainer where I spend my time. I'd manage the 10% property just like a normal PM would (very poorly) and manage the 2nd property like it was the friggin Taj Mahal.
Nathan Gesner Reply
about 1 month ago

Let me get this straight: you bash ALL property managers, then say you want to start your own property management company. What?!?

Your calculations and assumptions ignore a lot of reality.

1. Many people see value in real estate investing, but they are smart enough to recognize they do not have the time and/or skills to manage rentals. Or, maybe they are located too far away from the property and they understand the importance of local control.

2. As Jeff K. pointed out, you have to calculate what your time is worth. If your time is worth $30 an hour and you spend 20 hours each month collecting rent, handling maintenance calls, etc., then you just spend $600 to manage your property. I would charge you that same amount to work the same number of hours AND free you up for bigger/better things. Any smart business man will assess the cost of his time vs. the value and determine whether self management is the best use of his time.

3. As Jeff K. pointed out, any manager with a brain will cut a discount based on the size of your portfolio. The rate might start at 10%, but get dropped to 8% if you bring more than X properties. In my case, I drop a percentage for 6-10 units and another percentage for over 10 units.

4. The market doesn't need to be remodeled. If you don't like the way it's structured, don't use it. You think their fees are too high or their quality too low? Don't hire them. Most markets are structured according to what the market supports and they will change when the market no longer supports them. I've seen management fees as high as 20% with additional fees for certain services, whereas others are as low as 10% and all-inclusive.

Bottom line: you're attacking all property managers when the truth is that you (a) have little experience/knowledge and are making assumptions or (b) you have experience with a handful in certain areas and are applying it to everyone around the country. It's equivalent to me saying that I read a couple poorly written blogs on BiggerPockets, therefore all blogs suck and we should throw out the entire system (and end with a quick statement that I'll be starting my own blog).

I charge 10% of rent income COLLECTED. No rent, no management fees. Nothing extra for advertising, screening, inspections, maintenance calls, etc. I drop it to 8% for a house in good condition, typically less than 10 years old. I drop it to 9% for 5-10 units and 8% if you bring 11 or more. My fee applies to late fees, as well. There's a lot of incentive for me to get a good tenant and keep them because vacant units or late-paying tenants result in less pay and more headaches. I screen tenants as if they were living in my own home and I kick out deadbeats faster than you can say "forcible detainer". I manage 150 units, about 60% are single-family homes, and I have over 50 very happy Owners.

I make a good living, but I also bring great value to my clients. Most of them are actually putting more money in their pocket each month AFTER paying my fees because I'm able to reduce problems through proper screening and care of the property and I know what the market can support. It's my belief that there a good PM exists and will increase your bottom line but you need to search for them just like you would search for a good tenant.

Or you can simply start your own PM business and show your competition how to do it right.
Nathan Gesner Reply
about 1 month ago

By the way, let me give you my latest real-world example. An Owner walked in the door with a single-family home to rent. After my assessment, she said she needed to bring in $800 a month to make ends meet and pay my fees. I rented her house in two weeks for $1,200 a month and charge her 8% of rent collected.

She's making over $300 more than she would if she tried renting it on her own because she didn't know the market. She would end up with tenants that treat her $1,200 property like an $800 property. There's an extremely good chance that she would end up with bad tenants that will cause problems, skip on rent, and leave the place in worse condition, leaving her with big losses after they leave. Then calculate the amount of time/money spent advertising, screening, dealing with maintenance, etc.

She makes more almost $4,000 more a year, my fees are tax deductible, she has far fewer things to worry about, she gets better tenants and a manager that actively watches her property, and the list goes on. Not every owner realizes that much of a benefit, but I can say that almost every rental I picked up in the last year rented so high that the owner pockets the same or more AFTER paying my fees.

Does that sound like "highway robbery"?
Dennis Fassett Reply
about 1 month ago

Nathan - I figured this would touch a nerve with property managers. And your post is exactly what I expected quite frankly. A rant against my post, and a justification for charging what you do, and yet another whiny post about how the system isn't broken.

To your points -

1) Time is exactly the reason we're looking to outsource. I manage mine myself right now, while holding a ft day job. I enjoy it tremendously. But as my portfolio grows the basics are getting to be quite a bit of work on a cumulative basis, even though the properties not needing a lot of attention. That's why I started looking into this.

2) 20 hours a month on a rental house? You're smoking crack right? I may spend that much time on a house in total when it turns over every three years plus or minus, but my average time spent per house per month is 3 hours. Not 20. So your $600 per month fee for that house works out to $200 per hour. Thank you for helping to make my point.

3) Wow - a 2% reduction due to the size of the portfolio!!! Sign me up yesterday!!! Again - you're smoking crack if you think I'm excited by a $20 discount per per house per month just because I give you a few houses. (I'm getting a 5% rate on my multi-family properties, which I have outsourced the management)

4) Of course you don't think the market is broken. You have a vested interest in the status quo, like every existing property manager out there. So I'm shocked, shocked to learn that you don't think it's broken.

Bottom line: I have 55 rental units, sparky, and manage 42 of them myself and have now for four years. While having a full time day job. And now, because I know how to manage rentals, I know first hand that you taking almost 30% of my net cash flow for doing what I do every month is ridiculous - and it's not "value".

This system is broken Nathan from the property owner's perspective. That's the point of my post. You go ahead and keep charging what you can get and being the "white knight" to the damsel's in distress, which you obviously enjoy. My colleagues and I will continue to work on a new model.
Dennis Fassett Reply
about 1 month ago

Exactly my point Michael - thanks for contributing your thoughts.

There has to be a better property management model for houses in great areas that don't turn over or need much attention each month.

I'm not sure that an equity split is the right answer, but it's a possibility. Everything is on the table as we work through it.
Dennis Fassett Reply
about 1 month ago

Tim -

That might be true for properties in war zones like Detroit and Pontiac here, but mine are in the best school district in the state.

So I'm not getting shot at.
Dennis Fassett Reply
about 1 month ago

Joel -

That's exactly the problem.

Our properties are basically on auto pilot. We collect rent each month, mostly on time, and we pay some bills. They turn over an average of every three years and if I have one maint call per house per year that would be excessive.

So I spend a max of about 3 hours per month on each of my houses. Some are more and some are zero. I have one tenant that has overnighted their rent to me so it's on time every month since June of 2006. And I've had two maintenance calls on that house since they've been there.

I can appreciate that the current model might work for properties that need more attention than ours do, but it certainly doesn't make sense to give up close to 30% of our net cash flow on properties like ours.

I can also appreciate the fact that property managers have a fixed cost base that needs to be covered. And I think it would make sense to spread that over their properties, thus my suggestion of a smaller fixed base charge to cover that and the basic work my properties need, plus a fee per issue above that, or perhaps even an hourly fee for the work that is necessary.

I expected that people doing property management would not think the model is broken, but I think it's really funny that so many people are saying flat out that a new PM model won't work. Especially when there's no new model yet.

That generally means that the niche is ready for a for a change.
Joel Owens Reply
about 1 month ago

"I've been kicking this idea around quite lately with a couple of colleagues of mine, all together we have 44 houses"

"Bottom line: I have 55 rental units, sparky, and manage 42 of them myself and have now for four years."

So you have a few apartments and then houses?? Only way you could have 55 units and then between you and other investors only have 44 houses together.

Dennis if what you say is true then maybe 5% to 7% wouldn't be bad.Someone also has to take on the liability to manage your properties and set up their company to to do it properly and you don't seem to factor that in. Managing your own properties there is a different set of guidelines and rules than managing for someone else and there is more cost involved.

If I was a property manager I would analyze all your records and history of payments and eviction records etc. to validate your claims.I would also have a clause that for the fee only XX is provided. Anything above that there will be another fee,another fee,another fee,etc. This way a landlord isn't blowing smoke with wild claims and then having the PM do a ton of work for a low fee. If everything you say is true then it wouldn't be an issue. I don't see how a PM could work for you as the way you view them doesn't seem positive.You say you need one but do not seem to appreciate them.

Nobody wants to be a slave working for a master.They wanted to be treated with dignity and respect and value the job they do. Go out and create this company if you want and do all the escrow requirements,rules and regs and try to build a better mouse trap and see what happens. I wish you all the best. For every low fee client there are a handful of others who will gladly pay the price for expertise.
Dennis Fassett Reply
about 1 month ago

Too funny Jeffrey. I'm sorry that you think it sucks to manage your own properties. I don't, at least regarding my houses. I actually enjoy it quite a bit and like my tenants a lot for the most part. Now that I'm up to 55 units though the basic work is adding up.

I also don't find that it's a "ton of BS work" either. I have great houses in the best school district in the state. Perhaps our areas are just different.
Dennis Fassett Reply
about 1 month ago

Joel -

That's pretty much what I'm looking for. A low base rate, plus add on charges every month. Late rent and need to follow up? Extra charge. Have a maint call? Extra charge. All based on the work actually having to be done each month.

Don't get me wrong Joel - I work with a property manager on both of my apartment properties and the arrangement works very well. He is well paid and I'm happy to pay his fee. He does a great job and keep my properties full and is proactive in doing so.

My frustration is due to my research into property management for single family houses. $250 set up fee, $250 break up fee if I don't renew, they keep all late fees, etc etc etc. On top of the 10% off the top/30% of the net charge. No performance guarantees or metrics. No incentives. Every one of them wanted a one sided contract that they could break with no charge with 60 days notice but I could only break if I paid a fee.

So yes, right now I'm looking at SF property managers with disdain. In a large part because, as you can see from this thread, most of them don't have any desire to even consider changes to the model.

But again, I'm open to ideas as I stated in my original post. I know there is a better way.
Tammy Matthews Reply
about 1 month ago

I work with a commercial property management company in Boulder, Colorado. We are currently working with a piece rate style of billing as well as offering a full management package. We have owners who like to do the accounting themselves; we have owners who like to manage the property but want us to do the accounting; we have owners who just have us manage the vendor repairs; and we have owners who want the full package.

If you could piece out your management, what type of services would you ask for help in?
Dan Norden Reply
about 1 month ago

Dennis,

When I first read this I thought it was starting off as a joke only to find as I read that you were actually serious. This is so broad, you could use this for any company that charges a fee for a service that you could do on your own. Isn't this what America is all about?

I am sure you could change your own oil and argue your own cases but in the end if you don't have the time or the experience, you find the best service for the best price. Sometimes it is worth more to spend more for better service and sometimes the service is so average across the board that price is the main issue.

We manage several hundred single family homes for several hundred investors that find true value in what we do. We saw a 60% increase in growth last year and are already on track to do the same in the first couple of weeks this year. All of our owners are very loyal to us as we are to them.

We have helped investors triple their inventory in one year that they would not have been able to do if they were messing with all of the other things involved and they see serious value in that. Now is the time to take advantage of these great opportunities.

It sounds like you have a plan that works for you and you do not need pm. So why on earth would you waste all of this time and negative energy writing about them? It is like ranting investment managers and you have a self directer IRA that you control. There is no point.

In the time it took you to write this you could have been looking for your next investment focusing on the great market opportunities instead of self imposed negative grandeur. The numbers you use are not even correct.

Get out there and make a positive difference. Life is too short.
Todd Brittingham Reply
about 1 month ago

Dennis,

I think there is a happy medium, which is what I think you're searching for. If you're paying 10% then you're not negotiating well enough. With your portfolio, you certainly have some bargaining power. We use property management on all of our properties, but that is not to say we are completely hands off on any of our properties. My approach is that I want to let my property managers handle all the remedial tasks of the property management - collecting rent, taking phone calls, scheduling repairs, etc. That's really where it ends. I make all the decisions with the property directing the property manager on how to respond to various situations that arise. For what I pay them (which is not close to 10%) I think they're service is invaluable. I too have a full time job, and to me, my time is much better spent looking for the next deal rather than collecting rent or answering phone calls about leaky faucets. Like I said, there's a happy medium, and you should be able to find a competent manager willing to manage your properties for a much lower rate.
Dennis Fassett Reply
about 1 month ago

Hi Tammy -

Thanks for joining the conversation. For the record, I'm fully outsourcing my property management on my apartment buildings. This discussion is focused on single family rentals.

It's not that I want to piece out the management tasks exactly. What I'd like to do is pay a property manager a flat rate per month for the basic tasks of collecting and processing rent checks. Then pay them an additional fee per task that they have to do on my properties each month. If the rent is late and they need to send out a notice and make a call, then I get billed. If they have a maintenance call, I get billed. Etc etc.

That way, when my properties perform as they normally do I minimize the cost to me and the effort for the PM company. But when they need extra attention the PM gets paid a fee that includes their margin.

Seems like a reasonable idea to me.
Dennis Fassett Reply
about 1 month ago

I guess Dan then to you life is too short then to think up new approaches to situations?

Your reply was about par for the course from the PM crowd on this.

And if you think there is no point, then you obviously missed it. It's not "negativity" to write about an experience I had polling different PM companies. It's fact. Oh and the numbers I used are correct. In fact they are actual numbers from an actual property.

If you had read to the end of my post you would have seen that I posed a question for discussion. A valid question that it appears everyone except current PMs understood.

Again as I expected.

Oh and by the way, in the time it took you to write your negative response, you could have added several more houses to your portfolio and started earning 30% of their net annual income in the process.

Just what is "self imposed negative grandeur" anyway?
Nathan Gesner Reply
about 1 month ago

Dennis, your keen intellect is only matched by your sunny disposition. I have plenty of advice on how you could hire a manager and increase your ROI, but you already know everything and I'm just a lazy crook.

It's obvious money is not a remedy for the lack of maturity or manners.
Dennis Fassett Reply
about 1 month ago

Or a condescending reply Nathan. I responded in kind.

You PMs are touchy aren't you. It reminds me of trying to have a conversation with a realtor. Instead of trying to improve the model all they want to do is find more uses for their buggy whips.

No, Nathan, I wouldn't have posed the question that you overlooked in my original post if I knew everything. I was sincerely looking for some new ideas, but as I expected, all PMs want to talk about is how great they're doing and how no new ideas will ever work.

Good luck to you and your business model. It's just not a fit for me.
Tammy Matthews Reply
about 1 month ago

Hi All,

When I worked with residential properties I billed out at a set % and if you had several properties I would adjust the %. My broker and I had talked about how to do a piece rate program of sorts. One of the things that blocked our idea was how to budget that amount for the owner. Our owners at the time liked knowing what they were paying each month. We were concerned that a piece rate system may hinder the trust we had with our owners.

Our thought process was similar to what Dennis has mentioned. If you have a turnkey property, hourly time needed is minimal (a piece rate fee would be a benefit for the owner). But then there are the properties that seem to always have phone calls, excessive repairs, or trouble tenants (in this case the piece rate fee could become a burden for the owner).

I would love to hear your thoughts on my following question:
- What are your feelings on having a PM that charged you a set fee per rental and then charge a % on maintenance calls and a fee for tenant calls. Would be concerned on how you audit your billings? Would this system cause you to miss-trust your manager if there were too many calls?

Thank you Dennis for starting this conversation I am finding it enjoyable.
Dennis Fassett Reply
about 1 month ago

Hey Tammy -

Thanks for following up.

That's basically the model I had in mind - some sort of basic fee plus pay-per-use on top of it.

In terms of auditing, I'm sure that phone calls are already tracked, so some sort of reporting on that is probably already done.

In terms of trust, I've owned most of my properties for four years or more, so I know their condition and operating histories. And now that I'm focused on one particular micro area, the last seven and all of them going forward are going to in that area and will be virtually the same.

So unless they're turning over there shouldn't be a lot of calls. If there were, I'd expect the manager to let me know early in that process so I could have a chat with my tenant before I ran up a huge bill.

Are you doing something like this presently?
Tammy Matthews Reply
about 1 month ago

Hi Dennis,

Yes we do have a commercial real estate management version which is close to what you are looking for in the residential sector. We have been able to customize our management plans based on what type of services each our owners require. I think this may work in the residential sector as well but I don't think it would be wise to base the charges on phone calls and tenant problems. A house could be in fantastic condition but have a tenant who is a lot of work.
Dennis Fassett Reply
about 1 month ago

Hi Tammy -

I'm curious - how might such an arrangement work?
Rich Schmidt Reply
about 1 month ago

Hey, Dennis, I just came across a great blog post here on BiggerPockets about finding good property management that I thought you might want to read. The author says that finding the company that's best for your property is "not that difficult." Here's the link:

[url]http://www.biggerpockets.com/blogs/1833/blog_posts/18849-step-5-to-buying-turnkey-rentals-in-metro-detroit-property-management-is-key[/url]

:)
Dennis Fassett Reply
30 days ago

Hey Rich - thanks for the link! LOL

Unfortunately turn keys are different. If you're investing from a distance it can make a lot of sense to hire property management. And I know a couple of great companies that are doing it. They just cost a freaking fortune.
Chris Clothier Reply
27 days ago

Dennis -

Your points are kind of broad, but not out of line for what you may be seeing in your area. I also believe, just from reading your posts, that you have properties that are probably on the upper end of the rental spectrum in their condition, location and time needed to keep them operating at a profitable level. So I think it is a stretch to say that all PM companies are over-priced (just boiling your argument down) for the service they provide. In your case, your properties do not need a lot of attention so a traditional model is not needed. Is that the main point? That there are probably other investors in your position and you want to develop a model to serve them?

Otherwise, I think you simply haven't met the right management company yet. (I can only make that assumption from what is written on here). If a management company is scaled big enough so that they have enough revenue to be able to provide services on demand then I would think they would work with you to manage your portfolio. Only charging for actual services rendered and at a lower rate than normal because the properties need so little attention.

The reality for a large majority of PM's is that they are not scaled to a point to be able to deviate from their business plan. They offer services for a fee and the revenue they generate goes to cover many of the costs associated with owning and operating that company from G&A, insurance, payroll, taxes, additional overhead and any miscellaneous costs and all of those come out before they pay themselves. It takes a good sized operation and one that is designed to generate proper revenue to be able to change the model even for an owner with an exceptionally good portfolio. They simply cannot give your properties the attention they need to keep them operating at the level they are producing for you today without charging for it.

Dennis, these are just my thoughts after reading your post. I get exactly where you are coming from and though I think your post was worded a little strongly and over-generalizes the failures of PM companies, the need is still there for an option for owners who have really high value and easy operating properties. I don;t think it needs to be a revamping or completely new business model, you just need to find (and they may not exist there) a company large enough with a big enough vision to see the value in working with you.
Joe Delia Reply
9 days ago

Dennis, just reading what you've written on several different occasions, and your overall demeanor. Maybe you're the problem?
Dennis Fassett Reply
9 days ago

Yes, Joe, that's obviously it. Thank you so much for the insightful analysis. You have added immensely to this thread!

Thanks for dropping by!

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Phone:	(248) 971-0764

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Just Say NO To Property Management

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