BiggerPockets

Investor Success through Aggressive Property Management

Sunday, December 20

The saying “you’re only as strong as your weakest link” can be rewritten in the world of investment rental properties as, “your investment property portfolio is only as strong as your Property Management Company.”  Ineffective property management is a very quick way to turn a great investment opportunity into losses that take years to recoup.  I can confidently say this because it was a tough lesson learned on my first two properties.  After a series of consecutive months of owing more then I collected, delinquent rent collections and minor repairs, I decided to fire my property manager and take matter in my own hands.  In the 3 years I have been managing not only my own properties, but also my clients; I have developed my own style that I have found to be extremely successful.  I call this style, “aggressive, firm, yet respectful approach.”  To implement this approach, the following 5 concepts must be used consistently:

1.   Your tenant is not your friend: A tenant is someone living in your property that owes you a monthly rent—that is it.   I found that once a personal relationship is developed, not only does it  give your tenant the perception that you will be ok if they are short on rent, but also makes it more difficult to evict if it comes to that.  This is a very important concept because you can do everything right; maintain the property, answer maintenance calls efficiently, work with your tenant when they are late, and they still walk over you.

          2.   Let the tenant know your style up front and that you are in charge:  When a potential tenant is considering a property of ours to call home, I let them know up front how we operate.  The main concept I lay out is, if you are not 100% sure you can afford this, then do not move in because we will evict quickly. Our standard policy is after the 5^th, if you have not contacted us as to the status of your rent payment, we start the eviction process.  In today’s era of email, cell phones, blackberries, etc. there are no excuses for non-communication.  Family member is sick in the hospital…sorry, rent is due.  Someone stole your car…sorry, rent is due.  I understand that life issues develop beyond one’s control and that is why I will work with a tenant if they have a plan to pay rent within a reasonable time schedule (before the 15^th).  However, if they do not hold up to their end of the bargain, then eviction is a must.  I look at it this way, if I call the Mortgage Company and explain my tenant’s family member is sick and can’t pay, 100% of the time they will not care.   This is why point #1 is so important.  It is the tenant’s responsibility before they move into a property to budget for situations where cash flow may be a problem one particular month. 

          3.   A letter in the mail and a phone call is not enough if rent is not collected: I once had my Property Manager tell me that he sent a letter and left a message to my tenant that rent is late and needs to be paid.  That is about as effective as cutting down a tree with a butter knife.  Sure, we mail the letter, leave a message, but if we have not heard from a tenant by the 6^th, it is time for a knock on the door.  If the tenant chooses not to answer the door, it is time to put bright orange flyers posted all over the house, cars, mailbox, trees, fence, windows, doors indicating, “RENT IS LATE—EVICTION IMMINENT!!!! Image is everything, especially to Americans.  Tenants will not want their neighbors to know just how financially irresponsible they are.  We let the tenants know upfront we perform this action if they decide to not communicate their plan of action to pay.

          4.   No Rent, No A/C: Most areas are consistent that A/C is a luxury.  Our most successful task we do to immediately collect rent is to disable the A/C.  Surprising how quick tenants come up with rent when it is 95 degrees outside and they do not have air.  This must be done very carefully--this is walking a very thin line of what is allowed.

          5.   Offer Deposit to Vacate Property: While this is painful to do, if a tenant knows they will not be able to pay rent, often times they will take the incentive of redeeming their cash deposit to move out.  More often than not, paying the deposit back and immediately marketing the property “For Rent” is quicker and more cost effective then going through the eviction process.

     All of these 5 points, although must be firmly implemented, a respectful persona must be shown towards the tenant.  Implementing these aggressive approaches and being a jerk at the same time is a quick way for a tenant to simply ignore you out of defiance.  I understand these actions sound harsh, cold and extreme, but I have seen tenants not pay rent, yet somehow afford luxury cars, 50” LCD T.V.’s, nice furniture and expensive clothes, yet the rent is hard to pay.  The roof of their head should be # 1 priority, unfortunately it is not always, and that is why it is my job to remind them who gets paid first.

     These 5 points are just the philosophy I use towards Property Management.  Much more goes into being successful in this business; such as innovative software and phone system, creative marketing to get properties rented, organization, relationships with vendors to do work at reasonable rates, just to name a few. However, the success of your investment depends on receiving the rent that is owed; failure to succeed at that task makes everything else irrelevant.

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