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When Should You Fire Your Property Manager?

by Ali Boone on December 14, 2013 · 32 comments

  
Fire Property Manager

As soon as you start wondering if you should! Okay maybe not always but if you are wondering at all, you should likely think about pulling the rug out.

For me though, the thought of needing to fire my property manager as soon as I even wonder if I should holds true. I can reverse that thought to illustrate my point actually. In thinking of my favorite property manager, if I ask myself if there is any reason I should get rid of him I actually panic for a second at even the ‘fake’ thought of losing him! That means he is that good and truly the idea of not having him managing my properties sends a chill down my spine.

It sounds far out, I’m sure, to think you could feel so comfortable with a manager but it really is possible. So bringing that reverse illustration back around to the original point of probably needing to fire a manager at the first wonder if you should, maybe you see the point I was getting at now.

Not only do I not wonder if my property manager is doing a good job, it actually terrifies me to think of losing him! So if you are at a point of thinking your manager isn’t doing a good (or proper) job, you are probably right and you should probably start shopping around for a new manager before he (or she) costs you a lot of money.

I know that paragraph is a bit vague and may not have helped you in breaking down and evaluating your manager and his/her performance, so I’ll help you. Here is what I consider to be ‘red flags’ with a property manager and if one or more of these is an issue, you may want to consider shopping for a new manager.

Red Flags to Watch For

  • Lack of Confidence. If you are at any point concerned about whether or not your property is proactively being taken care of, chances are you should jump ship from your current manager. The whole point of having a property manager is so you don’t have to worry. To be clear on this one though, you are allowed to worry about your property, especially if something is actually going on with it (tenant not paying, sudden repair needed, etc.).

    What you should not be worrying about is the ability of the manager to handle whatever is going on in the most cost-effective way possible. For instance, I have a problem tenant right now and while I’m extremely frustrated about the tenant and the situation, I have no doubt that my manager is handling the situation in the most time-effective and cost-effective way possible. I don’t wonder at all if he is doing everything he could be doing to fix it, I know he is. Whereas in the past I have had problems with some properties and it felt like absolutely nothing worthwhile was being done to fix the situation in a timely and cost-effective manner, I only knew about the problem because I saw it for myself on the internet (my property listed for rent when I had no idea my current tenants had left and stolen all the appliances!), and it felt like I could be doing more about it myself than my manager was (and I know nothing about handling that type of situation).

    I want to feel like if I were to go backpacking in the wilderness for a year and have no access to communication with my property manager that I would feel trusting and confident that my manager would make the most cost-effective decisions for me while I was gone and I would come back in a year with minimal negative impact. I’ve had some managers where I felt like if I were to leave for even a month that my property would crumble out from under me and I would owe thousands for no good apparent reason. If you are lacking the former confidence in a manager, get a new one.

  • Lack of Communication and Accessibility. Nothing stresses me out more than a manager who doesn’t communicate well. There are two pieces to what I consider to be successful communication: 1. they tell me when anything out of the ordinary happens and 2. they are easily accessible if I need them for anything.

    For me that means I don’t constantly talk to a secretary who never knows one thing from another either. I personally, and this is only preference not a rule, don’t like calling a big office and talking to different people all the time. I want one guy who is my manager, not a big group. I feel like I accomplish more in a more timely fashion and with fewer headaches that way. But as I mentioned in the bullet above, I literally saw one of my properties one time labeled as For Rent on the internet when I was bored one night looking at Zillow values of my properties. When I inquired with the property management company about it (which took multiple phone calls and messages to finally get someone on the phone), apparently my tenants had left a month prior and stolen all the appliances. No one cared to inform me of that.

    Seriously?

    I had another property where on multiple occasions I wasn’t told that my tenants had stopped paying and the only way I found out was after receiving less than ¼ of what I should have in a payout one month, I called the company to ask what was up.  The lack of communication is the biggest contributor, in my opinion, to developing a lack of confidence and trust for the manager. I don’t want or need to micromanage a manager at all (why even pay him if I do that?), but knowing basic levels of information should still be part of the relationship.

  • Nickel-and-Diming. This one isn’t necessarily completely wrong by itself but it’s certainly annoying and to me it’s a sign of low quality, which is likely to result in a poor management experience.

    I pay more than the standard for my current property manager, but I also get a lot of freebies out of that and way fewer headaches. I get minimal repair bills during the year, minimal everything bills. To me, that is a lot nicer than paying less per month and getting hit hard by bills left and right. Some of the things I’ve seen managers charge for is asinine, really. Plus, when you are getting nickel-and-dimed, I think it instills a lack of trust in what the manager is doing. Because in that scenario essentially he (or she) profits every time something goes wrong.

    So why not continue to ‘have things go wrong’ to make more money? It’s a famous problem with property managers- they make up repairs and other issues simply so they can make more money off of you by ‘fixing’ the problems.  If you are a long-distance owner, how would you know otherwise that the repair isn’t legit? You can’t. The other model, the one where you don’t get charged left and right, is great because I have a trust that when my manager tells me something is wrong with the house, it is legitimately an issue. Why? Because his labor is free to go check it out.

    I get charged so little to fix repairs, if anything, how could I distrust it? The houses are in great shape, it’s not like he is ignoring problems, so it helps me trust the system and I know he cares and isn’t just sucking out every penny he can from me. It’s all part of the bigger picture.

Related: 5 Red Flags to Watch For When Hiring a Property Manager

You’re the Boss

Remember, when you hire a property manager to run your investment properties it is no different than if you were to hire an employee to work for you. You are the boss, not them. I don’t say that to suggest you can be a jerk and yank them around, but I do say that to encourage you to remember that if something isn’t working for you, you can do something about it.

I am in 100% disagreement of any property management contract that states you have to stick with that manager (or company) for a defined amount of time. Absolutely not! Because what if they really start to suck? A property manager sucking can cost you a fortune. No joke. With that much at risk, I’m not signing anything that says I’m stuck with someone. I need to be able to fire a manager. I’m the boss, I decide who runs my properties and when. If someone isn’t cutting it, cut them loose as soon as possible!

I can’t give you an exact tally of how much money I’ve lost on my properties in only two years due to bad property managers, but I can tell you for sure it is easily in the thousands. And the higher thousands at that, not just one or two thousand.

You run the show, it’s your investment, and they are your properties. Yes, I absolutely agree good managers are insanely frustrating to find but they do exist. Don’t give up! Hire and fire as much as you need to. You will eventually get to the good one who will help you make a boatload of money.

Any other red flags with property managers I missed?

Photo Credit: ashley rose, via Compfight cc

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{ 32 comments… read them below or add one }

Roy N. December 14, 2013 at 4:33 pm

Ali,

I’ve yet to find a property manager that instills that level of confidence and we are actually considering hiring our own in-house.

IMHO what needs to happen is a different contractual arrangement than is the norm for the industry. One which actually aligns the remuneration of the property manager with the interests of the property owner …. I would much rather pay a property manager an incentive for retaining tenants than 1/2 to 1-month rent every time they (re)fill a vacancy.

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Ali Boone December 16, 2013 at 8:23 pm

I totally agree Roy. I think there is a huuuuge opportunity right now for someone to really step in and redefine property management. I would even like to brainstorm on it myself. Improve the system, improve the benefits for everyone involved, it would attract a higher quality of folks who want to be managers, etc. I’m totally with you!

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Yuliany December 14, 2013 at 5:42 pm

Hi Ali,
I always like reading your articles, I find them very useful and relatable. Perhaps because I’m also an out of state investor.
I have a love and hate relationship with my current property manager. I love that they are always very responsive (they would respond to my email even in the middle of the night and it is alway very easy to reach them)

However, I feel that they don’t move very quickly whenever there is a vacancy. I often need to keep following up with them and sometimes putting my own craigslist ads on top of the MLS listings that they post. I sent them stern emails once in a while however I don’t feel very good afterwards. But the stern emails seem to work.

I’m wondering whether I should meet up with my manager once in a while? Just to build relationship and putting a face on all the electronic communications.
Since I’m an out of state investor I don’t get a chance to meet up with my manager very often. I would like to hear your opinion about this.
Thank you, I’m looking forward to read your next article.

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Ali Boone December 16, 2013 at 8:27 pm

Thanks Yuliany! I love hearing from my regular readers so I’m super pumped you commented :)

That one is interesting. I think definitely putting names to faces helps. It sounds like maybe they just don’t advertise everywhere they could be? When a manager notoriously takes longer to fill vacancies, it’s usually one of two things (unless the market just totally sucks right then): 1. they don’t market it properly or 2. they are more focused on finding higher quality tenants. Now the impact of both of those is huge. If it’s the latter, then don’t sweat the longer vacancy. My favorite manager takes longer to fill but he also puts in good people. If it’s the former, then that’s an issue that needs to be addressed. I would find it hard to believe that a manager who doesn’t market a property well does everything else well. But maybe. If it literally only is a lack of marketing that is their downfall, it’s not worth firing them by any means but maybe come up with your own plan for marketing and tell them that’s what you want done and make them adhere to that.

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Stephanie Dupuis December 15, 2013 at 12:00 pm

Thank you for this article, Ali. I have yet to find a PM like this in my area (unfortunately). Last month, I also experienced finding a unit of mine listed on CL when it was supposed to have a tenant in it – the PM had not informed me of the vacancy. Of course, we spoke and I clearly let them know I simply want to hear from them first – not see this on the internet (duh!). I feel like I’m talking to a 12 yo when conversations like this occur.

Otherwise, they’ve been accessible, responsive and costs have been fair and reasonable. Vacancies filled quickly and with decent tenants. And, in fairness, during this past unexpected vacancy, they did collect the rent from the tenant who vacated early. There was no financial consequence to me. Not sure what to make of this. I’ve been through all PM co’s in my town…low pickings around here.

Again, thanks for your article – gives me hope : )

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Ali Boone December 16, 2013 at 8:29 pm

Hey Stephanie! Well normally a lack of communication to that extent is usually representative of the quality of the rest of their management. However in your case it sounds like an isolated problem from the rest, so it’s probably worth sticking with them. If everything else is great, that’s really what matters. Just express your wish for them to communicate better? Maybe they will, maybe they won’t. Who knows. But sounds like you aren’t too far from a perfect manager!

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Kingside December 15, 2013 at 3:56 pm

A different contractual arrangement that has worked well for me to date in alligning the manager’s interest with the owner’s on reletting is to state that there is no reletting fee if they originally received a reletting fee and the tenant vacates or an eviction is commenced within 9 months of the commencement of the lease. The good managers don’t seem to have a problem commiting to this.

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Ali Boone December 16, 2013 at 8:30 pm

I totally agree Kingside. That shouldn’t be a problem and totally worth asking for!

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Steven December 15, 2013 at 6:20 pm

Yikes!! I need to fire my property manager in Dallas PDQ….

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Ali Boone December 16, 2013 at 8:31 pm

Lol, Steven… care to elaborate? Or it’s just such a sure thing you need to just do it. Haha. Sorry to laugh but love the comment.

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Seth Williams December 16, 2013 at 6:43 am

Awesome, this is a very helpful overview Ali. Having never had to actually fire a property manager, I’ve always wondered in the back of my mind, “What would it take to make that decision?” Hopefully the day will never come, but if it does – this will give me a good reference point. Thanks!

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Ali Boone December 16, 2013 at 8:31 pm

It’s all about the warm fuzzies Seth! If you doubt them, there is probably a reason.

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John Ivicevic December 16, 2013 at 11:36 am

Great post Ali! I’m currently having PM issues in Phoenix and am constantly looking for a new one. Here’s my issue though: I have one of my properties leased until 2016. In reading the PM agreement, it looks like I would have to pay them the fees for the 2 1/2 years that the lease will be active for. Any advice on this?

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Ali Boone December 16, 2013 at 8:33 pm

Hey John. Thanks for commenting! I can’t imagine a property management agreement would say you have to pay them their fee for the length of the lease. If it does, ouch. Is that specifically what it says? Normally you would just transfer the current lease to the new manager and they have the tenant sign a thing saying they agree to be in agreement with the new manager but on their existing lease terms.

Let me know the exact wording and maybe I can help more…

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bruce December 17, 2013 at 7:32 am

Ali,
I think my agreement says I will pay 3% of the lease value remaining if I cancel.
Doesn’t come out to that much money, being 12 month leases, longer ones would hurt more I’m sure.
Bruce

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John Ivicevic December 17, 2013 at 7:49 am

Hi Ali, upon reviewing my agreement I don’t really see anything that states that thank god! Looks like our agreement expired in 11/13 and I can cancel as long as I give 30 days notice. So yeah I think I’ll do that after I find a new competent one.

Bruce: Thank you for that referral. I’ll be contacting him asap. I’m loving BP!

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Ali Boone December 17, 2013 at 10:54 am

Great, John! You’ll be much happier. Don’t worry if you have to interview a ton of new managers. You will find one you like, promise. It took me a year to find my favorite one.

Bruce December 16, 2013 at 2:49 pm

John, I’m thinking it might be time to lose my PM in Phoenix as well.
I don’t have any advice on the lease fee, I have the same thing in mine, but at least my leases are only for a year.

Please let me know if you find a decent PM in the Phoenix area.
Thanks
Bruce

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John Ivicevic December 16, 2013 at 3:27 pm

Hi Bruce, it’s good to know I’m not the only one going through this. I’ve been trying to find a solid PM referral for years but have just had no luck. I think what I’ll do is as my other leases expire, I’ll just use a different PM for those. So I’ll have to deal with two different PMs for a couple of years but I guess I have to do what I have to do. Let me know if you find any as well Bruce. Are you a member on BP?

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bruce December 17, 2013 at 5:58 am
djopgenort December 17, 2013 at 11:25 am

I’d say no annual inspection is a problem. As a renter we went YEARS without the PM company setting foot on the property. They did do “drive-bys”, apparently. One year I got a nasty letter from our contact person about a dead spot in the front lawn (sprinkler had never covered that area). This came after I called to complain that their gardener hadn’t shown up in 3(!) months. We got to hire our own gardener & our contact was no longer working for the company shortly after the incident.

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Ali Boone December 17, 2013 at 11:32 am

I agree. A manager needs to have eyes on the property for sure. My manager does monthly ‘home inspections’ where he tells the tenants he is checking filters, plumbing, etc. but it’s really a secret ploy to see what they are up to and how they are taking care of the house. Really helps.

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Mike Greenidge December 17, 2013 at 11:36 am

While my PM paid fees out of pocket to file evictions and do repairs, I’ve put up with super long periods of times of not having tenants and not having my properties cash flow.

Having to call PM to find out if this tenant paid or that tenant paid their rent when in fact PM should be calling me with updates.

Getting trash violation ordinance tickets on my properties while the property is under management by PM.

I found out I recently got a tenant because I called the PM. No one called me.

Time is money in this business so the quicker I can assess damage on my property the better.

I had to evict a tenant. PM company , I assume has been in and out of property since eviction and I don’t have 1 single photo showing me or an email describing the current property condition so that I can form a strategy to get it back to a state where it can be rented.

Is this good property management in 2014 in the age of handheld smart phones and digital technology?

I have an email from PM office manager saying “the place is a mess”

What kind of strategic approach can I build from that information? There is zero detail and it has absolutely zero value in helping me get my property back to cash flow status.

If the PM told me “you have junk on all three floors that needs to be removed” It needs paint and the carpet smells like urine it may need to be replaced” that would have at least been helpful.

It took an entire week before I drove the 2.2 hours to see the property.

Was I supposed to sit around days until I can get a status? 29 dollars a day I’m losing in rent on my property waiting for a status.

I’ve owned 4 rental units in a particular farm area. Almost without fail every single property management company I’ve hired has had issues with at least one of the following:
a) Creating repairs and invoices for fictitious repairs.

b) Charging us for repairs done to another property.

c) Not managing the tenants properly in terms of them paying the rent late.
i.e. – Me: What happened to Mays rent? Them: Oh, we forgot to tell you that the tenant is having some issues and said they won’t be able to pay till June.

d) Not communicating the cost of repairs and charging us for them unexpectedly. i.e. – the stove broke we had to replace it.

I’m sure I will think of some other things after I write this memo but I’ve learned that the property managers need managing. I thing that if left unattended the tendency is for them to use your rent rolls as a license to print money.

I’ve gone through 3 different property management companies and it almost seems like there is a common theme amongst them which is that they know you are an out of town investor and the likelihood of you showing up to inspect your property is very, very low. The further away the better it seems.

I’ve taken some precautions lately like asking for a phone call prior to making any repair more that $100. Asking for before and after photos of repair work that needs to be done. Closely watching the expense column for charges (hidden, mistaken and otherwise)

BTW _ I am in complete alignment with you and Roy that the existing PM business model is flawed and needs to be completely re-worked. Anyone that can create a fully functional, scalable working PM business model for today’s buy and hold investors will make a fortune.

I thought about it but its such a messy business that I don’t think I would enjoy it.

This post is so appropriate because I JUST fired my PM company on 12/4 and already found a tenant for the rental amount I posted. 100 dollars more a month than the PM company suggested I ask for…Good riddance!

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Ali December 19, 2013 at 5:16 pm

I’d definitely say good riddance Mike. Ouch! But I know the feeling. I’ve had similar managers in the past. It’s such a friggin’ headache! Hopefully you can find a new one. It took me a year to find the one I love. The trick I found is going for the individual agent-style managers. Like real estate agents who are willing to do management in addition. Its one person, not a company (I can’t stand dealing with property management companies) and they tend to be a lot easier to communicate with, you can build a relationship with them personally so they care more about you and keep you in the loop, and they are usually even willing to jiggle the toilet floaty ball handle if a tenant calls in saying the toilet doesn’t work and not charge you the price of a contractor for it.

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Susan Cain December 17, 2013 at 3:53 pm

Ouch! I’m so glad I stayed out of the SFR rental business. My out-of-state luxury condos are so easy for me to manage myself, with an excellent Rental Agent, when necessary.

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Ali December 19, 2013 at 5:18 pm

Not sure the difference between managing a SFR and a luxury condo (unless it’s just the “luxury” part that is different) when it comes to managing, but glad that is working out for you Susan! Hopefully you’re cash flowing on those as well? Condos, especially luxury ones, have a hard time profiting usually.

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James December 18, 2013 at 11:26 am

Ali, your articles are GREAT! What you wrote below had bells going off in my head!!!

“I want to feel like if I were to go backpacking in the wilderness for a year and have no access to communication with my property manager that I would feel trusting and confident that my manager ….”

I was offered a ‘dream job’ in Europe, so I took it. I was there for about 3.5 years and came back because I had not prepared myself in terms of my rental investments. Things began to spin out of control due to a lousy PM. He would actually go to tenants and give them a list of nit-picky complaints that they should e-mail me about to have fixed. He had turned my rentals into his own lucrative income generating investment! When I left my job and came back, I kicked his ass to the curb! Wish that I had established a good PM relationship PRIOR to taking an overseas assignment! I learned my lesson…but the hard way and that part stinks! It cost me thousands, an ulcer and a great job!

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Ali December 19, 2013 at 5:19 pm

Oh, I know about those ulcers James! But wow, I think yours may out-do mine. That’s crazy about that manager! Hopefully you have a good one in place now?

But I definitely know the feeling of bad managers costing thousands though. Urgh.

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James December 20, 2013 at 10:42 am

Ali, I have a great property manager now! ME! It has taken 3 years of dedication to get my rentals back on track, but things look really good now. I just got my property taxes lowered. Lots of paperwork, new bank appraisals and in-person meetings, but it paid off as I received my property tax bills 3 days ago with much lower taxes across the board! James

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Ali December 24, 2013 at 8:55 pm

Lol. Congrats James! :)

Thomas McCombs December 18, 2013 at 3:01 pm

I think there may be another side to this issue. It would be interesting to read some comments from property managers on some of these issues.
It is clear that property management is a tough business. Lots of arguments with both tenants and owners. Communication is always an issue — it is time consuming and everyone wants more of it.
I have used PM’s in the past, and I agree that it can be very unsatisfying. But then, so is managing them yourself.

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Ali December 19, 2013 at 5:20 pm

Totally agree with you Thomas.

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