How to Hire and Manage a Property Manager for Your Rentals
As a long distance landlord there have been far too many days where I felt like the saying “You can’t live with them, but you can’t live without them” is appropriate to our relationships with our property managers. And, I admit, there are still a few times where I am a bit frustrated by a decision or a lack of a response from one of our property managers, but my husband and I have come along way in my property manager relationships because we’ve come to realize a few important lessons.
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When we began real estate investing in 2001 we worked hard to find a handful of properties, hired property managers to oversee them and then carried on with our lives. We bragged to friends and family that we barely knew we owned any real estate at all.
Then, almost overnight, everything started to fall apart. We had a property manager rob rent money from us, another one poorly managed a renovation project resulting in 2 units that couldn’t be rented out, and yet another property manager got charged with manslaughter and during his spiraling crash to misery he turned our six plex into a crackhouse.
We’ve learned the hard way that there is no such thing as passive income.
Even when you’ve hired a good property manager. You still HAVE to be actively involved in managing your property manager.
So – how can you make sure you’re not missing out on rent money because of a crooked property manager you made the poor decision of hiring?
Speak with at Least One Property Manager Before You Buy
Even if you plan to manage the property yourself, chat with local property managers before you buy a property. We like to do this when we’re not familiar with an area to confirm the rent rates, tell us about any potential issues with that area or even the property, and most importantly to find out if they would manage the property if you need a manager in the future. Not every property manager will manage every type of property.
If you’ve ensured there are competent and reputable property managers willing to manage your property before you buy it, then you know you have a back up plan if you can’t continue on as manager. If you haven’t done this you just might find yourself in a situation where you have to move across the country and hire the only guy who will take the job. And that just might be the day when you find you’ve hired someone that is so inexperienced that they use a $5,000 renovation budget to partially renovate two units instead of fully renovating one unit.
Cover Your Assets with Paper
Here’s the story where veteran investors laugh at our mistake and newbie investors say “well that’s just common sense I would never make that mistake.” But I think we all know how common it is to have common sense, don’t we??
After a huge dispute between two tenants during my MBA final exams I could not handle the stress of dealing with our tenants at a triplex we have in Toronto. I had made the incorrect assumption that because my schedule was flexible as a student I could handle the management of our property to save money on management. Unfortunately our tenants had an enormous fight and called the cops on each other – twice! I received over 20 voicemails during a 3 hour lecture right before my final exams. I couldn’t tell the tenants to wait until after I was done the semester. I had to deal with their crummy fight at that moment. I was a mess and I was done with property management for life.
Dave couldn’t take it one because he had a full time job and wouldn’t be able to handle calls during the work day so we decided we had to hire a property manager immediately. Unfortunately all the managers we found were so expensive. It was going to kill our cashflow to have them take a full months rent for new move ins and 10% each month in management fees. So – after minimal research we hired the cheap guy.
About 18 months later, when two of our tenants moved out at the same time, we decided to move in to renovate the kitchen and bathroom in the two vacant units. We let our manager go and started collecting the rent from the third unit ourselves. When the tenants delivered the cheque to our door it was $100 more than we were expecting.
We didn’t have copies of the signed leases or copies of the past rent cheques. All we had was our bank statement showing what was deposited and the statements from the property manager showing what they had supposedly collected and spent. The only thing we could prove was that the property manager statements we’d been receiving indicated we were taking in rent that was $100 less than what the tenants were paying us. The tenants confirmed that was the amount they had always been paying. We now suspect he’d been pocketing up to $300 of extra rent money each month and billing us for maintenance that wasn’t done.
Now we get and keep copies of every single lease. We ask for copies of the rent cheques and rent receipts and when we’re in doubt we ask for before and after photos of any maintenance work that is done This one still bites us every once in awhile. It’s a story for another day but suffice to say that when we get lazy on this we’re leaving money on the table. That was proven to me once again on a property walk through we did just last month.
The bottom line is that we no longer take the property manager’s monthly statement as proof of what revenue our property is generating.
(By the way – we’re now paying our property managers on this triplex a full month’s rent to fill vacant units and 10% management fees. It hurts – but when you factor in the stolen money we’re probably about even on the cost to have the good managers in place versus the crook).
Tackle Tenant Turnover with a Vengence
Tenant turnover is the enemy of every real estate investor. The fewer turnovers you deal with on a property the more money you’ll make. If you find your tenants are turning over too much – try and figure out why. Perhaps you’re charging too much rent, your property manager isn’t responding to maintenance requests in a timely fashion or your property is no longer competitive with surrounding units. Whatever you can do to minimize turnover will help your returns in the long run. And when a tenant turns over and the unit doesn’t rent immediately – get on top of that place right away.
Ideally, schedule a walk through of the vacant unit. It’s a good idea to check out the inside of your property periodically anyway, but if it’s not renting out quickly then you want to find the issue that is preventing the unit from renting. Last year, a property we’d owned for nearly 8 years was sitting vacant. Our property manager had always been great so we had come to trust his efforts and his word. And, we’d never had an issue renting this unit out in the past. The property manager explained that the rental market was slow because many of the new houses and condos were being rented out until the market picked up.
We let the first month of vacancy go because his reasons made sense. But when we learned that the unit was going to be vacant for a second month we arranged a walk through and started asking questions. Turns out the property looked tired and needed new kitchen countertops, flooring and paint. The yard was also a mess and needed some major landscaping work. It was easy to see why it hadn’t rented out – especially if it’s competing with brand new condo units.
Immediately after the walk through we got organized to do a small renovation. A week later, and only a few days into the renovation project we already had new tenants for the property.
Even if you’ve been working with an exceptional property manager for nearly 8 years check out each and every vacancy. Nobody cares about your money more than you do.
Watch for Small Leaks that Can Sink Your Big Cash Flow Ship
Benjamin Franklin is famously quoted as saying “Beware of little expenses. A small leak will sink a great ship” and this is so true with rental properties. $50 here and $75 dollars over there will quickly erode all your positive cash flow on a property.
My husband Dave reviews each bill for each of our properties on a monthly basis. Because he does it regularly it’s easy for him to spot things that are out of the ordinary. For example, earlier this year Dave noticed the water bill on one of our rental properties in Nanaimo, BC was double what it usually is. He immediately contacted our property manager and asked that it be checked out. Turns out we had a water leak. The leak was quickly fixed and the next water bill was back around what it usually is. We pay the water bill on that little split level with a one bedroom basement suite so his swift action saved us hundreds of dollars at least.
We work with great property managers and most of the time there are very few things we need to get involved with. But we’ve learned that no matter how good the property manager is, nobody else loves and cares for our properties and money like we do. And now that we’re actively managing our property managers we’re making a whole lot more money than we did before.
Oh, and by the way, property managers have a tough job. If you have one that is doing a great job for you – be sure to thank them! Maybe they aren’t perfect but you’re not either. Do what you can to show your appreciation for the things they do well and act quickly on the things that need to be corrected!
First Image Credit: Julie Broad Second Image Credit:Akud | Dreamstime.com