Investing in real estate is similar to anything else. You purchase an asset, which generates a return. After a time you become fully capitalized and your return is all profit because your investment has been paid for. Real estate, however, unlike many other income generating investments, relies on a few key elements to ensure that the return keeps coming and the value of your investment isn’t diminished. The number one element is property management, and this is what I will talk about today.
When I first started investing in the U.S. real estate market, I was living in Australia. I had accumulated a large portfolio there and also purchased some property in other areas of the world as well. The investment potential was so good here in the States that I decided to sell out of my Australian portfolio and move to the U.S. I can absolutely say that it was one of the hardest moves that I’ve ever made, but well worth it in the long run, and I’m happy I’m here.
The Importance of Being Able to Trust Your Property Manager
One of the major concerns I had as a foreign investor was the people that I was working with to look after my property in my absence. Now my entire business model preaches fully passive income through turnkey investment, but I completely understand the stigma that has been generated due to non-preforming investments led by bad management. I also understand that many investors find it much easier to self-manage because of the well-known issues with many PM companies.
From my perspective, a property manager should be looking out for your investment. They should be protecting the asset from harm and assisting you, the investor, with communication both up and down the line with tenants and anyone else who may come in contact with the property. In the past I have had some great PMs who have allowed me to make some awesome returns, but I have also, like many others, been burned on many deals due to poor property management. Honestly, the loss equals hundreds of thousands of dollars. Another reason why I moved to the US is so I could see what was going on with my investment.
The really good property managers that I contracted with all had two things in common: they communicated well and they were responsive to the needs of the tenants.
Our company currently has some investors abroad who own property in other areas of the US, and by far the most common complaint I hear is with the wait for communication to be delivered. I mean, if you as an investor, call your PM and leave a message because no one answered, should it take over a week for someone to get back to you? In my opinion, NO! Just think of the number of issues that could potentially occur in that one week span.
Bad Experiences With Property Management
Recently, we had a past tenant of ours call Josh (he looks after our property management) to see if we could assist with a water issue. I recall him being on the phone, and the details I was hearing were appalling. The pipes had frozen in her building, and so she and the rest of the tenants had no water. She contacted her property manager several times, who told her that someone would be out soon. No one ever came. Eight days had passed. Yes, 8 DAYS!
The tenants contacted the local health department, who came out and assisted all of them in moving to another location. They also paid for their security deposit. What a shame, and I truly understand the feelings of desperation these people had. None of them wanted to move. They all enjoyed living there and even offered to pay for the plumber, but in the absence of a responsive property manager, the neglect and lack of concern caused a great loss to the investor and the tenants.
Sometime ago I owned some properties in upstate NY. They were great performers, and I got in at a decent price. I had a great relationship with my property manager, and we talked often. Then one day he called and told me that he had accepted a job offer in Florida with a larger complex. I was happy for him, but my stomach sank with uncertainty. His company appointed a new PM, and at first the transition went smoothly.
Then, about 3 months later, I was missing rent. They were constantly informing me of maintenance issues; then, nothing. No communication. No calls, no emails, NO RENT! I had to travel there myself to see what was going on. I was infuriated to find my properties vacant, vandalized and boarded up. I had lost my entire NY portfolio in a matter of a month due to poor property management. It took some time, but they did get fixed. I found new property management and sold off the entire list. No more NY for me.
To sum this up, property management is the key to your return. Just as you would vet a tenant, you need to do the same thing with your PM. They need to show you that prompt communication is their top priority and that they are responsive to the needs of the property, your investment. You should never wait a week for a return call. So many things could happen in 7 days. At Ohio Cashflow we like having one property manager look after a maximum of 25 properties. This allows for their utmost undivided attention at any given moment to not just the tenants’ needs, but also the investors that own the properties.
Have you had a poor experience with a PM? What did the good ones do well?
I’d love to see your comments below.