Landlording & Rental Properties

Premium Property Management Really IS Worth It: Here’s What It Can Do For You

Expertise: Personal Development, Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Real Estate Marketing, Mortgages & Creative Financing
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Property management is a tough business with a bad rap (much of it earned, by the way)! For investors who have taken on landlord responsibilities, you know just how demanding it can be. Managing an investment property is both challenging and time consuming and requires a bit of personality dexterity.

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Most real estate investors, however, never deal with the nitty gritty details of property management, even if they understand what goes into it. That is because most real estate investors participate in the this massive investment market in a passive way. They have no experience with property management, so they have no idea what makes it tick.

Unfortunately, that factthe reality that most misunderstand the gargantuan task of property management—means that too many investors are willing to overlook quality to save on costs.

We understand, really. After all, you’re in this business to make money, and if you’re spending a ton on property management, it means fewer dollars in your retirement accounts when rent is due. Right? Ben Leybovich wrote a classic article about the challenges of affording property management and received over 100 comments! 

However, when you are in the middle of the real estate game, it is real life. It ain’t practice! You don’t have time to make the mistake of trading your time to save a few dollars, just like you do not have time to step over dollars to grab the dimes. When it comes to the notion that you can save money and build your retirement by doing the management yourself, my only advice is: not so fast.


Premium Property Management Is Worth It—Really

Here’s the thing about property management: You get what you pay for. The difference between good property management and bad property management isn’t always immediately noticeable to real estate investors. Why? Because good property management isn’t something you have to notice, and bad property management does everything to hide just how bad it is.

Related: 80 Smart Questions to Ask BEFORE Hiring Your Next Property Management Company

Making comparisons based solely on price will come back to haunt you when you end up with chronically late rent payments, a property that’s falling apart, broken lease agreements, poor communication, improperly set expectations, and high tenant turnover. Bad property management can not only hurt your long-term investment success, but it can also damage one of your most valuable assets—your reputation.

Your management team is the on-the-ground, public face of your investment business. That’s big.

So really, what does a good property management team look like? What benefits do you get for investing in premium service? Almost as important is how do you set good expectations on the front end?

What Ideal Property Management Looks Like

You’re In-the-Know

Solid property management teams make sure they are in constant communication—especially about the big things, the milestone events. While they don’t overload investors with updates, they don’t hesitate to offer reports, documentation, and property status updates. Good property managers are organized and never try to hide things from you; they’re proud of the work they’re doing and have a genuine interest in providing quality services.

That does not mean things will always go smoothly. There can and will be hiccups, but simple peace-of-mind communication goes a long way, and the best of the best make this a standard operating procedure.

Interview questions when hiring a property manager might include:

  • How often can I expect to hear from you?
  • Will that be by phone call?
  • What is the average response time for your team to tenant phone calls, maintenance phone calls, and owner phone calls?

You Never Have to Ask Where Rent Is

Good property managers know how to track down rent payments. They don’t allow themselves to bend in the rules—they make expectations for payment clear and have the organization and prowess to ensure you get paid on time. Really good management companies have systems in place to operate on a daily basis all the way down to how a rent payment is processed and how quickly rent payments are sent to owners.  

When speaking with a property management company, they should be able to communicate very clearly what that system is and what the process is for making sure that everything goes smoothly. If they cannot give you clear and defined rules for when rent is collected, when it is late, how late payments are collected, and ultimately how and when payments are sent to owners, then they are not up to the level of the best in the business. 


Your Tenants Feel Taken Care Of

Good property managers aren’t just there to collect rent. They build a rapport with your tenants, ensuring that they feel welcome and valued. They listen carefully to complaints and maintenance requests and take appropriate action. Tenants won’t resent a good manager, because they’re doing everything they can to ensure the tenant is taken care of. Good managers know how to diffuse uncomfortable situations and resolve conflict, not escalate it.

More importantly, a great property management company takes pride in their average length of stay. The longer the period of time may mean a lower revenue stream for them as a company, but it will mean happier owners. After all, a happy tenant always translates to a happy owner.

Related: The Not-So-Obvious Reason Your Property Management Company is Failing You

If you can find a quality, responsive company that treats tenants with respect, you will likely have a good long-term experience. How will you know as an owner? Simple. Ask the property management company what their average length of stay is.

When you have your answer, ask them again only in a different way. Ask them what percentage of their portfolio gets turned over in a year. Divide that number into 100 and you have your average length of stay. If the two numbers do not add up, then you know they were pulling data out of their backside anyway. If they do add up, you may very well have a winner.

You Rarely Encounter a Bad Tenant

How well does your manager screen tenants? You should know! Experienced property managers know that it’s worth the extra time and effort to really vet tenants. Because they screen well, you’re so much less likely to have to fool with the headache of property damages, broken lease agreements, criminal activity, and chronically late rent. So many problems are solved simply when the tenants you have are good ones.

There is much more to a screening process than credit, criminal, bankruptcy, and eviction checks. There are absolutely subtle nuances that really good management companies employ and teach their teams to use in the field. A keen eye can spot issues that do not show up on background checks. The best management companies also know how to properly comply with the laws to make sure they are not discriminating in any way. This knowledge itself is worth its weight in gold.

Maintenance Issues Never Catch You By Surprise

Finding out you have to drop a couple of thousand dollars on a problem that could’ve been resolved for a fraction of the cost a few months ago isn’t fun, to put it lightly. Ace property managers are on top of everything. They not only pay attention to maintenance requests, but are also vigilant in detecting issues early.

To be clear, this issue is not just one competency of the management company, but it also speaks to how well they communicate. These costs—surprise maintenance issues—come up and bite owners in the backside all the time.

Be sure to ask your property management company how they communicate these issues and what they do to help mitigate and fix them in the fastest manner possible. No one likes to spend money, and the best management companies make sure their owners know that spending their money is the last thing they want to do. However, not letting them know or sitting on a bill until a “good time” to call or email is a sign of weakness and a red flag on any company you’re considering hiring.


Legal Issues Are Few and Far Between

You know who ends up in a lot of lawsuits? Bad property managers. Now, we know not all managers are sued for valid reasons. But we’ve also heard one too many stories about illegal evictions, bed bug horrors, and generally awful management. Good managers don’t get into those kinds of situations. They don’t just avoid them; they actively prevent them and are well-versed in the law.

To be clear, all property management companies are sued. That is a fact of life for management companies. But not all management companies lose lawsuits. Many, in fact, regularly win or deflect the frivolous lawsuits and rarely find themselves entangled in the long, drawn-out nightmare lawsuits that we sometimes hear about. Why? Because they know what they are doing and have a system and process for everything! Following those systems and processes is what keeps them out of trouble.

You Really Can Be a Passive Investor

The biggest advantage you have in hiring good property managers? You get to really be a passive real estate investor. They give you the security of knowing your property is in capable hands that will keep things running smoothly, leaving you room to focus on what you want to.

After all, who can argue with the fact that as real estate investors, we make the bulk of our money when we do what we do best: find, buy, renovate, and hold or sell really good deals? Spending our time doing the dirtiest of the dirty work when there are great companies out there trained and versed in how to do it for us at a reasonable price seems to make perfect sense to this passive investor!

For the “I would never hire property management” crowd out there, let me hear what you have to say.

I would love to hear your take on this debate!

Chris Clothier began building his rental portfolio in 2003 as a successful entrepreneur looking to diversify his investments. He quickly gravitated toward passive investing, establishing a portfolio of over 50 single family homes in Memphis, Tenn. As an original client of his family's firm Memphis Invest (now REI Nation), Chris experienced firsthand what a passive investor endures when purchasing out of state. A few years later he joined the REI Nation team and now manages the development and implementation of sales and marketing processes.
    Mike McKinzie Investor from Westminster, CO
    Replied about 5 years ago
    Chris PM’s have NO IDEA how important it is to COMMUNICATE and to keep their word to COMMUNICATE. Whenever anyone says “You get what you pay for, I am reminded of a story written by Benjamin Franklin, …”When I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and being charmed with the sound of a whistle, that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one. I then came home, and went whistling all over the house, much pleased with my whistle, but disturbing all the family. My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation; and the reflection gave me more chagrin than the whistle gave me pleasure. This, however, was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don’t give too much for the whistle; and I saved my money.” Of course, PMs are not whistles, but they are something that we investors pay for. I have eight different Property Managers so I can compare my “whistles.” Why is it that I have a PM in California that charges me a flat $50 per month, only when they collect rent, and charge me NO New Tenant Fee, NO Re-Lease Fee, NO Mark up on repairs, etc… and be very profitable? Also, they collect rent on the FIRST of the month and it is in MY HANDS by the FIFTH (not 30 days later, 5 days later), rent collected on Feb 1 will be in my hands on Feb 5. And most of my other PM’s charge to get a New Tenants, charge to sign a New Lease, charge a commission on repair work, charge to meet any inspector, and charge, and charge and charge. My Colorado PM also does NOT charge to find a new tenant or sign a new lease or mark up a repair bill. So while I am a staunch defender of Property Management, I have to say that I am NOT pleased with them charging for this, that and every other thing. Take your monthly fee and THAT SHOULD BE IT. If a Property Manager in California who is managing thousands of homes can do it, so can everyone else! For as we have learned, “You can pay too much for a whistle!”
    Chris Clothier Rental Property Investor from memphis, TN
    Replied about 5 years ago
    Mike – Thanks for reading and taking the time to leave such great comments. Unfortunately, I always find little things after each article that I wish I had pointed out. In a way, you have done that for me. You make two points that I want to really expand upon real quick. 1. Just because it costs more – does not mean it is better. “you get what you pay for” was always meant to say don’t go for the cheap price just because its cheap. In reality, it goes both ways. You can always over-pay for ANYTHING and justify it with that phrase. Unfortunately, real life doesn’t work that way so thanks for pointing that out. 2. Know what you are paying for. Before you hire a management company, they should be able to clearly provide a list of services and how they charge for those services. Regardless of what that list and those charges look like, it is important that there be no surprises so you can make a good decision. Whether you like the list or the price comes with your own personal decision to hire them or not. Not knowing about them or a company not being able to communicate or worse – constantly changing them – those are all grounds to move on and find a new company. Thanks again for the comments Mike.
    Deryk Harper Residential Real Estate Broker from Alpharetta, Georgia
    Replied about 5 years ago
    Hi Mike, Would you mind sharing the contact info for your $50/month manager in CA? I would love to check out their business model and can probably send them plenty of referrals. I imagine their volume ” If a Property Manager in California who is managing thousands of homes can do it, so can everyone else! ” has a lot to do with their pricing. Thanks!
    Drew Sygit Property Manager from Birmingham, MI
    Replied about 5 years ago
    Be careful to get all the facts, as gross misrepresentations can be made by innocently excluding key points. We’ve encountered several investors from California, expanding to Michigan, that have been surprised by fees in metro Detroit. The most common fee they have a problem with is tenant placement fees. They’ve all stated they aren’t charged placement fees in California. In all 3 cases we’ve encountered this, we’ve found upon further questioning, that the TENANTS pay the placement fees to the PM. We’re not aware of that happening in our metro Detroit market, so the owners must pay it here. Regarding the comment of no markup on maintenance fees, we’ve always found one of the following to be true: 1) The PM owns all or part of the maintenance company doing the repairs, and the owner doesn’t get to see what is paid to workers or contractors. So, there is no “markup” as it is built-in, but there is a cost to the owner. 2) The invoice from the contractors that is charged to the owners, is not the invoice the PM is paying. Example: plumber turns in a bill for $100 to snake a drain, which is charged to the owner. The PM only pays the plumber $80 though, pocketing the difference. It’s interesting that of the 8 PM’s Mike mentions he’s dealing with, only one has the flat fee of $50. If this PM model is so successful, why isn’t it available across the county? You truly get what you pay for. Unless a PM is only managing perfect properties with perfect tenants, or just managing a condo association , it’s not economically feasible for a PM to ONLY charge $50/month/property and provide all the services this article lists. I challenge anyone to prove me wrong with actual financials…
    David Spurlock from Pahrump, Nevada
    Replied about 5 years ago
    I to am vexed by the price I am paying for my whistle. I get fee’d this and fee’d that and I also have property managers in other locations who do not nickel dime (with several added zeros most times) me to death and I have yet to be able to get this one Premium Property Manager to work with me on the fees. “our fees are non negotiable and you read what they would be before you signed the contract – or at least you should have read the contract before you signed it.” Sometimes you are in a position where you do not have the luxury of searching for and interviewing potential property managers, especially when you are 3 time zones away and you need to close fast. Oh well, live and learn and hopefully after the fee for multiple year contracts run out, I will be able to lower those costs – without jumping over hundreds of dollars to save some dimes. Until then it is Pricey Premium Property Management!
    Nathan G. Real Estate Broker from Cody, WY
    Replied about 5 years ago
    Property Managers are a lot like tenants. Let me explain. The majority of Landlords do not properly screen applications. They choose bad tenants. They do not have the management skills or policies to deal with problems when they occur. The Tenant eventually moves out or is kicked out, the property is trashed, thousands of dollars are lost. What does the Landlord do? The scream that rental properties are a bad investment rather than take responsibility for their own failings. Other Landlords decide to hire a property manager. They fail to screen the company or the manager. They don’t read the management agreement to understand the fees and the purpose behind the fees. They have no idea how the manager pays or sends reports. They don’t talk to references. They don’t review the lease agreement, ask about inspections, or talk about how the manager handles evictions and other problems. What does the Landlord do? They complain about being nickel-and-dimed by a glorified rent collector and blame the entire Property Management profession rather than take responsibility for their own failings. NOTE: These examples may not apply to you personally but are generally true of the real estate investment community. Don’t blame the messenger! 😉
    Tyson Hill Property Manager & Investor from Gilbert, Arizona
    Replied about 5 years ago
    Great example Nathan. You hire a bad PM, blame yourself. There are enough of us out there to find the good ones. If you had 400k to invest in the stock market, would you hire the cheapest jack ass financial person out there? Of course not, you would hire the best you could find with a proven track record. So why would you trust your 400k property with the cheap jack ass manager? Put in the time and effort and get the right manager in place. I would also say there is no substitute for experience in property managing. It’s a problem solving business in a lot of ways. I have several friends and family that self manage and call me for advice from time to time. Most do a decent job, but there are critical mistakes made all the time that cost them money and they don’t even know it. They just don’t have the experience/tools to be totally efficient with pricing, advertising, tenant screening, repairs, evictions, etc.
    Drew Sygit Property Manager from Birmingham, MI
    Replied about 5 years ago
    NATHAN & TYSON: great posts! While I agree with your financial person analogy, you’d be amazed at how many people with a decent amount of money choose money managers the same way most property owners choose PM’s.
    Jeff Maniaci
    Replied about 4 years ago
    I am a landlord and rent 5 condos on my own. I also had a management company manage a property in a self directed IRA. I have since changed management company’s . He the management who speaks quite often on bigger pockets cost me a few thousand $ in court because he had some employee represent the management company. That employee failed to produce the inventory check list for the judge. (Landlording 101). The judge said he could not award more damaged beyond the security deposits for that reason. The moral of the story is some property manages do not practice what they preach. I dare that property manager to admit he never once interviewed any of my tenants face to face.
    Jeff Maniaci
    Replied about 4 years ago
    I am a landlord and rent 5 condos on my own. I also had a management company manage a property in a self directed IRA. I have since changed management company’s . He the management who speaks quite often on bigger pockets cost me a few thousand $ in court because he had some employee represent the management company. That employee failed to produce the inventory check list for the judge. (Landlording 101). The judge said he could not award more damaged beyond the security deposits for that reason. The moral of the story is some property manages do not practice what they preach. I dare that property manager to admit he never once interviewed any of my tenants face to face.
    Drew Sygit Property Manager from Birmingham, MI
    Replied about 5 years ago
    PM Pricing Challenges: Let’s get to the heart of the matter. Consumers (in this case property owners) always want the best price. The problem is that most think the “best” price equates to the “lowest” price. This is rarely true. There is usually a tradeoff between price & quality. Doesn’t matter if we’re talking about a service (property management) or a product — like a house. The best example I can think of about this (for landlords) is when you hire a painter. Rarely would an investor hire the same painter to paint their primary residence, that they would to paint a rental property in a mediocre neighborhood. Most would want & expect very good quality paint job on their primary home. They will settle for lower quality on their mediocre rental property. For this tradeoff in quality they would be willing to pay more for the paint job on their home versus the rental. Most though, will still find something to complain about on the lower-priced paint job on the rental, thinking they should have got better quality, or more likely a lower price, and never be truly happy with it. Why? because most won’t take actual responsibility & ownership for the tradeoff of quality versus price THEY MADE! Why would what an investor be willing to pay a PM be any different? Because they’re having the PM manage a rental home, not their primary, they will usually shop for the best price, instead of the best service. They will then blame everyone but themselves for their mistake.
    Robert Oramas from White Plains, NY
    Replied over 1 year ago
    Fantastic Article Chris. I am a newbie on this site and recently purchased a Property Management franchise. They are the fast growing franchise with over 250 franchisees and over 11,000 residential doors. Thank you for giving this side of the Real Estate side much needed credibility