Real Estate Investing Basics

The No. 1 Toughest Business in Real Estate (& Why You Should Appreciate Them)

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
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Stressed out businessman working on documents

 

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I want to open up your eyes to one of the toughest businesses in real estate and what goes on behind the scenes. Hopefully, you can then reach out to those individuals and give them the recognition that they deserve.

That business is property management. I have owned a property management company for a while now, and I can tell you this: It is not an easy job.

Personally, I have hated my life for the first three or four years of being in the business. Now, things are different and things are better. But all I can say is it is a very tough industry to be in.

Why Property Management Is the Hardest Gig in Real Estate

Look, I understand all of you folks out there. I get that you do not like property management companies and that they’re like the devil. I like to joke around and say “the devil in the skies,” right?

But look, there’s a lot of shady property management companies out there. You have to look out for the shady ones, because they nickel and dime you to death. They make up non-existent expenses, they charge you a fortune, and blah blah blah. I get it.

In any kind of business, there’s always going to be shady operators out there, so you need to do your due diligence on who you’re looking to work with. The same goes from property management to a turnkey company to a real estate agent or contractor.

You name it, and there’s a lot of shady people in the industry. So it’s important that you do your part and not work with shady individuals.

It’s important to note that today’s blog is not about giving you any actionable or valuable content. I just want to open your eyes to what goes on behind the scenes at a property management company.

Related: The 5 Levels of Property Management Expertise

dave-ramsey-overrated

Why Property Management Companies Deserve Our Appreciation

I have some amazing people in that department that really work hard for all of our investors and tenants. And it’s a very thankless job.

A lot of the investors constantly complain about things needing to be fixed and things costing too much to be fixed. The tenants, on the other hand, are complaining about things not getting fixed fast enough.

They’ve also got the maintenance personnel that is complaining about not getting paid enough and being overworked. So here we are, as people in the office, that are stuck in the middle between all of these individuals. We take the full brunt of everything that is going on.

So reach out to your property managers today, and give them the recognition they deserve—as long as they’re a legitimate company. Tell them thank you for the service they provide and work that they do.

Related: Professional Property Management vs. Self-Management: A Look at the Pros & Cons

Guys, honestly. Legitimate property management companies do not make a lot of money for the work that they do. I can tell you it’s probably not worth the effort! Because think about it, you only make 10 percent from the monthly collected rent.

I can tell you right now, there’s a lot of work that is associated with that 10 percent. From leasing to turns, rent collections, distributions, three-day notices, evictions, tenant complaints, and scheduling maintenance. I mean honestly, it’s not worth the 10 percent.

Where I think things start to change is when you start to hit the economies of scale. When you start getting 300 to 1,000 properties under management. Then, the 10 percent really adds up.

That is somewhere where we’re at now. Where after three to four years of hating my life and losing money, we’ve kind of reached that turning point—the economies of scale point—and things are starting to look much better.

That is pretty much it. Please reach out to your property management companies and tell them thank you for their work. It’s important, because sometimes a few good words can really go a long way in building that relationship and leaving an impression on someone.

Do you use a property management company? Have you told them how much you appreciate their service?

Comment below.

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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    Christopher Smith Investor from brentwood, california
    Replied 9 months ago
    Been using PMs for over 20 years, overall I've been very satisfied. It's a job i sure wouldn't want to do. At a flat 8% of rent collected it's to me well more than worth it.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Thanks for your comment Chris. Agreed. It's a tough gig and not worth the fee collected. Only when you hit economies of scale does it start to become more lucrative. Much success
    Barry H. Investor from Scottsdale, AZ
    Replied 9 months ago
    ENGELO - This is a good summary of what PM operators do and I will flat out tell you I do NOT know why anyone would ever do it (smile). I am one of those owners who has sworn off PM companies because I tried them 3X and all 3 fell woefully short of being efficient in any way/shape form. Every time I reverted back to self-management, the number of repairs reduced drastically as well as the associated costs and length of vacancies. Evictions went down due to direct communication with tenants (yes, more work for me, but a waaaay better bottom line). Once a PM company gets large enough (economy of scale, as you say), they become tenant advocates, in my humble opinion. They have great mechanized processes in place, but those processes are triggered by the whims and fancies of the tenant - the owner is just there to pay whatever bills come due to keep the PM company rolling and the property occupied - with NO limits. I actually saw a solid tenant who used to work well with me revert to acting entitled, messy and irresponsible AFTER I switched to a PM company. That was the last straw. Tenants in all classes of property sense weakness and a PM company rep who is responsible for 100 to 300 doors is easily manipulated by a tenant. I am in no way claiming your company fits into this definition - I am making a statement based on my own 17 years of experience in rental ownership in 4 different states (AZ, MO, FL and NM). I recently offered a PM company a highly incentivized flat rate arrangement where they keep 25% of the rent but they handle all repair costs, evictions - everything except taxes and insurance (e.g. $250 PM fee monthly on $1000/Mo rent). I offered this on two (2) 100% remodeled turn key properties and the PM was super excited. This was in MO. After 3 months of the PM not being able to find qualified tenants for either of the 2 properties for which I was trying this model, I fired the PM and had tenants in both properties at a higher rent than the PM company was shooting for within 30 days. I then sold one of those turn key tenant-occupied properties to another investor who is making about a 23% annual ROI (inclusive of loan costs) and I have 3 more turn keys just occupied with high rent tenants and I am contemplating selling, but the cash flow without a PM company is tough to part with. I suspect you run a solid operation and if so, you are by far in the minority of PM companies out there. If I was assured a PM company would take a fair and reasonable approach to tenant management, I would consider using their services. However, I would need to see solid long term data reflecting successful profitable operation of properties similar to mine as opposed to flashy marketing materials.
    Sonja Sevcik
    Replied 9 months ago
    Barry - I have found the same to be true! I even tried being a Property Manager to learn more about the business and improve my property management skills. While it did help to remind me to be very professional and legal, less personal with tenants, I still believe I do a much better job screening and selecting tenants than most property managers. Direct communication with tenants is invaluable. Don't even get me started on the maintenance and repair side of the business ... that experience has been shady.
    Jackie Hung
    Replied 9 months ago
    @Barry How did you find qualified tenants at higher rents then the PM?
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Thanks for your detailed comment Barry. I love your approach. We aren't perfect but do our best. My tip would be this. It's hard to scale when you self manage. Hire a solid PM and include an extra expense for their "Shit management" lol (As you have witnessed, none are perfect). At least in this way, you will be hands off and can focus on building a larger portfolio rather than being stuck with nitty gritty PM related stuff. Just my 0.02 Aussie cents hehe Have a great day.
    Sonja Sevcik
    Replied 9 months ago
    PM work doesn't limit my portfolio - capital and good opportunities do.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    There is so much capital and great opportunities out there. In our market PM would be the biggest hassle and not the other way around as you suggest. Much success.
    William Ernest Woods
    Replied 9 months ago
    Do you manage long distance
    Sonja Sevcik
    Replied 9 months ago
    I manage long-distance and have grown to love it!
    Nathan G. Real Estate Broker from Cody, WY
    Replied 9 months ago
    I'm a PM with 10 years experience, 360 rentals and 200 storage units under management, and I own 22 of my own. I got into Property Management because I am good at managing assets and enjoy it. I'm honest, I work hard, and I knew the field was full of amateurs, clowns, and crooks. I figured I could work hard and stand out enough to make a living. It's been 10 years and we're doing great. It was tough to start out because I had no education, my state provides no training or regulation (that's good and bad), and I had no mentors or local managers to emulate. It took a lot of self-education and grinding through trial and error to build the business. Today, I employ six people, have a couple sales agents, and have built a decent little investment portfolio. I make decent money with PM but we make killer money from sales thanks to the existing relationships with Landlords and Tenants. Most people think of a property manager as an over-paid rent collector, which is true in far too many cases, but that's not me. I could have an easier life and make more money if I did the minimum like all my "competitors" in the area, but that's not how I roll. I am constantly striving to offer new products and services that make the experience better for owners and tenants both. I hope to elevate the profession locally, as well as nationally, to what extent I can. In the first quarter of 2020, I will be adding major services that are not provided by anyone in my community. In fact, they're probably not offered by anyone else in my state!
    Kelly Caraway
    Replied 9 months ago
    Nathan, I would be interested to know what major services you're looking to provide!
    Nathan G. Real Estate Broker from Cody, WY
    Replied 8 months ago
    I'm offering a no-security deposit option for tenants, automatic utility enrollment for tenants and management for owners, a master insurance policy to guarantee tenants are covered at move-in, providing pet damage guarantee for owners, eviction protection for owners, rent loss guarantee for owners, and more.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Awesome stuff Nathan and thanks for your comment. Keep up the great work and all the best in 2020
    Anwer Ali from Raleigh , NC
    Replied 9 months ago
    Unfotuntately, I do not agree with this article. Management companies charge 8% to begin with. However, some add marketing fees, invoice upcharge (or flat maintenance fee on top of actual invoice) and leasing fees. On top of that, the handyman/contractors they use may not be cheapest. Not only that they won't negotiation on your behalf because it's not their money. In fact, handyman are over stating the hours of work to PM companies because most of them don't even look at the invoice. On average, one property manager has 400 units to manager at a meager pay of $35K - $40K per year (if he/she is a licensed agent otherwise it can be from $25K- $30K) . So what incentive does over worked property manager will have to put extra effort on your property? On top of all this, I have noted that almost all property management companies under-rent the properties. Based on my assessment, they under-rent easily anywhere from $75 to $150 per month causing owner to loose lot of money over time. Sometimes, depending on your property manager, they may not use common sense. For instance, getting an over the counter microwave fixed for $150 rather than replacing it for $75 or spending $350 on fixing a washing machine that's 10 years old rather than getting in touch with the owner to see if it makes sense to replace it. Based on my calculation and assessment, you end up loosing 15% and not just 8%.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Thanks Anwer and sorry for your bad experiences. In my opinion you will loose a lot more self managing. Time is money. Find a decent PM and focus your efforts on scaling your portfolio. Much success
    Richard Smith
    Replied 9 months ago
    Bad actors are everywhere, in every occupation. A PM is like anyone else (Contractor, CPA, Real Estate Agent, Escrow Officer, Loan Officer) you have to interview them as if they are an employee applying for a job. Because they are. To many times people go to a doctor and just do what they say and are sorry. But and its a big one, they will get three estimates on fixing their house. Do you do that when they say surgery? No. It may take a little while to find a good PM in your area. Network with other investors to hear their experiences with a PM and then interview, Interview, and interview Them, their staff, clients and tenants. That's how I found mine and our relationship is strong. And YES, I do interview Doctors,Dentists and Lawyers. Good Luck.
    Richard Smith
    Replied 9 months ago
    Engelo, Thanks for the article always a great read. Oh yes, future reference, it's The Devil in disguise" not the Devil in the skies. Just saying.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    haha, Must have been a typo on my end lol Thanks for your comment