Where do most property managers fail?
Real Estate Agent · Janesville, WI · Member since 2019 · 22 posts · 6 votes
I have been working in the automotive industry as mechanic for the last 12 years. I like what I do and I'm good at it, but it's time to get out.
SO long story short I'm getting my real estate license. I'm going to be an agent, but I'm also moving all the pieces into place to purchase my first small multi family in the third or fourth quarter of this year. Now while being a real estate agent is the perfect job for some people I think my abilities will be best utilized in property management. That being said I have decided that I'm going to start a property management company.
Now as the title says where do most PMs fail. I'd like to ask all of you that use PMs where do you feel so many companies fall short and the few accel. After listening to 90% of the BP pod casts everyone has a horror story relating to property management. Please share your experiences with me so that I may stay ahead of the curve and learn from others mistakes.
Where do MOST managers fail? Let me count the ways:
1) Licensing and Entity Set Up
2) Establishing Proper Bank Accounts
3) Creating a Phone System
4) Having no PM education or experience
5) Accounting
6) Marketing - Of themselves and the homes they manage
7) Application handling with screening
8) Lease execution - minimal understanding of how to fill in a lease
9) Tenant laws and regulations
10) Tenant relations
11) Maintenance (I should say that 5 times)
12) Make Ready issues
13) Security Deposit Itemizations (the most expensive failure you can quantify)
14) Failing to seek advice or education
15) Service Animals
16) Fair Housing
I could go on, but one of the biggest and would considered the "umbrella".....is not providing a quality service to their owners and tenants. Management is not just renting a home and collecting rent. There is a lot that goes into it and you better be willing to 100% commit to be even halfway decent in this industry.
I self manage, but have heard many complaints about managers not having a clue what they are doing. I would recommend being a landlord for a few years before moving into management, and know your market well. Managing rentals isn't easy, lots of different skills to be good at all at the same time! Also, know the laws like the back of your hand, people are horrible lol.
I'm pretty sure that you need a broker's license to start a property management company. Double check me on that, but I'm pretty sure that's a requirement. If so, it will take you a couple years to get that.
I don't use PM's yet but from what I hear.
-Not communicating with investors effectively- How the unit is performing, what it needs to get it to perform better.
-Doing a horrible job at screening tenants- just sticking whoever comes along. Probably one of the bigger issues because it just causes way more problems.
-Buddy system- the PM company will fill a specific investors units before advertising others.
-Not taking proper care of properties, neglecting maintenance, ect
-Trying to overcharge investors buy tacking on hidden charges such as a fee on top of maintenance bills.
-Spending unauthorized amounts on repairs- most investors want to know before PM drops a grand on a repair.
That's all I can think of right off.
I self manage, but have heard many complaints about managers not having a clue what they are doing. I would recommend being a landlord for a few years before moving into management, and know your market well. Managing rentals isn't easy, lots of different skills to be good at all at the same time! Also, know the laws like the back of your hand, people are horrible lol.
I've owned and managed my own SFH before so this isn't all new.
I'm pretty sure that you need a broker's license to start a property management company. Double check me on that, but I'm pretty sure that's a requirement. If so, it will take you a couple years to get that.
Yes, you have to be licensed for 2 years in the state of Wisconsin as an agent before you can get your brokers license.
Where do MOST managers fail? Let me count the ways:
1) Licensing and Entity Set Up
2) Establishing Proper Bank Accounts
3) Creating a Phone System
4) Having no PM education or experience
5) Accounting
6) Marketing - Of themselves and the homes they manage
7) Application handling with screening
8) Lease execution - minimal understanding of how to fill in a lease
9) Tenant laws and regulations
10) Tenant relations
11) Maintenance (I should say that 5 times)
12) Make Ready issues
13) Security Deposit Itemizations (the most expensive failure you can quantify)
14) Failing to seek advice or education
15) Service Animals
16) Fair Housing
I could go on, but one of the biggest and would considered the "umbrella".....is not providing a quality service to their owners and tenants. Management is not just renting a home and collecting rent. There is a lot that goes into it and you better be willing to 100% commit to be even halfway decent in this industry.
PM shortfalls tend to relate to communication, especially with owners, I think many of the problems can be avoided with up front expectations and follow through with those expectations.
@Heath Ryans There are some ways around being a broker. You have to be a broker to do certain things, such as sign leases. You can still manage as a licensee, but just have to have the owner more involved. You can also start a PM company if you can find a brokerage willing to act as the broker on your behalf. It isn't the easiest route, but can get you started before becoming a broker yourself.
@Brad Larsen came up with a pretty complete list. The biggest pitfalls I've personally experienced come from accountability and availability. I've worked in PM companies ranging from mom and pop all the way up to operations which manage thousands of units in very wealthy neighborhoods. With both ends of the spectrum I've noticed issues with managers being so busy that they are unable to keep up with clients and tenants.
A lot of PMs mistake growing the portfolio for growing the business. The portfolio is just one aspect of the business. It is certainly important, but if proper systems aren't put in place then the business suffers. Employees end up being hired not because they bring great value to the company and clients, but because they fill a role that needs filling yesterday.
Management of vacancy and maintenance are the two largest costs of 3rd party management. Many self managers on BP can place quality residents within days after move out...and many self managers shop maintenance among contractors for the best pricing. Hard to get this hands-on, personal approach with someone else managing your money.
Marketing and screening tenants properly. Having downtime on your rental with no tenants is the worst.
Management of vacancy and maintenance are the two largest costs of 3rd party management. Many self managers on BP can place quality residents within days after move out...and many self managers shop maintenance among contractors for the best pricing. Hard to get this hands-on, personal approach with someone else managing your money.
Exactly. My last turn (finished yesterday) took 8 days, and that's with new carpet freighted in and installed. I can turn an easy one in 3 days without missing a single nap.
Also, your point about maintenance, and my big one, repairs. I always triage a repair over the phone. 'My sink, toilet, stove, a/c is broke'... will get you 4 different Maytag men with a PM. For me it's often a tenant-corrected 1 minute phone call. Enjoy your $300 service call + overrides with a PM.
Lastly, I would consider a PM if they would spread out their vacancy-fill fee over the tenancy. Stand behind your tenant choice. They leave early or don't pay, you don't get paid either. Align our interests (for a change?).
Property managers usually do not have a system. You need a system in place so you can just go down the checklist. PM is also a field in the real estate industry that has the fewest talented people in my opinion. There just isn't that much money in being a PM. No money = No talent.
I think the most important thing is just communication. Let your clients know what's going on and get back to them 24-48hrs when they have a question. This also falls into real estate sales. Just gotta get back to people and have everything be transparent, but as an agent, you need to respond back within 24hrs.
@Brad Hasseler what everyone above has stated is spot on, especially the underlying fact that it’s a low margin business. Before hiring a PM I looked into starting my own PM business and put together a quick business plan through which I determined I would need 60 units minimum in my market to make any money and 100 units plus was necessary to start making good money. That many units would require great systems and hard work, and it has to be really hard to avoid things falling through cracks with that kind of volume. For this reason a lot of PM’s are also running successful brokerages with the PM side of the business serving as a lead generator and providing consistent income for the brokerage as opposed to being the core business. The two compliment each other because the brokerage side brings in much of the profit while the PM side levels out some of the volatility of operating a brokerage and also generates leads by providing access to a client base of investors using the PM service who are likely to buy and sell through the brokerage.
@Brad Hasseler
Having owned and leased, I've been on both ends of the spectrum. Where I see the biggest failure is in service. The PM is paid for by the owner and therefore inherently on their side. They need to protect the asset and keep their money coming in. If maintenance issues arise, take care of them promptly. Charge the tenant of it is due to the tenants negligence or actions. Keep the owner in the loop. Get tenants in quickly as well, remember you don't make money if they don't. It's a customer service job, do great at that.
Thank you all for responding it will help me build my systems going forward.
@Brad Hasseler just pure communication between landlord, PM, and tenant.
As mentioned above, it’s important for business alignments to be the same with landlord and PM, but even equally important is the customer service with the tenant.
I think it’s important to set those expectations from the start and while interviewing property managers. Small units or large.
The greatest fear for hobby landlords is tenant turn over. They have been convinced by incompetent landlords that turn over is very expensive, so expensive that they live with bad tenants and charge rent below market hoping not to face a turn over. They have no idea how to manage their business which is why tenant turn over is so scarry.
Reality is that turnovers are a inevitable part of the business and a quality PM can do it quickly and efficiently placing quality tenants.
A good PM stays in contact with their landlords, keeps them updated regularly and manages the property as they would their own property. A good PM unfortunately will have to baby hobby landlords to keep them happy until they settle in.
There's no way I'd ever pay for third-party property management and not expect to get ripped off.
There are only two ways to make more money in property management, grow the portfolio or grow the take-per-owner. The first one isn't guaranteed to get you good properties and good tenants, although it will make you work harder. The second one is painless and efficient once you know how to do it, and as long as you do it well enough, you're still going to grow your portfolio with the owners you target as desirable, i.e. don't question how you rip them off and accept what you give them.
If you're a landlord, what kind of tenants do you want? Don't you think property managers ever ask themselves what kind of owners they want?
Under those conditions, and with kids to send to college, what property manager wouldn't maximize their take-per-owner? The nature of jobs exert powerful pressure on the people doing them. This is what I think about every time I find a new thread here on BP from a long-distance owner whining about how some third-party property manager ripped them off from across the country...the long-distance owner was just too stupid or naive to figure out how nasty the nature of property management is and accept it as part of the cost of doing business.
I think most property managers fail because they're not slimy and manipulative enough, or they're stupid about being slimy and manipulative. I don't think the business rewards particularly honest and forthright people.
Of course if you're a property manager and incensed that I could possibly say such things, well, I'm very sorry, I apologize from the depths of my heart, and I'm sure you're the magical unicorn of the bunch standing steadfastly in the surf as the tide comes in.
@Jim K. Great comments on your opinions of the property management industry. The same could be said for EVERY industry because at some level we are all self serving. The last meal you ate, I bet that restaurant made a profit on delivering you a service which is to prepare and present you quality food. That hamburger bun cost them 5 cents to make, and they sold it to you for 50 cents. What a rip off.
Signed, your magical unicorn standing steadfastly in the surf.
@Brad Larsen
You're absolutely right, Brad, and believe it or not, you are the very first third-party property manager I would call if I were considering out-of-state real estate investing using any third-party property management model.
@Jim K. Your lack of knowledge about the property management industry is truly astonishing. You make blanket assertions that basically call every PM a scam artist. The "nature of property management" as you state is not nasty. It is a service like any other and like the guy who cuts your grass or fixes your transmission or builds you a house you get what you pay for in skill level and professionalism.
You can stop clutching your pearls, Bob. I'm a slumlord. The world thinks a lot less of my probity than it does of yours.
But your response does remind me greatly of the time I submitted a paper in a nursing class that pointed out the obvious fact that that Big Pharma has minimal direct financial incentives to direct their research budgets towards finding one-time cures and maximum direct financial incentives for putting money into finding ongoing treatments for chronic diseases.
I got a D with a big circle around it and a denouncement by the nursing professor with the side job in Big Pharma for being so bold as to point out how math works.
@Brad Hasseler I'm of the opinion that the PM business model itself is *almost* inherently flawed.
10% for all that work that owners and tenants expect is mind boggling. Great property management is very hard work and bad PM not so much.
If you're good enough to do the PM business as well as most owners expect you to be, then why wouldn't you find another business and make 2x as much with 1/10 of the headache?
@Brad Hasseler
As a software company, we have experience working with property managers and more importantly, self-managing landlords that previously hired property managers. So we're have heard many stories, good and bad.
I think the best advice is that, if you are not going to self-manage then you want a document in place that clearly spells out the expectations, just as you would with your tenants.
You also want to be sure you have a way to login to the software platform being used so that you can easily see any prequalifications, applications, tenant screenings, maintenance requests, charges, payments and notifications sent to your tenants.
I use a PM. I dont really like to but I am gifted between little and no time in the day to spare. But issues that I have seen with PM are.
Not knowing the property, it is just an address in they’re system.
Not knowing you.. your just a bill to them when they finally do send you the rents, they do not do much to build a relationship with you for your mutual growth.
Not knowing your Tenant. They should be the face of not only there company but yours as well, and they often fail at that. They do not take the time to know what a tenants needs really are let alone how to handle a tenant that might be overly needy or unreasonably demanding.
Accounting — I have to audit the statements on a regular basis. One PM is over billing me that I have to resolve and one is charging a prepaid fee to the tenant for furnace filters. I not seen the expense for the filters on the owners statment yet, so I need to investigate why there is not an offsetting cost to the revenue or if the revenue is being collected and nothing is being done. The water billing from last quarter to this quarter shows a increase in usage so my question to the PM did someone move in?? Or is there an issue with a leak that needs to be addressed.
Communication — I am the owner and paying for there services, they should be contacting me on a regular basis to report on the property. I should not have to reach out to them for information or to provide guidance to them regarding accounting, Tentant, or maintenance issues.
I have had one great tenant, when there is and issue he contacts me before the management company. I either talk him through the issue or I will at times contact a contractor that I like to use.
There was one tenant that was sourced with the PM and she was a nightmare from the date she moved in. The PM contacted me almost monthly to resolve an issue with this tenant and I knew when a holiday was getting close because she always had to have an issue. They took care of very little in this case, had expremenly poor communication with me and did not take charge with an out of hand Tenant. There actions or lack there of created some issues that lasted years with this tenant.
Another time a tenant quit paying rent and apparently moved out. PM did nothing but send emails to the tenant for payment. They did not go the the property to give pay rent or quit notice or a welfare check to check on the status of the tenant. It took two months to get resolved and the tenant left the property so dirty I had to replay all the flooring..Including a nice bamboo floor, paint everything because the non smoking property was so gritted up from pot smokers, and strip and refinish the kitchen cabinets because there was so much grease on them it was like a rendering plant that had never been cleaned before.
Maintenance — contractors can be contractors and the PM really do nothing to hold them accountable
Follow up — they do not follow up on anything unless it creates revenue for them. Ie original leasing fees.
One last point they are slow to pay. I have audited statements from the PM they show rents received from the tenant say the 23rd of the month, and I do not get credited the funds to me until at least the 5th of the following month.