How Not to Get Taken by Propery Managers

Question

Hello Everyone:

To start off, I'm just getting started in real estate, with the initial goal of investing in duplexes.

So far, there appears to be a multitude of internet gurus off of Youtube, who claim that owing multi-family real estate can be a passive investment, through a property management company. To put it another way, these gurus make the utilization of a property management company seem like, "a set-it-and-forget-it" proposition.

I'm on the other hand a bit more cautious and through my own due diligence, I've read some terrible reviews within my locality, involving more than one bad property management company. The problem, is that these reviews don't ever mention the how or why.

So instead of blindly following any advice off of Youtube, I've decided to seek advice from those who deal with this on a daily basis. With that in mind, my questions are as followed:

-What are the characteristic of a reputable property management company?

-How do you weed out the bad ones?

-How much of your involvement is truly passive  and what should be a realistic expectation?

-What are the sleazy tactics that are done behind the scenes to fleece you out of your money?

Karl B. · Answer

I recommend you manage your own properties. That 10% fee always ends up being higher when a PM is running it.

-What are the characteristic of a reputable property management company? They don't upcharge you on B.S. They're responsive. They are up front with all fees. They're picky with tenant placement and want your property to remain in good condition and they want to take care of both you and the tenant.

-How do you weed out the bad ones? Ask them the important questions: a list of their fees, their rental acceptance criteria, how they deal with evictions/non-paying tenants, how they perform billing and how transparent their billing is not only to you but when billing you for things such as tradesmen who work on your property. Search online for reviews on their PM company. And look out for companies that have a lot of reviews from accounts that only have one review total - those were probably written by the PM company or they paid someone to write them. Also look them up on BBB and Facebook and read both reviews and comments.

-How much of your involvement is truly passive and what should be a realistic expectation? It depends on the PM and how interested you are with being in the loop.

-What are the sleazy tactics that are done behind the scenes to fleece you out of your money? Upcharging tradesmen bills. For instance, let's say a plumber does $300 in work. Some PM companies will have a 10% fee for calling the plumber and coordinating a repair. And so you'll be billed $330 - with the $30 going straight into the PMs pocket.

There can also a lot of fees. Some PMs charge to place a tenant. The list of fees can be endless. Also, there are sometimes overinflated bills or repairs/upgrades that really aren't needed. Or a PM might repair anything a tenant complains about just to keep them happy.

Lynnette E. · Answer

Really you either have to manage the tenants directly yourself or you have to manage the PM.  Even the best of them can get greedy and change.  So you can not just screen and then set back and slide, you still have to manage the PM.

Dan M. · Answer

Why not deal with an individual who wants to make extra easy money to occasionally take care of some things? Pay them well. Actually meet them and see if they have experience and maybe some references. For me a good "gut feeling" is generally enough.

Truly passive indefinitely isn't really a thing at least for me. I like to still know whats going on and where money is going and am OCD about making sure I get the receipts for payment. So for any repair bills/ appliances etc I have my hands in on that.  But that said I know I could take a week long vacation and generally not be bothered because its not like this stuff is happening everyday. If I have to take a phonecall for 30 minutes its not the end of the world.

I think in the beginning you doing it all yourself, making mistakes, and learning is invaluable. If you have the time find out what the contractors are doing so your not a moron when it comes time to do the same thing at a different place five years from now and have no idea what your talking about. I feel like once you can master the basics you could even just teach someone you trust to take over instead of actively searching for a for profit company. In the beginning too its not like your scrooge mcduck and the more money you can save to grow will exponentiate your earnings later on.

Paul Moore · Answer

Hi @David Ogas. I would be extremely thorough in vetting the right property management company. Get a lot of references and check reviews. You can ignore many of the tenant reviews however. (You’ll get it once you read some!  “They evicted me for not paying!”)

You should probably insist on approving the property manager and you should get deeply involved in screening that person. I recommend using the process described in the book Topgrading. this is the process that Chick-fil-A uses to find their managers and franchise operators. It is powerful! Good luck.

Drew Sygit · Answer

Best way to handle all this: ASK A LOT OF QUESTIONS!

Also, ask "why" all the time and "how".

Why are you doint this or doing it that way?

How will you consistently do what you stated?

They should be able to put all their answers in writing, so you have a record AND so they can prove they have standard operating practices in writing internally.

How Not to Get Taken by Propery Managers

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