Need advice on sell or keep 6 unit proprty

[Sandy Sandy]

It’s 16 months that I got this 6 unit property. First property manager was bad and had a tenant over one year without paying rent. And other tenants either leave or don’t pay rent on time.l and whenever they leave I have to put in money for making it rent ready again.And every time someone leaves it takes months to get new tenant.On top of it there are multiple repairs every month. I have been very patient and have been pumping all my money in to this property. I have been paying an average of 1000 or may be even more every month out of pocket since I have bought it. I don’t know what to do, any advice or suggestion is much appreciated.

TIA

[Drew Sygit]

Quote from @Jordan Ray:

Quote from @Drew Sygit:

@Jordan Ray interesting that your knee-jerk reaction is advising to fire the PMC - w/o knowing anything else!

Well, my comparable advice is to sue the agent that sold this property to @Sandy Sandy!

How do you like them apples?

I will give you credit for the rest of your advice:)

@Sandy Sandy I'm actually going to bring some logic to this and take an educated guess your property is Class C or D. 

Why? Let's list the telltale signs from what you posted:

1) Tenants either leave or don't pay rent on time
2) There's a decent amount of damage when they leave
3) Takes time to find new tenants
4) Lots of maintenance

If true, your first challenge is aligning your expectations with the property you bought!

Unfortunately, many newbie real estate investors are jumping into buying affordable Class C rentals - expecting Class A results.

In our opinion, Class C tenants have FICO scores from 560 to 620 - where their chance of default/nonpayment is 15-22%. See the chart from Fair Isaac Company (FICO) below:

FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%

Source: Fair Isaac Company

Your 2nd challenge: you're probably hiring the wrong type of PMCs! Most PMCs, including all the national franchises, are set up to only handle Class A & B neighborhoods/properties/tenants.

So, you're going to want to alter your method of searching & screening for PMCs. You'll want to find one that is just a local company and ask for proof they are setup to handle Class C & D neighborhoods/properties/tenants.

Read on for some copy & paste advice about this:

Recommend exploring as many sources as possible to get referrals AND cross-reference them to get as much accurate information as possible.

Check out NARPM.com, BP’s Property Manager Finder (BiggerPockets: The Real Estate Investing Social Network), etc.

Also, encourage you to learn from the mistakes of others - by reading posts here on BiggerPockets about owners not having their expectations met by their current Property Management Company.

To avoid going through the same poor experience, keep reading.

Even if someone gives you a referral here, do NOT make the mistake of assuming that the PMC will meet your expectations, just because they met the expectations of the referral source.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – so, they often select the first PMC they call or that calls them back!

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

A well written management contract should clearly spell out what is expected of both the PMC and the owner, to PROTECT both and avoid misunderstandings. Why do you think purchase contracts are so long and have such small print?

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

https://www.biggerpockets.com/member-blogs/3094/91878-how-to-screen-a-pmc-better-than-a-tenant-part-2-communication-and-docum

https://www.biggerpockets.com/member-blogs/3094/91879-how-to-screen-a-pmc-better-than-a-tenant-part-3-the-management-contr

I read over what she said about 5 more times to make sure I wasn't missing something that the agent should have done to avoid this and the only thing I can think of was that maybe they should have spent more time in due diligence but the reality is that repairs come up and if her management is only allowing band-aid repairs instead of suggesting to strategically repair the culprit... then she will continue to have issues. Also, after 16 months it has nothing more to do with the agent that far down the road. A good property manager would have gotten this mess cleaned up before it happened. Again, meant what I said. Fire that property manager. I've represented tons of sellers with the same story about their property managers neglect and lazy approach to management and in some cases even was money laundering. They reached out to sell, re-pivot, re-invest. Best way to do it unless she has multiple 6 unit properties to carry the weight of this one until it stabilizes. 

Appreciate your professional response! 

I could make the case that the "investor-friendly" agent that sold them this property was really only, "commission-friendly" and could be sued for failure to execute their fiduciary dutoes properly.

Why didn't the agent educate them better on the Class of neighborhood/property/tenant they were selling to them?

Please let me know how even the BEST PMC is going to get Class A results from a Class C/D  rental?

FYI: this is all just a theoretical exercise to prove a point that "firing the PMC" won't solve an unsolveable problem with the property:)