Why Most Single Family Property Managers Suck and What We Can Do About It
According to the 2014 U.S. Census, 43 million Americans are renters (35%). A large portion of these renters rent detached single family homes. Based on my experience as an investor over the past 10 years, working with nearly 100 property managers in Austin, Dallas, San Antonio, Charlotte, Columbia, and other markets, I’ve come to the conclusion that most property managers who focus on the management of single family rental housing, for the reasons below, provide a poor quality of service. This is a big problem. This low quality of service affects millions of American renters.
All SFR Property Manager Do Not Suck
Keep in mind that my remarks are based on my experience, which I believe is a sufficient sample size, however there are property managers in the space that are reputable, hard-working, and provide a decent level of service. However, my experience shows that they are not a majority. If you are an investor and your experience working with property managers who manage single family homes has been positive, consider yourself fortunate.
Please note: This article focuses on property managers who focus on the management of single family rental homes, not multifamily apartments.
Whether they are a real estate agent/broker providing property management services part-time or have grown large enough to focus exclusively on providing single family property management services, the common problems usually include the following:
Insufficient value provided. Most single family property managers charge 50% to 100% of the first month’s rent for leasing services (to locate a qualified tenant) and 8% of all gross rents for ongoing property management services. Property management services usually include managing tenant move-ins, turnover, contractors, and any/all tenant interaction.They also may charge extra for project management or evictions. Based on my experience, the most critical item is locating a qualified tenant. However, because property managers get paid regardless of the type of tenant that leases the rental home, they generally make more when problems occur. So it’s not necessarily in the property manager’s best interest to locate the best quality tenant, but an okay tenant that might be close, but doesn’t quite meet the qualifications. Accepting a less than qualified tenant to rent your property will open you up to all sorts of potential problems like late or missed rents, significant property damage, and possibly eviction proceedings.
Padding contractor charges. Though I’d rather not generalize, I am qualified to say that many property managers pad contractor estimates in order to make extra income when managing investor properties. They may do this because either (1) they are just plain greedy and they can, (2) they don’t feel they’re generating sufficient fees to justify their property management business, or for a variety of other reasons.
Poor service quality. Slow or completely non-responsive to tenant repair requests. If property management is their main business, property managers will likely be managing over 100 rentals in order to generate sufficient income to make it a viable business. Being responsive to requests and providing a high quality of customer service is quite difficult when you’re managing over 100 different properties and tenants and the income generally isn’t great enough to enable the property manager to hire additional personnel.
Why is property management of single family rentals such a difficult business? There are several reasons for the poor service quality. It’s usually not their main business. Most are real estate agents or brokers managing single family rentals do so part-time. It’s not their main business because they (1) tend to generating more fees from transactions (representing buyers and/or sellers) or (2) they do not manage enough properties to generate sufficient income to live on. For these reasons, the majority of individuals, usually real estate agents/brokers, who decide to start a property management business usually give up and clos shop within 12 months or less.
Many of the problems may be alleviated by requiring property managers to be certified and have other credentials before they are allowed to provide property management services. The lack of required education and certifications enables anyone to hang a shingle and begin providing services even though they are not qualified to do so. Requiring additional certifications and educational requirements would help add credibility to the property management field.
Possible solutions that may help alleviate the poor service quality common in single family rental property management include:
- 1.Create review and rating system (Yelp.com for SFR PMs) and seek to get industry-wide adoption
By having a central place for reviews and to collect feedback, property managers, tenants, and investors would benefit. A central review and rating system would give tenants more power, which would encourage property managers to continuously improve their level of service to obtain good reviews. Property managers providing a high-level of service would benefit from high ratings and positive reviews, which would likely result in referrals. Property managers providing poor service quality would not benefit as the poor reviews and low ratings would make it hard for them to obtaining new clients.
A central review and rating system would also help investors more easily compare the service quality of property managers so they can make an informed decision when deciding who to hire.
- 2.Develop service standard guidelines and allow single family property managers to voluntarily commit to them (opt-in).
Developing high-level service standards would help provide new property managers with guidelines of what would be expected of them when entering the business. It would also discourage individuals unable or unwilling to provide this level of service from entering the industry. Again, property managers already providing a high-level of service would benefit, those providing poor service would not.
- 3.Create SFR property manager service quality certification
This certification could be provided by the Institute of Real Estate Management (IREM) or a new organization. IREM currently provides the Certified Property Manager (CPM) designation however, based on my experience, a majority of property managers do not have or do not seek this designation. The management of single family rental homes is significantly different than the management of multifamily apartment buildings, so maybe a new designation specifically for single family rentals is needed (maybe CPMSF?).
As the ownership of single family rental housing becomes institutionalized, the economic and social costs of poor property management with grow. It is in the interests of all concerned, property managers, investors, renters, and others in the residential real estate business, for the service quality of single family home property manager to be improved. Simply allowing the market to dictate which property managers grow and prosper and which do not isn’t sufficient. Because the economic cost of inexperienced property managers who hang a shingle, provide a poor level of service, and eventually leave the space is too high. American renters and America in general cannot afford it.
I will work toward developing solutions to help alleviate the problems discussed above. If you have an interest in doing so as well, please contact me.
Have you been a renter and/or an investor? If so, what was your experience with your property manager?
Are you a property manager that “doesn’t suck”? If so, what’s your secret? What do you think about the possible solutions highlighted above?
Interested in some way being involved in my efforts?
Agree/disagree with my comments? Please post your response below.
Thanks in advance for your comments.
Simple ... just CARE about what you are doing, CARE about the properties, CARE about your investors and their returns.
Thank you. I agree 100%.
Unfortunately, it is unlikely that a property manager, which you entrust, will care for your property and your tenant to the extent that you (the investor) would. But if they get close, that's good enough for me.
@Account Closed I think that is a good post. I think every person has a different perception of what quality is and leaving the creation of standards up to the individual is a recipe for disaster. Many have experienced the problem first hand. It is the main reason I am so hesitant to turn my properties over to a manager.
@Account Closed Nice write up!
Very interesting reading! I've been curious about professional PMs personally and don't really have nearly the level of experience as you. I manage around 40 to 50 of my own properties and believe Angel's comments above are a great theoretical answer. I would throw in "care about the tenants" as well...as difficult as that can be at times. PM seems to me to be a thankless business. Tenants and Landlords don't fully appreciate the difficult challege of managing the homes. It's not a glamorous business.
I like your approach to a proactive solution and the internet could facilitate a solution. I could see where local groups could gather their collective data points in the meantime I'm sure there are a some good providers of PM out there and they should be rewarded with more business. I've been trying to gather intel to find the best ones in my area and would enjoy hearing the good a not so good one's for the Indianpolis market. One day ...I'm hoping to find one that is excellent...and spend more time on the beach!
This post is bound to get lots of attention because it is a very common frustration. Most of my clients who have used a property manager in the past have a story of their disappointment and frustration.
That said, I also know many, good property managers who create value for their clients, have compensation that aligns with their clients' interests and have implemented professional policies and procedures to maintain service levels while growing their business.
I think you have some great ideas to help people identify the best property managers in a given market. Like all good markets, the cream should rise to the top if there is more transparency and accountability.
I'll be following this thread to see what others say. It would be interesting to do a poll to determine what issues create the most investor frustration.
I agree 100%. I've just fired my PM after 2 years. I wasn't getting enough value in his services to justify his fee. When I started to manage the properties myself I realized that he had failed to do almost everything that he was supposed to do. When I called him on all the things he didn't do he had no answer. I've learned my lesson. Never again will I hire a PM.
I'm a Real Estate agent and I will tell you a Real Estate agent is NOT the person to manage your property. Agents will take on property management hoping to get the listing at some point but we are too busy working with buyers and sellers to be effective property managers. Hope I don't piss anyone off, but it's the truth.
Yes, I think establishing a base level of standards (certification/accreditation) would help ensure a minimum level of service quality. Also, it would likely help improve the business of good property managers as a result of limiting new entrants and lowering competition somewhat...
Personally we self manage and have from the very beginning when I was unable to find a good pm. We have done very well managing our single family residences from a far. It has saved us a ton and allowed us to keep great control over our properties.
Yes, I agree 100%. Our tenants are our customers! Why don't most investor get that?
Property managers should be providing "customer service". It is my view that the landlord-tenant relationship is reciprocal, both having rights and responsibilities under the lease agreement. Therefore, my main criteria in selecting a tenant, after all the basics are covered (3x income, credit, history, etc.) is... someone who is RESPONSIBLE.
Being "nice" is also usually a good practice and it pays because the relationship you have with your tenants will be better/lighter/easier. That said, investors/property managers must know when to set their foot down and enforce rules. And enforcing rules is good for both the landlord and tenant...because the relationship cannot continue successfully unless the rules are followed..
Thanks @Dan DeMott !
Yes, I agree. It's been my experience that the few REALLY good property managers in a given market attract the lions share of investor clients through referrals. In fact, I have referred investors to the ones I know of that are decent.
Yes, I've had a similar experience starting out. Just make sure you're investment strategy (type of properties you're investing in, locations, etc.) work without a property manager. If you're investing in older properties in class C locations, I would be cautious about self-managing as these types of investments may need more oversight than newer, well-built properties in class A locations that attract class A/B tenants.
Good point @Cassandra Truax !
I'm inclined to agree with you. If you're telling the truth, you shouldn't be concerned about pissing people off because the truth has a way of materializing on it's own!
Congrats on developing your own out-of-state property management operation.
After self-managing my out-of-state properties (TX, NC, SC) for over 10 years, we too are setting up of our property management company to manager all of our properties.
@Account Closed That was a very well thought out post. Of course, there are good and bad apples in every profession. I like to think I'm a good apple, and most of my business now comes from referrals, so I think my clients agree. Just to point out, you can review your property manager on Yelp, Google, etc. At least you can if they have signed up for those sites as I have.
Yes, checking Yelp has always been one of my and other investors in CA first steps. However Yelp hasn't yet caught on in many markets so I don't see the majority of property manager on there yet, only the ones who are marketing savvy.
All property managers out there: If you want investor clients from California, please start using Yelp.com!
I am a real estate investor as well as entrepreneur and 2 months ago independently came up with the idea of an online rating website. My thought was not only for property managers, but also for landlords and tenants. This would allow ideal landlords, who may often not be recognized, to demonstrate themselves based on past tenant experiences, by means of the company creating a profile on behalf of the tenant, and also would give good tenants a positive history that they could take with them as they are considering their next place to rent, plus distinguishing themselves from other tenants. Being new to real estate investing, I did not know whether there would be enough interest to justify creating this website/company. Thoughts/opinions?
@Account Closed I am going to take a little bit different position. In my mind PM performance is directly related to asset class. Investors that buy low end sfr,s and expect the tenants or PM,s to perform are just kidding themselves. There is nothing anyone can do and you can't pay enough to make tenants that are round pegs fit in the perfect world of the square peg owner investor..
In my mind PM,s are under paid by a lot and investors expectations are too high like you site above.. It's a low pay thankless business in the " cash flow markets and the tenant base that comes with them.
The only way to make these deals perform to your standards you describe is to own hundreds of them and bring PM in house.. Which is what I personally did I had 350 of these I sold out last year actually a year ago to the day and my partner that took the portfolio decided to out source and it's been a challenge. and I see you have come to the same conclusion .
I also own A class rentals in the same market and my bookkeeper manages them from our Oregon office no problem. Completely different tenant base.. Lower end tenants are just a flat tire from not paying rent... The PM issue in my mind is systemic of the asset class.
With the real low end stuff people buy as being truly unmanageable from a far it's more like asset management not PM.
That is a really interesting point you bring up. The inverse relationship between work and pay when it comes to rental classes. If the rate of pay is the same. Class A properties will have less calls, less maintenance, less late rent payments... ect. As you move down the scale work goes up but the reward for the managers go down. A property manager would need to get paid on a sliding scale depending on the level of difficulty associated with the asset. It could be a revolutionary system, but the PM would need to know a lot about their local market to pull it off. I also see a lot of lower end customers going some where else, which might not be a bad thing for the company.
Thanks @Jay Hinrichs
I agree with you. I do think that even when it comes to class B and A properties, there are many property managers that should not be providing services for the issues I site above. I believe that more stringent education/experience requirements would help alleviate the problem along with a central rating/review website that would help provide information/transparency.
I do think there's a relationship between class of property being managed and effort it takes to manage the asset, but it is not a STRONG relationship. There are many class A tenants that are a pain (high maintenance) to manage vice versa. That said, I do know property managers that will lower there fees for the management of class A properties versus class B/C.
@Rusty Thompson in the cash flow markets it takes a special person that wants to be a PM in those asset class's I know many PM's won't handle the C D properties its not worth the time effort and headache. they cannot control that tenant demographic and they get skewered by the owners as being the bearer of bad news and the scapegoat or fall guy.
Whats a Pm to do when your unit has been hit for the 3rd time in 4 years.. or your condensing unit was stolen again.. PM's can't prevent this stuff but its these issues that are reality in the lower end asset class's and you have post like this laying blame at inept PM..
I for one if I was in the management business I would charge a flat fee of 200 a month plus tenant placement and mark up on maintenance its not being greedy to mark up maintenance its time consuming and one needs to be compensated for their time..
@Account Closed In most states one must be a RE broker to legally manage properties.. this law is violated all over the place... the SFR Pm business is dominated by small time companies... If you look at the bigger PM companies say Memphis invest that has over 1000 doors I highly doubt they will take on the dreggs or D C properties .... Not worth thier time or reputation to be associated with them.. Yet people still buy them and think they can get a great PM... well it can happen but its rare... Like I said no one can control that demographic tenant base just not possible.
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