My OOS management company tried to defraud me (how I caught them)

2 Replies

Hello everyone, I'm posting this in hopes that other investors can learn from my experience. Luckily everything seems to be resolved, thanks to the big boss of the management company. 

I'm an OOS investor and slowly started exploring other property management options. I arrived in person at the subject property (small multifamily) as one of the units was currently vacant. Over several days I met with other property managers, began to clean the unit, and generally get a "feel" for living in the unit. For instance, the bathroom door knob was backwards, thereby able to lock someone IN the bathroom. This would probably go un-noticed if not for actually residing in the unit for a few days. 

The decision was made to respectfully part ways with my current management company. I emailed them a termination and received among the response.

"management fees through end of new lease for a total of $1650." - this was for the vacant unit I was currently cleaning etc..

This was surprising considering I wasn't previously notified of any lease, any prospective lease, any Section 8 inspections etc..

I spoke with a representative of the management company on the phone and asked for a copy of the new lease, of which they refused. Their reasons were..

1) They never sent me a copy of the lease for previous tenants, so why should they have to send me one now..

2) I've worked with them for years and they're disappointed I'm asking for a lease..

As a property owner, I'm entitled to see the terms in which my property is rented. I demanded to speak with their attorney. Of course they refused. A had a feeling there was no lease (duh).

I emailed them to formally ask for a copy of the lease agreement for the vacant unit. Then I asked to speak with the rogue property manager's boss. Once I spoke to him it became apparent there was no lease. He was a great help throughout the process.

After speaking with him, the original employee emailed me (with the boss on copy) stating there was not an executed lease. 

They did in fact have a prospective tenant in mind that had put down some money to "hold" the unit, the rogue employee represented this was actually a "lease".  I'm chalking this up as a learning experience and resolving to be MUCH more hands on with my OOS rentals. Running it less like a cool, hands off "passive income" stream and more like a business that I watch over constantly. 

Does anyone have similar experiences? I'm wondering how common this is..

As a PM, this is disheartening to hear. Far too many PM companies are all about "grow, grow, grow" and the level of service falls to the wayside. Too many employees that aren't licensed, don't own rental property let alone even own their personal residence. So for you, I recommend finding a PM that owns multi-family. You need to post reviews on the big sites, including the BBB so the review sticks around for others to read. You can and should file a complaint on BBB too.

Whenever someone asks me "what would you ask a possible PM company you're going to hire" these are the top questions for me that I would want to know:

1) Do you, or the owners of the PM company, own rental property?

2) Does your company markup or profit in anyway from maintenance?

3) Will I be assigned a PM, or is your company a team with multiple contacts for me? (This one I think is important as some people don't mind a "team" working for them, whereas other people really want the one-on-one relationship.) But this is going to tell you if the PM is heavily involved with the property, or the company has a bunch of staffers handling most everything.

4) Ask them about their MO with maintenance, tenant rental criteria, etc.

And make sure to properly review their termination clause in the PM agreement. 

Before any questions, research the online reputation of each PM company. Truly read the reviews, and definitely the company response if any. A 1-star review isn't the end of the world, but if you see a pattern of hostile or arrogant responses from the PM company, that'll tell you a lot about the owner(s) of the business. 

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