If you could start a property management co. from scratch…

[Courtney McCall]

Just started a new RE company geared towards managing real estate investments for others. I’ve been a licensed agent for 8+ years and have managed rentals here and there on a smaller scale but now fully prepared to build a business out of it. 

My question is: From a landlord’s perspective, what would you want to see in a modern model of a property management company? 

I’m creating policies and procedures now and I’m on a quest to find the things that landlords don’t seem to appreciate from other existing property management companies, so that I can build being different into mine. The idea is to truly be an INVESTMENT manager instead of just a half assed “property manager” collecting rent. I want to get involved in the plans for the future, the financial goals of the owner, protecting the longevity and condition of the properties, maximizing income potential while also treating tenants like paying customers with fairness, care and respect. Things I don’t see enough of in other management companies.

What’s important to you as a real estate investor when it comes to a manager? 

What things have you wished you could change about other companies? 

What would you tell someone starting a property management company from scratch in 2023 to do, or not to do? 

ANY responses that help me refine my vision and learn different perspectives are appreciated beyond measure. 

[Soh Tanaka]

One thing I add is you want to write down the type of landlords (owners) you do NOT want to work with. I have a list of 12 items. 

I don't do "financial goals" for the owners, but if you do, be prepared to know what to do when your client is below the financial goal of "x" but he has the expense of "y".

Tenants don't (and shouldn't) care about the financial goals or status of the owner. If the owner is behind in his goal, it makes sense to reduce the expense to meet his goal, but that makes it harder to protect the longevity and condition of the properties while also treating tenants like paying customers with fairness, care, and respect. For example, if an owner is in red but the property has old and drafty windows, and tenants are complaining, what would you do?

This is just me, but I just stick to my property standard and fix or replace based on my property standard, regardless of the owner's financial condition. That is my definition of "treating tenants like paying customers with fairness, care, and respect."

[Jared Hottle]

I think there is a tendency for people to believe Property managers can make all their problems go away especially in C/D type properties. If you were having trouble with maintenance, tenants, evictions, crime, etc why would you think the property manager wouldnt as well? I think this could be a tough road to navigate but I would certainly look at minimum standards for owners just as you want to be selective on the tenants you put into a unit I think you want to be selective on the owners. Maybe walk through a few of their properties before agreeing to anything

[Richard F.]

Aloha,

Over the years I have worked with a pretty wide variety of Owners, large and small. Sadly, in spite of quite a few comments on this forum, many are clueless with regard to understanding or evaluating the numbers; and rarely take the time to look at monthly financial reports beyond what their Net Rental payment is. Their idea of managing their investment is "not spending any money today". Owners come primarily in two flavors...the Micromanagers, that know more than you; and those that prefer being oblivious and not bothered with anything but the most significant incidents.

What I have focused on is developing solid systems and processes in all operations with the goal of prevention, rather than constant corrections. Do the right things right. If you are able to build an in-house maintenance team, having a useful shop and stockroom can save you/your clients a great deal in "road time" and other expenses. HD for example has a program where they will set up shelving, provide labeled/bar-coded bins, stock specific items that you choose, and check / restock to specified levels periodically. There is a price discount, and your sales rep will inform you of "specials" on products you may be interested in from time to time. I believe ACE and others have similar programs. It is a great way to maintain consistency and have product instantly available. To those naysayers that are calling out "conflict of interest" and "huge markups", it is simple enough to offer your maintenance services as an opt-in choice. Build a portfolio of routine service call tasks and light remodels with actual costs that your Clients can compare to outside vendor's similar work.

[Charles Sotelo]

@Courtney McCall I have something that would be perfect for you. If you don't know all the ins and outs of self-managing.

[Alex Hujdus]

@Jared Hottle I love what you said about being selective on the owners. I would look at it as managing the owner's expectations and seeing what kind of capital expenses they are comfortable with. There is nothing worse than managing a deteriorating property with a penny pinching owner. Inevitably you have higher tenant turnover, resulting in higher operating expenses, resulting in an owner disappointed with their property manager. 

I think it's good practice to prepare the owner for potential capital replacements. For example, making an owner aware that they will likely need to replace the hot water tank or the roof within the next 12 months if they're in visibly bad shape. That way, they are not completely taken by surprise or blame you when the temps drop and suddenly there's a pipe burst in the middle of Christmas Day. I cannot stress the importance of preventative maintenance. Replacing a bad water tank is a lot cheaper than calling someone out in the middle of the night to fix the aftermath of a burst pipe. If they don't want to budget for contingencies like that, then it's a disaster waiting to happen for all parties involved. Be proactive and set the right expectations before getting into business together. 

[Greg Weik]

@Courtney McCall, I appreciate the motivation behind your post and where you are coming from.

I started my company from a similar perspective.  I found that every property manager I encountered was a washed-up Realtor who couldn't hack it in sales and reluctantly resigned themselves to "slumming it" in property management.  They are the ones who give the industry a bad name.

Fast forward 15+ years later and I find myself a landlord of many single-family homes and an owner of a property management company managing nearly 1,000 doors.  

Without making this post a book to read, I want to remind you that time is money.  I know no other industry where this is more true than property management.  Every minute spent with a client comes with an opportunity cost.  Your lofty ambitions of helping investors with every aspect of their rental property better come with a hefty price tag, or you will find yourself in the poorhouse.  

I suspect you will quickly realize there is a ceiling on what owners will pay for property management.  The "half assed rent collectors" you alluded to - while I don't advocate for that approach, and it's not what we do - have figured out that there is a market for exactly what they are doing.

The real question is, is there a market for what you're proposing?  

I pay very close attention to the details of my firm.  I pay attention to our competence, responsiveness, effectiveness, and other internal metrics.  But I also look closely at minutes spent per door.  If doors are over-utilizing our resources, we cancel management.  Usually, a warning is provided first.  This is a business, first and foremost, not a charity.  Doors (or clients) that require extensive and constant attention from my staff are not long for this world and will be cut loose.

As @Richard F. mentioned, clients fall into those two categories (micromanaging, time-sucking parasites who place zero value on the value of your time, or the "don't bother me unless the house burned down" clients).   Obviously, there is a spectrum, but those are pretty representative groups.  The former group will bleed you dry, and the latter group is only good if the property is in good shape when you take it on and keep it that way. 

Your standards need to drive the property management company.  Your values need to drive process and procedure.  Your competence will ultimately drive your reputation.  

As a new PM, you will take any door you can get.  It takes a long time to build a portfolio and a reputation to the point where you can call the shots. 

[Jerry V.]

Interesting ... following! :)

Oh, and of course ... for any Prop Mgmt co's in the Dallas / Collin County areas... we'd be happy to work with you! :D

[Bruce Lynn]

One thing I would like to see is monthly drive by picture...and 1/4erly interior photos.  One of my favorite PM companies did this.  They'd warn the tenant they are swinging by to take interior photos for the owners and you know the tenant would clean up at least 1x 1/4.   Also PM would do a checklist during that photo visit to try to catch extra people, unregistered pets, leaks, damage, maybe bad water heaters/HVAC units, storm damage, so that's being proactive.

I think these days too many PMs are in it to try to figure out how they can milk the heck out of stupid owners vs helping them build a portfolio and be successful owners.

Being proactive on preventative maintenance, being quick on delinquencies, providing property values and options is helpful.  Also providing or having the option of industry leading solutions.  Deposit solutions like Rhino, Damage insurance, lost rent insurance, and things like that.  Things maybe I don't know about and help my profits vs just helping the PM build profits.

[Nathan Miller]

What I would like in a premium service is:

a) That the property manager is going to be very picky with tenants and have very high screening criteria.  

b) That all my records are available online, and emailed to me monthly.

c) Frequent inspections.

d) A preformatted Schedule-E helper report which gives me everything that my CPA needs to file my taxes.  (ie, no extra cost to pay CPA to put everything together)