Managing my property manager

14 Replies

Hello,

I have a question about how to go about managing my property manager. The first property I bought was a four unit building located in a rougher area of Milwaukee (not extremely horrible). Going into it, I knew there was going to be a lot more trouble than what a typical property might have. More difficult tenants means more repairs which decrease NOI.

This past year I decided to get a property manager to take it off my hands (I handled it for about 9-12 months before it started bumping up with my work schedule). I'll be honest, I don't know what a good property manager is supposed to look like. After reviewing my numbers for 2014 (in light of tax season), I see that I am about breaking even from a cash flow stand point. It looks like I received 26K in rent (23.9K after management fees), however repairs and maintenance was 16K! I realize that this includes basically turning over each unit (new carpet in some, paint, 1 set of new appliances, etc) but I still find that number to be very high. After taxes, water, common electric, and insurance it was about cash flow even. 

My question is how do I go about letting my manager know this number will not be acceptable for 2015? Do I start looking at new property managers (I've only had the one)? My biggest concern is getting tenants to pay rent (difficult in the area in general) and keeping expenses low (which I would think has to do with the tenants), any ideas how to accomplish this? Should that question be put on my PM's shoulders? 

As always, I appreciate any and all feedback!

@Hernan B.  -  First, I would compare the numbers from when you self managed to when you had a PM manage.

Second, you need to have a talk with your PM.  Just sit them down and say " when I managed my vacancy was X and now it is X.  When I managed it my repairs were X and now it is X" and ask them what is going on.  

Brie Schmidt, Real Estate Agent in Wisconsin (#57846-90) and Illinois (#471.018287)

You have to remember why you hired a PM in the first place. Normally it is in hopes of leveraging your time with paying for their service and expertise. There are a-lot of things that one may do differently but I can tell you there is no right way or wrong way, It is just a way.

I know that when I was running my portfolio of homes there was a lot of things that I had no idea that I was breaking many laws and regulations. Not intentionally but just because I did not know they even existed. You have to remember you own a business, IRS, Fair Housing and Discrimination, and state property code all say that you are a business. Normally the person that does not think they have a business is people like I used to be and come very close to getting sued and lose everything. Sometimes spending your money is not always for them to make a profit but to do things right. For example we no long use the guy in the truck like we used to with our own properties. We make sure everyone has insurance if the walk into an owners house. Why? Because if that guy in the truck slips and falls off a ladder and cant work guess who gets sued, basically anyone and everyone including the owner. So did we really do the owner a favor saving them some money but potentially getting them sued? Its a tough call, we manage over 400 homes and that means we have over 400 personalities and 400 tenants. That is a lot of people, the only thing as a PM can do to keep it straight and legal is do it correctly.

Again just my opinion, I am an investor just like everyone else and understand cashflow is important, but making sure not to get sued is more important in my eyes to make sure it runs like a true business.

What would it have cost you to do the same repair/maintenance items? A lot less than you paid through the PM, or about the same? If you think you could have gotten it done significantly cheaper, or if you feel some of the work was done when it wasn't really necessary, then you have a genuine beef with the PM. Aside from that, I don't think you can realistically expect costs to be the same every year when you are dealing with a fourplex, there are just too many variables. If it were a large property then you could probably have a more consistent average on the annual costs. But on a smaller property it only takes couple bigger things needing work and boom, there goes the budget for that year.

@Brie Schmidt

Great idea, I can try to dig up the numbers and present them to him. However, my vacancy rate was zero while I was doing everything my self. I ended up doing an eviction and soon after another tenant just up and left. I found it to difficult to show the units which is when i decided to hire a property manager.

@Steve Rozenberg   and @Jean Bolger  

My biggest issue is not the expense of the costs. I didn't think anything he has done was unnecessary or too expensive, he has always brought any repairs to my attention and has gotten my approval (no surprises). My biggest concern is tenant management aspect. Is he finding the right tenants (I assume good tenants will bring expenses down)? Is he finding them fast enough? etc. Is it realistic for me to expect good tenants in the lower income area that I'm in?

To my next question; at what point should I try a different property manager and how do I go about it? Do I switch both properties to a new PM (I also own a duplex) or do I just have a new PM manage the more difficult one and if I like them better switch them both?


In general you're just going to get a lot of turnover in lower end properties. The people who live there are usually in a pretty precarious position financially, and one little thing can upset the apple cart and make them not able to pay the rent. This is not to say you can't find good, stable tenants. It's just that you may have to go through a few bad tenants to find them.  I have a class C apartment complex in Ohio that I am in the process of getting rehabbed and stabilized. In the year since I bought it we have had 25 new lease-ups. Thirteen of them are no longer there; either they were evicted for non-payment, or they just broke their lease and left. On the other hand, there are some tenants there who have been there for five years or more. There is no sure way of knowing a tenant is "good" when they sign a lease. You can make sure they meet all of your rental criteria as far as income, background checks, etc, but's that's really all you can do.  There will inevitably be turnover, and it there will be more of it in lower income properties. That's why vacancy should always be  a line item on the budget.

Or, to cut to the jist of it- I'd probably give that PM another year and see what happens

Hey Hernan . . . fellow landlord using a PM in Milwaukee here. I have a SFH near 84th and Oklahoma - different area, it seems, from your description. I've been a landlord now for 2 years. My first PM was completely negligent and alot of stuff from the house disappeared when the tenants moved out - really need to take him to small claims court (the PM) and recoup my losses, but I'm in CA . . so kinda hard. My first PM was Weide Realty . . DO NOT USE HIM!!!

I'm on my third PM now . . .  the partner of the last Co I hired - the "partners" parted ways . . I now see why .   the second PM (first partner) was just plain negligent. Didn't do unnecessary repairs, but apparently the previous and current tenants haven't paid the water bill since June 2014!!  So now I have a $590 water bill that needs be be 'dealt' with.  Anyway - stay away from Jon Krouse - Structure Property Mngt - collected mngt fees and really didn't manage very well!

I'm now going to work with his 'previous' partner - can't really "recommend" him yet - as I've not worked with him.  However . . .   his management agreement is by far the fairest agreement I've ever seen - which is why I hired them in the first place.   Thomas Andrew - Progressive Property Management - http://mkeppm.com/        His website describes where he manages property.  My house is not in his "area", but I'm probably grandfathered from the old business.  And my house is easy to manage:  good tenants, good property, good neighborhood - so it's kinda easy money for him.  He may take your property even if it's not in his "areas".  

Good Luck - drop me a note if you have questions

Kelly

Originally posted by :
  @Hernan B

My biggest issue is not the expense of the costs. I didn't think anything he has done was unnecessary or too expensive, he has always brought any repairs to my attention and has gotten my approval (no surprises). My biggest concern is tenant management aspect. Is he finding the right tenants (I assume good tenants will bring expenses down)? Is he finding them fast enough? etc. Is it realistic for me to expect good tenants in the lower income area that I'm in?

To my next question; at what point should I try a different property manager and how do I go about it? Do I switch both properties to a new PM (I also own a duplex) or do I just have a new PM manage the more difficult one and if I like them better switch them both?

My first thought was that your PM is overcharging you for maintenance (which is where most PMCs make their real money, in my opinion). But, even though you say your maintenance costs were $16,000 (which is outrageous!) you say here that you don't think the costs are the biggest issue. I find this contradictory.

Even if the costs to repair each separate maintenance issue seems to be fair, why are there so many?  I really think your manager is taking you to the cleaners and using maintenance costs to do it.

And, if the manager is also not managing your tenants - what good is this manager?

So, yes, get rid of this manager.  

If your only real problem in managing it yourself is showing the units when they're empty, why not just hire someone to show the unit, and send the applications to you to approve or not?  Then you can take it from there.

If you decide to go with another manager, I think you should look for one to work for a flat fee, and they must use your handyman for all work, and they get no extra money for dealing with maintenance problems - so there is no incentive to have lots of maintenance problems.  Give them a flat percentage of rent.

What are the 16 k in expenses for?   Were the line items too expensive or did he buy things you would not have replaced? or was it tenants trashing things?  If he turned over 4 apartments with vacancies with you handing him two of the vacancies and you still broke even you probably need to give it a little more time. Especially if the tenants he put in are good and the costs related to placing better tenants. 

I believe the biggest issue is the tenants that the PM is putting in there (may or may not be bad luck). The 16k includes PM fees, and a couple of new (used) appliances. I have spoken to the PM and voiced my concern to have it a priority to seek out better tenants.  I have decided to continue for the remainder of 2015 unless improvement does not continue. So far there seems to be some improvement.  

@Hernan B.  It appears that having the conversation with the PM is uncomfortable for you (I am guessing from your statement) but you will need to lose that feeling if that is true. As someone suggested above, you have to sit down with the PM and explain what is not working, what is your desired result, and the outcome if your desired results are not met.

Foe me it is a must that I work closely with my PM because I cannot blindly allow someone to determine my success or failure. I make the final call on all tenants. The PM finds them (does all application stuff, screening and checks, etc) but the PM also has my additional tenant criteria on top of hers. We consult and go through pros and cons of the applicants and agree on selection. When tenants put in a repair request through the PM's automated system, she will send me a copy so I know what is going on. There is a set dollar limit for repairs that cannot be exceeded without my approval. All major items we consult on them. I also get a statement with rents and expenses spelled out. I recently started getting itemized copies of vendor invoices as back up for repairs. If anything looks out of whack, we are going to talk about it. This might seem like a lot, but I call it managing the property manager. The key is finding someone who is open to this type of relationship. I would already be looking for a replacement PM in case your conversation does not go well. Good Luck!

Originally posted by @Hernan B. :

I believe the biggest issue is the tenants that the PM is putting in there (may or may not be bad luck). The 16k includes PM fees, and a couple of new (used) appliances. I have spoken to the PM and voiced my concern to have it a priority to seek out better tenants.  I have decided to continue for the remainder of 2015 unless improvement does not continue. So far there seems to be some improvement.  

 I am finding your posts really confusing.  Could you break down this $16,000?

Are the PM fees that are part of this $16,000 - separate fees that have to do with the appliances?  Or are you saying this $16,000 includes your normal management fees you'd be paying whether or not there were any maintenance fees?

How are a couple appliances worth $16,000?

Sorry, but this isn't making any sense at all.

Herman, 

As other have stated, get your breakdown in writing.  If your PM used contractors, you should have all the receipts for work.  Any good PM will send you those. make them explain any questions you have in pricing.  They must be detail oriented.  If they are not, I would suggest moving on.  Determine whether they can be trained to follow your standards, if not, move on.   Write down your mistakes and build your PM checklist from lessons learned.    Do so sooner rather than later.  My poor management of my PM's and resultant issues from tenants have cost me well over 40k in the last 8 years.  I would urge anyone to stay away from PM companies with less than 5-10 years experience.  Many mom and pop companies get chewed up and spit out and the landlords get left paying the bill.

There is nothing that says you can't change PM contracts before both parties agree to a final version.  I have added inspections, minimum renter criteria, pet policies etc as addendum to our agreements.  Even pay to have a lawyer review them if need be.  Ensure they do not have a "gross" negligence clause as that is hard to prove in court.  Negligence is less difficult imo.

You should be in contact with your manager far more often than you would have done with any tenant. Your PM fee does not remove you from the responsibility of managing that property, it only removes you from the day to day tasks.

All in all, you were wise to start questioning things early.  

Thanks to everyone for advice. I have since met with my property manager and talked about what I would like to see. The main thing I would like to see improved is the tenant quality, which i think will help reduce a lot of the expenses. I am now more involved in the selection process. 
As suggested I will be asking for more detailed receipts of any work and will try to review them thoroughly. Communication has always been good between us and I don't believe that to be a problem. My plan will be to keep this PM until the end of the year to see if things are turned around. Thanks again 

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