Property Management is ripping me off??

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Property Management is ripping me off??

Ki Lee
Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes

Hey BP, I have a 3 unit property in Logan Square, Chicago. 

I have a PM management company that takes care of it, and in the past 5 years, didn't pay much attention to the numbers. As I started scrutinizing the numbers, I realize that the rent I'm getting is pretty good - 1.2% of PP.  This makes me believe that I should be able to generate a nice cash flow.  But I dont.  I'm pretty much break even or even having a slightly negative cash flow year after year.  Now, I know that the 1% rule isn't perfect, but I'm wondering if the management is ripping me off.  This doesn't make sense.  

A few things about the property - It IS old.  100 years +, and the taxes are rather high in Chicago.  Property tax is rather high - $6000+ for $400K house.  I do pay for water/trash/snow removal/landscaping  and gas/electric for common area.  But even given these facts, not cash-flowing seems very suspicious.  What do you guys think?

It's hard to point our what is exactly racking up all these bills, but the turnover cost is huge.  between commission for signing a new lease and turning over the new unit, it comes out to almost $4,000.  Is this outrageous for a unit that has a rent of $1700?  Can you shed some light?

I need help.  The contract I signed locks me in until next March or I need to pay a fee that equals to 50% of their expected PM fees.  Anybody know a very reputable PM company in the Logan square area?  

Thanks in advance

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Ryan IngramBusiness Member
Rental Property Investor · Dayton, OH · Member since 2017 · 246 posts · 225 votes
7y

I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

That same management company also had an early termination cause in the contract.

Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

If they’re good at their job, there is no need for that clause. 

I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

Completely agree....

Again, this may be specific to the area which I invest...but I hope it helps.

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  • Daniel Kong
    Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes
    7y

    It sounds like you really need to break it down more for us to help investigate the source of your missing cashflow. If you can break out your numbers exactly to see where you are losing money that would be a helpful place to start and then you can pinpoint the problem. 

    What are your mortgage, taxes, insurance, management fee, utility and maint costs? After all of that, how much do you net every month without setting aside any for vacancy, capex, listing fees, repairs? What are you losing money to thats not related to any of these? Plumbing repair costs? Vacancies? Is your listing fee 100% of a months rent? If you write down all the numbers, it might paint a clearer picture.  

    5Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    7y

    Thanks @Daniel Kong

    Here is the break down-

    $400,000 PP.  3.75% interest 30YF

    $2195 PITI (principle, interest, tax, insurance)

    $437 - water/sewer, common area electricity and gas (washer/dryer, garage, hallway, etc)

    $271 - PM fee

    $75 - pest control

    $163 - landscaping/snow removal

    Total fixed cost = $3141

    Rent -$4755 total - $1750/$1475/$1430/$100(garage)

    monthly rent to Purchase Price  = 1.2%

    Vacancy is pretty much close to 0.  I had 2 months of vacancy in all units combined in the past 5 years.

    So the difference between the monthly rent and fixed costs is $1614.  Basically between routine maintenance, major repair, and turnovers, It's costing me $1614/month.  I have had somewhat frequent turnovers.  PM said that upon following up it's due to personal lives of the tenants(moving, new job, getting married, etc)

    I did have one major repair last year (exterior stairs repainted and treated that cost $8500 and $375 project management fee)

    Total Annual Income = $57,060

    Total expenses(everything except Principle and Interest) = $35,725

    62.6% of the rent is being spent on expenses - I've read that this is around 50% optimally.

    This seems all pretty high....  Thoughts??

    Despite the old building and somewhat high taxes, I think I should be able to cash flow at least $500/month($1100/month in repairs/turnovers,etc).  Is this too optimistic??

    I feel like I'm kept hostage by the contract that requires me to pay around $1,000 if I break the contract before March, but if I can be sure that I can save more than that, I'm willing to break the contract and find a new PM.  

    I'm genuinely frustrated and I would love some help if you have any advices or contact info for super star property managers in the Chicago area.

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y

    Things I see is how can you reduce your expenses that aren’t PM?

    Laundry?  Can you get coin op ones to break even on the water and electric?

    163 a month for landscaping and snow removal?  Seems sorta high, but not sure your area pricing. 

    While the PM seems high what’s the going rates for other Pm’s?  Are they in line with why you have?  Grass isn’t greener on the other side, just different piles of poop...

    3Reply
  • Wendell HallPro Member
    Investor · Houston, TX · Member since 2016 · 30 posts · 43 votes
    7y

    @Ki Lee If your PM gets a portion of the rent and/ or leasing fee for each turnover that can be an issue. I know many charge first month’s rent in addition to a leasing fee. Is that the case?

    I had to have a talk with my PM when he wanted to raise one of my rents $25-50 per month to keep with market rate. Told him no thanks—pushing that tenant out for $300-600 per year isn’t worth me paying him $1,800+ and the potential for lost rent that month.

    Does the PM have any incentive to keep tenants from turning over? Sounds like the incentive ifht be to turn them over...

    17Reply
  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    7y

    $437 / month for water and sewer? that seems awfully high, that's not per quarter? making it 145.66. and PM fee at 5.75% roughly ? are these your real numbers? the main thing to look out for is if they are constantly going there for repairs, where i invest has houses about the same age and usually the 1st thing i do when i buy them is replace mechanical s, those are always the things that give you the most trouble, then you do not have to worry about them for at least 12 years. it is probably any extra maintenance killing your profit.

    3Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    7y

    @Ki Lee but on the flip side , your property management company is turning a profit . 

    8Reply
  • Ryan IngramBusiness Member
    Rental Property Investor · Dayton, OH · Member since 2017 · 246 posts · 225 votes
    7y

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

    21Reply
  • Will C.
    Rental Property Investor · Richmond, VA · Member since 2016 · 279 posts · 133 votes
    7y

    @Ki Lee looks like they are offering a low % PM fee only to tack on high charges on the back end. I bet they aren't too concerned with who they place in your units. more turnover=more $$ in their pocket. I start looking for a new PM now, get out of that contract and stop the bleed. I like @Ryan Ingram approach to the early termination clause or lack thereof. 

    5Reply
  • Nat Rojas
    Rental Property Investor · Elkridge, MD · Member since 2018 · 115 posts · 40 votes
    7y
    Originally posted by @Ryan Ingram:

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

     Through online research and word of mouth I originally contacted 12 PMs to interview and select the best for our first rental in Baltimore City, Maryland. Of those, only 8 responded. Of those, the top 4 were selected. With a majority of all things being equal, I selected our PM with weight on that termination clause.

    Certainly put us at ease that if, for whatever reason, either party is unhappy in the relationship, we can cancel the contract. 

    PMs are not created equal and can pass/fail an initial sniff test by reviewing their website/social media platforms and the initial contact.

    Best of luck in your search for a new PM. In your research, you may realize that you have the right one for you, or better yet, are prepared to leave in March when your contract ends

    1Reply
  • Daniel Kong
    Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes
    7y

    Thanks for the breakdown

    @Ki Lee, it seems like you SHOULD be cashflowing at least somewhat decently with that big a spread. I guess the issue to figure out is, 

    1) Are you just getting unlucky in terms of tenants and turnover, and valid deferred maintenance (of course your PM is the one placing the tenants) OR

    2) Is your PM overcharging you for things besides his/her PM fee in an unscrupulous way OR

    3) Some combination of 1) and 2)

    8500 for a repainting of stairs seems awfully high...

    At this point, I would start reaching out to all your friends and of course people here on BP to recommend a new PM. The one good thing is that you have had no vacancies and your PM has kept your units filled the entire time. But it seems very possible that there is some type of mismanagement going on - it could be innocent lack of effort to find reasonable vendors or nickel and diming surcharges to make up for the low monthly %...

    1Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    7y

    Definitely research new PMs.  Even after I found several that sounded good, reviewing their management contract completely removed them from consideration.  There were built-in annual window, carpet, landscaping fees using their related services, which they wouldn't remove when asked.  There were annual renewal and inspection fees -- why do I pay a large fee because the tenant decides to stay?  And isn't inspecting the unit periodically actually their job that they are already being paid to do?

    I've been with my current management company for my out-of-state property for over 8 years now.  $150 annual fee for up to 10 properties, inclusive; no tenant placement fee, 8% of rents received.  They are more expensive on handyman repairs, but very reasonable when it comes to larger items like water heater, HVAC, where they have connections and do not up-charge me.   They do have an early termination fee, but I feel that's fair as they have placed the tenant without cost, and our goals are aligned as they prefer long-term tenant as well.    

    1Reply
  • Frank Geiger
    Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
    7y

    5% on a PM fee is great. Your lease up fees are insane. I wouldn’t pay that. Ask who is performing the repairs on your property. Sometimes PMs own repair/construction companies that they can tack on additional costs with. It is highly unethical to bill an owner for a repair that doesn’t need to be done. That’s not to say it hasn’t been done before. Also, $8500 to paint stairs? Are they metal? Hopefully they replaced them because this is ridiculously high. They could be milking money from your lack of experience. 

    3Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Ryan Ingram:

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

     You think they should deliver the letter for free or something? How does that pencil out?

    2Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Ki Lee:

    Thanks @Daniel Kong

    Here is the break down-

    $400,000 PP.  3.75% interest 30YF

    $2195 PITI (principle, interest, tax, insurance)

    $437 - water/sewer, common area electricity and gas (washer/dryer, garage, hallway, etc)

    $271 - PM fee

    $75 - pest control

    $163 - landscaping/snow removal

    Total fixed cost = $3141

    Rent -$4755 total - $1750/$1475/$1430/$100(garage)

    monthly rent to Purchase Price  = 1.2%

    Vacancy is pretty much close to 0.  I had 2 months of vacancy in all units combined in the past 5 years.

    So the difference between the monthly rent and fixed costs is $1614.  Basically between routine maintenance, major repair, and turnovers, It's costing me $1614/month.  I have had somewhat frequent turnovers.  PM said that upon following up it's due to personal lives of the tenants(moving, new job, getting married, etc)

    I did have one major repair last year (exterior stairs repainted and treated that cost $8500 and $375 project management fee)

    Total Annual Income = $57,060

    Total expenses(everything except Principle and Interest) = $35,725

    62.6% of the rent is being spent on expenses - I've read that this is around 50% optimally.

    This seems all pretty high....  Thoughts??

    Despite the old building and somewhat high taxes, I think I should be able to cash flow at least $500/month($1100/month in repairs/turnovers,etc).  Is this too optimistic??

    I feel like I'm kept hostage by the contract that requires me to pay around $1,000 if I break the contract before March, but if I can be sure that I can save more than that, I'm willing to break the contract and find a new PM.  

    I'm genuinely frustrated and I would love some help if you have any advices or contact info for super star property managers in the Chicago area.

     The 1st step is for you to isolate the Property Management charges. What does your taxes, utilities, mortgage payment & things like that have to do with your Property Manager? Nothing, nothing at all. So why are they even in this discussion? 

    After that what specific charges by your Property Manager do you feel are unreasonable? I don't see anything unreasonable here. They ain't working for you for free my man. The landscaping seems a bit pricey but everything else doesn't. What's the deal here on the landscaping. How many cuts are you doing per month & per year? Why do you need to cover snow removal on a 3 unit? That's where I would start but even then it's sorta small patatos as the $50 - $100 you can squeeze is not making or breaking your investment.

    2Reply
  • Ryan IngramBusiness Member
    Rental Property Investor · Dayton, OH · Member since 2017 · 246 posts · 225 votes
    7y
    Originally posted by @James Wise:
    Originally posted by @Ryan Ingram:

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

     You think they should deliver the letter for free or something? How does that pencil out?

    Lol...funny...I think there is this company called the United States Postal Service that can do a bang up job for 1% of that price. 

    15Reply
  • Derek GendigPro Member
    Broker / Investor / Property Manager · Indianapolis, IN · Member since 2014 · 125 posts · 42 votes
    7y

    @Ki Lee how many bedrooms and bathrooms are the units? Is this a building that was converted at some point? Having to pay for all the utilities makes me believe so. To be honest, as a PM (take it for what it is worth to you), I don't see the PM fees as a major contributor in the 12%+ in additional operating costs, but I am not privy to your Owner statements. In my personal experience, we have found that older buildings typically have less insulation than newer construction, older windows, older boiler/furnaces, etc. Are there any provisions in the lease to handle the months when the utilities go above what you expected? Is it typical for buildings in the area to provide laundry? If not, I would suggest removing them. The electricity and water required to do a load of laundry multiplied by the number of Tenants per week will add up very quickly. Is there anything you can do to separate the utilities? We have done this for our Owners with great success. The expense is all front loaded but having a building in which the Tenants are responsible for all their own utilities not only provides cash flow advantages each month but it should lend itself to a higher value to future investors when the time comes to sell. Just some thoughts I had. I am not in your market, just felt it was important to provide a voice for your PM as they are not in on this and have more insight than all of us as to what is actually happening with the Tenants and the building.

    3Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Ryan Ingram:
    Originally posted by @James Wise:
    Originally posted by @Ryan Ingram:

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

     You think they should deliver the letter for free or something? How does that pencil out?

    Lol...funny...I think there is this company called the United States Postal Service that can do a bang up job for 1% of that price. 

     See this right here is why Property Managers are important, you don't know what you don't know. They keep dudes like you compliant with landlord tenant law. For it to be a valid notice it needs to either be posted to the door or sent via certified mail. For it to be sent via certified mail you've got to go up to the post office & you've now got certified mail charges what is that like $5 or $6 or something, plus time at the post office for the employee. Even if you went with a 3rd party online option to get the certified mail it can often come back undelivered & you'll need to send it out multiple times to ensure proper notice is sent. You've got additional costs, time, billing and possible rescheduling now. That is a lot B/S just for such a simple task. Looks like the Manager already knows this as it ain't their 1st rodeo. So in short going with that company that does such a "bang up job for 1% of the price" would result in the management company charging you more.

    3Reply
  • Ryan IngramBusiness Member
    Rental Property Investor · Dayton, OH · Member since 2017 · 246 posts · 225 votes
    7y

    @James Wise, well...I'm happy I know that now. You're right, I didn't know that. I'll shake the bitterness off that I have around that one instance. With that company, I just got tired of seeing a $40-45 service fee (in addition to the management fee) each time a tenant had a need. The letter was the tipping point for me, albeit ignorance on my part. The overarching sentiment is the dislike for incessant service fees. 

    The letter has become my go to example in discussing bad PM companies, so...duly noted and I won't use that example again. :)

    4Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Ryan Ingram:

    @James Wise, well...I'm happy I know that now. You're right, I didn't know that. I'll shake the bitterness off that I have around that one instance. With that company, I just got tired of seeing a $40-45 service fee (in addition to the management fee) each time a tenant had a need. The letter was the tipping point for me, albeit ignorance on my part. The overarching sentiment is the dislike for incessant service fees. 

    The letter has become my go to example in discussing bad PM companies, so...duly noted and I won't use that example again. :)

     Knowledge is power guys. 90% of the "My property manager is ripping me off" crap that is spoken about on this website is because of the investor's ignorance to the actual cost & workload required to run a rental property. It's actually a low margin business. Many management companies only do it to increase their sales which is where the real money is made.

    4Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    7y

    Thanks for all the thoughtful responses.

    Yes, the PM company charges leasing fee.  One month rent for new tenants and $150 to renew lease with existing tenants.  Yes they have in-house handyman which seems like a bit of a conflict in interest.

    They have no incentive to prevent turnovers.

    The utilities- it’s not just water/sewer that is $437.  It’s water for the building, and common area gas and electricity.  Yes it’s coin operated.

    The stairs- I think this one was actually somewhat legit- we shopped around for different vendors and the pricing was a bout right.  It’s metal exterior stairs in the backyard for all 3 units.

    @James Wise look, I’m not expecting the management to work for free or anything or have unrealistic expectations of making a ton of money.  The issue I see here is that after the basic fixed costs per month, there is about $1600 left for unexpected and routine repairs, maintenance, etc.  this seems like a high amount that they somehow burn through each month. Another concern is that 62% of the monthly rent is somehow spent on total expenses.  These numbers seem significantly higher than the “standard” scenario.  Also getting 1.2% of monthly rent compared to the PP, is it really unrealistic to be able to cash flow?

    2Reply
  • Ki Lee
    OP
    Rental Property Investor · Cypress, CA · Member since 2013 · 103 posts · 72 votes
    7y

    @Derek Gendig

    It’s 3/1, 3/1, 2/1.

    No I’m not paying for all utilities.

    I’m paying water for the building, and gas/electric for the common are.

    I looked at isolating the gas/electric on the garden unit from the common area.  The estimate was something ridiculous like $8,000. 

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Ki Lee:

    Thanks for all the thoughtful responses.

    Yes, the PM company charges leasing fee.  One month rent for new tenants and $150 to renew lease with existing tenants.  Yes they have in-house handyman which seems like a bit of a conflict in interest.

    They have no incentive to prevent turnovers.

    The utilities- it’s not just water/sewer that is $437.  It’s water for the building, and common area gas and electricity.  Yes it’s coin operated.

    The stairs- I think this one was actually somewhat legit- we shopped around for different vendors and the pricing was a bout right.  It’s metal exterior stairs in the backyard for all 3 units.

    @James Wise look, I’m not expecting the management to work for free or anything or have unrealistic expectations of making a ton of money.  The issue I see here is that after the basic fixed costs per month, there is about $1600 left for unexpected and routine repairs, maintenance, etc.  this seems like a high amount that they somehow burn through each month. Another concern is that 62% of the monthly rent is somehow spent on total expenses.  These numbers seem significantly higher than the “standard” scenario.  Also getting 1.2% of monthly rent compared to the PP, is it really unrealistic to be able to cash flow?

     Again you are looking at exterior factors. The overall expense is not related to the management company. Whether or not you cash flow X amount per month on a certain property is also not entirely related to the management company. Until you learn to separate what is related to your management company and what isn't you are never going to be able to properly analyze the benefit & expense of the product they are providing too you.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Ki Lee:

    Thanks for all the thoughtful responses.

    Yes, the PM company charges leasing fee.  One month rent for new tenants and $150 to renew lease with existing tenants.  Yes they have in-house handyman which seems like a bit of a conflict in interest.

    They have no incentive to prevent turnovers.

    The utilities- it’s not just water/sewer that is $437.  It’s water for the building, and common area gas and electricity.  Yes it’s coin operated.

    The stairs- I think this one was actually somewhat legit- we shopped around for different vendors and the pricing was a bout right.  It’s metal exterior stairs in the backyard for all 3 units.

    @James Wise look, I’m not expecting the management to work for free or anything or have unrealistic expectations of making a ton of money.  The issue I see here is that after the basic fixed costs per month, there is about $1600 left for unexpected and routine repairs, maintenance, etc.  this seems like a high amount that they somehow burn through each month. Another concern is that 62% of the monthly rent is somehow spent on total expenses.  These numbers seem significantly higher than the “standard” scenario.  Also getting 1.2% of monthly rent compared to the PP, is it really unrealistic to be able to cash flow?

     require 2 or 3 year lease next time. 

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    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @James Wise:
    Originally posted by @Ryan Ingram:
    Originally posted by @James Wise:
    Originally posted by @Ryan Ingram:

    I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

    That same management company also had an early termination cause in the contract.

    Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

    If they’re good at their job, there is no need for that clause. 

    I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

    She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

    Completely agree....

    Again, this may be specific to the area which I invest...but I hope it helps.

     You think they should deliver the letter for free or something? How does that pencil out?

    Lol...funny...I think there is this company called the United States Postal Service that can do a bang up job for 1% of that price. 

     See this right here is why Property Managers are important, you don't know what you don't know. They keep dudes like you compliant with landlord tenant law. For it to be a valid notice it needs to either be posted to the door or sent via certified mail. For it to be sent via certified mail you've got to go up to the post office & you've now got certified mail charges what is that like $5 or $6 or something, plus time at the post office for the employee. Even if you went with a 3rd party online option to get the certified mail it can often come back undelivered & you'll need to send it out multiple times to ensure proper notice is sent. You've got additional costs, time, billing and possible rescheduling now. That is a lot B/S just for such a simple task. Looks like the Manager already knows this as it ain't their 1st rodeo. So in short going with that company that does such a "bang up job for 1% of the price" would result in the management company charging you more.

    its funny in Oregon or at least with the lease I used..  3 day notice to quit needs to be send regular mail not certified.. or posted.

    I sent one certified one time we get to eviction court and I had to start all over because I did not send it through regular mail.

    form then on I just hire an eviction service who knows the rules..  that one cost me a few months of rent etc.   

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  • Jacob Sampson
    Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    I would not expect to have a positive long term average cash flow with rent of $4755 to a purchase price of $400k.  Especially if you are paying for PM.  Additionally, although the PM may not be technically ripping you off or doing anything illegal, you can bet they are making choices that are not in your best interest.  A PM's incentives are in direct conflict with yours.  You want long term steady renters, they want annual turn over.  PM's make the bulk of their money on churn.  They get make-ready money, they get advertising fees, they collect a portion of first months rent (or something like this depending on your PM).   

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