San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
6y
My biggest mistake was renting out my primary home and hiring a PM when I moved out of state. Lost my shirt trusting the PM. Total nightmare. I'd never own out of state again unless I was managing it myself and could afford to travel there whenever necessary.
But, basically, the lesson, in my opinion, is to self-manage. The only time I think it's okay to delegate, would be if the manager was actually your employee and not someone who makes money from your losses. Hire someone as an employee and give them bonuses for helping you profit, instead.
Unfortunately, the way the traditional PM situation/contract is set-up, the PM only makes money when you lose money and have problems. It's not fair for the PM either - why on earth would someone do that much work for only 10% or less of the rental amount? Think about it. It's absurd. Nobody should be expected to do that, and it's obvious why the industry is full of con artists - because it's the only way they can make any decent wage for what they do.
So, hire someone and pay them a fair wage. Or, self-manage, is my opinion.
Rental Property Investor · Concord, CA · Member since 2020 · 37 posts · 11 votes
6y
@Sue K.so can you elaborate on what you said about the only way property manager makes money is when you lose money. Can you give me an example? I have property OOS and one SFH has a great renter for over 6 years now and I have had no problems with the management of my property. I receive inspection reports annually with photos.
Rental Property Investor · CA · Member since 2019 · 84 posts · 50 votes
6y
Biggest mistake is blindly trusting your contractors and doing an out of state deal right away. We've gotten burned for 30K+ on our first deal and learned a ton of lessons from it. Always question the contractor and verify them in great detail!
Real Estate Agent · St Louis · Member since 2020 · 4 posts · 3 votes
6y
Always collect late fees,and don't give breaks. If you do it once, they expect it to be waived every time. Always do a check in walk through, I never remember if something was the way it was when they rented it, and that has costed me money, but saved me time. Also, make sure you remember to clean the gutters twice a year. I have had so many issues for not doing maintenance and water is your worst enemy.. No matter what, keep the water away from your home- if that is the only thing you can do, do it. Lessons all learned early. Do inspections every six months at least, once a year.
Realtor · Wellington, FL · Member since 2018 · 68 posts · 47 votes
6y
@Rebecca Fox Thank you so much for sharing that with us! I actually just had a giant issue with my rental right before I rented it out so I learned that lesson the hard way as well hahaha Other than clearing them have you found any other methods that work?
@Sue K. At what point do you think it is cost effective to hire a PM? How many doors? Would a 20 unit apartment building make sense? Thanks
Sorry, I've been MIA at BP for awhile. This just depends on the person and local laws. For instance, in CA for any apartment building/property with 16 or more units, you're required to have a resident manager. But, this manager would be your employee. They wouldn't get to charge you anything extra every time there is a problem, etc.
It's a personal choice. But, I think what anyone needs to do who is considering hiring a professional PM - who is not your employee - is to look very closely at the contract. Look to see every possible way the PM can charge you something extra over and above the monthly fee. Are there possible situations where they can profit by kickbacks for electricians, carpenters, plumbers, etc.? Do they have their own people they use and are those fees agreed upon ahead of time? Do they charge you a supervision fee for supervising the workers every time one goes to your property - in addition to the actual charge for the plumber? Do they get to decide to take care of a maintenance problem without your go-ahead ever? Do they charge you a fee to start the relationship? Do they profit by charging you to find a tenant, and then to kick out that tenant, and then find another tenant, and supervise all of the work to turnover the apartment when the first tenant didn't work out, ad infinitum? Can they actually charge you a fee to fire them?
Then, imagine them abusing any and all of those fees. An example: my daughter was royally ripped off by a PMC on the $250 maintenance problems they could take care of without calling my daughter. They had a couple of these a week. Next thing she knew, they were calling her to put more money into her reserve account that started out at $6,000 and was depleted in just a few months. they just kept forgetting to send her the monthly reports in-between.
Just don't believe them when they say not to worry about all those things in the contract that you feel uncomfortable with by saying oh, it won't ever happen, oh it's a standard contract.
You're going to have the manage the manager anyway, if you want to be sure they aren't ripping you off. So, why not manage it yourself? Then, just get a list of contractors locally and call a plumber when you need one. And, just screen really well in the first place.
I just think that investors who expect to just get a regular income without any work in real estate is someone ripe for the picking. I hate to see it happen, but they're lambs to the slaughter believing you can have a business that deals with people and expect them to just give you money without ever requiring your time, and trusting people to be willing to do all the work for you for 10% or less of the monthly rent, and never be tempted to pad that in some other way.
It's just not logical. And, let's say that some PMC is really above-board and never pads anything in any way. The only way for them to make a decent wage, is if they manage a ton of properties. How can they possibly do a good job for you, when they're juggling so much?
I suggest hiring someone at a flat, fair wage, with a bonus for finding good long-term tenants and keeping on top of inspections/repairs - basically, a bonus based on your profit (including taking care of maintenance so there aren't any losses there from leaks, etc.).
So, when I say the current system is based on PMs making money at the cost of losses to you, as someone else asked me - this is what I meant. If a PM only makes a decent wage when they get all those extra fees - which cost you money - and lawyer fees and eviction fees and damage, etc., then their profit is based on your losses. Or, it's possible they aren't keeping up on what's happening at your property because they simply have too many doors they are managing.
When I see advertisements by PMs bragging about how many doors they are managing, I cringe. I'm glad for them as far as that they are successful. But, I wouldn't want to hire them, because they have way too much on their plate to take good care of my property.
Just my opinion. Obviously, not everyone agrees with me and that's fine.
Rental Property Investor · Charlotte, NC · Member since 2019 · 40 posts · 23 votes
5y
Thanks for the feedback. Good advice about looking in the PM contract for opportunities for the PM to upcharge. I think it's important to have your interests aligned as much as possible. Awarding bonuses to align with profit seems like a good way to do that. I would think you would have to scale to a certain size (larger than 20 units) though before you are in a position to take a PM on as an employee and pay them a salary.