Non-Responsive Property Manager what to do?

Question

Hey guys, I have a bit of a situation and I hope you all could give me some advice on this issue.  I am active duty military stationed in Ohio and I have a SFR in California that I finally have rented out with a property management company.  I PCS'd (moved via orders) in Aug 2012 and vacated the property then and they management company was listing it since.  Since I moved at the end of the cycle, my house ended up sitting on the market for 6 months with several reductions in price and now I need to know what I should do with my company.

First, I held the property because I think its a good asset and i would lose money on the sales fees if I were to offload it right now, not the best position to be but since I bought at the low of the market I was taking a buy and hold strategy and since I had a roommate in my current house I was able to afford both payments reasonably comfortably.  The manager was responsive when I was asking about their marketing strategy and listing prices for the house.  The house is in a well established neighborhood and was in great condition (I  bought it from a flipper who did a good job on it).

The management agreement was only for 10% of the rent, which I now see is a pretty good deal as there is no advertising fee or anything like that.  We finally got a tenant in there at 1050/month and they wanted to sign a 2-3 year lease, I was fine with this but since I had to list it slightly below market to get it moved I included a annual rate increase to help get it back to market rate.

Enough background, now for the actual problems:
1.  They (the property management company) put the wrong name on the lease, and since they signed on my behalf it has been a pain getting them to change it, renters deposited earnest money/security deposit Feb 2013, and I  didn't get a copy of the lease to review until March 11th (after they moved in).  I was comfortable with the inclusions for the lease but just last week they got the addendum added for my proper name and I have not been able to add this to my insurance yet because I still don't have an updated copy of the lease.

2. They aren't paying themselves.  I have asked multiple times via email and phone how they are going to pay themselves.  As rent is 1050, I was expecting to see 105 taken from each deposit... First months rent was 1050, second months was 990 (to be explained in 3).

3.  There was a problem with the furnace and they called the home warranty company but the contractor subbed out from that company took over a week to get anything done.  It wasn't until I got the second notice from the owners portal I use, after over a week with no heat, that I had a number to call the renter and explain to him the situation that the contractor is not being held accountable and I really would have expected that was the PM's main job in making sure things would get done quickly and effectively.  Ultimately the furnace got fixed, and I was billed (bill sent to ME) for the 60 dollar fee, I wanted to know how that would be paid, the PM told me it would be pulled from my draft, and it was, hence the 990.

So.  Am I being unreasonable?  What should I really expect from a PM?  I am outside of the non-compete portion of the contract because I had to hold the property for so long empty so I can walk from these folks but I don't know if it is worth the hassle. And finally, is there any real recourse an owner has over a property manager if they aren't meeting the owners expectations other than just walking?

Thanks for reading and looking forward for some good advice!

Jason

Account Closed · Answer

I live in California. Where is your rental located? Average days on market is very short where I live, I am surprised you couldnt get it sold

Jason Minnich · Answer

Just an update, After several weeks of discussion and talking I fired my property management company.  I found a new company under the "Real" Brand which will be taking over after the 30 day period.  I was able to negotiate a decent reduction in their normal fees since I was giving them a long term contract where they shouldn't have to do anything and they took off 1% from the rent fee for me being military.  So long painful story short, I was lucky enough to not have a tenant who stuck to it with me and I'm not moving on and getting a new company to collect the rent and deal with issues for 9% off the top plus a $200 starting fee.  All in all I'm chalking all this up to a giant learning experience and hopefully I won't have a more expensive version of this in the future.  Thanks to everyone for your advice and let me know if anything else comes up.  While I'm at it, anyone know of a decent property management company in Dayon, Ohio, we'll see how this goes in a year or so...

Jason Minnich · Answer

Since the property is in CA, I imagine it is advised that I speak with a CA semi local attorney... sigh, such a hassle.

Account Closed · Answer

Jason Minnich It sounds like you would be wise to talk to an attorney. Many of them will give you a free initial consultation.

Jason Minnich · Answer

Brenda Layman, Thanks for the insight, I really don't think they are on the ball enough to actually be doing something like that, but when I eventually have a lot of properties throughout the country I will make sure I keep an eye out for that strategy and see what I can do about splitting the profit or at least tying the PM's hands.  And yes, all in all I'm rather stumped but I think their error is in my favor right now.  Since the house was vacant until Feb I wouldn't have broken the minimum threshold requiring the Franchise Board Tax as they assess it quarterly and their quarter ended March 31st but I imagine that any issues will be investigated come this months statement... Or I hope that is the case at least, and maybe I'll get an updated copy of the lease finally... Anyone know if there is any laws I/they are breaking in having bad documents roaming for what seems like an eternity?  I'm just trying to cover myself before something major happens worst case.

Account Closed · Answer

@Steve Babiak, the PM who told me about the interest would wait as long as possible before taking his fees out of the account, then he would take his accumulated fees as well as interest. So, he did eventually get his stated percentage, but he let it ride so that he could get the interest as well. That could explain why Jason Minnich's PM hasn't been taking any payments. But I'm stumped as to how they figure their net income at -$10.

Jason Minnich · Answer

Cory Rogers, thanks for the offer but the house is in Rosamond, CA and I am really looking for a local PM (if I change at all).

Ky Sparta, Again, the home is in Rosamond, CA, it is in the Antelope Valley.  My investment strategy is buy and hold rentals as I move with the Air Force so I was not looking to sell it.  The reason it was on the market so long is we had it priced over-aggressively at first and the PM was non-responsive to lowering the rent, finally when we did bring it down slightly lower than market we got a tenant.  A compounding factor was I vacated the property at the end of the typical military move cycle and as such there wasn't a new batch of military personnel expected in for another 5-6 months.

Brenda Layman & Steve Babiak, I can't imagine they are really making any money at all right now.  The last statement I got had Their net income at -$10, without subtracting any of their management fees.  My problem is compounded by the fact that they aren't collecting California Franchise Board taxes on the property (yet) and since I cannot get an accurate picture of what my fees & taxes will be I am unable to fill out the California tax documents in order to reduce the franchise taxes.  FYI, as an out of state property owner they are required to collect 7% per year on the house as their income tax.  I can lower that 7% to close to .7% through depreciation and deducting the PM fees, etc, but since I'm not being charged the fees yet I feel it would be in bad faith to assume I would pay them if the company for whatever their own reasons decided not to charge me.

I'm still open to opinions and suggestions on what to do, and thanks for all the discussion so far!

Jason

Steve Babiak · Answer

To get at what Brenda Layman was saying, I took a look at one of my tenant escrow accounts to see the monthly interest received there for roughly that same amount of rent; about a nickel a month - so nowhere near the 10% fee that they earn supposedly.

Account Closed · Answer

Hi Jason,
How many other properties does your PM manage? If they are holding  your rent money with other landlords' money in an interest-bearing account, they could be letting their pay sit in that account in order to accumulate more interest, which they skim. I heard this trick from a PM in a class I took. That could explain why they are not taking their payments.

Cory Rogers · Answer

Jason,
I don't have experience with PM. I was lucky because I could use my family when I was overseas, but that wasn't always great either. I just thought I would chime in because the one thing I remember from reading was that not all PM companies are created equal. Some really are worthless, but in the long run hopefully this will help in distinguishing the good from the bad. Where is your property located in Ca.? I would be willing to give it a shot if it is not to far from me (if that is something you would consider). I manage my own tri-plex in upland, but I hope to be in a position in the future to hire PM myself.

Two things: you can download every landlords guide to rentals. ( I think that is the title) but if you google it you'll find it. It is a must read for landlords. 
I know your frustration. I was overseas and getting things done here in the states as an absentee owner can be frustrating. That is where I can relate and the reason I made my offer. I hope this helps in a round about way.

Good luck

Cory