I have 23 single family homes being management. The terms are pretty standard - 10% monthly rents - 1st months rent on new lease - $200 renewal.

Most of what they do is fine but they are not on top of tenants as much as I want and I am not sure anyone will care as much as I do about my business - which is understandable. Most of my issues with them is not getting properties ready and relisted quickly after tenant leaves and they dont post 3 day notices and are not aggressive enough with late tenants.

Here is why their job is easier then it could be.....

When a work order comes to my email I handle it every time. I used to let the PM handle it but they cost of sending their people is crazy compared to the people I send. So for the past year or so I have been sending my guys to handle all work orders. In addition to that, the last 12 or so properties I purchased have been completely rehabbed... kitchens/granite/baths. So most of my properties get a premium rent and rent quickly (1 week or less) because they are brand new which makes is easier for the PM.

The part of PM I dont care for and not too sure on is tenant screening/legal issues/collections/showings. I run a real estate business and a separate business I never intended to self manage. But I forked over $32K to them last year and that number keeps rising with additional properties. Would you recommend self managing? Or maybe I can negotiate a lower wage. Or maybe I can find someone do do the screening/collections/showings at a lower rate and I can handle the work orders?

I am not sure what to do but I feel like something needs done. 

I would create a hybrid model.   Let them do certain things, and take on some of the turnovers yourself.

Owners are rarely happy with their property managers, especially with smaller collections of properties or lower income housing.  These properties take lots of hands-on-management.   

@Adam Craig

You run a real estate business and a separate business you never intended to self-manage. Well, you paid $32k last year to a third party manager. Why not bring the property management in-house under the supervision of your other real estate business? You can find someone to work in-house for $32k to learn the real estate investing business under your guidance and you can have a close eye on what's going on. 

Alternatively, with 23 units you should be able to qualify under IRS rules as Real Estate Professional (REP), if you haven't already done so. If not, self-manage, claim REP status, save $32k, and reap REP benefit of offsetting all RE tax losses with other income to include your spouses W2 income.  Good luck!

@Adam Craig

I like the suggestion of bringing property management in-house. I do not like the suggestion of you personally handling property management, especially if your investment strategy never involved you being a full-time landlord.

Thanks for the input all - I think my first step is to negotiate my fees with them, bringing up my concerns and offerings to manage certain areas. They are a pretty big company with 700+ units under management so I am not sure how much pull I have with 23 units.

If not I do like bringing in someone in house

You are having the opposite issue I am; we are very comfortable with screening and choosing tenants but cannot effectively do or even hire our own maintenance.  Our PM has very reasonable rates and fills vacancies as fast as we do, but we also struggle with being slow to take action when the payments don't come in.  I'm also displeased with their tenant selection and paperwork/reporting.

Have you had any evictions that they have handled?  The cost and ease of the process is something else to consider.

I'd suggest meeting with the PM to see what their processes are and if there is any room to get them closer to your expectations.  It will take a lot of time in the short term to set up processes for an employee to follow, so is it better to bring it in house or shop around for another PM.

@Adam Craig  If you have a substandard PM then why not hire a better one? You have a lot more pull than you think with this company based on the fact that you said they allowed you to do your own maintenance. That is a major business mistake on their part but it signifies they are worried about losing the account.  Owners who are allowed to handle their own maintenance create a massive potential liability for all parties involved so the fact that they acquiesced to that tells me they aren't really confident in their abilities.

You could hire your own PM and bring them in house like others have suggested but then you have to manage that person and pay payroll taxes and have liability, workers comp, etc. plus it still won't fix the problem you have with not knowing what your doing on the screening/legal aspect.

If the PM is not performing you explain what your expectations are and if they can't be met you part ways and find a better company. bitching about paying 32K a year in fees is funny because my guess is you don't work for free in your business but somehow everybody expects PM's to do everything on a dime.

Originally posted by @Robert Gilstrap :

@Adam Craig  If you have a substandard PM then why not hire a better one? You have a lot more pull than you think with this company based on the fact that you said they allowed you to do your own maintenance. That is a major business mistake on their part but it signifies they are worried about losing the account.  Owners who are allowed to handle their own maintenance create a massive potential liability for all parties involved so the fact that they acquiesced to that tells me they aren't really confident in their abilities.

You could hire your own PM and bring them in house like others have suggested but then you have to manage that person and pay payroll taxes and have liability, workers comp, etc. plus it still won't fix the problem you have with not knowing what your doing on the screening/legal aspect.

If the PM is not performing you explain what your expectations are and if they can't be met you part ways and find a better company. bitching about paying 32K a year in fees is funny because my guess is you don't work for free in your business but somehow everybody expects PM's to do everything on a dime.

I am not sure why a property management company wouldn't let you handle your own maintenance requests. If a furnace goes and they send some big name HVAC company who wants $3500 to replace the furnace when I have guys that do it for $1600 how could I not handle those requests on my own. 

In my Cleveland market there are 3 major PM firms - I am with the second largest company in Cleveland and the biggest player has all kinds of issues according to 2 other investors I spoke with. I dont feel the smaller companies have enough systems in place to handle properties spread across the entire county based on what I hear from other investors. I have researched other firms and hear major complaints so I truly believe I have the lessor of all evils with my PM company.

And regarding the 32K a year - I dont feel I am getting 32K a year in service from them because I handle my own repair requests and have completely rehabbed properties they bring in high rents and rent quickly.

@Adam Craig why not consider the smaller companies? You want the systems of the large company and found that they are lacking. Why not become a major player with a small company and help them create the systems and responses that you want? Otherwise, it's in-house which may have difficulty given that you do not have the knowledge to train them on the parts that you need help with. I personally like the in-house concept because you become 100% of the thing they are there to help. Tenant screening is not very difficult if you wanted to do it yourself. It takes time but not a ton of effort. Maybe pull back 1 or 2 units at lease-up time and fill them yourself to learn the process?

Is full-time management of your units your highest and best use? Maybe, maybe not. There are a few good PM's in the area. My suggestion would be to talk to a few others and try a different one out for a bit and see if that solves the problem. If it doesn't, you can always take matters into your own hands. 

@Adam Craig if your property manager can't get you market pricing or better on HVAC then you should have fired them long ago.  The typical problem that owners have is they all "have a guy" who can do this or that. The problem with "your guy" is that they may or may not fit into the system the PM has in place. For instance does "the guy" have workers comp, GL insurance, a business license, trade license, professional liability, does he take before and after pictures, will he be around next month/year when there is a problem, whats his warranty on labor/materials, how fast can he respond, does he understand the issues involved in dealing with tenants regarding repairs, does he show up in a marked truck, uniformed, name badge or does he show up in a wife beater driving a beat up pickup and I could go on....

The point is that there is ALWAYS someone cheaper out there but an experienced investor knows that cheaper is almost never better and in fact most of the time costs more money in the long run. 

The other problem with owners who go out and do their own work is they think they know what they are doing and in fact they don't. They do subpar work, not timely and they place undue risk on everyone involved. 

2 quick examples: 

Owner wants to do his own stove repair. Goes out replaces gas line and shut off and threads line on incorrectly. Tenants call a week later complaining of vision problems and trouble breathing. Gas company is called and they find that the entire house could have blown up since gas had been leaking for a week. Was the repair cheaper? Yes but at what cost?

#2 owner goes out to do his own kitchen faucet replacement. Nobody home but 14 year old daughter but owner goes in and does replacement. Next day daughter reports she's been sexually assaulted. Didn't happen of course but the whole issue is the owner had no knowledge of the risks involved and therefore didn't know he should never enter a property when only a minor is present. Cheaper repair? Yes but again at what cost?

Yeah, you should definitely be getting better service for $32k a year. I like the idea of bringing on someone in house. You could probably find an up-and-coming investor or real estate agent who has ties to the business but is not full time. Managing 23 units shouldn't be a full-time gig, so an extra $25-$30k/year for a part-time job that can be done remotely a large part of the time is a massive benefit to many folks looking for a job. Also, if they work for you, you don't need to necessarily pay per unit. 

Get a good piece of PM software, train them, get all your systems in place, and have them give daily/weekly updates. You've definitely got to stay on top of remote employees, but they can be super loyal for the opportunity to work in a more flexible environment. 

For what it's worth, I've run a staffing agency and am a business consultant that helps companies find staff and transition to remote working, so I've seen the highs and lows of doing that sort of thing. 

Originally posted by @Robert Gilstrap :

@Adam Craig if your property manager can't get you market pricing or better on HVAC then you should have fired them long ago.  The typical problem that owners have is they all "have a guy" who can do this or that. The problem with "your guy" is that they may or may not fit into the system the PM has in place. For instance does "the guy" have workers comp, GL insurance, a business license, trade license, professional liability, does he take before and after pictures, will he be around next month/year when there is a problem, whats his warranty on labor/materials, how fast can he respond, does he understand the issues involved in dealing with tenants regarding repairs, does he show up in a marked truck, uniformed, name badge or does he show up in a wife beater driving a beat up pickup and I could go on....

The point is that there is ALWAYS someone cheaper out there but an experienced investor knows that cheaper is almost never better and in fact most of the time costs more money in the long run. 

The other problem with owners who go out and do their own work is they think they know what they are doing and in fact they don't. They do subpar work, not timely and they place undue risk on everyone involved. 

2 quick examples: 

Owner wants to do his own stove repair. Goes out replaces gas line and shut off and threads line on incorrectly. Tenants call a week later complaining of vision problems and trouble breathing. Gas company is called and they find that the entire house could have blown up since gas had been leaking for a week. Was the repair cheaper? Yes but at what cost?

#2 owner goes out to do his own kitchen faucet replacement. Nobody home but 14 year old daughter but owner goes in and does replacement. Next day daughter reports she's been sexually assaulted. Didn't happen of course but the whole issue is the owner had no knowledge of the risks involved and therefore didn't know he should never enter a property when only a minor is present. Cheaper repair? Yes but again at what cost?

 Robert -

I do understand what your saying but that is a very far fetched example and my guys who do important stuff like plumbing/hvac/electrical are licenced with insurance. The handymen maybe not so much. But we buy about 10 houses a year and we gut nearly every house so I have some pretty extensive experience managing contractors. I also have backups I can call if someone doesn't come through. And cheaper is not always better, but in my case it has saved me tens of thousands using the "cheaper" guy rather then the big name brand because I have negotiated down pricing in exchange for volume work. No way is my property management company going to compete with the wages I am willing to pay. Its true, I do deal with headaches now and again by using lower cost guys. But the tens of thousands I have saved is well worth the hic-up from time to time.

Brings me to my second point. When I let the PM manage the repairs, they essentially called a guy like me who manages a bunch of contractors and sets it up. So not only are they getting middle man pricing, the guy is essentially sending guys like mine and taking his cut. So when a work order comes in, its easy enough for me to pass along the tenants phone number to my HVAC guy who will set everything up and handle the repair. I still dont contact the tenant even though I manage the repairs so its pretty easy and doesnt take much time.

Sounds like this PM company doesn't have their own maintenance division. We manage contractors directly everyday and there is no middleman with us but I take your point and remember I wasn't so much saying you in my examples I was more making a blanket statement about owners in general. If you're doing 10 houses a year you're in a whole different category.

I know it's a little off topic, but I have to chime in regarding owners doing subpar work. Perhaps it is because I am handy, but the only work that is done right is the work I do. I just did a turn where I had too little time and hired a couple of handymen for basic stuff that just takes time. The first I had to fire after he could not even paint a wall correctly. He left a huge chunk of drywall patch unsanded/untextured that the tenant "repaired" even after I pointed it out to him to make sure he didn't miss it. Then he did half the work in the amount of time he said it would take to complete the entire job and thought he would receive full pay. The next one just needed to put some stair nose on (which I provided). He messed up the cuts (simple 90 degree chops), charged to order a different one, got the wrong color, then installed them so that they don't hang over the lip! The reason I do much of my own work is because sometimes it just needs to be right, and needs to last. I would rather pay someone else to do it, but I've only found 1 handyman worth his salt and have gone through about 6 of them in the areas I own in. Poor work has nothing to do with if they are a contractor or owner, but everything to do with if they know the work, and do they believe that "good enough is good enough".

I'm not saying you should keep your current property managers. It may be worth a change of management to a better company, but bringing it in house all depends on your goals.

Where are you going long term and what are your goals? Is managing your properties your goal long term? Or is your long term goal to live freely and be in complete control of your days, weeks, months, and years?  

I can tell you from starting a property management company, you'll be owning a job if you bring it in house. With enough units it can be tough to take any real time off. You have to do showings, evictions sometimes, manage unit turnover and rehabs. Even if you have a staff to handle a lot of that, you're still always on call. What happens when your key member quits for another gig? In addition to everything you have to do daily, you'll have to cover all their duties, try to find another person, train them, etc and you'll be doing everything during those months. 

I have what I consider to be great property managers, some of the best there are. Do they treat my properties the same that I would? Probably not, but that's an insane argument IMO. Expecting someone else to treat your properties like you would is not a reasonable expectation. However, if you are treating your investments as a business that's just a part of doing business. Yes, find the best you can obviously. If they're doing a subpar job replace them. 

I currently pay ~$80k in property management fees a year (I have negotiated a good rate given my volume). I still cash flow ~$200k and all I have to do is answer an email here and there and transpose my statements into quickbooks. If I were managing my own properties, I would need quite the staff so I wouldn't be saving nearly all of that $80k anyways. I would probably only add $20-30k onto my bottom line. That doesn't even come close to being worth it. I could just pick up a few more properties to make that much, or more, and not have all the headaches of running a day to day business. 

This could be an opportunity for PM's out there like myself and 

@Robert Gilstrap to tell the world what we do and how it's better.  

But, I would go a different route and throw an article out to the group I wrote a few months ago about our clients - the Landlords.  Take it with a grain of salt as I have not read every word of this post in super detail - but I get the meaning.  Maybe this will apply in some aspects.

https://www.biggerpockets.com/forums/52/topics/402...

Good luck out there! 

To add to what I said in my previous post, this quote was in one of the sections of Tools of the Titans I was reading this morning:

"In order to move fast, I expect you'll make some foot faults. I'm ok with an error rate if 10-20% - times when I would have made a different decision in a given situation - if it means you can move fast"
- Reid Hoffman (the Oracle of Silicon Valley) to his chief of staff

I think that's very similar to how a property manager should be looked at vs managing yourself. Strive to find one that will operate within an acceptable error rate and understand that's part of it. Especially be ok with it if you can move faster focusing your time at your other job and finding/closing the next deal. Having a PM also means moving faster in responding to tenants which equals happier tenants.

But if your pm is operating at a much higher error rate, fire them and find a new one that would be within an acceptable range.

@Adam Craig For whatever it's worth, if you aren't getting quality attention for $20K, I wouldn't expect to get more attention trying to negotiate the same provider down to $15K. Maybe the more prudent question is what competitors in your region charge. And how those competitors handle the more simple requests. Do they send a handyman out to change locks? Do they call a random vendor from the phone book? Do they have some kind of master-agreement for a reduced rate for lock changing with a single vendor? All have different cost implications for you as the owner. But you know all of that.

What I'd also posit is that you have to get comfortable with paying more than you'd want for maintenance. And get comfortable with them caring less about the building than you. It's not "right" but it comes with the territory. You see vacancy as a loss of $800 in top-line revenue. They see it as a lot of $80 in management fees. That has a huge impact on the marginal cost of putting a $25 ad on Craigslist (just as an example).

At the end of the day 80% of what I care about is occupancy from qualified tenants. Being "full" can really insulate the hit from proportionally high maintenance expenses.

But now I'm rambling...

@Adam Craig

If you're already handling the service issues on your own, you might be better off just self managing. If you don't want to deal with tenant screening / placement, then a real estate agent can handle the that aspect for you. I believe one month's rent for tenant placement is a fairly standard fee for that service in this market. This is assuming that you're willing and able to handle your own rent collection and can post 3 day notices and attend court if and when you need evictions.