Property manager that doesn't profit when things go wrong .

Property manager that doesn't profit when things go wrong .

Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes

So if you read my previous post regarding the terrible PM i had you must 

know that i had my share of terrible PMs who know only to collect the 

rent and their fees and nothing else. 

So I was fed up with it. 

I started to interview a few.  I have one for my investments in Vegas so I was 

basically looking for a PM for my Atlanta's SFHs, 

I talked to a few. some sounded nice, some were vain enough to say that 

700$ house is not in their range, but if I give him all my hpuses in Atlanta to manage

then he will take it. I heard that from a few of them. 

but that wasn't what had really set me off. 

so they take 10% of rent income, some of them were willing to negotiate to 8% if I was

to give them the other houses as well, 

10% service if something breaks and he/she needs to go fix it, (10% or min service 

fee of one visit is 35$) 

one month rent for finding a new tenant (even if tenant only stayed for 2-3 months) 

1/2 a month rent for renewing an existing lease with the same exact terms! 

and more and more "pay for this, pay for that extras" 

when I said "but If I pay for each time there is a service call, or every time there is a need 

for changing a tenant and having them resign a lease... then what is the managing 10% fee for?!!!

they all answer with "this is for managing..." 

"but, but.." i said "you just specified all the things you do and how much are they 

going to cost me. so what is managing?" 

and they all "remembered" - yes, for collecting the rent and distributing it to you 

"so what you are basically saying is that i am paying the 10% fee every month to 

have you collect (which is in most cases done by an automatic setup with an automatic 

draft from the tenant's bank account) taking out your fee and making me wait another 5 days 

to have you send what's left of the money?" 

they all said: "you can put it this way if you want..." 

but this is what it is. 

they all hated to hear that. and why won't they? they got used to a standard of charging 

a basic fee for nothing. 

I hated it. 

I found a really intelligent woman, who had experience in real estate, (as a broker) 

and who had done these kind of things for renovation process and who had just finished 

her property management class. I offered her this deal: 

I give you not 8, not 10% of the rent, I give you 15% 

but... it includes everything. 


if all goes well, for a 900$ rent you get 1620$ a year (135$ a month) but if the house is 

vacant, you loose that month, so the 15% is of 10,800 minus the months it was vacant. 

there were more stipulations to this contract which basically makes her want to take care 

of the house like it was her own. 

If you are interested i be more than happy to show/ tell  you. 

I thought I should share this with you because it can really help set things right 

making both sides with the same interest.

5Reply
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Most Popular Reply

Robert GilstrapPro Member
Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
10y

Not to be disrespectful Sharon, but you have an incredibly skewed misunderstanding of what real estate management entails and this experienced real estate person who just finished her property management class I fear is about to get a great education in how not to conduct business.

I laugh when I hear owners who think that a manager should share in the losses of the owners investment. Do they get to share in the upside profits when you sell? Do they get the tax advantages, if they save you $500 on a repair what percentage of that are you giving them? Nothing right?

You are the owner of the investment. You bought it and you get the good with the bad. If you don't want any bad then you are in the wrong business.

You seem to have a mistrust of all property managers (perhaps justified) and the entire system in which they operate. I could go point by point on everything you've said but the reply would be pages long and I don't want to bore anybody. That being said if you want to see the value a Professional Manager can bring then read this Google Doc I put together. It's not polished or anything but worth the read.

Property Managers take on a huge amount of risk and liability and a good manager will save you far more than you ever pay them in fees. 

See this reply in the discussion

31 Replies

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  • Nashville, TN · Member since 2015 · 17 posts · 5 votes
    10y

    Great info! Love how you stuck to your guns and explained how their business plan made no sense.

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y
    Originally posted by @Lisa Wade:

    Great info! Love how you stuck to your guns and explained how their business plan made no sense.

    You know what? listening to all their terms ...

    It felt to me like in that story that the king is naked but nobody dares to say 

    anything to him... 

    how does it make sense that your own property manager gets 10% of the cost 

    of any repairs needed to be done? it actually encourages him/her to choose the most 

    expensive vendor, or at very best - not the cheapest one. why would he? In the 

    agreement I made I stated that I am buying a home warranty for each house (about 500$ a year) 

    and since the houses are renovated then it is in the PM duty to decide whether 

    the house is tenants ready. 

    anything that happens after that that isn't covered by the Home warranty 

    is paid by me but i do take 15% of that cost from PM fee since that maintains three goals - 

    the PM needs to make sure the house is tenants ready, second - the PM will come 

    visit and inspect the house to prevent tenants' negligence . 

    Three - if a repair is needed - 

    PM will make sure the prices will be cheap since he/she pays 15% of it. 

    and that's another point - money goes into my account. I pay fees when i get the invoice. 

    Times have changes. 

    we are not in 1990, everyone has his bank account app on their smart phone, 

    I can see who deposited money and SurePay any sum that i want. 

    a tenant can transfer money, the PM doesn't need to go pick up cash. 

  • Nashville, TN · Member since 2015 · 17 posts · 5 votes
    10y

    Thanks for explaining that further. Very helpful to know when I get to that point. I'm studying but haven't pulled the trigger. I know you mentioned you own property across two states do you mind if I ask how you got started and how many total properties you have? 

  • Residential Real Estate Broker · Greenville, NC · Member since 2015 · 164 posts · 90 votes
    10y

    I run my business the way your new PM is running your contract.  We charge 10% monthly management only when rent is paid but not if it is vacant.  We do have a $250 leasing fee but charge nothing for renewals.  We also make ABSOLUTELY NO money on any kind of repairs.  The way I see it, that is a complete conflict of interest.   I am sure other PM's on here would not want me to say that but it is true in my opinion.  

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Lisa Wade

    I had very little knowledge of what i was doing if to be honest. 

    I just had to jump in. 

    people scare you as much as they can. 

    there is a castrating information everywhere 

    don't do this, don't do that...

    Gosh, I "cry" everyday for waiting so long to begin...

    please add me so we can chat private further more

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Brian Corbett

    that's sound fair. I guess NC is different than Atlanta is that manner. 

    Listen, I don't mind people making money and much of it, why not? 

    that;s why I told my PM - i will pay more. 15% not 8 or 10% but we stay on the same team. 

    i hate that people follow the herd when there is no sense and 

    there is nothing but a big conflict of interests.  

  • Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    Good job!

    If you can still edit, then you might change 'castrating' into 'contrasting' information ;-) . DIfferent meaning.

  • Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
    10y

    @Sharon R. I think you might have had a bad run with PMs. I have never paid them when the rent isn't paid. I pay all my PMs the same - 8% of the rent they collect, plus half a month's rent to be paid out of the first rent check they collect. I don't pay any mark up for repairs, and any eviction costs are paid by them. 

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y
    Originally posted by @Michaela G.:

    Good job!

    If you can still edit, then you might change 'castrating' into 'contrasting' information ;-) . DIfferent meaning.

     I meant to say that this information kills your "libido" to do something, 

    do i still need to change the word? 

  • Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    10y
    Saying all a property manager does is collect rent is like saying all a lawyer does is talk. I agree that pm's should not be running up your bill, but I think that is more a problem with a bad pm than a bad system. I wouldn't turn over my property to someone for a flat rate fee. I want them to take care of it and Not cut corners for more profit. My properties are investments that nickels and dimes now will cost me dollars later. Find a better pm you will be happy, if you still have a bad pm and are paying them a flat rate they will do as little as possible.
  • Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes
    10y
    Originally posted by @Sharon R.:
    Originally posted by @Michaela G.:

    Good job!

    If you can still edit, then you might change 'castrating' into 'contrasting' information ;-) . DIfferent meaning.

     I meant to say that this information kills your "libido" to do something, 

    do i still need to change the word? 

    I got your meaning right away. You castrate a bull and he is ineffective and useless.

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Amber Gonion 
    I can easily understand wha makes you say that. but you must know that while you 

    gave this post maybe 5 min of reading it, i gave the idea of this kind of agreement a long while

    to think and consider every detail of it. I wanted something that would be a fair game 

    for both sides. 

    I don't need anyone collecting monies or distributing it to me. 

    I do need a manger to take care of the house, the convenience living standarts of my tenants 

    and making it profitable as possible. 

    if we go with the normal system you get paid one month rent (let's say 900) and then,

    once you (as a PM) put a tenant in, and every month 90$, so if you didn't really pay 

    attention  to what you were doing...(maybe you had a bad week or something...I don't know..) 

    or wanted to get the quick cash cause your son needed a new PC that month ...

    (again - this is just an example, I am not saying that you are not a professional) , 

    and so you sign up the first "OK tenant" that comes along because it is a sure 900$ ,

     then it is very possible that after 6 months you need to take care of the tenants' 

    damages to the house, which not only means at least 1-2 month of vacant house without 

    rent but also possible damages which tenant left that are not covered entirely by their

    deposit...

    who pays for that? 

    off course. the owner. 

    Owner pays for repairs, owner looses the 2 months vacancies 

    (lets say 900*2 = 1800$ + extra 500$ for damages above the deposit, and this is putting

    it very mildly..i had it happened to me  ) 

    what happens to the PM? he/she looses 180$ for the house not being 

    rented... but wait, it gets "better "because now the owner needs to pay again 900$ 

    to get a new tenant! 

    so the bad situation - to translate it bluntly - is actually in favor of PM pockets. 

    all he/she can say is "this things happen..." and I agree. but you can't tell me you 

    don't see the conflicts of interests. 

    So yes. if you are the most honest PM alive - i am sure non of 

    this ever crossed your mind. 

    In the agreement i came up with, let's call it "Sharon's agreement" or better "flat fee" 

    for the sake of this conversation, 

    the PM has all 100% interest to pick a good - solid - paying - long term tenant 

    that will reduce his job to a minimum, so the 15% that is paid to the PM

    is really for picking the right tenant, maintaining all in perfect order and by doing so,

    it keeps both sides on the same team. 

    yes, before you throw it in, I agree, things can go bad regardless. I agree.

    but when they do once, you (as a PM) become more carful the next time - cause it is 

    in your interest to do that. and not the other way around. 

    I tell you what, 

    try to offer this option to some of your potential clients on the phone, 

    and see how many more you will sign up just by offering this option.  

    My property manager started to offer it to all her new clients, 

    she has signed 80% of the new coming calls. her conversion rate before was 20%- 30% 

    I have no idea to know how accurate are these number but I think you can test it yourself. 

    like I started the first post here - sometimes people are so used to a specific 

    system they don't bother to stick their heads out to see if there is something better 

    to at least try out. 

  • Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    Some very valid points on both sides of the argument. As someone who manages my own company's properties in addition to the property's of others, I fundamentally agree that a property manager should not nickel and dime their customers. 

    We do our very best at walking the fine line of being a for profit entity, but also conducting fair, reasonably priced business that is conducive to long standing relationships with our clients. 

    We try to manage and conduct business with a common sense approach. Some of those examples are as follows:

    1. First placement for a new client in for of their units under our management is 100% free. If that tenant stays less than 6 months, we will again fill that unit for free. 

    2. Subsequent tenants are at a cost of 1 month's rent. 

    3. Mgmt fee is 10% of collected rent. If the tenant does not pay, we don't bill the client. 

    4. 90% of work performed on properties is done in house. This ensures we provide fair pricing, efficient, expedient, and sound work. For work that is performed by third party associations that we have relationships with... They have all been vetted to ensure quality work and fair pricing. We only add a nominal flat fee when subbing work out. 

    5. We do not charge lease renewal fees. We do not institute other miscellaneous fees (unless a balance remains unpaid in excess of 30days). 

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Brandon Ingegneri, 

    I must say that your terms sound much better than all PMs I talked to 

    in metro Atlanta, so what I am getting from all you guys (other PMs here)

    is that #Vegas and Atlanta (where I have properties) have the worse 

    terms for owners. 

    However, let me ask you in light of all you have just written, 

    had I offered you my "Sharon 15%  agreement" (i am having fun w/that name...) 

    would you try it? 

    I don't have a property in Rhode Island so it is just hypothetically asking.. 

  • Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    just to clarify so that I can properly answer your question...

    15% and I would have to cover costs from repairs and maintenance out of that, or just a 15% flat fee and zero % add on's for anything and $0 for tenant placement?

    And yes, I thought you may like Avellino. That is where my family is from. 

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Brandon Ingegneri, 

    I can send you the agreement later on when I am in my office, 

    but to make is short - 

    15% out of all rental incomes, 50% from late fees that tenant pay 

    no, you don't pay for repairs. but you decide on yearly Home warranty company 

    which I pay for it, I also pay for regular house insurance obviously, 

    and renovations before tenant is placed. but repairs that are not included in 

    HW policy would be a cost that will be divided 75% i pay for it, 

    15% is taken out from your fee. let's say there is something broken 

    that HW doesn't cover for some reason (they cover most minor things) 

    and let's say it's 100$, so you "loose" 15$ from your next fee. 

    the idea is that it makes PM care about the house and cost of 

    repairs so he/she makes sure I buy the right HW policy and does 

    inspections regularly (like every 3 months or so) so he knows whats 

    going on and if there is something to fix - it is in his/her interest 

    to fix it in a competitive price. 

    as far as tenants replacing, signing, changing - it is all included in 

    the 15%, but if you get a good long term tenant than you only need

    to worry about it once for many years to come... well, at least 

    this is what people like me are looking for (long term tenants) .

    feel free to ask anything about it. English isn't my first 

    language so if something is misunderstood it is probably my fault... 

  • Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    10y

    to be completely honest it's kind of a double sided answer. Here is the part most property managers just simply don't want to come right out and say, and I'm not sure why. Basically, the monthly service fee is our fluff money. That money is basically a retainer, and that is what I would call your premium on insurance. For that money, I get the 2 am phone calls, I deal with all of the little nuisance issues that the owner never even needs to know about much less worry about. For that 10% each month, I'm taking the stress and BS off of an owner's plate. Earlier in the post you mentioned that one company you vetted couldn't really give you a straight answer. I wanted to clarify that. Some months, everything sails smoothly, and other months, when you break the fee down, I work for pennies an hour on a particular house. In the end, it usually all averages out. 

    15% model. I would and wouldn't be opposed to it. It honestly depends on the quality and location of the property. If the property is done properly, in good condition, and in an area where I can acquire "normal people" as tenants, I would be all in. 

    If it is a potential problem property in a questionable area, I would be less inclined. I would want that regular payment each month because I would most likely be dealing with a bunch of headaches. I definitely think you are on to something, but I think it is case by case. 

    More often than not, we buy run down properties and fully renovate them to relatively maintenance free status. We offer that service to customers with houses in less than ideal condition. In that circumstance, I would be more open minded to the 15% after renovations. 

  • Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    10y
    On our large apartment buildings we charge 5% for management and tell clients to expect an average of 4% (depending on the condition and age) for maintenance labor. Any additional costs are for parts. By being up front that we expect labor to be 4% it gives us a goal. Some months it is higher others lower, but in general it evens out. If it is far above 4% for the year we need to explain ourselves, but we don't have motivation to do as little as possible either with a flat rate.
  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y
    Originally posted by @Amber Gonion:

    On our large apartment buildings we charge 5% for management and tell clients to expect an average of 4% (depending on the condition and age) for maintenance labor. Any additional costs are for parts. By being up front that we expect labor to be 4% it gives us a goal. Some months it is higher others lower, but in general it evens out. If it is far above 4% for the year we need to explain ourselves, but we don't have motivation to do as little as possible either with a flat rate.

     I must say these are good numbers. I was thinking of Florida a third market option... but maybe I should think again :) 

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    @Sharon R.

    Good post. There are good ones and bad ones as in any profession. I fired a terrible one I had for an out of state property. I just talked to a potential PM company this morning. They stated they have a one year contract. I stated I could not accept that in the event I was not happy with them. They then agreed to a 30 day termination clause which help insure me that either they do a great job or they lose me as a client. Everything is negotiable. In the markets you mentioned there have to be hundreds of PM companies. Keep shopping until you find the one you believe will do the best job for you and keep in mind that they MIGHT be willing to accept a 30 day cancellation clause. If so, they might do a better job and if not, FIRE THEM.

  • Robert GilstrapPro Member
    Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
    10y

    Not to be disrespectful Sharon, but you have an incredibly skewed misunderstanding of what real estate management entails and this experienced real estate person who just finished her property management class I fear is about to get a great education in how not to conduct business.

    I laugh when I hear owners who think that a manager should share in the losses of the owners investment. Do they get to share in the upside profits when you sell? Do they get the tax advantages, if they save you $500 on a repair what percentage of that are you giving them? Nothing right?

    You are the owner of the investment. You bought it and you get the good with the bad. If you don't want any bad then you are in the wrong business.

    You seem to have a mistrust of all property managers (perhaps justified) and the entire system in which they operate. I could go point by point on everything you've said but the reply would be pages long and I don't want to bore anybody. That being said if you want to see the value a Professional Manager can bring then read this Google Doc I put together. It's not polished or anything but worth the read.

    Property Managers take on a huge amount of risk and liability and a good manager will save you far more than you ever pay them in fees. 

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @John Thedford, thank you:) 

    I did negotiate and some agreed to some of my requests and yes, one of them was a 2 months notice. but the 3 I talked to in Atlanta didn't agree to wave the 50% month fee for renewing an existing contract. that was what actually set me up to set up my own agreement. 

    what I also couldn't stand (I am also looking to do the same in Vegas now) is to wait 10 days 

    for distribution and then getting this complicated report which i have no idea what is written there... 

    I am also away from my properties most of the time but i am almost 16 hours by my cell, 

    so I can be reached easily and transfer monies very quickly when needed. 

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    @Sharon R.- just want to say I applaud your initiative and out of the box thinking with this issue.  I sincerely hope it works well for you and I look forward to following your progress!

    If I could find a PM that would triage repair requests to get to the actual issues, I'd be more inclined to hire one.  The bubble gum chewing high schooler that answers the phones will NOT ask for more clarification when getting the service call that "my stove.. sink...a/c...toilet...etc is broke". You end up with a plumber, hvac, electrician or maytag man (plus overrides usually) at $100 a minute for simple fixes.    

    Simply telling my people to 'push the burner towards the center of the stovetop' or 'go to your panel and flip the breaker' has saved me thousands over the years.    

    Best wishes on your plan.  Love the name by the way!

  • Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    10y

    Intriguing post, thank you. There is perhaps another way to think about lease renewal fees....

    In many ways, thats you paying an incentive bonus for a pm to get good, long term tenants....if the model calls for a big fee (1 month) with a new lease and little to none on a renewal you are potentially at cross purposes. Curious 

    50% for a renewal as quoted above seems awfully high to me, but say something like $100-150 (- the tax deduction) for an $800/mo lease that generates $96000 a year? Seems reasonable to me. Everyone needs to be able to do decently to have things work.

    Jon

  • Investor · Atlanta, GA · Member since 2016 · 64 posts · 24 votes
    10y

    @Jonathan R McLaughlin, i think you read only a part of it. well here is the thing, 
    if the tenants stays, in the 15% flat fee, you are making actually more! try the numbers and see

    for yourself... the logic is that it becomes your incentive (as a PM) to have him stay, whereas in the existing method,  you make twice as much (one month fee) when you bring 

    in a new tenant :) 

    hope that clears this point better. 

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