REI Newbie and (desperately) need some help with my OOS LTR

Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes

3y

In your shoes, I would absolutely looking for another property management company to interview at a minimum. You may not hire a new one, but you need to get multiple opinions about the house and the plan going forward. Lastly, you want to confirm the condition of the property and that you had a tenant originally. Nothing you are describing is a turnkey in my opinion. You want the company you purchase from to be responsible for the management. That way there is no finger pointing. They are responsible for everything happening with the property.

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

3y

Quote from @Cheryl S.:

Your manager is not good.

1. The tenant did not establish their own utility account. The PM should not turn over keys until they've verified the Tenant has established utilities, paid all moneys necessary, signed the lease, etc.

2. Tenants owed a few months rent. Eviction should start the first month they fail to pay and I believe evictions can take place within 30 days of serving the 3-day Notice, so your Tenant should have been out within 60 days.

3. PM marketed the property at too high of a price. They should know the market is slowing in September and price it accordingly.

4. PM suggested lowering the price after two weeks, but failed to do so for six weeks.

I could go on, but it's pretty clear this PM is lazy or incompetent or something. She certainly isn't working hard to protect your interests.

You can sometimes get better results listing it as a month-to-month rental. Get someone in there for a few months and get through the winter season, then put it back on the market in the spring and look for a one-year lease. In the meantime, I would start looking for another PM.

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

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Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Quote from @Cheryl S.:

Hi everyone,

RE Investing Rookie here, and I have been in a very tough situation lately that I really need some advices. I purchased my first OOS and Turnkey investment in South Euclid, OH last year and things have never been easy with this investment. Tenants have been late in rent every month and owed a few months' rents plus (a huge) utilities bills (my PM discovered this later in the year) during their stay. Their lease was up in July this year but refused to move out and we had to file an eviction so that we can collect the missing rent payments and the past due utility bills. Then in late Aug, my PM found a note stick to the door only to find out the tenants moved out already without any notices, and my PM suggested me to file a claim in Court in order to collect all the money that the tenants owed. Long story short, my PM cleaned and had the unit ready for marketing around mid-Sept but until today the unit is still vacant. When we discussed the rent in Sept my PM suggested that we would go higher with the rental amount at the beginning and we can adjust down the price in 2 weeks if traffic /inquires are low. I trusted their expertise and agreed with the process. I was then on an out-of-country trip for a month and half, and when we came back home at the end of Oct, I learned that my unit was still on the market with the high rent amount from the initial listing. Apparently my PM never adj. the rent amount after 2 weeks and just let my property sitting on the market without doing anything to try to promote the rent. Ever since I am back home, I have tried to work with my PM actively to lower the rent, and promote the listing, however, we had no luck to find a potential candidate due to the snow falls in the area and holidays. I had to lower the rent amount (even lower than the previous rental from the turnkey provider) to attract more tenants. But the property has been on the market for more than 2 months, and I feel I've already lost the best time to market the rent and will have to continue lowering the rent. I am really concerned at this time, and feel that my PM has dropped ball in marketing the property - 1) to initiate the rent too high in the beginning and 2) to not follow up, make adj. accordingly, and promote the rent timely when inquires were low in the first couple of week or marketing. The other side of me, I blame on myself and think that I should've had been more active in managing my PM during my out of country trip. I have a questions or options and can experienced RE investors help me in this tough situation:

Regardless the option below, I plan to travel to OH and check out the property in person before the first week of Dec. I know I don't want to rely on others (i.e. PM) heavily in managing the property going forward, but I don't know what would be the best option in my current situation.

1. Find a new PM in the market - I've tried to talk to a couple of PM in the area and will try to call a few more after Thanksgivings. My concern here is that the transition to a new PM won't be smooth due to the current pending/ongoing lawsuit. How to best handle the transition? Even with a new PM, given the upcoming holidays, I am afraid that we possibly won't find a tenants until after the holidays (in Jan), or I have to lower the rent more which I really don't want to. What if the new PM fails to perform and manage the property again - so many bad stories about PM I heard online / or on this forum.

2. Keep the current PM and give them another try. -- I somehow don't trust them anymore because the previous tenants they screened and found. The tenants ended up not paying rent and owed a lot utility bills that I probably have to cover for them eventually.

3. Take over the property and start to manage and screen the tenants myself. Is anyone familiar with the City of South Euclid regulations on rental property? I read through the city website, and seems like for an outside investor like myself, we need to designate an agent to assume and take on all the non-compliance responsibilities. In that case, should I work with a local realtor who can also help show the property to potential tenants and manage other small things around the property while I am away? I do plan to travel to the property twice a year if I self-manage. Any thoughts on this?

4. My PM mentioned that she would also list my rental on travel nurse site for unfurnished LTR but it would mean my tenants won't stay at the property for more than 18 months, which I really don't mind. However, I learned this week that she never posted it on the nurse site to promote the marketing. But this had me think that if it would be feasible to convert my rental to mid-term rental, and I can furnish my home and rent it out to travel nurses. But this could be a risky option as well because I would need some cash up front to furnish the house and the demand is uncertain as well.

Thank you so much for your advice, and have a great Thanksgivings everyone!

Cheryl

WAY too much work, S Euclid rents in a couple days,,,,, You 100% do not need to go there, complete waste of time. You should not be involved at all All you need to do is connect with a PM co that actually does their job,

Good Luck

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

3y

@Cheryl S. don't settle for a bad PMC!

While no one is perfect, including our PMC, this seems to be several mistakes - which is unacceptable.

So, use the advice below to find a new one.

Even if someone give you a referral, what meets their expectations, may not meet yours.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator.

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

We have a 14-page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord. Beyond the Monthly Management, Placement & Maintenance fees, all other fees in our contract are IF EVENT -> THEN fees.

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:

https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

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Cheryl S.Pro Member

OP

Accountant · New Hanover, NJ · Member since 2020 · 35 posts · 11 votes

3y

Quote from @Chris Clothier:

In your shoes, I would absolutely looking for another property management company to interview at a minimum. You may not hire a new one, but you need to get multiple opinions about the house and the plan going forward. Lastly, you want to confirm the condition of the property and that you had a tenant originally. Nothing you are describing is a turnkey in my opinion. You want the company you purchase from to be responsible for the management. That way there is no finger pointing. They are responsible for everything happening with the property.

Thanks! I purchased mine through Rent to Retirement. I did send an email to David and Zach Lemaster an email earlier this year, but seems like once the property is out of their hand they don't care much anymore. Too bad, just my bad choice of working with them and the Company.

0 Reply

Cheryl S.Pro Member

OP

Accountant · New Hanover, NJ · Member since 2020 · 35 posts · 11 votes

3y

Quote from @Nathan Gesner:

Quote from @Cheryl S.:

Your manager is not good.

1. The tenant did not establish their own utility account. The PM should not turn over keys until they've verified the Tenant has established utilities, paid all moneys necessary, signed the lease, etc.

2. Tenants owed a few months rent. Eviction should start the first month they fail to pay and I believe evictions can take place within 30 days of serving the 3-day Notice, so your Tenant should have been out within 60 days.

3. PM marketed the property at too high of a price. They should know the market is slowing in September and price it accordingly.

4. PM suggested lowering the price after two weeks, but failed to do so for six weeks.

I could go on, but it's pretty clear this PM is lazy or incompetent or something. She certainly isn't working hard to protect your interests.

You can sometimes get better results listing it as a month-to-month rental. Get someone in there for a few months and get through the winter season, then put it back on the market in the spring and look for a one-year lease. In the meantime, I would start looking for another PM.

Remember: cheaper doesn't mean you'll make more money.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

Thank you Nathan. Lesson learned hard way. Your insights are super helpful. Appreciate them. I will reach out via DM if any further questions around PM come up. Thanks Again

1 Reply

Leo R.

Investor · Member since 2021 · 591 posts · 695 votes

3y

@Cheryl S. based on your description, I'm guessing your property is C class or lower, in a C or lower area?

I assume it's a C or lower property because tenants in B and A properties/areas rarely behave the way you describe.

If it is C or lower, the problem is probably the property, not the PM!

Most investors--especially inexperienced investors--should NEVER try to do a C or lower OOS property. Why? Because a C or lower property is usually at the absolute bottom of a PM's priority list, and there is almost no financial incentive for a PM to put in the considerable amount of work required to successfully manage a C or lower property.

It's different if it's a large multifamily complex that pays the PM a lot of money, but assuming it's just a single house or small multifam, the considerable amount of effort to manage it is not worth the relatively low amount of money the PM is making from the property--and that's why your PM is ineffective. More importantly, if it's a C or lower property, it's doubtful that ANY PM will put in the significant amount of effort needed to successfully manage this property (unless you pay them accordingly).

Think about it from the PM's point of view: would you put in effort to manage the SERIOUS problems of a C or D class property (e.g.; deadbeat and unruly tenants, vacancy, non-payment, crime, property destruction, etc.) for a few hundred (or even a few thousand) a month? ...personally, I wouldn't take on those types of problems for ANY amount of money; life is too short, and I can make money through much easier channels. Because of this, any PM with any skill will quickly begin focusing on B's and A's, and will avoid the C's and D's like the plague (unless they're being paid very, very, very well for their time).

If the property is C or lower, I'd be more concerned about getting rid of the property than getting rid of the PM.

Unfortunately, this is a somewhat common trap that inexperienced OOS investors fall into (and it's the thing that gives OOS investing a bad name). All too often, inexperienced investors are lured in by the incredible cashflow opportunities of C and D properties, not realizing that many C's and D's aren't worth the hassle and expenses they produce--regardless of the cashflow.

Here's a thread of another inexperienced OOS investor with similar (arguably even worse) problems at a C or lower property--I'd suggest reading this thread, as it provides some solid suggestions:

https://www.biggerpockets.com/...

On the bright side, there's a LOT you can learn from this type of situation (a lot of the lessons are outlined in that thread), and if you take the time to learn those lessons, it can make you a better, more effective investor.

In theory, it could be possible to rehab the property and turn it into a B or A--which ***might** make it less of a headache, and therefore a higher priority for a PM... but, that depends on a lot of factors--for instance, how much the PM's income would increase as a result. Also, if the property is in a C or lower area, rehabbing it might be a complete waste of time and money (you can change the property, but you can't change the neighborhood).

Try not to let it make you too discouraged--all RE investors experience big problems like this eventually; it's almost an inevitable part of RE investing. I've gone through similarly major RE problems myself. Persevering and overcoming these types of problems is what separates successful investors from those who give up and never succeed.

Good luck out there!

2 Reply

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Quote from @Cheryl S.:

Quote from @Chris Clothier:

In your shoes, I would absolutely looking for another property management company to interview at a minimum. You may not hire a new one, but you need to get multiple opinions about the house and the plan going forward. Lastly, you want to confirm the condition of the property and that you had a tenant originally. Nothing you are describing is a turnkey in my opinion. You want the company you purchase from to be responsible for the management. That way there is no finger pointing. They are responsible for everything happening with the property.

Thanks! I purchased mine through Rent to Retirement. I did send an email to David and Zach Lemaster an email earlier this year, but seems like once the property is out of their hand they don't care much anymore. Too bad, just my bad choice of working with them and the Company.

I know them well; they are good guys. They have nothing to do with PM, once they sell you a property that's it your own your own. Not that it's a bad thing, PM is not their wheelhouse, This is a very simple fix. You seem to be much to involved and stressing for no reason, All you need to do is find a team where the both of you have mutual benefits long term. S Euclid rents in a couple days. BTW lawsuit against the tenants? If so do not waste your time. I have extensive experience there, just get it rented and move on.

Good luck

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Steven Foster Wilson

Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes

3y

Quote from @Cheryl S.:

Hi everyone,

RE Investing Rookie here, and I have been in a very tough situation lately that I really need some advices. I purchased my first OOS and Turnkey investment in South Euclid, OH last year and things have never been easy with this investment. Tenants have been late in rent every month and owed a few months' rents plus (a huge) utilities bills (my PM discovered this later in the year) during their stay. Their lease was up in July this year but refused to move out and we had to file an eviction so that we can collect the missing rent payments and the past due utility bills. Then in late Aug, my PM found a note stick to the door only to find out the tenants moved out already without any notices, and my PM suggested me to file a claim in Court in order to collect all the money that the tenants owed. Long story short, my PM cleaned and had the unit ready for marketing around mid-Sept but until today the unit is still vacant. When we discussed the rent in Sept my PM suggested that we would go higher with the rental amount at the beginning and we can adjust down the price in 2 weeks if traffic /inquires are low. I trusted their expertise and agreed with the process. I was then on an out-of-country trip for a month and half, and when we came back home at the end of Oct, I learned that my unit was still on the market with the high rent amount from the initial listing. Apparently my PM never adj. the rent amount after 2 weeks and just let my property sitting on the market without doing anything to try to promote the rent. Ever since I am back home, I have tried to work with my PM actively to lower the rent, and promote the listing, however, we had no luck to find a potential candidate due to the snow falls in the area and holidays. I had to lower the rent amount (even lower than the previous rental from the turnkey provider) to attract more tenants. But the property has been on the market for more than 2 months, and I feel I've already lost the best time to market the rent and will have to continue lowering the rent. I am really concerned at this time, and feel that my PM has dropped ball in marketing the property - 1) to initiate the rent too high in the beginning and 2) to not follow up, make adj. accordingly, and promote the rent timely when inquires were low in the first couple of week or marketing. The other side of me, I blame on myself and think that I should've had been more active in managing my PM during my out of country trip. I have a questions or options and can experienced RE investors help me in this tough situation:

Regardless the option below, I plan to travel to OH and check out the property in person before the first week of Dec. I know I don't want to rely on others (i.e. PM) heavily in managing the property going forward, but I don't know what would be the best option in my current situation.

1. Find a new PM in the market - I've tried to talk to a couple of PM in the area and will try to call a few more after Thanksgivings. My concern here is that the transition to a new PM won't be smooth due to the current pending/ongoing lawsuit. How to best handle the transition? Even with a new PM, given the upcoming holidays, I am afraid that we possibly won't find a tenants until after the holidays (in Jan), or I have to lower the rent more which I really don't want to. What if the new PM fails to perform and manage the property again - so many bad stories about PM I heard online / or on this forum.

2. Keep the current PM and give them another try. -- I somehow don't trust them anymore because the previous tenants they screened and found. The tenants ended up not paying rent and owed a lot utility bills that I probably have to cover for them eventually.

3. Take over the property and start to manage and screen the tenants myself. Is anyone familiar with the City of South Euclid regulations on rental property? I read through the city website, and seems like for an outside investor like myself, we need to designate an agent to assume and take on all the non-compliance responsibilities. In that case, should I work with a local realtor who can also help show the property to potential tenants and manage other small things around the property while I am away? I do plan to travel to the property twice a year if I self-manage. Any thoughts on this?

4. My PM mentioned that she would also list my rental on travel nurse site for unfurnished LTR but it would mean my tenants won't stay at the property for more than 18 months, which I really don't mind. However, I learned this week that she never posted it on the nurse site to promote the marketing. But this had me think that if it would be feasible to convert my rental to mid-term rental, and I can furnish my home and rent it out to travel nurses. But this could be a risky option as well because I would need some cash up front to furnish the house and the demand is uncertain as well.

Thank you so much for your advice, and have a great Thanksgivings everyone!

Cheryl

Have you heard of the saying, " when the cat is away, the mice will play?" It sounds like with you being away they really stopped focusing on your property and became lazy. The more you are the squeezy wheel the more care you will get. I know that is sad to say but it is often true. I would definitely look into a new PM company. Often turning over management is easiest on the first of the year.

If I was not in town and I knew my property was having trouble renting I would ask to do a video skype of the property so I could see it myself because often what they might think looks good and is acceptable, is not in your book.

I have recently posted one of my places on the travel nurse site and I have got a lot of bites. I think that could be a great option for you.

0 Reply

Jim TurpinPro Member

Member since 2020 · 3 posts · 7 votes

3y

We have just been through a property manager switch. Like you, we bought our rookie turnkey property in OH from RTR last year. The PM just did not meet expectations so we decided to make the switch at the end of the 1-year contract. Transition was fairly painless and is now 100% complete. The new PM in Cleveland is really on top of things and so far we are very pleased. They are very experienced at taking over properties from other PM's. If you'd like more info, let me know.

1 Reply

Joseph Crunkilton

Rental Property Investor · Oregon City, OR · Member since 2020 · 324 posts · 780 votes

3y

FIRE THE PM!

You have to manage the managers. Actions speak louder than words, and they're dropping the ball.

I had this exact issue with my first place and problem tenant. Life is much better with a professional PM that handles biz.

Sorry you have to go through this though. Tough it out. REI is highly forgiving and it will pay off in the long run.

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REI Newbie and (desperately) need some help with my OOS LTR

REI Newbie and (desperately) need some help with my OOS LTR

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11 Replies