Advice needed - Management Company is a bust or a go?

Question

Hello fellow Landlords,

I am owner of a 14 unit apartment building in Baltimore. When I took it on 2 years ago it had only 2 paying tenants, and required a lot of repairs to the building and each unit.

I live a 4 hour drive away from the apartment building, and so can visit it only once a month or so. As such, I have over the past year hired a Property Manager. During my time with this Property Manager we have gone from 2 tenants to 10 units leasing.

The problem is that 6/10 are facing eviction. And 3/10 are behind by a month or more.

The turnover for evictions seems to be 3 months to evict, 2 to turn around and lease. I have offered those facing eviction the following deal: 6 month payment plan for balance, rent reduced by $100 for 1 year. Most have taken the offer, their delivery on rent has yet to be determined.

My question for you all is:

1: How is this situation? Is this normal? Am I faltering?

2: According to my spreadsheets, if the units are all renting (about 1000-1200 for 1 bed and 2bed) I should be netting almost $100,000 (after all taxes, fees, management, etc). I am so far no where near this. I attribute my loss to date to the large amount of repairs the building has so far needed. HVAC being the most expensive repair, but also that given that I am a 4 hour drive away I have to depend on my manager and his fleet of repair workers to do even small jobs.

3: Can you help me evaluate my property manager, and consider if I should find another management company?

Benefits of my current management company are:

+ He is also a general contractor, which seems to reduce cost and increase speed of repairs when turning around or upgrading an apartment.

+ He lives in the same city as the building and is well integrated in the local rental market

+ He manages the court proceedings regarding evictions

+ His 8% management fee is competitive.

Negatives after 15 months are:

-Payments to my account are often 2-5 months late. They attribute this to slow paying tenants, as well as the high amount of repairs needed.

-Communication is inconsistent, sometimes takes several weeks to have a maintenance issue addressed

-Should I stay with this apartment manager? If not, how best to find an alternative?

Any suggestions on how to get this project finally making the money it should would be much much appreciated.

Thank you all!

Drew Sygit · Answer

@Richard Yoo what Class if your property - A, B, C or D?

How about the Neighborhood?

Many investors naively expect Class A results from Class C or D properties/Neighborhoods:(

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Nick Wu · Answer

Hi Richard, sharing my experience with regards to incentives. I started to work with a starter PM/local assistant two years ago, and initially was unhappy with how lack of heart he is negotiating contractors for different jobs (get one quote with higher than market average and tells me that we are good to go), also lack of proactiveness on following up on listing.

I then set annualized KPIs for him with weight on different criteria I care (maintenance & repair cost %, vacancy rate, late payment, extraordinary spending, etc - weighted differently based on what I cared most). He gets a profit sharing on each property's NOI based on the weighted score he gets.

I set his base PM fee lower than market, but with good KPI his pay can beat by market pay by a lot, and I also save / make more money. Win - win for us. I can tell it worked now because he always thinks about the KPI before he takes every decision, and my NOI are better than last year!

Richard F. · Answer

Are the current, and your potential "young couple" PM's licensed for Real Estate activity?

It is crystal clear that whatever "screening" process they are using is seriously flawed, unless the property/area is junk. You do not "incentivize" tenants to pay, it is a requirement, and a function of determining their true capability and history of payment and for following civilized rules in general.

Splitting the management of the property is a horrible idea. There needs to be one, clear, chain of command, and clear communications, by someone that has the experience of scores of units under management for a decade. It is not YOUR job to train them!

I also question the fact the current PM is a contractor "also". I'm betting his primary "job" is contracting...they are notorious at completing paperwork "on time", and I would be extremely uncomfortable with this person collecting and accounting for rents AND handling repairs and payments. Recipe for disaster...spelled F R A U D.

Richard Yoo · Answer

Hello all,

Thank you so much for these suggestions and comments. It has been a few months since this post and I wish I could have reported progress but it's gone in the wrong direction!

Of my 13 units on the market: 5: Paying consistently, 3: Currently Evicting, 3: Not currently paying, 1: Vacant (New tenant incoming)

Over the past year, I have had only 3 months approximately with 8k coming in from my PM. The rest have been buried in non paying tenants, evictions that should have happened many months ago, and Hvac issues during heat waves.

I have another PM which is a young couple who I have been in dialogue with over the years. They contacted me again as they said they have been taking on properties such as mine with success. I am thinking of going ahead with them, but I want to incentivize consistently paying tenants.

OPTION 1: Their incentive suggestion is for me to give them a bonus once 10/13 apartments are paying for 3 months straight.

I am thinking giving my current PM 7 apartments, the other PM 6 apartments, and giving them this offer:

OPTION 2: The first PM who can fill all apartments with paying tenants for 3 consecutive months gets a 5k bonus, and takes on al 13 of the apartments.

What do you all think of that?

What else can I do?

Frustrated... and I need to turn this place around... all the tenants I speak to are grateful to be living there. It is calm and peaceful and surrounded by trees on a quiet street corner.

Thank you all for your suggestions!

Richard

Diana Khan · Answer

Hi! I’m Diana, an attorney specializing in investment oversight. Welcome to the community!. I can assist by reviewing your contracts and legal filings to protect your interests. Let’s ensure your manager is meeting their fiduciary duties and stabilizing your Baltimore asset.

Richard Yoo · Answer

Thank you Caleb and Drea for your reply...!

The location is actually peaceful, not a rough spot at all.

I am not sure how to incentivize things for the PM. I tried initially incentivizing her leasing team so that it could fill up with long term tenants. (that didn't seem to work)

Is there another way to incentivize the PM besides the % rate? I have also progressively given her more apartments to lease over the past 2 years.

How to get consistently paying reliable tenants?

Thanks so much.

Jenifer Baker · Answer

Hey — I know this post is a few months old, but I wanted to check in and see how things have progressed since then. Have the payment plans and eviction pipeline stabilized at all, or are you still seeing a high level of delinquency and turnover?

I work with Evernest Property Management, and we often connect with owners who’ve taken on value-add multifamily projects from out of state, especially in markets like Baltimore where court timelines, tenant screening, and cash-flow control can make or break the numbers. If you’re still evaluating whether your current setup is the right long-term fit, I’d be happy to share how we typically approach delinquency prevention, owner reporting cadence, and oversight of maintenance when the manager is also acting as GC.

Either way, I hope the building is trending in a better direction now — you’ve clearly done a lot of the hard work already. Happy to connect if it would be helpful.

I know it's been a few months since you posted this. Just checking in to see if things have turned around. I'm hoping your property has stabilized. If you'd like to discuss other prop

Chris Seveney · Answer

if it's not the location then your property manager in their vetting process. Are you also approving the tenants before they are accepted ?

David L. · Answer

I agree with Joe it sounds like a tenant screening issue. Drew provided some useful info on Fico but he is implying that's it's impossible to find A or B tenants for C or D properties (I disagree). There are tenants out there who are great at paying their bills but don't make a lot of money (often retired) and the successful PM will work very hard to find those tenants for C and D properties. I have a great realtor who will reject 19 out of 20 applicants for my C properties because a lot of deadbeat tenants just go from place to place looking for a PM who is dumb enough to rent to them after they got evicted the last time. He has been able to find wonderful tenants for my C properties because he does the work. And his fee for placing a tenant is not cheap but he is worth every penny because of all the work he does in the screening process,

Drew Sygit · Answer

@Nick Wu appreciate your concept and wish MORE owners embraced it instead of penny-pinching their PMCs.

@Larry Myer hope you were paid MORE than average for all the Class D headaches!

Advice needed - Management Company is a bust or a go?

Advice needed - Management Company is a bust or a go?

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FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%