Why Hiring a Top Rated PM Company is the Worst Thing you Can Do for your Portfolio
It’s weird to me to say that I started my Real Estate Career 18 years ago. That is literally HALF of my life spent in this career. I still picture myself in the back of my mind as a young singer/songwriter, just as I was when I graduated from the Highschool of the Creative and Performing Arts in Pittsburgh in the early 2000’s. Now I am much older, and I am happy to say, much wiser than I was back then. When I started in Real Estate, I thought it would be easy. I was going to do everything I could to know everything about Real Estate, the market, the best ways to advertise and sell properties, and just overall be the best at it. I didn’t realize how hard it would be or that I would end up taking a shift in my career 12 years ago to specialize in investment properties. In 2018, after helping to grow my own portfolio, as well as the departments of two previous brokerages, I ended up opening up my own property management company. This was the hardest undertaking of my career. I am lucky enough to be very well versed in investments, as I had previously said, my goal was to know everything I could about the business. But it doesn’t matter how much research you do, meetings you attend, or colleagues you talk with, it takes first hand experience to really know what you are doing.
When I started my company in 2018 (and for much of my career before) I was a top rated agent. I had dozens of referrals a year. I went from managing 10 properties to over 100 in less than a year. I had a 5 star rating on every site you visited. From the outside, I looked like the perfect candidate to manage your property. And to be honest, in a lot of ways I was. I was extremely committed, worked 70+ hours a week, and would do anything to get my properties leased and cash flowing. On the interior, I was struggling. I was working 70+ hours a week which means I was exhausted. I needed to bring in help, and one of the hardest things you don’t realize is that if you wait until you are in that much of a need to hire, you don’t have time to train the new hires. So instead of me working 70 hours a week it was 90 or 100. Training and working. I worked from the time I woke up until the time I went to bed 7 days a week. Eventually after burning out and going through staff changes(some I lost due to burn out and others I let go because I didn’t have time to train the ones who didn’t pick up fast enough), I finally set a new rule. I would only work 60 hours a week. This meant that instead of a few hours for a response at most, owners and tenants were having to wait up to 1 business day. Some owners felt that meant I was slacking. I felt it was setting new boundaries….healthy boundaries. Regardless, my business was changing and with all the growth I had seen, the new employees, even those who did their best, just weren’t me and it was obvious in my business. I felt like there were constantly changes in staff. I offered more and more money, benefits, and training but in the end, burn out or firings were happening on a constant basis. It was until about a year ago that I was able to sit down and really dedicate the time and find the right people to run the department as closely to how I run it. I hope with time and training that one day they will be even better than me. We continue to see some changes as we tweak our staff to really highlight each person's strengths. We are finally to a place where I feel we are running at 90% efficiency and constantly reviewing and training to get better. Even though we continue to get better and better internally, our reviews don’t necessarily reflect that. We went from a 5 star company to a 4.5 star company and then down to a 4 star company. But why? I was very upset. Everytime a bad review would come in I would be sick to my stomach. I would agonize over it. What did we do wrong? Why don’t people like us? How can we get better? I drove my staff, and myself, insane. I talked to our company attorney, and other management companies across the state, and mentors, and I finally realized the truth. Hiring a top rated Property Management company (a 5 star one) may be the worst mistake for your portfolio. And here's why.
When you sit and look at all of our reviews, and in fact, all of the reviews from management companies across the area (at least here in Pittsburgh), some of the ones that have their stuff together the most, the ones that I truly admire, are not the highest rated ones. The highest rated ones are usually companies within their first couple years. They are in that stage where one or two people are really running the game. Killing themselves how I used to. The ones that in a year or two will burn out. The ones who most likely don’t really know what they are doing. These are the companies who haven’t had years of experiencing all the crazy and wild things that happen in this industry and aren’t always the best equip when those crazy things happen. The companies who maybe boost very low eviction numbers (which sounds great) but when it comes to going to court for anything outside of a run of the mill non pay eviction, will be left stumped in the court room and may cause you time, and money, trying to get a tenant out that could have easily been evicted if a more experienced company was handing your properties. The new companies usually don’t have a lot of units they’re handling which is great when you start out, but over time, as they get busier and busier, your property may fall to the bottom of the pile as they try to juggle their time between new properties and low staff.
So if you don’t want the top rated ones, who is the ideal management company? Well in my opinion, anything in the 3.5-4.5 range is usually the best. I’ve even some really good companies as low as 3. You want to scan the reviews and see if it is a bunch of tenants unhappy about repairs not being done fast enough and unhappy tenants for non payments or if it is owners, landlords, and other agents stating the company didn’t do a good job Managing their unit. Don’t hold any weight to a review that is more than 12-24 months old regardless of who it is from. A company can dramatically change in one direction or another in a year or two so an unhappy owner from 2015 holds a lot less weight in my eyes than a handful of unhappy owners from a few months ago. Keep in mind, unhappy tenants will most often complain to the public when they are unhappy. Sometimes it is justified, but most often then not, it isn’t factual. A management company that fixes a broken heater within 24 hours on a holiday weekend is a superstar company, when some tenants may feel a couple hours without heat is unacceptable. I agree, it stinks, but the turn around is perfectly fine, and in some cases, superstar timelines. The 1 star reviews we have are 99% from tenants; Tenants who rated us 1 star bc we evicted them for not paying rent, 1 star because they got into a fight in their property and put a hole in the wall and we won’t fix it for them for free, the tenants who left the property in total disrepair after owing the owner money for unpaid rents and was upset we didn’t return their deposit. In fact, the first 1 star review I ever got was from a tenant, who drove into his garage door and completely destroyed it and was upset the owner wouldn’t fix it for free. The management companies who hold tenants accountable for what they do wrong are the ones who suffer the most. And I have seen time and time again, where a tenant is upset about something, like being evicted for not paying rent, and then their entire family and friends leave 1 star reviews. All of a sudden we have 12 one star reviews from the “Smith” family/friends and it kills our rating. If you find a 5 star rated management company wherever you live that manages over 500 units and has been in the business for over a decade, please send me their information. I’d love to pick their brains. I’d love to know how you enforce paying rent, address every tenant's desire, and granting owners wishes without making tenants upset. Now don’t get me wrong. There are companies that absolutely deserve low reviews (and some that deserve much lower than what they have).Negative reviews are part of the business and often a sign of a management company who holds tenants accountable and protects your investment. I do say it’s good to read reviews. Ask the management company about the situation if you are concerned. Ask them how they would handle a situation like no heat or no hot water. Ask them their preferred method of communication. I used to love phone calls, but after many miscommunications with owners and tenants “forgetting” conversations after they happen, we have defaulted to writing as much as possible. It’s best for everyone. When we do take phone calls we recommend to everyone to follow up with an email so we make sure all parties are on the same page.
So what should you look for when hiring a property management company? It isn't just about rates. I have seen so many owners interview us and then other companies, going with the other company and end up calling us back a few months later asking if we could still take their unit because management company x,y,z was a bit less expensive but has cost them hundreds overall. Yes, ask about fees, and if you really like a company but someone else is less expensive, see if there is anything they can do. Sometimes we can match rates, and honestly it never hurts to ask. Ask about the length of the contract. Most of the contracts I've seen are for a year and auto renew for a year after the initial term. I know for us we base our hiring of leasing agents and staff based off of the projections of units we plan to manage over the next year. Ask the manager about their experience with evictions, especially since COVID. What are their policies? How successful are they when they end up in court? Do they pay any fees or are there extra fees if they go to court on your behalf? Ask about repair and renovation and fees associated. Do they have an in-house team or use 3rd party? If you are worried about time on market, turn overs, certain situations, ask them about it? Give them scenarios and ask them how they would handle it. Be prepared for good property management companies to ask you questions too. Some companies may want to visit your property before taking it on. I know all too well that taking on a property that needs a ton of work and the owner isn't willing to do it can be beyond a headache. Make sure to communicate your current and long term goals. Many of the companies in our area either have agents on staff or work with a sales brokerage and can help you find more properties when you're ready. I know that we do a lot of deals each year off-market, meaning, we help our investors find properties that aren't on the MLS system either because our investors are selling or other agents we work with regularly have properties that are being sold but haven't hit the market. This can be a huge benefit, especially in today's market.
No matter what you do, just make sure you communicate. Communicate when you are unhappy and what needs to change to be happier. Communicate when you’re happy and refer a good management company or agent to others you know. Being on the same team together means we can all work together for the same goal and everyone ends up winning.
