All Forum Posts by: Greg Weik

All this discussion on fees, and no discussion of business models and efficiency.  

This is because every PM company out there - that I'm aware of - basically runs the same tired business model.  It's all commission-based.  There is no way to create a truly efficient environment with a commission-driven system.  And a commission-driven system will always be at odds with the landlord's best interests. 

Example: Tenant placement fees.  Everyone seems to charge them.  The incentive is to get a tenant in the property, so the PM can get paid, as quickly as possible.  Most PMC's front-load their fees - tenant placement is the big expense - and the reason they front-load their fees this way is that if the tenant doesn't work out and the landlord cancels, the PM already received the bulk of their funds on the property. 

Example: Maintenance markups.  Many have said here that there MUST be maintenance markups.  This is insane and the opposite of representing the landlord's best interests.   All PMs should be using independent 3rd party vendors, or owner preferred vendors or owner home warranty companies.  There should never be maintenance markups - in fact, you rely on your PM to do the opposite - fight for the landlord's financial interests on any invoice that doesn't add up (like a $200 smoke detector battery.) 

Everything in here is just noise unless you are drilling down to how the company actually operates and what their company culture is.  

Here's how we stack up:

-$100 initiation fee when you hire us, 7% management fee ($99 min - $149 max), $100 annual fee on 1/1 of each year.  No other charges to clients.  Tenant placement is always free, no maintenance markups, no lease renewal fees, no fees in the event of an eviction.  These are the lowest fees in the industry. 

-We keep 100% of late fees, always have and always will.  Our late fee of 10% of the rent, after the 3rd, is fairly draconian.  It's not a significant source of revenue for us (in 2020 we were not legally allowed to even collect these most of the year), it's a deterrent.  We can't make tenants pay late, nor would we want to if we could. 

-We keep 100% of pet fees ($250 per pet) to deal with pet-related issues.  Security deposits still cover damage from people or pets, and we collect larger security deposits on risky tenants.  We are exceptional at assessing risk. 

-We don't charge tenants any fees, which are becoming common, other than a $30 application fee.  Some companies are moving to a model where they charge tenants $300-$900 for "lease preparation" as well as other fees (maintenance fees charged by the PMC to the tenant for example.) 

So what do you get for our "cut-rate" fee structure?  The best PM company in Denver and Colorado Springs.  We answer our phones, respond to emails within minutes, have stellar Google ratings, etc.  Oh, and the only people working at our company are salaried college grads (or higher education including MBA and law school.)

We've been perfecting our model since 2008.  At my company, we all make very good money, and our company is growing steadily each year.  There is a way to do PM right and profitably.  

I've posted this elsewhere, but acting as a DIY landlord is a terrible idea for myriad reasons. It should probably not be legal to self-manage unless you've demonstrated proficiency.  There is no chance a DIY landlord can have the knowledge-base that we have, which means a DIY landlord is shooting in the dark.  Guessing.  Not in compliance with state and federal law a lot of the time.  Not providing the same kind of safe, clean, and legally compliant rental environment that we guarantee.  The icing on the cake?  They're losing more money than our fees even cost.  

I may be able to shed some light on other aspects of the conversation of "PM vs. Self-Manage." I own rentals personally, and I would hire professional property management if I did not also own a property management company.  There are many reasons. 

The most important aspect that seems to be glossed over here, is that just with ALL professional services, the providers themselves are individuals with wide ranging experience, disposition, expertise, etc.  They exist on a spectrum from borderline criminal all the way to brilliant leaders of their industry. You can't lump property managers into a single category without understanding this distinction. 

Also, the focus is always on the paltry PM commission.  If that commission will break your investment, you made a bad investment.  If the PM charges you $100-$150/month for their services, and if the PM company is solid, it's money well-spent. 

If you think you can self-manage, because you can collect rent and find your own vendors, you don't understand the value proposition of professional property management. What do you know about Fair Housing?  ADA?  What do you know about your state's Warranty of Habitability?  How will you know your lease is any good before it's too late?  How will you handle security deposit claims?  Have you been to court?  

Professional property management does two things for landlords.  1) It makes them money.  Quicker turnover time/reduced vacancy, better tenants, better marketing, knowing market rent and market conditions and typically better access to vendors who will go the extra mile for 500 customers vs. 1.  2) It keeps them out of court and unnecessary litigation with extensive knowledge, process and procedure that a private landlord cannot match. 

Plenty of private landlords have had success and continue to have success without property management.  In my view, it's just a matter of time until the wheels fall off for those landlords.  In many years of doing this, I've yet to come across a single DIY landlord that has a checklist or a process to ensure their rentals are up to code, safe, clean, and rent-ready.  Just because you can do something, doesn't mean you should! 

Some hardcore landlords on this thread, jeez...

Yes, I provide a refrigerator in my personal rentals, and I require it of my property management clients. 

Do you think renters are running around with a full set of kitchen appliances?  (They're not.) 

Pro tips:

-Make sure your lease indicates the tenant will not be compensated for food spoilage in the event a refrigerator breaks. 

-If a refrigerator needs to be replaced, remember you are legally required to put in a "like-kind" unit.  This can become a major issue if you buy a cheap fridge without the same functionality/look/size. 

-Cleaning: if it's clean when the tenant moved in, who cares how they leave it?  That's what professional cleaners and security deposit claims are for. 

-Water lines: yes, this can be a problem, so be sure that you disclose clearly in your marketing AND your lease that the ice/water maker on the refrigerator is "as-is" (if this is your approach.)  Also, make sure you have solid water mitigation responsibilities for the tenant in the lease.  In the event of water leaking, you'll want to point to the tenant's requirement to mitigate damage. 

Ultimately, this is just part of the risk in owning rental properties.  You can't eliminate risk, and I personally think it's unethical to push your risk downstream on the tenants by not providing a refrigerator or charging them for the first $65 (or whatever) on repairs.  

2021 Goal: add 300 more doors under management between Denver and Colorado Springs. The most we've ever added in a year is about 100.  This year we are going to make a statement. 

@Carmel DuffyIt is an electric snowblower, so no maintenance. @Greg Weik"

@Carmel Duffy Well that's good news at least.  All the other issues are still important to consider. 

@Carmel Duffy We have a saying at our property management office: “No good deed goes unpunished.”

When it comes to items like snowblowers, lawnmowers, etc., it’s usually best not to leave them at your rental (or purchase), partially for the reason of theft, but also for other reasons.

-Functionality. Snowblowers need to be properly winterized with fuel stabilizer. It’s unlikely a tenant will do this.

-Maintenance. Gas engines require maintenance, and tenants are unlikely to do this, which leads to...

-Negligence. If you provide a potentially dangerous piece of equipment and the tenant or an invitee is injured using said equipment, you could very well be sued. They could claim the item was in poor condition, dangerous, etc.

I would non-renew this tenant.

@Alexi Schreier.  Don't walk, run.  PM is a business that, by definition, requires the ability to operate at scale.  No PM is going to be a signer on accounts for all of their clients.  That is sketchy at a minimum.

More likely, the PM is trying to evade statutory guidelines requiring PMs to have an escrow account for rent funds.  I wouldn't be surprised if he handled security deposits the same way - the owner's account where he's a signor.  If the rent goes directly to the client, the PM can avoid the hassle of reconciling that account monthly, as is a requirement in every state as far as I'm aware. 

In terms of when you'll be paid: find that out on the front end, it should be in their Management Agreement or they should be able to easily articulate their process to you.  A good PM is a good communicator and will keep you in the loop on late rent, when you'll be paid, etc. etc. 

A great question to ask a PM is if they've ever been audited by the state.  Most states have a real estate division tasked with random audits.  My company has been audited twice since 2008, and it has helped us ensure we are doing everything to the letter.  We're those sickos who actually enjoy an audit as a chance to show off.  :)  

Check out your potential PMs license information online.  Is it in good standing?  Any complaints?  

How are the google reviews? 

I would generally steer clear of a 1-man-operation when it comes to PM.  Unless the guy is just starting out and seems very sharp and trustworthy, go to a company that has an established track-record and one that is easy to get ahold of. 

@Adam Regos, there is some great advice in here, and I originally came in to echo the "don't try to time the market" sentiment.  

But I also thought your 5-year timeline to get out of corporate America and into full time investing intriguing. 

Probably not on your radar, but there are more ways to make money in real estate than ONLY owning properties (which is a good way and I recommend.)  Specifically, if you started a property management company in San Diego (or elsewhere) you could very well be a millionaire in 5 years if you hustled at it.  Take that $170k and invest it in yourself and in building something that's recession-proof and worth more every year - your own company.  Then, if you want, take that PM company 5 years down the road and sell it for 1.5X annual revenue.  Boom. Or just keep raking in the monthly recurring income and have your staff run it. 

Once you have an established PM company, you will have all sorts of connections.  Pocket listings from your clients who want to sell, Realtors you interact with, etc. etc.  Doors simply open.  Ask me how I know.  :) 

Anyway, just a thought outside of the usual box. 

My lens as a property manager is a little different.  I locate and buy my own deals because no one knows the market like a property manager.  No Realtor will have the volume and data to draw from that a busy property management company has in a given market. 

Our smart clients contact us before they buy.  They ask us what areas and types of properties have the best return, and they are not solely focused on the cap rate.  Cap rate doesn't take into account things like "what kind of tenants can I expect in this area", or "what kind of turnover can I expect", or "what is the trend in this area in terms of rental rates and vacancy times."  

Most of the people I've worked with since 2008 who claim to be investors aren't.  If they own multiple properties, the portfolio is usually made up of the worst of the worst in terms of property condition, location, and tenants.  As others have said, the self-proclaimed investor is often a very difficult and demanding customer to work with as well.  The investor moniker doesn't imply wealth or wisdom in my world; I would suggest people use it more sparingly!  :) 

Some great insight in this thread.  From a pure appreciation standpoint, this comment is golden:

@Maria Bakaj "I personally tend to stay away from areas where there's a lot of land for new developments. I'd ask yourself the question, "In 10 years why should someone buy my house if there's a brand new one with the latest styling and fixtures down the road for the same price or slightly more." 

Whether you are buying rental properties (my specialty) or looking for your primary residence, if appreciation is your goal, you want to buy in an established area where there is little-to-no room for new construction.  This is where appreciation consistently is strong.