All Forum Posts by: Kenny Dahill

Hi @Jeremiah Clark.  First off, premature congrats on your first rental!

We always advise potential investors to know their specific property, owning or being in escrow is always preferred.  Especially if these properties are in different parts of town or different types of tenants.

Things to know or consider when negotiating.  First, you get what you pay for.  If you want the lowest bidder, they're a volume player for a reason.  It's like sushi, you can find a rare great cheap sushi place but it's also at your own risk.

Here's what we have our property managers provide on their proposals to landlords.  I would encourage you to do the same.

• Monthly Management: Percentage of rent or fixed dollar?  Based on rent expected or collect?
• Leasing Fees:  How much will they charge to find a tenant?  It's typically percentage of 1st month rent or a flat rate.  Also, you should ask if they have any other fees associated to listing.  How long will they guarantee the tenant for.  If the tenant leaves or gets evicted, are you on the hook for another leasing fee?  If they do guarantee, how many months before they start to charge another fee.
• Lease Renewal:  What costs are there associated to renewing the tenants lease.  Flat rate, percentage or free.
• Maintenance Coordination: What mark-up they have on top of vendor's invoice.  Handyman an internal or external member.  What their hourly rate is and their minimum trip charge.  How much can they spend without your permission.
• Eviction Costs:  What costs will you be charged with, or what's included in their fees?  Often higher fee PM's include an "eviction insurance", meaning they'll pay for all court fees and place a new tenant.  Will they represent you in court?  Will you have to use their lawyer?

These are the big ticket expenses.  Don't be fooled by the lowest PM rate because there are many additional ways for a property manager to nickel-and-dime you down the road.  You need to have a conversation with them and form a relationship, do they seem trustworthy?  

From my experience, the best PM's are the ones who are open about their services and fee structures.  They actually take the time to explain their management agreement.

Agreed with everybody above, with the only exception that it also depends on the lease.  Obviously if utilities are included with their rent then there isn't much you can do.  Ideally the utilities are kept under your tenants name, that way if they do not pay they are still on the hook with the utility company.

@David Kuhlke I wouldn't consider 2 inspectors, I guess it never hurts to have a backup one just in case.  Especially if it's due to a dispute with the contractor.

Regarding a PM before you buy, that depends. Over the last ten years a lot of real estate teams have added property management.  I am sure they would prefer to get you on the buy side as well.

I always suggest waiting till you at least have the property in escrow.  Landlords tend to forget or not realize that property managers have their own criteria as well. Not all PMs will manage everywhere. Some can be very specific about where, conditions and how much it rents for.  They will almost always want to see the house conditions before they agree to manage.

I also think that's respecting their time. There's enough data out there to help landlords estimate management costs.

@Jay Hinrichs is spot on with the online reviews.  Property managers can unfortunately be reprimanded for doing their jobs by tenants writing upset reviews.  That's actually one of our selling points is landlord only reviews since investors want to hear from other investors.  The majority of reviews online are from the tenants, which makes sense since there is a much higher ratio of tenants to landlords.

The landlord is the one paying for their services and in reality they might have performed their duties above and beyond.  Unfortunately tenants have the time and energy to take out their frustrations.  Property managers can be punished because of their late rents causing evictions.

With that said, some ratings and reviews are most definitely deserved.  We encourage landlords to read the reviews and assess their own ratings, don't look at the Google or Yelp overall rating.  Here's our suggestions:

• Read all landlord reviews
• Read reviews with life-threatening maintenance (HVAC,electrical, plumbing) from the tenants
• Compare to your class of property and tenants. Look for their ratings/reviews.
• Look for specific PM names, confirm if they are still with the company
• Put those ratings in Excel and determine your own average rating
• Check out forums like BiggerPockets for additional reviews
• Write down all the reviews you have concerns about.  Ask them to clarify during the interview!

Be realistic when you are reading these reviews about the class of tenants they manage.  A management company who only manages Class A/B have substantially fewer evictions and late payments.  Meaning less pissed off reviews.  

A management company who manages Class C/D properties will have a lot higher ratio of late payments and evictions.  Meaning way more reviews and airing out frustrations.

Unfortunately property management companies lose out on future business leads because of these ratings.  And most of those reviews are them actually performing their job.  That also makes it harder for us landlords when searching for property management.  Probably one of the only industries this happens to.

I do 1 lease agreement that they all sign.  They holds them accountable for each other.  And their parents!

Unfortunately you'll get the 1 tenant and parent who do 95% of the cleaning process at the end while the others selfishly leave them behind.  But that's their problem and concern, not mine.

I do my best to be modest on security deposits.  If they make the place immaculate with no damages, I have no reason to nickel and dime them.

My rest experience at this college rental were actually recent college grads, 2-3 years out.  Still reckless but now they have enough cash to walk away from the $500 each of them put into the security deposit.  I would rather have poor starving students that need the $500 desperately.

@Jason Bruning, Arizona State University.  My rival! Go Wildcats!

Part of me feels like I'm cheating on my UofA.  But then again I'm making money off my rival. So...

Hi @Bobby Scurlock.  You mentioned there are several properties that you are interested in.  We always advise to have the property at least in close of escrow before talking to PM's about their services. Especially if you already have an agent for the buy.  Mostly to respect their time but also you save you time and energy since the results will vary significantly.

The challenging part about Northeastern Ohio are the markets vary considerably. Due to that, it is common for property management firms to have their own criteria. They are selective about which asset types and areas they are willing to manage. Especially if these properties are in different locations or quality, that would produce different interests from PM's. We've got PM's who are only interested in SFR in Medina with rents above $1,400. Others that will only manage properties within 20 mins of their office. And then some who manage any and everywhere.

Point being, once you are more refined on the property and your needs then you can better value the property managers.  You can ask more specific questions.  Not only valuing the PM's time, but it will also save you time now doing more work than you need to.

Hi @Jian G., you cannot break the lease if they are in good standing.  Obviously if they're breaching their contract then you can evict.

Your best bet is to offer them an incentive to move-out early.  Give them a reasonable offer, cash for keys.  For every month early I will pay you X dollars.  That'll help them find a new place and cushion their pockets a little, which is the exact same thing you are trying to do.

@Ryan B., kudos to you for making sure you do it legally and correctly.

I'm not a lawyer nor know Iowa laws, so you'll have to confirm.  However in most states what you are talking about should not be an issue.  You work directly for the landlord.  Regulations will prohibit you from certain tasks, which you seem to have named the main issues like discussing rent and executing leases.  That doesn't prohibit you from maintenance and coordinating with the tenants for the maintenance.  Heck, property management companies commonly have assistants who aren't licensed help with the coordination themselves.

Hi @David Kuhlke,  solid question.  Obviously renovating out of state will be more of a challenge.

My background is commercial construction and more recently commercial development for industrial properties across Western states.  I take from my commercial experience and apply to residential.

• Invest wisely in a team!  That's 80% of your battle.
• Hire and contract individually.  It is best to have your PM be independent from the contractor.  Let your GC cover the subcontractors.
• Hire inspectors.  I can't express how important and useful a neutral 3rd party inspector is!  Worth every penny!  This contractor absolutely, 100%, needs to be contracted and communicate directly to you.  Not through the GC or PM.  They are great if you need quality inspections, progress updates, schedule verification, etc.  This is all about QA/QC.
• Know PM Limitations:  Property management is completely different than construction management.  Not to say PM's can't have knowledge of construction and renovation, but make sure you understand their knowledge and limitations.  Often a larger management firm will have an individual who handles all the renovations, that's more ideal.  If the individual PM will also manage the renovation then make sure to confirm their knowledge level.  If it is low then you are better off saving the money to have your inspector visit/coordinate more.
• Ask PM their fees.  Renovation projects take up more time and effort, definitely above their standard scope of work.  Do not expect them to manage the renovation simply because you pay them their monthly fees.  Depending on the size of project, they will have a different Renovation Coordination fee.  Make sure you have that conversation to determine their rates.  At the same time, have them define their scope and responsibilities for these new services.
• Accountability.  Make sure you have a good Schedule of Values and schedule from your contractor.  This not only requires they put thought into their planning, but it's a tool to track how well they are performing.
• VISIT!  If you are investing a large amount of capital then it is worth the extra dollars to fly and inspect the progress at least monthly.  Ideally at the end of the month once you have their billings and schedule of values to confirm.  Don't be cheap, this is where a lot of owners go cheap.  If they're falling behind you need to realize ASAP!  Afterall, every missed month of rent will cost you more than the flights out.