Fall of a Property Manager – Part II

by | BiggerPockets.com

Last week’s article (Part I) discussed problems with a small town property manager – the only one in town. What started as bad business, being unresponsive and unreliable, soon turned into something much worse. He was apparently operating on a shoestring budget and cutting corners at every turn. It’s quite possible that he meant well initially, but things soon spiraled out of control.

This occurred in the small northeastern mining town of Ely Nevada. While it is four hours from where I live, I have spent enough time there to have a good feel for the area. A networker by nature, I have made a number of very good connections that proved invaluable in this case. When the trouble began I started asking around; what I learned was disturbing to say the least.

A Litany of Complaints

One of my connections is a prominent Realtor who absolutely loves her hometown. She started hearing the horror stories about the property manager as more and more people shared their tale of woes with her. When I talked to her about mine she told me about the others and I asked her to put these people in touch with me. In no time at all I had collected quite a few stories.

A small sampling of the alleged complaints:

  • A woman from California who was told her rental was vacant. She discovered that it was indeed rented and the property manager was pocketing the rent.
  • One landlord was told that she needed a new garage door at a cost of $1900. She thought that was excessive and called a local company to find that not only had they provided the property manager with a quote on that house, the quote was for $900.
  • Another out of town landlord had numerous charges for maintenance work deducted from rent proceeds without being provided with invoices. When he demanded proof the requests were met with excuses.
  • Several cases of rent being collected but not forwarded to the property owners.

A common thread in all of these cases is that the landlords are all out-of-towners. Since they don’t live in the area it is easier for the property manager to avoid them. He probably assumed that they would be reluctant to take action because it would be inconvenient. That certainly wasn’t the case with me and he obviously had no idea who he was dealing with.

My Case

I hired the property manager to find a tenant for a two-bedroom house that had recently gone vacant. Someone called me directly about it and I instructed them to contact the property manager. He had them sign a lease agreement, give a security and key deposit, and first month rent. He left me a message saying the property was rented. That was my last contact with him.

Two weeks after that message I called him to see where my money was. I received no response and called a few days later. I got someone on the phone who claimed that they were having some bookkeeping difficulty but the money would be sent in a day or two. By law he has thirty days to forward the funds so I had no real recourse at this point. I was now leaving messages on a daily basis without response.

By this time the situation was disturbing enough that I had my attorney get involved. She sent him a letter terminating the management agreement and demanding immediate payment of all funds collected. Of course it was ignored. The tenants were also notified that they would be paying me directly from this point forward. The bad news was that the tenants had already paid the next month’s rent. Between rent and security deposit the property manager had collected in excess of $2,000 but I had not received a dime.

Next week: Part III – Striking Back

Honesty is for the most part less profitable than dishonesty.Plato

Photo Credit: Christopher Sessums

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  1. I hate that anyone has to deal with this crap, Rich. This story is starting to sound more and more like something I went through, and that was not fun at all. While I got some of my money back, unfortunately, the lying thieves (who ripped dozens of us landlords off) that I hired to take care of some properties, never got busted for breaking the law, and continue to do business today.

  2. Mike McKinzie on

    I had a very similar problem with a Property Management Company in Visalia, California. Except they were managing Ten (10) properties for me. When it is all said and done, I will have lost over $100,000.00 to them through things like two year long vacancies, extreme deferred maintenance (3 of the houses have already cost me over $10,000 each in repair work), rents collected but not sent to me, telling me it rented for LESS than what it really rented for, and so much more. The problem was that the management contract was with my mother, who was dying of cancer (she passed on April 23, 2010) and so I had no authority to do anything. Luckily, my mother gave me control in August, 2009 (1 year ago). I split the properties up between 2 management companies, but even after 1 year, I still have some of the mess to clean up. But I do have the gross rents up to about $6,000 a month when it was $2,000 a month a year ago. The gross rents should be up to $8,000 by the end of the year. What an ongoing nightmare!!

      • Hi Josh,

        If the company operates in the Kansas City area at all, if you could PM or email me with their info I would appreciate it, as I have some rentals there and have fired two horrible PMs so far that have cost me thousands of dollars.


        • Nope – not there, Dawn. Perhaps you could share with us on the forums some of the things you’ve dealt with so others can know what to look out for in a bad management company?

        • Thanks Josh. I actually have posted previously on the KC (and AL) property management issues, but it was a while ago. I’m happy to say things are running a lot smoother now, as technically my company is managing my KC properties, with the help of a local handyman. Of course I’ll be paying off the effects of the bad PMs I fired for the next couple of years though, because of the thousands of dollars of damages and vacancies that they caused, but at least things are going in the right direction now.

  3. All of my properties are at least two and a half hours away and one is over 8 hours away. I manage all of them.

    Long-Distace landlording requires a few areas to be addressed:
    1. Finding / Leasing of tenants – most of my success has come from local papers (like a ‘Pennysaver’). I have a voicemail account that is advertised. I return the calls and have my handyman show the property after I’ve screened them.
    2. Collecting Rent – I set up a separate bank account for each property. Tenant makes deposit to pay rent.
    3. Maintenance – See #1 – my handyman handles almost all maintenance. I pay him by making deposits directly to his bank account.

    My business doesn’t take much of my time at all. I would be EXTREMELY hesitant to turn it over to a property manager…

  4. Rich, regrettably these are the lessons that stick with us the most.

    When I tried to shift our portfolio to property managers I ended up firing the first one within 6 weeks (he managed to take a 5 unit property with 4 paying tenants to just 1 paying tenant) and the other lasted 6 months.

    As everyone responding here knows… no one will take of our properties as well as each of us will.

    I look forward to how you “stuck back”.


  5. This is probably one of the worst stories I’ve heard, but I know it will have a good resolution because you have the benefit of working in a small town where one’s personal reputation can make/break a business. I’m in a town of 9,000 and can tell you that a simple letter to the editor, some carefully placed signs, and talking to a few people of importance would have his office boarded up in no time!

    As a property manager myself, I know there are a lot of bad apples out there and it’s unfortunate. But some of us actually DO take care of property as well (and even better) than most owners do. I have owners that come to me because they can’t handle standing up to their tenants. One guy recently hired me because he can’t get his son (yes, his own son) to pay the agreed rent. I personally own rental property and understand what it’s like to leave my property to someone that doesn’t care about it, so I do everything within my ability to ensure the owners are happy, their properties are kept in tip-top shape, rents are where they should be and collected when due, and that my tenants are well-screened and kept happy. I’m a professional, and I run my business as such.

    I’ve discovered real estate is a field full of pretty women that sell with smiles, men that sell with B.S., a lot of cheats, and a lot of fools. They can only exist because clients support them with dollars! The good news is, it makes it easy for someone like me to shine! 🙂

  6. Hi Rich,

    Unfortunately I can relate to this as well. Am currently in a situation with the latest scammer PM in Birmingham, AL who owes me almost $10K for rent he collected and never forwarded, accounting backup that didn’t add up or just wasn’t supplied at all, work he “completed” that I paid for, and then had to pay someone else to do once I fired him and someone new came in to look at everything, etc. My lawyer is trying to track him down now.

    I am interested to hear how this was resolved.

      • Thanks! That’s the path I am on now, although this PM presented himself as a legal PM company, when I looked into his various businesses more closely recently I found out he’s not even a licensed broker or agent! Even his “main” business as a major rehab (residential and commercial) contractor is not a real company registered with the state. This article gave me a few more ideas though.

  7. Thomas Cullen on

    I’m going through the same thing now with my 3rd (and final!) PM in Memphis. Deducted $900 from rent on a LP. The LP agreement clearly states tenant/buyer accepted the property condition and is responsible for repairs. Told me I was responsible. Hired attorney. Tried to BS him. I gave them their “notice”.

    The very next month I get my statement them. They had deducted $2k in repairs on another property!! Trying to run up the old debit balance.

    So I hired a property inspector. Got the report today. Looks like they have charged me $800 for a new condencer coil that didn’t get installed! That’s just the obvious one. Still investigating! They have done this before. Charged me $1300 for repairs not done. Tried to double bill me for an AC cage. They credited me back after i caught them!

    Gonna self manage my remaining Memphis properties. If I’m going to get screwed, might as well get paid 10%, right? 🙂

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