I’ve found that there are two ways to learn a lesson in life. The first is through education, and the second is through trial and error.
Although the former is a preferred method, the latter tends to stick with you for much longer.
The great Helen Keller said it best: “Life is a succession of lessons which must be lived to be understood.”
It is for this reason that I no longer stick forks in outlets, mix beer and liquor, or date girls with neck tattoos.
But I digress…
Now, as much as I agree with Ms. Keller’s hypothesis, it’s always nice to be given a heads up on life lessons in the event that the lessons happen to stick with you.
On this particular occasion, I consider myself fortunate to have just been a member of the peanut gallery.
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Just the other day, I met with a great gentleman whom I had worked with in the past. He said that he had a property he was looking to sell and offered to let me take a look at it. We agreed to meet in front of the house early on a Saturday morning.
When I arrived (with my poor fiancé and dog in tow), he greeted us alongside his property manager. We chatted for a few minutes and then got down to brass tacks.
He said, “Just so you know, I haven’t been inside this property since we bought it a few years ago… so I’m not sure what it looks like.”
“Understandable,” I said, acknowledging the fact that the gentleman owns dozens of properties and naturally delegates the visitation duties.
However, the property manager (of many years) quickly chimed in and said, “I also haven’t been in the property for a long time, so I’m not sure what it will look like either.”
(Wait! Stop the tape. Neither the owner nor the property manager knows what kind of condition this property is going to be in?! Uh oh.)
Now, if this were a $1.5 million dollar mansion in Orange County, I might not be concerned. However, this is a C property in a neighborhood where the median house price is $65k.
This is about to get interesting…
The second we walked into the property, we were hit by a solid wall of cat urine smell. Mattresses were lying on the living room floor, food was burning on the stove, and feline fecal matter had been merely swept into the corners (needless to say, my dog loved it). The walls were brown (unintentionally, of course), cabinets had been knocked over, and the place was in a stunning state of disarray. Mind you, this was not an owner-occupied property. This was a RENTAL!
I felt like I had just been transported into an episode of A&E’s Hoarders mixed with a little bit of Breaking Bad.
As a matter of fact, it looked a lot like the property Anson Young videotaped back in February!
After a few painful minutes of burning nostrils and feigning interest, we finally left the house.
Naturally, the owner apologized.
However, I don’t blame him for the wreckage. He hired a property manager (presumably) under the assumption that said property manager would be checking on the house throughout the year.
That unfortunately did not happen.
So what DID happen? Where did it all go wrong?
I’ve decided to break the issue down into two categories: Correlation vs. Causation. Below each of these factors, you’ll find some BiggerPockets reading material that could help you avoid this nasty situation yourself.
Failure to Find the Right Tenant
Just because a tenant pays his or her bill on time every month does not necessarily mean that they are the “right” tenant. In this situation, for example, the amount of money it will cost the owner to repair the property in the future will far surpass the amount that he received in revenue over the years.
Recommended Reading: “Tenant Screening: The Ultimate Guide“
Failure to Find the Right Property Manager
Please don’t take this article as me attacking property managers; I’m not. There is no doubt in my mind that property managers can be a great asset to a real estate investment team. Personally, I love my PM and wouldn’t trade him for the world. However, if your property manager isn’t doing anything but taking 10% of your rent… you need to find a new one!
Recommended Reading: “How to Find an Awesome Property Manager“
Failure to Provide the Tenant With a House That They’re Proud of
I understand that there is no need to fix a property up more than necessary based on the market and comparable properties. For example, a C class house doesn’t need a pool and granite countertops. However, I’m a firm believer in fixing up a property to the point where a tenant is proud to live in it. By doing this, chances are you’ll end up with higher rents and a higher quality tenant.
Recommended Reading: “8 Expert Tips for Rehabbing Buy & Holds for Maximum Rentability“
Failure to Ensure Accountability on the Property
As President Reagan said, “Trust but verify.”
How do we as property owners ensure accountability for our properties without just doing it ourselves? Well, I didn’t know the answer to this question. So I posted my conundrum in the forums and got some great responses.
Here are a few options to consider to make sure this never happens to you. They are listed in order from “Least Time Consuming” to “Most Time Consuming.”
- Create a checklist for your PM and tenant to sign. When your property manager checks in on your house twice a year to make sure that there are batteries in smoke detectors, etc., have them sign a checklist along with the tenant saying that the inspection was complete. Once it’s complete, have them email it to you for your records.
- Have the PM take photos. On top of the checklist, ask your property manager to take photos during their bi-yearly inspections. Make sure that they understand you aren’t trying to snoop; you merely want to be fixing potential issues before they become a problem.
- Check out the properties yourself. The old adage will always ring true: “No one cares about your properties more than you do.” Obviously, this is the most time consuming option, but will also give you the best peace of mind. Whether it be once a month, or once a year, swing by the property yourself and make sure it is in good working order.
Do you have any more recommendations to solve this problem? Have you seen this issue first hand?
Feel free to leave comments below and help out your fellow investors.