Why I Fired Property Management — And Began to Manage My Own Investments

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When my partner and I bought our first investment property in 2008 in the city, our initial plan was to hire a management company. At that time, we had a management operation in the suburbs where we managed around 400 units and a couple million square feet of commercial space. The new location was away from our existing management operation and in an area that wasn’t all too familiar for us. Based on that, we didn’t want to deal with the everyday hassle of managing the property. We wanted to hire professionals who could handle them for us.

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Services That Property Management Offers

We planned to hire a property manager who could take care of these rental properties, allowing us not to be the “evil landlords.” We hoped to focus on our existing management and sit back and collect checks from our new found teammates in these managers. First, let me give you some bullet points about the services that these property management companies offer:

  • They take care of finding and placing tenants in your investment property.
  • They take the emergency and repair calls from the tenants.
  • They coordinate with the handymen to get the repair fixed.
  • They carry out regular inspections of the property to ensure that the tenants are taking good care of them.
  • They take action against the tenants if they aren’t paying rent or adhering to the terms and conditions of the contract.
  • They handle the eviction process if necessary.
  • They collect monthly rents and deposit in your account.

So, basically they do it all and for that, you pay them a monthly fee. Based on the time it would take us and the learning curve we thought there was at the time, we felt it was a no brainer.

Related: The Dirty Truth About Property Management Only Experience Will Teach You

I know this sounds perfect on paper, but only if we could have found a good enough property management company to carry out this job. We met few companies and property managers, and they sound very enthusiastic out the gate, but when we tried them for some time, we weren’t satisfied. We were finding ourselves managing the property managers and still looking at every detail.

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No One Cares About Your Properties Like You Do

Eventually, we figured out that we won’t be able to find any management company that cares about our properties the way we do and has the insight or maybe even the expertise that we quickly picked up on. We wanted to grow quickly in this area, and we knew the goals we wanted to achieve. At that time, we were forced to make a decision of leaving our properties in the hands of people we were struggling to trust or taking the plunge and do it ourselves. We chose the latter.

We built a management company around our Chicago operation. We opened a small office on the South side just to have a spot that the tenants and our new management team could go to. We quickly realized that we are far better off handling the management piece ourselves. There’s no one who cares and knows our property better than us at that point.

We bought it for a reason, we built it out of a certain way for a reason, and we put the tenant in there that we thought was best for a reason. No one knows that block or no one cares about that block the way we do in that sense.

The fact of the matter is that most of these property management companies do not have a vested interest because most of them don’t own any of the properties in that neighborhood. I still often meet property managers who don’t even own property or ever have. They are just doing their jobs of managing it. They’ll fix it, they’ll bill you — but at the end of the day, they won’t be committed to finding quality tenants or ensuring that the property is being treated well. They won’t be on their toes to help you make profits or inform you about good market conditions such as appreciation.

Related: Investors: Believe Me, You CAN’T Afford Property Management. Here’s Why.

Conclusion

I am not saying that you have to start managing your investment property and stop trusting others. But you need to ensure that they have some vested interest and understand your objectives. Meet them, check their properties, talk to their customers, and decide. Most importantly, fire them if you feel they aren’t able to live up to their commitments or costing you money. You need to create your own boundaries and stick to them. Keep in touch with them on a regular basis and double check if you feel something isn’t right.

I can’t take credit for this quote I heard on BP, but it sticks in my mind:

“An average investment with a great property manager is far better than a great investment with a bad property manager. “ — Johnny C.

Are you working with property managers?

Share your experiences.

About Author

Mark Ainley

Mark Ainley is founder of GC Realty and Development and GC Realty Investments. Mark has been an active real estate investor since 2003. He started slowly by flipping condos and acquiring a couple of investment properties. Since 2003, Mark and his team have successfully renovated and stabilized over 200 properties.

18 Comments

  1. Curt Smith

    A national “smart investor” Pete Fortunato has all of his rentals under PM, but he does so via a Master Lease. Giving the PM incentive to place quality tenants who say and pay. Makes sense doesn’t it?

    Part of the PM problem is the contract that drastically favors the PM to the investors detriment. Incentive to induce turnover, incentive to allow damage (cost plus mark up on repairs) etc.

    Should I be too old to self manage our 34 rentals spread across GA hours away I’d use a master lease with sharing of repair costs. LOL!

    BTW low self management effort has several tricks. Some before you buy (only buy in top high school districts), the rest after you buy: only rent to dual income folks, with bank accounts with balance of the move in plus a few $k, hooks to stay like relatives, school or jobs near buy thus having an incentive to stay and take care of the home. Out of 34 rentals I have a turn over about 1 per year.

    Landlords if your stuck with a few problem rentals that neither you nor a PM can keep rented with quality renters… Life is too short to aggravate over vacancy and damage. Sell bad rentals and buy in great schools 6 or better, a desirable floor plan for a family and advertise the school name in the subject…

      • Curt Smith

        Hi Tim, A master lease is just a form of a lease. Typically a ML allows sub leasing and sets the lease amount, where the person getting the ML gets to keep all above the ML lease amount.

        Specifics: Master Lease your portfolio of 10 rentals to a PM for the current rent less 8%. I just picked a number I’d be willing to give a PM. The PM is free to increase rent to what ever they can get and they get rewarded for doing so by keeping the difference. What a ML also does is it rewards the PM for KEEPING the rentals full paying rent. Where the typical PM contract rewards the PM for churn, getting a month (or 1/2 month depending on your area and contract) for turning over the property.

        The ML should in this case spell out maintenance issues. AC, roof, structural things are paid for by the rental owner (you). IMHO I’d make sure the PM had responsibility for damage, theft and non-standard costs that are incured when low quality renters are stuffed into rentals.

        You can see that a ML both benefits the PM with higher profit and the landlord with higher cash flow. Win-win.

  2. William Morrison

    Love the quote “An average investment with a great property manager is far better than a great investment with a bad property manager. “ — Johnny C.

    Our health has changed our in state property approach to PMs and our out of state properties are much easier to manage with a PM. Our 401k properties require it.

    It seems most discussions about property management if not said imply the property is residential. For our commercial and light industrial its a must to have a PM or your own staff. Too many specialties. Tenant placement is not as simple as add placements. A good commercial PM who does placement has contacts and potential clients to place if your property is in good condition and a good location when needed. I’m talking about areas with a 90% 95% fill rate. A good tenant with a good business model will stay a long time. Moving a business is not cheap.

    • Mark Ainley

      I think having good management(resi) on a day to day gives the tenant an easier time to make that decision not to move. We hate turnover and preach customer service and best or better than most amenities to ensure we don’t give tenants any reason to move.

  3. Deryk Harper

    Nice piece Mark,
    As a property manager that also invests in the area I manage I agree with you. I always tell my owners that I take care of their properties just as if they were mine. If I would not put a tenant in one of my units I would not put them in theirs either.

    I am a firm believer in the 80/20 rule. About 80% of managers in our area aren’t quite where they need to be in service and 20% are getting 80% of the business and providing good service. Seems to be the case in most every business.

    If I decide to invest out of my area I would definitely want to choose a manager that also manages his own properties in that area. References from other investors are always a must as well. If the size of my portfolio in that area was right I think putting my own team in place would be a better choice. I agree no one will usually manage your properties with the same care as you, the owner. Just seems to be human nature.

    Thanks for the contribution to the community and for setting a good example.

  4. James R.

    Mark, great article.

    I couldn’t agree with you more! I PM my own properties and have been doing it for 10+ years. Only once, for a year, did I hire a PM. It was a very costly mistake. I like making money and a PM is just an unnecessary cost.

    Like Curt Smith commented above, buy in good areas where PMing your own properties is a breeze and can be very lucrative.

  5. Mike McKinzie

    Once again, I am going to have to counter the argument, “No One Cares about your Property as much as you do!” That goes without saying, but no one cares about your child as much as you do but if your child were sick or hurt, you would take them to a doctor, even if you were a doctor. The question really is, “Can I do a BETTER job managing a rental that a Property Manager?” Just this week, I had a new tenant moving into a house we own in Memphis, I had an Insurance Roof Adjuster visiting a house we own in the D/FW area, I am doing an eviction in a house we own in Fresno, CA and I am purchasing two new rentals in Kansas City, MO. And that is JUST THIS WEEK. And since I used to own a PM company, I could do a better job than any of my PMs, BUT, could I do it in California, Missouri, Texas and Tennessee, all in the same day, at the same time, with four completely separate issues? People ask why are my rentals all over the place. Simple, I had friends who were 100% in Las Vegas in 2004-2008 and LOST EVERYTHING. Same goes for the Inland Empire of California, Florida, Phoenix, etc…. If you had $1,000,000 and invested all of it in Enron or WorldCom, how would you be sitting today? BROKE! My CA rentals dropped in values while my Texas rentals went UP in value. It is called DIVERSITY. And buying a rental in Orange County, CA is a joke. I would have to spend $700,000 on a house that rents for $2,500 a month. I can spend that $700,000 in Kansas City or Indianapolis or Texas and get $7,000 to $8,000 a month, more than enough to cover a PM AND make a BETTER PROFIT than OC, California!

    • William Morrison

      I like your post as it relates to returns that are tough to get in many areas like Orange County. In fact there a couple companies in that area specializing in out of state real estate just for that reason. Turn key if you will with much better returns than you can get locally it seems. With my family being from that area and LA county from the early 1800’s, I have watch what they have to offer with interest. Side note their product have quite a markup, 25% in some cases I’ve seen specifically. I know this because they were on the same street or zip in which I’m invested in out of state.
      Your 1% ($700k to $7k rent) number is the target I use when buying in a good neighborhood, say schools with a five or better, scale of one to ten.
      Your diversification numbers to avoid a complete loss has a leverage number associated with it that can reduced to protect the likely hood of a complete loss in a down market. Reduce your leverage and increase your reserve and that one can be controlled better. Unless your buying in a boom/bust area that may never come back. The ghost town scenario. Some Oil Shale areas maybe the next to experience that. And weren’t part of Texas caught in the 70s in the oil down turn.
      So now you have what you hope is an approach to protect you from local down turns. A national down turn, not a recession but a depression will be tougher with over leveraged and under reserved properties.

      Hey and if you would like to know how some lost no more than about 5% to 8% when Enron failed, that too was done.

    • Mark Ainley

      Thanks for the devils advocate post and is appreciated. When spread that thin it is impossible to do it yourself and same goes for investors doing turnkey across the country as many do on this site. I think you would agree with me when I say when you bought in these various markets you did it because you have confidence in that PM or team on the ground that will be handling the properties vs finding a property or area you like then trying to look for a PM.

      We too sell properties to turnkey buyers and they buy from us for two reasons. Our properties are quality with numbers that help them take a step towards their goals and then at the same time they get back on the plane to go back to where ever they are from knowing we are the management company for them without a doubt. We couldn’t find that feeling in outsourcing that piece back in the day.

  6. Erik Nowacki

    I have been the beneficiary of poor poor property managers a few times. I have been able to purchase properties at a great discount because they were managed by incompetent property managers. Once the PM is fired, I can add value by improving the management process and the property as a whole.

    Currently, I handle all management in house with a full time employee at each property. I train my managers to make the same decisions I would (at least 90% of the time) and if something unforeseen comes up more than once, we develop a procedure for dealing with it. My managers receive a bonus for meeting goals of gross rents collected. If they put a tenant in the unit that is not paying, it makes it more difficult for them to meet their targets, they also know that turnovers means less gross rents collected.

    Does anyone here give bonuses to their PMs and if so, on what basis?

    Erik

  7. Nice to see people stepping up to run their own properties. The wrong people have locked up the property management business. Washed up real estate brokers and agents gravitate to property management. It is hard to believe that people who claim to be experts cannot keep a building full to save their life. Rarely do managers visit the property…nothing is a problem till a resident complains. Suck the owner dry move on to another property

    Property management should be run by people with a repair background. Property owners always worry about renting units…that’s the easy part…operation of the property is the hard part…making a property run at a profit is the last thing you want to leave to a real estate agent.

    Time on the property paying attention to the quality of the product you deliver to your residents will keep your units looking great, fully rented, and making money. I tossed property management companies 3 years ago. I now have fully rented, great looking, highly profitable apartment complexes run by my employees running things the way I need them to be…So much more pleasant than pounding my head on the wall trying to get “professional ” management to do their job….build your business with the idea that your own people will run your properties. It is much easier that you think it is…by the way my properties are in three states hundred of miles apart….you can do it, you really can

  8. The terms “professional” and Property manager should rarely be used in the same sentence.
    As much as we would like to delegate the property management role this is a high risk path to financial failure.
    For anyone planning on making rental income your primary lively-hood plan to handle this yourself or build your own organization when you have the critical mass to do so. In the event you are not interested in being involved in the management of your own properties think twice about being a “buy and hold” investor.
    Everyone I know that has engaged a manager to take over their properties has horror stories to tell and lots of financial struggle to dig out of the problems as well as neglected properties. Many times owners are not even aware of the lack of urgency a PM has to fill a vacancy, ie phone goes to vm after 5pm and weekends… when do you think working people most likely call and set appointments? I rent many of my places before a PM takes the time to return a vm…. Most property managers I have met own little if any property and have no idea what it takes to be successful Landlord.
    There are a few local companies that have their own properties and expand to 3rd party management to gain economies of scale. Although these owners have a better understanding about land lording they are often motivated to operate at that client’s expense… giving preference to their own units… billing supplies to the wrong properties etc. Before you buy your first rental property join a local landlord organization and network with seasoned landlords and learn the ropes. I have met many many people that tell me “they were a landlord once” and never again.

  9. IMO people rely on a PM too much. They expect to turn the keys over to the PM and just wait for the rent checks to come flying in! That sounds great….in the perfect world. The reality is that you have to partner with your PM; what I mean is providing them a good product to lease out & being a responsive and “good” owner. I’ve even been known to place ads on craigslist and through facebook with my PM’s contact info. You must be a PROACTIVE owner.

  10. Gordon Cuffe

    My first property manager in St Louis ended up being a crook. He ripped off at least 10 other investors that I know of so far. I am lucky as he didn’t get much money out of me. He swindled ten of thousands from a couple investors that I talked to. Finding a good property manager is almost as tough as finding gold in the hills.

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