Oh, property management — such a love/hate concept. On one hand, I absolutely love you because you are the reason I don’t have to spend any time (or brain power) on my real estate investments. On the other hand, you really test my sanity sometimes!
If you have invested outside of your local area or you live close to your investments but prefer someone with more expertise or interest takes care of your properties, you are probably pretty familiar with the concept of property management. Even more, you probably have stories to tell!
For any of you newbies out there who might not be familiar with property management, it actually is a great concept. Hiring a property manager (PM) to take care of your rental property investment basically allows you to not have to be the landlord. The PM will find and place tenants in your property, they will collect the rent each month and disburse it to you, they will take repair calls and coordinate getting whatever it is fixed, they will take action against your tenant for non-payment or other issues and handle the eviction process if necessary, and the list goes on. Basically, they do it all.
Sounds great, right? Well, yes, it is great. I have a PM for all of my rental properties, mostly because they aren’t local to me, but also because I have absolutely zero interest in landlording a property or ever dealing with a tenant.
So what’s the downside?
Property Management Reality
You knew there had to be a downside coming. And no, the downside is not that they charge you a monthly fee for their services. I think that fee is well worth it and justified, and I’m happy to pay it.
The downside about property management, to me, is that it can be very tough to find a good PM.
Why is it so hard? Well, the reality is that property management is the lowest paid role in just about the entire real estate industry. This is a problem for two reasons: It doesn’t typically attract the highest quality of folks who want to work it (due to the low pay), and it opens up the temptation for PMs to try to find sneaky ways of charging you more money so they can get paid more. The latter can be talked about more in the context of dealing with bad PMs, so let’s focus on the issue of the people who become PMs and how to work with that.
Good Property Management or Bad Property Management?
I think I can venture to say that the majority of PMs out there are not that great. A little later, I will expand on some more details about that in terms of how it may or may not affect your investment property, but first I want to give you some basic signs to be aware of to know what kind of manager you are dealing with.
Phenomenal Property Manager (Also Known as My Dream PM):
- Communicates well. Keeps me posted on anything that may be going on, is easy to get ahold of, is very responsive, is thorough in answering any questions I have, and is pleasant to talk to.
- Saves me money. Tries to fix repairs in a way that is good quality but at the most cost-effective price, will show a solid effort towards finding the lowest prices for issues, hires handymen instead of contractors whenever possible, has connections with various companies that offer discounts on repair items (and that savings gets passed on to me), offers me ideas on how I might be able to save money by doing something another way.
- Proactive. Stays on top of tenants and the properties rather than waiting until something happens to take action — dealing with bad tenants, keeping the property in good condition (e.g. making sure gutters aren’t clogged up), planning ahead of time for a tenant turnover.
- Inspections. Uses proactive measure to ensure property is in good condition, keeps me, the owner, out of the unknown, offers to send pictures of property for verification of condition (note: this doesn’t necessarily mean an insane amount of pictures and such a thorough inspection of the property that it takes the PM forever to do it; it really just is a basic walk-through).
- Statements. Are clear and easy to understand.
- Verdict? Life is amazing.
Just OK Property Manager:
- Communicates — kind of. I can get a hold of him, but not always easily, and he may not always be super clear with what is going on, but he seems to get the job done.
- Unsure on the savings/deals. Is uncertain about whether I’m saving money through him or spending more money. I get occasional charges on my statement that seem legit but could be nickel-and-diming me. Unclear, but not enough to strike obvious concern. Can’t really tell if I’m getting any kind of good deals on repairs, but doesn’t seem that I’m getting bent over either.
- Less proactive, but gets it done. Probably more accurately considered “reactive,” but action is taken quickly enough that it seems as though minimal consequence is suffered, and situations are being handled in an OK manner.
- Inspections. These probably have to be requested by the owner — they don’t happen proactively. A report may be sent back, but might be semi-unclear and may or may not contain pictures. Often pictures that do come in are irrelevant or blurry — or may not contain much information.
- Statements. Everything seems to be in there, but the formatting makes it almost impossible to understand.
- Verdict? Things could be better, but the money is coming in.
Horrible Property Manager:
- Non-existent communication. Trying to get a hold of this PM is like trying to catch a running cat. Even when something seems very important — or is very important — there is next to no response from the PM. If you do hear from him, it might as well be in another language.
- Wipes out your investment! The point of owning a rental property is to earn income, and that’s the farthest thing from what’s happening because of this PM. Placing bad tenants, calling contractors for every repair call, evictions, vacancy periods — this PM is literally costing you your investment.
- Reactive (maybe). At best, this PM reacts to situations. Assuming he reacts, it’s probably not timely, and it’s certainly not with clear communication. He may not even know there is a problem, and if he does know, he may not even tell you, and timeliness on getting a solution in place is extremely poor.
- Inspections. What’s that?
- Statements. Huh? What does any of this even mean?
- Verdict? You could be the next subject of the TV show Snapped — and not as the person who got killed.
I’m here to tell you:
Your property manager will make or break your investment property!
Because of this, don’t ever keep a horrible PM on your property. At worst, have an OK one. How do you find a phenomenal one? You just have to keep looking until you find one. Asking around on BiggerPockets is a perfect way to start, and ask any other investors you know in the area who they use and like, start calling around to all property managers/companies you can find and start asking questions, etc. The first time I shopped for a PM, it literally took me one year to find a phenomenal one.
What if you are on the fence about whether your PM is good or not? How do you know when to fire him?
Two Different Types of Bad Property Managers
Nobody likes working with a bad PM. It’s beyond frustrating. But should you consider firing one, no matter what? Not necessarily.
I always say, there are two types of bad property managers:
- Ones that don’t communicate well
- One that don’t communicate well and cost you money
I’ll be the first person to tell you that a PM who sucks at communicating is one of the most frustrating things on the planet (unless you just aren’t concerned with your property). But if the money is still coming in and nothing excessive is going out, I don’t recommend rushing off right away to fire him and hire a new one. That does not mean you can’t or shouldn’t start shopping around for a new one, but you don’t have to do anything crazy right away.
One risk to consider that I have experienced with my properties is for some reason if you switch PMs in the middle of a tenant’s lease, the tenant may be tempted to believe they don’t have to pay rent any longer. PM switches have cost me tenants in the past. Although that may be more prevalent with certain qualities of tenants and won’t always happen, be wary.
For the PMs who just suck at communicating, it is up to you when to get rid of them if you decide to. As long as the money is still good, consider tolerating the communication levels. However, in my experience, a PM with horrible communication ends up costing me money every single time. Think about it — if they don’t care about you, why would they care about your property?
Now, if a PM is costing you a lot of money, that’s a whole other story!
When to Fire a Property Manager
No questions asked, If your property manager starts costing you money or shows signs of costing you money, fire him immediately!