Oh, how many of us love them? (Secret answer — not many!) Why is property management such an often-hated industry? Well, the answer is easy. Because the majority of property managers out there just aren’t very good!
Property managers typically not being the cream of the crop isn’t anything new, and in fact, it is a continuous battle for many real estate investors. I would venture to say that property managers not being good is also a huge driver for why a lot of investors refuse to invest outside of their local market. Quite frankly, I hear you, and I totally get it. For me, investing locally isn’t worth it (no cash flow in Los Angeles, I wouldn’t know how to manage a property any better than even the worst property manager, and I don’t want to see my properties every day), so I end up putting up with property managers, but I do understand why a lot of you refuse to take on a property manager.
Obvious Causes of a Property Management Failure
A lot of articles have been written on property management, including what to look for in a manager or management company, how to know when it’s time to fire them, or how to know if you are getting taken advantage of by your manager. One of my favorite articles I ever wrote is called “Surviving the Hell We Call Property Management.” I really couldn’t think of a more applicable name for the article…
There are a lot of more obvious things to look out for when dealing with a property manager that may be signs of impending doom. The basic list of these things includes:
- Nickel and diming you
- Constantly charging (or overcharging) for maintenance/repairs
- High turnover of tenants
- High rate of evictions
- Hiring expensive contractors for every small fix
- Lack of communication
- Not taking care of the property
- Missing payments
I’m sure I’m missing some, but think of all the obvious reasons a property manager might make the hairs on the back of your neck stand up.
Well, in addition to this list, I want to bring up a less-obvious cause of potential property management failure. The reason I am bringing this up is because I am currently experiencing exactly this issue with the property manager on my properties, and in talking with some folks in the general real estate industry, they all concur that this is actually a huge thing with property management.
A Not-So-Obvious Cause of Property Management Failure
As with any topic I write about, in no way am I trying to imply that doom will always be the result if this happens, but it is something to consider and keep an eye out for if you are ever in the situation of having a property manager run your properties.
Are you ready for it? Can you guess what isn’t so obvious but can still send the quality of the property management on your property down the toilet? (Great pun for rental properties, huh?)
Property managers or property management companies that grow too big.
Let me paint the picture here. My absolute favorite type of property manager is an individual, oftentimes a real estate agent, who isn’t necessarily associated with a property management company but knows how to handle property management (and is licensed, when applicable) and does it well amidst his other work (still likely as a real estate agent). Even if not an agent, the manager works somehow in the real estate industry so he knows the ins and outs, how to work with investors and how tenants work. But he isn’t reliant on the income from managing by itself because, let’s be honest, the margins are horrible!
The reasons I like the individual guy (or gal) manager are:
- I love the communication ability. I don’t have to go through a secretary, I always get my manager directly, and we can talk whenever we need to and get things accomplished quickly and efficiently. Most importantly, when I call, the actual manager answers (what a concept).
- This kind of ties into communication, but I don’t have to deal with property management software statements. I HATE the statements property management software produces! I have yet to ever see a program that spits out statements that I can even understand (and I have a degree in engineering). I love just good ‘ole fashioned Word document statements, or Excel, or whatever is just easy and simple.
In general, communication and understanding are my favorite aspects of working with an individual. I also feel like when you are more personally tied to the manager, they are more emotionally invested in taking care of your properties. It takes a lot for a manager who is running hundreds or thousands of properties to care much about you personally. But when I develop a relationship with my individual manager, I really feel like that goes a long way and opens up the door for me to give him reason to want to take care of my properties.
Now, the downside of the individual property manager — they can only manage so many properties by themselves, and the problem with that for them is only having a few properties doesn’t pay much. To be in a financially lucrative situation as a property manager, you have to have a very large portfolio of properties. Here is where everything starts to spiral, and this is exactly what has happened to my current manager (in my opinion).
The individual who manages a handful of properties, along with his whatever other kind of work, does such a great job that word starts spreading about how awesome he is. More and more investors call him up, ask him to take on their properties. He does, no big deal, and life continues as normal. Eventually, however, he’s going to end up with more properties than he can efficiently take on by himself.
His first move is to hire a young part-timer to help him with emails and phone calls. She (or he) becomes in charge of getting owners’ statements out to them each month, emailing about maintenance approvals, and taking all the calls and messages for the manager. This sounds fine in theory, but a couple problems start in with this: