Property Management Problems and How to Avoid Them
Property Management horror stories are easy to find. If you know a real estate investor, you have likely heard about a problem he/she experienced with a property manager and Google is full of scathing 1-star reviews of property management companies.
Property management is a difficult business. Nonetheless, it is still a service-based industry and your property manager must always have your best interest in mind and maintain or (hopefully) exceed the industry standards. It is also important to recognize when things go wrong which are outside of a property manager’s control and when they are not.
Here are the most property management problems and tips which will help you avoid them:
- Below Market Rents: Rents are the largest income stream for many real estate investors. Your rents should be on par with current market rates in order to maximize your potential income. Periodically performing your own rental comps will quickly tell you if your manager is keeping up with the market. Rental comps are easy to do using any of the popular real estate apps and websites. You can also call another property manager in the area and ask them their opinion on the home and ask them to provide real life examples supporting their claims. There are times when slightly below market rents are acceptable, however, this should be discussed with your manager to weigh the pros/cons.
- Hidden Fees: Hidden fees are a problem in many industries but when your investments are on the line, hidden fees are much harder to absorb. Before you sign a property management contract make sure you have read it, you understand it and you ask questions to clarify anything you do not understand. Your prospective manager should be up-front with their pricing and not hesitant to discuss it with you.
- Mixed Messages from the Company: Do you talk to a different person every time you call the management office? Are you getting different answers to the same question? Do you have more questions now than you did when you picked up the phone in the first place? Staff turnover and over-staffing is a common problem with property management companies. Ask your salesperson about the staff you will be dealing with once you sign up and the stability of the staff.
- Poor Reporting/Communication: Timely and smart communication is ideal and non-communication is a deal-breaker. Your manager should be communicating with you regularly and fully comfortable with all modes of communication. You don’t want them constantly hiding behind an auto-attendant or administrative assistant. Their reports should be consistently delivered each month and your questions answered clearly and quickly. Any deviation in reporting or a failure to deliver reports can be a huge red flag that must not be ignored.
- Expensive: There are many factors that drive the cost of property management in a given region. Among these are: the quality of the housing, the location of the home, the current rental and housing market, local manager competition and the anticipated monthly rent of your home. Understanding your local market and the amount of work your investment properties require will help you negotiate with a property manager. A “needy” home is more expensive to manage.
- High Maintenance costs: Maintenance can be handled in two primary ways – In-house staff or trusted vendors. Each style has its pros and cons. Ask your property manager to describe their maintenance system and ask what their typical costs are to service the most common problems. You may also ask them what they will do to keep costs down at your rental property.
- Doesn’t do Inspections: Inspections are a core task of owning rental properties. Inspections should be done regularly. If a manager does not provide routine inspections they may be understaffed and incapable of servicing their clients properly. The best way to find out how inspections are handled is to find someone who is currently under their care and ask them.
- Placed a Bad Tenant: Placing a bad tenant is one of the most expensive mistakes a person can make in rental real estate. Doing the upfront work of an intense background check is paramount. The vast majority of Landlord Nightmare Stories could be avoided with this one step yet there are many who still don’t do it. Despite strict screening criteria, some tenants just fall on hard times or bad luck and this situation is not something that can be screened upfront. If you are experiencing a bad tenant find out what went wrong – is the manager negligent or is something else going on outside of their control?
- Lack of Owner Mindset: Simply put – your property manager should own rental properties. It is the only way for them to truly understand the unique stresses and satisfaction that come with operating a successful rental business. It will make communication between you and them much easier and hopefully result in a stronger relationship. Without the Owner Mindset, your property manager will be more likely to make decisions that are not in your best interest despite the fact that they may truly think otherwise.
If you have never hired a property manager for fear of having one or more of these problems, use this list as a guide when you interview potential managers – It will give you a strong start in the process and the groups you interview will know you are serious about property management!