Property management company vs. Caretaking service?

[Cory Sperle]

As 2017 wraps up on a brutal year for many landlords who have been hit with falling rent, massive incentives to fill units, rising property tax, insurance, utilities (including Alberta carbon tax increase in January) landlords have had to make some tough choices in order to survive.

One trend I noticed this year was people firing their property management firms and hiring a caretaking service instead. Property managers must be licenced brokers, where caretaking firms do not, but are essentially offering the same service, although ultimately cheaper and better quality in many cases. What are your thoughts on this approach? Pros and cons I can see are :

Pros - less cost, 'all in' fee based on % of actual rent collected
- can be more hands on and take better care of your property. Don't have the overhead a PM does.
- they seem to do everything a PM company can including advertise, show suites, organize repairs, etc.

Cons - not licenced, could have liability issues if there is a problem.
- Do not do book keeping, just issue monthly statments
- can not legally hold cash, must transfer to your account.

I would like to know if this is a new trend, as I have seen a few examples in the past couple of months and wonder if others doing this or thinking of it next year.

 

[Martin1968]

Interesting discussion. I think it would depend also on what type of landlord you are. Large, medium or small portfolio.

When revenue is dropping, property management seems to be one of the only expenses where you could save money.
If care taking is cheaper and, as you claim, often better quality, it could be a solution for the majority of landlords with let's say 12 to 50 rentals.

Wether it's a trend or not is hard to say but I have noticed an increase in advertising for (live in) caretaker positions for apartment buildings on sites like kijiji or Indeed. I think for many landlords it's coming down to cost savings, as well as stabilization of those cost as opposed to PM firms' nickel and dime strategy.

 

[Cory Sperle]

Thanks for the reply Martin, and some very good points here. Yes I would say it would be worth looking at for those that have 50 units or less, in particular with buildings that have 20 suites or less as it's very difficult to hire an onsite manager. From speaking to another PM it has become very difficult to hire onsite managers as of late.

The main benefit I can see is the "All in" price of X% based on actual rent collected, not a minimum amount as I feel some PM companies have very little skin in the deal and the landlord takes the brunt of the pain while the PM is largely unaffected. The care taking service essentially includes all cleaning, landscaping, suite inspections, as well as basic maintenance in their skill set including lights, taps, appliances, doors, windows, blinds, and other items that are often not included in a PM agreement and can really take a bite month after month, particularly if your project needs work.

I have three buildings in Saskatoon and am trying this out with one of them with very good results so far. I have also been speaking to other investors in Edmonton who are taking a similar approach with some good initial progress as well.

 

[Michel Lafleur]

I think this really depends on your portfolio size (as mentioned above), but also, who your current PM/caretaker is.
I work as a Realtor in the Edmonton area - have seen many of my clients decide against PM companies for the reason's you mentioned above. Many are choosing to self-manage, some are scrambling to find a PM (they know they dont want who's available or their former PM). Some of the boutique caretakers are doing a better job with less cost to the landlord. If things go south and you end up in court with your tenants, then the caretaker's work/opinions/etc don't count as all the onus is on the owner in this case.
If you have a licensed PM, they can represent you in court...but, odds are good they will be charging a retainer for your now vacant property while things progress through court. Having said this, the caretakers I know of have done a good job, and havent had to go to court yet. I know a few PM companies that prefer going to court as they can charge for that service too. Unfortunately some PM companies have lost sight of why they are in business, and are now looking to be more profitable than the properties in their portfolio...in which case you should go with a caretaker instead.
I think that a PM with a clean contract would be the way to go

 

[Cory Sperle]

Interesting. Perhaps the landscape is changing on how we manage our properties and we have just become too complacent with our property managers and really only notice the flaws during economic tough times. I can certainly understand the anger from PM companies towards these boutique care taking companies they believe are under cutting them , but based on discussions I have had recently, as well as your observations I would say this is a growing trend, and as long as they operate ethically and follow the law.

 

[Tina Myrvang]

When deciding on a Property Management Company for your team, ask the following three (3) questions:

1. Confirm whether they are a licensed company or NOT, never assume or go by word of mouth.
2. If they are NOT licensed, ask them what their MODEL is to deal with (The Canadian Real Estate Association), their governing body. If they get shut down by CREA you properties are now being managed by a company that is out of business.
3. Finally, ask them for referrals from their existing clients.

Make sure you go over the contract to get clear on what they offer and their fees.

Questions to ask your potential Property Manager:

1. Number of rental properties that you manage?
2. How many full time staff members do they employ?
3. How long have their staff been working for the company and what are their roles and responsibility?
4. How many full time Maintenance staff does the company employ?
5. How many investment properties does the owner of the management company have in his portfolio?

More insights on how to build you team can be found in our REIN Life magazine!

 

[Thomas Beyer]

Complex problems have simple, easy to understand, wrong answers.


Sent from my iPhone using myREINspace

 

[Cory Sperle]

Complex problems have simple, easy to understand, wrong answers.

Meaning what exactly?

 

[Thomas Beyer]

Meaning what exactly?

As you know, and see from Tina’s long list of questions, it is a complex topic that depends on a large number of circumstances.

In an average 20-plex, for example, there are 30-50 monthly accounting transactions alone, so what might work for a 4- or even 12-plex may not work for a 20- or 40-plex or 3 12-plexes !

Yes 2015 & 2016 were THE worst years in AB in my 20+ year career owning multi-units but a good PM is still worth their 3-8% fee in many cases. But yes there are many lazy lousy PMs or owners that under-invested in buildings and got away with market rents even with a sub-par under-paid PM until 2015 recession hit. In many cases you need to pay more to get better service.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

 

[Cory Sperle]

Yes that's the answer I was after. I think the key takeaway here is that many owners perhaps did not do enough diligence in choosing their PM, and/or their asset needed too much work that was fine in a low vacancy environment but hit them extra hard when times were tough. As an owner of a property management firm, you have given the answer I would expect, unfortunately I didn't hear the same from the lazy lousy PM I recently fired. I still have not heard enough to discourage me from a care taking service though, and from those I have spoken to their feedback is unanimous that their properties are cleaner, occupancy higher, a better tenant relationship, and cheaper. In today's market one can not afford to be even a little sloppy on their projects or face huge consequences.

 

[Martin1968]

As you know, and see from Tina’s long list of questions, it is a complex topic that depends on a large number of circumstances.

In an average 20-plex, for example, there are 30-50 monthly accounting transactions alone, so what might work for a 4- or even 12-plex may not work for a 20- or 40-plex or 3 12-plexes !

Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com

That's exactly right. The larger the MF prop the more beneficial it can be to have a PM. Care taking can be a solution for smaller sized building, or a combination of care taking and self managing, or simply (when you find it enjoyable) , have the time and resources to self manage all together.