First thing I should say here is that I am not anti-management. Good property management companies do what they do well.
They come across as more professional than an owner/manager which is better if you`re looking to do credit checks and criminal background checks. People will tend to give this information to a big company more redily than to Joe Owner.
The downside is, people are more willing to screw-over a company than an individual they have a good personal relationship with. I have had tenants trash places when given a notice by a Management Company, never when I`ve done it myself.
The relationship is more professional, less personal. This has advantages and disadvantages for each. Here`s what a breakdown of what a good property management company (PMC) will do vs. what a good owner/manager will do:
PMC - List your property for rent and show the suite for you. They will use the same method of advertising that they have always used and you will have no priority over the 20 - 200 other suites that they are advertising for rent that same month.
YOU - Will research the best places in your market to advertise, discuss with other REIN members the ads that they have used with the best types of copy, take brilliantly staged photos that shows your property in it`s best light (possible even videos - see
http://www.youtube.com/user/realestateab for what I did for one property).
If you look at these videos, particularly the one of the front yard you will notice that the hedges are trimmed and all of the neighbours have cut lawns. I trimmed that hedge and mowed three neighbours lawns (took me about an hour) because I want people coming to look at my unit to feel they are coming to a good community. Obviously a PMC will not go to this level of detail.
LISTING PROPERTIES FOR RENT
PMC - Will run a credit check on the tenant and contact their references.
YOU - Will meet them in person, get a good feel for they type of person they are, ask all kinds of questions to find out if they are the perfect tenant for your unit and phone all their references. If you`re VERY WISE, you will sign the lease at their current residence (let them think you`re going to sign at your place and then give them 30 minutes notice that you`re coming to THEIR place) so you can see how they look after their place.
LEASING YOUR PROPERTY AND COLLECTING RENT
PMC - Will do the move-in inspection, collect the Security Deposit and Rent each month. They will hold the SD until the end of the tenancy and hold the rent a little more than one month. This means you need to have two months worth of mortgage, taxes, utilities etc. available from your own pocket. (Multiply all your rents x 2 and that`s how much extra cash you`re going to need to start with a PMC, OR how much you can put back in your pocket if you take over from your PMC).
You will often not know if rent has not been paid by a tenant or that there is a problem until two months after the issue arises.
YOU - Will work on getting set up to do automatic withdrawals and accept Credit Card payments when other forms of payment are declined. You will get the money and be able to apply it against expenses on the first of the month. (You`re still going to need one months worth of float because even the best of tenants will occasionally be a day or two late or something will happen at the bank). The good news is, you have 1 months rent equivalent in the form of their SD and that should be able to float you for those few days.
MAINTENANCE:
PMC - Will take the call from the tenant, call their contractor and have the problem fixed without taking up any of your time or causing you stress when it happens. They may add 10% on top of the contractors bill for having to take the time to make the phone call and follow up. If appliances break down, they will replace them with new ones.
YOU - Will be by your properties on a regular basis and know what`s happening. You will notice small problems before they become big ones and either fix them yourself or contract them to professionals you know well or have been recommended by REIN members (and your own due diligence). If appliances break down, you will find cheap, good condition used units at a fraction of new cost with many years of life left.
Your repair/reno costs will be as little as 10% of what the cost would be if a PMC was looking after it because there`s NO WAY you`re going to let someone pad a bill and you know yourself how long it takes to replace a tap set or fix a leaky toilet. You`ve seen the problem and no one can snow you about what was actually required.
***ALSO You will not freak out when you show up and have to rip out and redo the work that was done because the PMC company did not know that the work had been sub-contracted to someone who was not experienced or qualified.
SHOWING OCCUPIED UNITS AND GIVING EVICTIONS
PMC - Will follow the local Landlord Tenant rules when showing a suite that has a tenant or going through an eviction process. If there are damages that exceed the SD, they will put together a full list along with costs and give it to the tenant (haven`t met one that pursues collecting it though).
YOU - Will have a great personal relationship with your tenants. They will be clean and neat because you`ve established that`s how they live by showing up unannounced at their place when signing the lease. Their suite will always be "show-ready" and because you have been such a great landlord, you will be able to give them as little as 1 hour notice to show the suite you know, the amount of time someone needs to call ahead to let you know they`re coming for sure). Your tenant may even show the suite for you!
In the event of an eviction, you will know there is a problem and act on it weeks, even months before a PMC will because you`re actually around your properties on a regular basis. You may even do what some owner/managers do on the day of the eviction and show up with four guys and a moving truck if they haven`t moved out themselves, go in, pack up and ask them where they would like their property moved to, offer to store it for 30 days if they have no place to move it to and then change all the locks and solidly lock all the windows when you leave.
You will bill them for all of this at the market rate and take it out of their SD if there is anything left over in it after missing rent and other damages are subtracted. You will deal with going to court if THEY decide to pursue you for this course of action rather than YOU going to court if they`re still sitting their the day their eviction notice takes effect and then waiting for a court date and the two weeks the judge is going to give them to stay in your place, not pay you rent and possibly damage it further.
***If you have treated a tenant fairly, given them all appropriate notice, dealt with them firmly, but fairly when you move their things out, and handled everything carefully and professionally - what do you think a judge will say if they did file a claim?
Have you ever taken a tenant to court? Have you noticed what a huge pain it is and how everything needs to be done perfectly by the person filing the complaint? Do you really think an irresponsible tenant is going to go through all of this to get ??? what the heck would they even be able to ask for?
IMPORTANT - I don`t actually recommend you do anything other than follow the landlord tenant act to the letter. I`m simply reporting some hypothetical actions that could be taken if you`re prepared to deal with the legal issues. As always, you need to obtain your own counsel about any actions you take that have legal consequences.
LONG-TERM MANAGEMENT
PMC - Will bill you the same amount every month as long as there are renters. You will usually not be billed extra for places that are vacant.
YOU - Will work your butt off for one or two months to get in premium tenants who will be their for two to five years and then mostly spend a few minutes every other month chatting with your wonderful tenants and appreciate that their rent is automatically deposited into your account the first of every month.
**NOTE - A place that isn`t rented costs you 100% of that months rent. A place that isn`t rented only costs the owner of the PMC company at the MOST just 5% of the rent (they don`t pocket that 8 - 12%, they have costs). $1000 in unpaid rent on your unit likely only costs the PMC owner $25 out of their income. Who do you think has more motivation to get the place rented?
ALSO - Who pays the bill for maintenance issues that arise if a bad tenant is put into your unit and they trash the place? YOU PAY 100%! Your PMC will never offer to cover even 10% of the damages that are caused. They have 8-12% of the upside with 0% of the downside. Who is more motivated to put great tenants in?
WHEN TO USE A GREAT PMC:
-If you have a high quality unit in a strong market that is long-distance from where you live.
-If you have a large number of quality units all in one place and can command special attention from your PMC based on large volume.
-If you have relatively high cash-flow and find that your time is worth more than the 20% it will cost you to have someone else manage your properties (I know PMC`s don`t CHARGE you 20%, but as per above, it costs you more in the end to have someone else do it in other ways - probably closer to 25%)
-If you find that you`re not cut out to be an owner/manager and the stress just isn`t worth it. (In this case, I would advise you to sell and become a JV partner with someone who is instead).
WHEN TO HIRE YOUR OWN PROPERTY MANAGER RATHER THAN A USING A PMC COMPANY:
***THIS is my recommendation of what to aim for. I believe it`s what most of the REIN members with 50+ units do for most of their portfolio.
When you`ve done it yourself for 3 - 5 years and know what`s involved and have enough properties to make it worth what you`ll need to pay them to do the job 85% as well as you would (85% because NO ONE will ever pay attention the way you do!)
), that I still have not decided whether to continue purchasing long distance (like Sudbury) or not, hire a property manager or not (just a "superintendent"/maintenance guy instead?) in the areas I invest(?)
