How To Choose A Property Manager
Recently a reader asked the following question about choosing a property management company:
I’m new to the [property investment] game and bought a 15 unit building in an affordable state far from my home & hired a property management company (PMC).
So far this year I have paid 40% of my rents towards repairs. The PMC uses
its own repairmen (naturally). I believe I am getting robbed but can find
no statistic that states the average amount a landlord should expect to pay
in repairs. Needless to say I didn’t factor this big of a chunk coming out
of my rents and am having trouble paying my mortgage (although I’m sure my
PMC isn’t). Anyway does anyone have a guess as to what % is reasonable?
Personally, I have not had much luck hiring a property management firm for a couple of properties I was renting out while living out-of-town. My experience was that the property manager was being totally lackadaisical when it comes to doing his job. He would do things like not check his email for 3 days, miss appointments with maintenance people thereby causing service contracts to lapse. All due to a lack of attentiveness to the job he was being paid for every month.
As an aside, when we decided to sell the house without his services, this guy, decided that he would “return the key” by letting himself in to the house and turning the A/C thermostat down to 60°F and leaving it that way until I got the power bill. Nice!
Anyway, I posed the questions above to property management professional, Jessica Hickok of Dizmang Associates located in Springfield, MO. Jessica says:
Immediately off the cuff, I’d say that if 40% of your rents that are being used for repairs, then the [new] Investor has most likely bought [...] a money pit. However, it sounds like the underlying issue is that the Investor does not quite trust or understand what his PMC is doing. The investor should ask for better, more detailed reporting. Ask for receipts and work orders of the maintenance issues that were performed on the property. Find out if the management company is upcharging maintenance items or what hourly rate are they charging for their maintenance crews to do the work. In other words, have a little heart-to-heart meeting with the PMC to get a better understanding of what these repairs are and why they are having to be done. Also, keep in mind that their “in-house” maintenance staff could actually be saving the Investor money. After all, if their maintenance crew would charge $40/hour for a plumbing call vs. an actual plumber who bills out at $110/hour…who would you rather have take care of the maintenance call? In the end the PMC may be saving the Investor money resulting in 40% repairs vs. 60% in repairs.
I completely agree with Jessica here. Reporting is the key. I had another property manager email me a very cryptic spreadsheet with expenses and repair activity. When I asked for more detail, she said, “No I can’t change the report. That’s how we do it here.” Now that’s just crappy customer service, but then again, this WAS in Anchorage, Alaska and in my opinion, there is no such thing as customer service in Anchorage, Alaska. But, that’s a whole other issue. Don’t get me started…
Jessica continues:
Bottom line is, if you’re not happy and can’t trust them, then switch management companies until you find one that you’re more comfortable with. If you are fine with the procedures of the current PMC, then consider talking to your lender to adjust your loan. Maybe refinance the loan on the property to get a better rate and lower your monthly payment to offset the repairs expenses.
Either way, it is hard to nail down a specific percentage that should be planned out for property repairs. Every property has different characteristics that could drastically effect the maintenance costs so the best answer I can give is “well…it depends”.
However, to assist you in answering your question, I have pulled 6 random properties of the 200 I manage and calculated the percentage of maintenance repairs. (This does not include management fees or mortgage payments).
Random Property 1= 12.5% of rent collected is for repairs.
Random Property 2= 7.5%
Random Property 3= 3.65%
Random Property 4= 14.7%
Random Property 5= 13.2%
Random Property 6= 24%
Excellent advice indeed. Thanks Jessica!
