Avoiding Risky Property Management Companies
First, let’s make sure everyone reading this understands we’re not perfect and make no claim to be. But, we do like to think we’re better than most, if not all, our competitors. Second, we feel it would be unprofessional to “name names”.
That said, let’s look at what’s going on with these two competitors of ours and how rental property owners can avoid the risk of doing business with companies with similar issues.
Company #1 has rental property owner clients upset as they’re not getting monthly statements, aren’t being updated on evictions and aren’t getting their funds in a consistent, timely fashion. So, what do you think is going on at a company with clients experiencing these types of issues? There are really only two possible main reasons:
1) The company doesn’t have the money to send – company losing money or company owner pocketing it.
Despite what rental property owners may think, the profit margins in the property management industry are very thin. If management of a company is not staying on top of expenses, the company can easily find itself in the “red” and no easy or quick ways to turn the trend around. The financial problems could be standard expense issues, or the root cause could be company owners misappropriating company funds.
Either way, property owners may only find out when they stop getting their funds on a regular basis.
2) The company has the money, but doesn’t have the ability to consistently deliver it – company lacks leadership and/or organization.
Managing rental properties can be very time consuming – without standardized procedures & systems. Many companies operate almost exclusively in reactive mode, responding to phone calls or emails from the “squeakiest wheels” and never getting to the more mundane tasks of the business.
Many small business owners in general find themselves being slaves to their businesses because they don’t take the required transition steps to operate in a more proactive mode. Almost everything in a property management company can be broken down into repetitive procedures to improve efficiencies – but it takes time to create these procedures and train staff on them. Most owners don’t make it a priority to put in the short-term pain necessary (creating procedures) to realize the long-term gains (a smoother running business). Investments in technology are another short-term pain for long-term gain step that many property management companies avoid.
Depending on how fast the company grows or shrinks, the company could eventually NOT have the money to send to property owners!
Company #2 has lost rental property owner clients due to renting out properties and collecting rents, but telling the property owners that the properties were vacant. Conversely, they’ve also lost clients that were led to believe their properties were occupied with rents collected, but never seemed to receive any funds from the company. Again, there are only two main reasons for this:
1) Gross Mismanagement & Negligence
It’s possible that the company is being so poorly run no one really knows what’s rented and which tenants are paying. This could happen if the company has grown too fast for management to handle, experiences high employee turnover or if the owner/manager isn’t committed to the company’s success.
Unfortunately, there are “bad eggs” in every industry. Theft usually occurs from one of two perspectives:
– Malicious intent to defraud from the start.
– The intent to borrow to survive and then pay back when a financial hardship has passed.
The former gives the rental property owner no chance of ever seeing their money. The latter turns the owner unknowingly into an investor in a failing business. In typical ponzi-scheme fashion, a rental property owner may get some token payments along the way just to keep the scheme going until it finally falls apart.
How to Identify & Avoid Similar Companies
We’re amazed that rental property owners actually hire companies like these and even more flabbergasted when owners stick with them after problems start occurring.
We’ve had conversations with several upset property owners who initiate contact with us to discuss moving their portfolios over to us for management, but then choose to do nothing – even when we follow up with
them months later.
Who can help you if you won’t help yourself?
In addition to getting referrals and checking references, here are some things we think rental property owners should be looking for to avoid problem management companies:
– Confirm They’re Properly Licensed: It seems most property owners are unaware that Michigan requires property management companies to be licensed. We were at a property investor meeting last year and got into a “debate” with a competitor who was of the opinion they didn’t need to be licensed – scary! Why would a property owner hire an unlicensed management company – especially one that doesn’t even know it needs to be licensed? Here’s a Michigan government website to look up licenses: https://www2.dleg.state.mi.us/colaLicVerify/
– A Working Website: Seems pretty basic in the 21st century, but the two companies we mentioned above don’t have one. We check out our competition and have seen another competitor with a website that’s been “under construction” for over a year. If a company doesn’t make the time to create a simple website, how likely are they to take the time to create processes & procedures to make meet your expectations?
– Computer Generated or Online Monthly Statements: At the end of 2011 a property owner transferred his rental to us and after numerous phone calls and emails, the previous management company finally sent us a final accounting statement done by hand (with errors). Why do you think that property owner moved their rental to us? Our Monthly Owner Statements are generated by our accounting system and emailed to property owners every month on either the 15th or 30th of the month (depending on tenant payments).
– Management Forms: Ask to review their management contract and rental lease forms. These should not look like forms purchased at a business store or online. Nor should they be forms that appears to have been copied several times and are always completed by hand. Have your attorney review them also. Our forms are computer generated and reviewed by our attorney at least annually. They’ve grown in length every year as we’ve adapted them to new laws and experiences. NOTE: due to competitors “borrowing” our forms that we’ve spent considerable resources developing, we’re very careful who we share them with.
– Property Advertising: This isn’t just about where the company advertises your rental properties, but also how. Rental property owners should inquire about this and not only understand what the company will do, but also understand its effectiveness.
Let’s discuss the “where” first. One of our competitors brags that they advertise owner properties on their “exclusive” website. What does that really mean and how will it rent properties faster and/or for higher rents and/or attract better tenants? This competitor’s brag means nothing without proof of the amount of traffic to their website versus other property rental websites. Syndicating or linking to other websites is how a property can get increased exposure, but what amount of traffic do the syndicated sites get and who goes to the sites? Many real estate agents make the mistake of only putting a rental property on their MLS and its syndicated websites – which all target homebuyers not prospective tenants.
We advertise properties on our website, but don’t get a significant amount of traffic yet. This blog you’re reading is one of our efforts to increase traffic to our site. We do syndicate our online property advertisings to 33 rental property specific websites. We could advertise our rental listings on more websites, but since they wouldn’t be rental specific it wouldn’t really do much.
What about the “how” of advertising rentals? We challenge you to “play tenant” and visit a few websites (including Craigslist) and check out the different styles of rental ads. Many have no pictures and such little information that we doubt they generate any tenant leads. How a property is advertised has a lot to do with who it attracts. Rather than telling you about how we advertise our available rentals, please visit that area of our website and see for yourself.
– What Technologies do they Employ?
This ties in with all the issues above. If a property management company is not leveraging technology, and leveraging it correctly, than their rental property owner clients are probably not getting the maximum return on their investment(s).
We’ve invested in developing an online portal system for property owners where they can access monthly statements, communicate with us (creating time-stamped records for accountability), access management contracts and leases, and see maintenance work orders with PDF’s of all invoices. We also use online storage, have an online portal for tenants and have a dedicated 800# that allows us to track all marketing calls.
While this isn’t everything a property owner can do to scrutinize a property management company, we hope you take notes and use these tips in the future. If you have other ideas, thoughts or unpleasant experiences you’ve learned from please share them in the comments area.