Paying A Good Property Manager to Turn Your Bad Property Around
How are you motivating your PM to keep your best interests in mind?
Being a real estate investor is always a careful monetary balancing act. You want to maximize your ROI, and the question is always whether you should do that by minimizing your input, or by trying to maximize your output. The problem is when you attempt to do both — because you will inevitably fail at both. Why?
Because it’s easy, as an owner, to fall in to the trap of being penny-wise and dollar-foolish — in other words, it’s easy to spend a large amount of money on a big thing incorrectly, and then focus on trying to save a few pennies here and there on a bunch of little things you should correctly be spending a bit more on.
The classic example is buying an ugly property in a dumpy neighborhood (dollar–foolish), and then hiring the cheapest property manager you can find (penny-wise?). What are the chances of this turning out well…?
You Get What You Pay For
If you mix a bad property in a bad neighborhood with a bad PM, how can anyone in their right mind expect a good outcome?
The same is true if you mix the worst property in a good neighborhood with a bad PM.
Even a blind squirrel can get lucky with a good property in a good neighborhood managed by a bad PM. Although, at the first sign of trouble the situation usually turns ugly.
There’s probably a lot of you nodding your heads in agreement with us because what you’re reading here makes a lot of logical sense. What’s amazing though, is the high percentage of property owners that call us and their first question is about how much we charge!
Really?
Fortunately, we learned a long time ago to ask a lot of questions about a situation before we get to discussing pricing. Our pricing does change based on the situation we’re taking over. Why wouldn’t it?
Think about what a property manager is really “selling” to a property owner. There’s really no physical goods, it all boils down to time. So, PM’s basically have to charge for their time and the more time a property takes to manage the more they should charge to manage it. What do you think will take more time to properly manage, an ugly property in a bad neighborhood or a pretty property in a nice neighborhood? Hmmm… Obviously the former will require more time and effort to find just a decent tenant. That tenant will require more “babysitting” to make sure they pay their rent on time and take care of the property (or don’t damage it!).
So, logically a property owner with a troublesome property should look for the best property manager they can find and expect to pay them more, not less, to properly manage it. Yet, many of these owners foolishly pinch their pennies a hire the cheapest property manager they can find and then wonder why their properties fail to adequately perform. They only have themselves to blame.