PMCs: You Get What You Pay For
One of the most valuable things a PMC does for a DIY landlord is make their rentals a business, not personal.
So, if you met a potential partner who was going to help you run your business, would your first priority be making sure that they took as little payment as possible for their efforts? Uh, probably not.. You’d want them to be invested in making the business a success, and skilled enough at what they do to provide real value to your company. You wouldn’t hire someone for minimum wage and then hand over the keys to your empire to them.
So, why do rental property owners expect hiring a PMC be any different?
The fact is, you get the quality of service that you pay for. We all know this, and yet a lot of rental investors view low price as the number one criterion when it comes to hiring a property management company to handle their rentals.
In our experience, this kind of approach can end up costing owners more in the long run. Here are some reasons why:
1. Vetting a PMC should be your first priority.
No one likes having to pay property management fees, but focusing solely on finding the cheapest PMC in your area can be a recipe for disaster. Think about it this way: if a prospective tenant offered to pay higher rent, would you approve them automatically and waive all screening requirements? Probably not, since if you did, you’d run the risk of them destroying your property or skipping out on the rent altogether, and you’d only have yourself to blame when this happened, for not vetting them properly first!
This is analogous to the relationship you have with your PMC – if you select a company to work with based on price alone, and don’t do your due diligence on them first, you’re probably going to end up getting burned. Find out about the experience of their team, the strength of their processes, their level of organization, and their ability to promptly communicate with you, your tenants, and your contractors. All of these things are extremely important for making your rental business successful, creating a good working relationship with your PMC, and minimizing headaches for a property owner. So, in our opinion, ticking these boxes is much more important than just having the most competitive rates.
2. Sacrificing quality for cost can be expensive.
Your PMC is the one responsible for making sure all aspects of your rental business run smoothly. If they’re failing to market properties effectively or are slow to carry out turnover tasks, this can lengthen vacancy periods and cost hundreds of dollars in lost rents.
If their screening processes aren’t extremely thorough, or they’re not great at inspecting properties and staying on top of tenant issues as they arise, things can get even more expensive. You might end up with tenants who cause damage to your property, don’t pay their rent, require costly evictions, or all of the above! In the long run, this will end up hurting you financially more than a PMC with slightly higher fees will, so it’s imperative to focus on quality over price if you want to protect your investments.
3. Setting realistic expectations is important.
Expecting champagne quality on a beer budget is a sure way to set yourself up for disappointment when working with a PMC. You should have a clear list of the types of services you want your PMC to manage, and then ask yourself how they’ll accomplish these within the budget they have to work with.
The world of business is built on the idea that companies provide services at a fair price to their customers, so why should you expect above-and-beyond service, if you’re not willing to pay for it?
4. They may not be willing or able to provide the kind of service you want.
How incentivized are they to meet every need of yours, if they only make $50 a month off of your rental? Furthermore, if their margins are super low on each property they manage, it usually means they need to make up for these lower margins with volume, by managing a lot of properties.
Ask how many are under their management currently, and how they allocate their resources for managing these. If they have each PM responsible for a large number of units, how is this person going to do a thorough job?
Ask your PMC what services are included, and what additional fees they charge for extras, as these can add up over time to nullify what you saved by hiring someone with 2% lower management fees.
5. It shows your inexperience.
If someone asks a PMC right off the bat about price, it shows they’re ignorant – they don’t know what to ask or how to vet a PMC, so they default to price. More experienced owners will ask about how specific issues are handled by a PMC, what their communication time frames are like, request a copy of their lease, etc.
By skipping these vital questions, you’re signposting your own inexperience to the company. This is basically like telling them, “Hey, I don’t know what I’m doing, so feel free to take advantage of me!” Is that really the message you want to be sending in your first meeting with the company who’ll be responsible for managing your investments?
We’re not saying that the priciest PMC will automatically be the best in terms of quality of service, or that the cheapest PMC will be the worst – just that it’s not the only factor you should be considering when hiring a property management company. You should be expecting a high quality service when entrusting your rental portfolio to someone else, but you should also know how to assess whether or not a particular PMC is capable of providing that level of service for you.
Where do you sit on the price vs. quality debate? Have you found a way to balance the two when working with a PMC? We’d love to hear about your experience!
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