What Does Your Flat-fee Property Manager Actually Manage?
There are a surprising number of different answers to this question. Be careful!
Metro Detroit’s rental scene has exploded right along with the rest of the country, and as you might expect, the property management industry has exploded right along with it. We have all manner of property management companies, from the full-service mega-corporations that don’t want you to have anything to do with your own property once you turn it over to them down to the flat-fee managers that charge a very small amount monthly — but that fee doesn’t cover some of the services that most people would consider fundamental to effective property management.
Services a Property Manager Might Offer
In the most literal sense, a ‘property manager’ is someone who takes care of any part of the burden of managing a property. This means that a property manager may do any or all of:
- Preview inspections of investment properties you’re considering purchasing,
- Handling repairs and renovations to get a property rent-ready,
- Obtaining rental licenses and certifications with local governments,
- Dealing with break-ins, squatters, and theft from empty properties,
- Cleaning and other preparation necessary to get a property rent-ready,
- Photographing, writing advertisements, and getting eyes on those advertisements,
- Taking ad calls, showing properties, and pre-screening applicants,
- Collecting applications/fees, screening applicants and signing tenants to fill vacancies,
- Reporting to the owner about the effectiveness of the marketing efforts for each property,
- Working with utilities companies to hook up and set up billing for new tenants,
- Dealing with utility payments when hook-ups are too slow, and collecting those payments from tenants,
- Performing move-in and move-out inspections,
- Collecting rent and negotiating with tenants over late rent payments,
- Handling evictions and other court-related processes, and following up with the attorneys, owners, court officers, and tenants throughout the process,
- Inspections, repairs, and maintenance during the course of a tenant’s stay,
- Taking care of accounting, including managing CapEx and nominal repair accounts,
- Communicating to the owner about any problems,
- Tenant retention efforts,
- Post-move-out cleanup, and
- Dozens (probably hundreds) of tiny details that don’t fit on the above list.
Royal Rose Properties is among a relative few who also add investing assistance to the mix. Our lead manager has been a leader in the local real estate investing scene for more than a decade, and he’s happy to help our clients run the numbers to determine whether a potential addition would benefit their portfolio, or is more likely to cause more harm than good.
Side-Note: Beware of Property Managers Who Want to Sell You Property
Speaking of relatively rare services offered by property managers: there are some of us out there who purport to “make you an investor” by selling you an existing property with paying tenant in place, provided you sign a management contract with them. We’re not saying that every one of these companies is a bad apple, but we can say that every single person we have talked to that was a client of one of them has come to us with the same story. “They sold me a property, signed me up for their services, and then did almost nothing to manage the property — but they did try to sell me a dozen more properties while my existing one fell apart!” Fair warning: think twice about buying property from a ‘management company’ whose main source of profit is actually selling real estate!
OK, back to the point at hand…
Flat-Fee Property Management Isn’t Always What You Think
It’s easy to look at a property management website and assume that, because they’re property managers, what you’re getting for your money is basically the entire list up above. But for many flat-fee property managers, there are large parts of the business that aren’t covered by your flat fee. The rest of their services are à la carte: the more you need, the more you pay.
These extra costs are often not discussed at all on their website, and in some cases they don’t come up until you see them on the property management contract – or worse, until you actually need them to do something. This puts an inattentive property investor in a situation where costs pop up unexpectedly, and are largely unavoidable when they do.
Would you consider tenant placement a vital part of property management? How about keeping up with your property’s rental registrations? Utility activation and deactivation? These are all things that many of the flat-fee property managers regularly charge between one and five hundred dollars for. And not just per year — that’s per instance.
For the vast majority of property managers, it’s all about minimizing risk. If you get unlucky enough to have three tenants clear out in a single year — it happens! — the last thing you need is to have that bad luck compounded to the tune of fifteen hundred dollars because you need three new tenants placed. That’s the kind of thing that can melt away a painful chunk of your profit margin, and there’s nothing you can do but watch.
The Other Side of the Coin
This is not to say that flat-fee property management companies are universally bad. Royal Rose has actually sent a few of our property owners over to the flat-fee companies voluntarily! Here’s why: some property owners love to stay closely involved with their buildings. They want to be a part of every renovation, they want to talk to every potential new tenant, and they want to go in and fix the leak in the basement themselves.
These are admirable souls, but on the most part, working with them is a constant source of stress for us and them. We’re constantly getting in their way, and they’re constantly interrupting our workflow. These are the kinds of property owners who absolutely thrive when given a flat-fee management company who will take care of the annoying paperwork side of things so that they can stay elbow-deep in the day-to-day of managing their property their way.
For most investors however — particularly overseas or other distant investors who can’t really get in on the details — flat-fee property management is often essentially a trap baited with a low fee.