What to Do when a Property Manager Fails
Property Managers aren’t perfect, and sometimes we fail hard enough to deserve getting fired. But ditching your PM has ramifications, and you should know what you’re doing when you make the call.
There’s almost too much advice on the Internet about how to hire the ‘right’ property manager — but almost none on how to deal when a property manager fails you. At Royal Rose, we’ve taken over for dozens of other failed property managers, and we’ve seen changeovers that were a breeze…and others that were hellish. We’ve also seen clients give up too soon, and others cling stubbornly to their PM long past the tipping point. Here’s what we’ve learned:
Hidden Points of Failure
To be certain, no one (and certainly no company) is perfect. There are going to be issues that come up, and there are going to be months where you take a hit despite the PM’s efforts. But there are a few issues that are indicative of deeper problems — the kind you should run from.
• Lack of Communication: One of the biggest red flags is when you hire a property manager, and then the only evidence you have that anything is happening is the arrival of money in your account. That might seem convenient at first, but no property (and especially no tenant) goes without issues for long, and if you’re not hearing about it, chances are they’re getting swept under the rug. That means issues that could have been caught and addressed early are going to instead crop up once they’ve become catastrophic rather than being a minor (and lower-cost) inconvenience.
• Poor Tenant Screening: A PM that doesn’t screen tenants well won’t ever show up on your radar as a bad screener — instead, you’ll piece it together over months or years as it turns out that you have far more problem tenants than you would expect. No single problem causes more problems down the road, and it’s flatly unacceptable.
• Fish Out of Water: The real estate world is diverse and complex enough that no one human mind can encompass a huge amount of it. If you’ve got a property management company that has only two actual managers and they claim to be able to handle single-family, multi-family, commercial, Section 8, luxe, downtown, rural, and suburban real estate, they’re about 4 areas of expertise beyond their actual capacity. It’s one thing to have a big corporate PM with an expert in every field on staff, but your typical smaller PM needs focus to be highly effective, and they should tell you up front and honestly what they are good at and what will possibly be problematic.
When to Let Go
There are no real hard-and-fast rules for determining when your property manager fails so hard you should fire them — but here are some guidelines to ensure you don’t cling to a sinking ship:
• If you can’t trust your PM, you need a new PM. It doesn’t actually matter if they’re provably doing anything shady; if you worry regularly that they’re cheating you, find someone you can trust.
• If the PM causes a problem that costs you a significant amount of money, and they don’t scramble and do everything they can to make it right, they’ll do it again, and you’ll suffer.
• If your PM has more than about 20 properties per full-time employee (10 per part-time), or 400 properties per full-time, fully-staffed active manager, they’re stretched too thin, and you will end up suffering.
How to Make the Change
There are two different options for a landlord leaving a property manager: either you’re going to hire a new PM, or you’re going to ‘go landlord’ and take over the management of the properties personally.
Either way, the process starts with giving your current property manager at least 2 weeks’ notice — 6 weeks’ is better. Not because you want to stick with them, but because the kinds of disasters that can happen if you yank the rug out suddenly are actually harder to recover from than the kind that will happen during the wait.
If you’re going landlord, use this time to form an LLC, naming the business something about property management. Use it to perform all of your landlording duties, including introducing yourself to your own tenants as their new property manager (rather than landlord). By separating you-the-investor from you-the-landlord, you create even more ways that you can prevent a legal or natural disaster from wiping you out.
If you’re hiring a property manager, use the time to find a new PM and bring them fully up to speed on everything going on in all of your properties. Be sure to inform them of exactly why the previous managers disappointed you, and what you expect them to do better. The more you tell them about your current situation, the better they can make sure they meet your needs.
Don’t stick around while your property manager fails you again and again — get out! But do it wisely, or you’ll cause yourself almost as much trouble, at least in the short term, as you would if you held fast.