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Why Property Management Companies Suck

Posted ( in Property Management )



The title of this post may sound a bit harsh, I mean, not every property management company sucks, right? Obviously there are some great property management companies out there (I just haven’t seen any yet…). I have to admit, I’ve never hired a property management company, so I don’t really have any firsthand experience dealing with one. That’s because I oversee the management of all my properties personally.

So, if I’ve never hired a property management company, how can I say they suck?

I’m always evaluating apartment buildings for sale and they’re usually managed by a local property management company. The one thing I discover every single time I check out a building run by a property management company is that they leave tons of money on the table! Here’s a list of some things I always notice when checking out their buildings:

•    They typically charge 15-20% less rent than I would for a comparable apartment in the same neighborhood.  Crazy!
•    They have too many vacancies. I recently read an article in the local paper which stated our city’s vacancy rate was 3%. The paper interviewed the owner of the city’s largest property management company who said the vacancy rate was actually closer to 6%. My company has close to a 0% vacancy rate.
•    They give their tenants free parking. I charge my tenants $35/month or more for parking spots.  Massive loss of revenue here!
•    They undercharge on laundry, usually $1 per load. I charge double, $2. Doesn’t sound like a big deal, but this means the difference of tens of thousands of dollars in revenue every year for my company’s properties.
•    They don’t take full advantage of energy efficient products, which could save the property owner tons of money and help the environment.
•    They’re too rigid with their policies. For example, they will always demand a one year lease, which is usually a good thing. I always ask for a one year lease also, except I will be flexible at times and will accept a six month lease if it will help avoid a potential vacancy.

They charge hidden fees

Property management companies typically charge a percentage based on gross collected rent plus a wide assortment of other fees. The assortment of other fees is where you have to be careful as they can add up quickly.

•    4% - 12% operating fee.
•    Leasing fees from 25-100% of one month’s rent on new leases.
•    Up-charging on many things, such as maintenance, products and renovations.
•    It’s also common for management companies to get secret kick back’s from service providers they refer, without disclosing this to their principles. Sneaky bastards!

They don’t know how to advertise effectively.

They’re not visible enough on the internet. Many of them don’t even use craigslist which is one of the most effective ways of advertising rentals. It’s also free! I think one of the reasons that they don’t advertise aggressively enough is because the more they advertise, the more work they have to do.
Their websites are horrible and confusing to use. They usually don’t even list prices or which apartments are available. Instead they just list all the buildings they manage and tell customers to “contact them” to find out what’s available. Potential renters surfing the internet have a very short attention span and want to get the information that they’re looking for immediately. It’s absolutely necessary to show pictures, descriptions, which units are available and prices. Property management companies seem to fail at this over and over again.

How should you manage your rental properties?

In my opinion, it’s best for property owners to stay closely involved in the management of their buildings and to assemble their own team. Try to build up a big enough real estate portfolio to hire your own staff. Many states and provinces require property managers to be licensed, so this can limit your options. If you’re going to hire a property management company, here are some tips on how to deal with them.

How to deal with your property management company

•    Be informed. Check local rental listings and compare them with yours. Is everyone else charging more for apartments than your building?
•    Make sure your management contract has a good escape clause. If your management company isn’t doing a good job you will need a way out. You don’t want to be stuck with them for the next 3 years.
•    Don’t accept a leasing fee, or make sure it’s no more than 25% of one month’s rent. Your property management company shouldn’t profit from high turnover!
•    Negotiate a rate based on the % of rent collected and try not to accept any additional fees. If you have a small portfolio that consists of a few single family homes or condos, then aim to pay around 10%. If your portfolio consists of several large apartment buildings then you should pay around 5%.
•    Get several references and check them.
•    Make sure they have an aggressive marketing program.

If you’re going to hire a property management company, it’s important that you stay involved and keep a close eye on what’s going on. Don’t let them get away with charging under market rents, having vacancies and marketing poorly.

What do you think about property management companies?

Martin Syrovatka About the author: Martin is the founder of Buildings By Owner. Martin also owns and manages a large portfolio of apartment buildings in Victoria, BC. website link


Martin Syrovatka Says:
Mar 18, 2013

Lol. I have to agree with the title of this post. I've had lots of problems with property managers over the years. There are some decent property management companies out there though, you just have to do your due diligence as with everything else...

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