Property Managers

There are moments where my motivation fluctuates, the unavoidable highs & lows of focus. We’ve all been in a similar situation - we start a project (or relationship) with a lot of excitement and then it sizzles out. We get tired, the honeymoon fades.

My first heartbreak sucked, as it should. Starting a relationship (or project) in a frenzied excitement leads to hoping it’s your salvation. What follows is: salvation —> disappointment —> giving up. I’m currently reading Grit: The Power of Passion and Perseverance, by Angela Duckworth. Angela’s research and perspective builds on decades old research of following the lives of college students.

The ultimate takeaway was that grit, or endurance, is the strongest indicator of success. I recommend you read it, especially if you don’t think you’re the brightest in the room.

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My experience with property managers is minimal — I don’t have the need to hire one. However, I’ve discovered a few things after interviewing & befriending some.

At her core, a property manager has 3 key roles:

(1) Maximize rental income & minimize expenses

(2) Strengthen tenant relations & retention

(3) Enhance appeal of property (increase prop. value)

Property managers are important people to keep in your circle, especially if you’re investing from afar. In commercial real estate, a lender will require you to hire a management company before approving your loan.

The most important trait when reviewing potential managers is: integrity. Years of experience help, but don’t mean crap if you notice things like employee mistreatment, unreturned calls etc. Ultimately, a manager gets paid a % of the rent per unit rented, they’re incentivized to keep units filled — but recognize that this is the principal vs. agent dilemma I wrote about earlier.

To elaborate: A property manager without integrity will want you to buy any deal, she gets paid if you do because she knows you’ll use her services to fill vacancies.

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So what are some red flags when evaluating property management companies?

(1) Unwilling to provide references

Real estate, specifically CRE, is a heavy relationship-first industry. If a company isn’t willing to provide references to earn your business, you should call bullshit. Be comfortable with walking away from any vendor unable/unwilling to provide references.

(2) Excessive cost structure

Approach this from the perspective of your own portfolio’s scope. If you’re looking to hire someone to manage a 10-unit building — don’t try to hire a company that manages 500 unit portfolios. The cost structure they’ll provide will be too much. Ideally, you should aim to work with property managers that manage other 10-20 unit portfolios; your management cost should hover around 8-10% in that unit range.

(3) Operating without the proper licenses

Not all states require property managers to have licenses, but in states that do — ensure you’re only hiring managers with the adequate credentials. This goes without saying, but if shit hits the fan, you need to be able to call a regulatory board to file a complaint or penalize the property manager in order to hold them accountable.

When I first started investing a couple of years ago, I thought about using property managers. Ultimately, I wanted to learn about all the ins & outs of being a landlord and I figured the best way to do that would be through self managing my units. It’s been a learning experience having to deal with tenant headaches, property hurdles, contractor issues, and everything else that comes with running a small portfolio.

Although using a manager is an effective way to oversee properties, I feel it’s counter productive when you’re running less than 25 units. With grit & endurance, you’d be surprised at the things you’re capable of when you have your back against the wall ;)