The Great, The Acceptable, & The Ugly of Rent Collection & Maintenance
Wednesday, July 17th, 2013
By: Steve Goldman, CCIM
Solange Velas, CCIM
By Solange Velas, CCIM
We all know the scenario. You bought your first rental property, then you bought another, and then another. And suddenly you are running a business. And now you’ve reached a fork in the road. Do you continue to acquire and build your own staff to help you with maintenance and rent collection, do you hire outside management to act for you, or do you place someone onsite as a helper and stay with the number of units you already have. Over my thirty year career of multifamily brokerage and ownership, here are my observations about The Great, The Acceptable to The Ugly of tenant management.
THE GREAT. From a property maintenance and management standpoint there is no manager that is better for a property than the owner himself. If that owner has the time and the abilities, that personal, one-on-one contact with tenants builds tenant loyalty and maintains curbside appeal. I know these properties when I see them. The grass is cut, the weeds are at bay, there are no drooping gutters and no debris about the property. Typically all tenants are current or there is a workout plan in place with one or two tenants from a compassionate yet levelheaded landlord.
THE ACCEPTABLE. The decision has been made to go with professional management. As in all things, it is so important to do the homework when hiring a firm to take over your rental properties. Please call the owners that are currently also using that company. Ask the hard questions. Are their reports timely (as in every 30 days)? Are their reports detailed? What type of background checks do they do for each new tenant prospect? Last but not least, drive by the properties they manage. Do you like what you see? Would you, as a tenant, want to live in a building that they manage? I know bad management when I see it and I know good management when I see it. Unfortunately, when I see bad management, it means it will cost the owner money. That’s because an owner wanting to sell finds the condition of his property will not warrant the highest value potentially obtainable. But when I see good management, management that acts as part of team in the sale process, the likelihood of a sales contract and a closing soar. There is nothing like accurate rental reports, well written leases, and strong occupancy to help both a buyer and his lender to make a positive decision to purchase.
THE UGLY. Too often I have seen owners make a management change decision solely on the basis of the low price option. After they looked at licensed, professional management, they decided that they are unwilling to “give away” a percentage of collections. I liken this decision to deciding to sell your investment as a FSBO instead of hiring the best marketing team you can get your hands on. Time and time again these owners come to me and I find the following scenario. They’ve given over their precious investment to an onsite tenant who supposedly collects their rents, cleans the premises, repairs vacancies and shows the units to prospective tenants, typically for either a free unit, reduced rent or a trade rent for work agreement. The problem is 1) this arrangement is most likely not legal in the State of Tennessee, and 2) these people are not properly trained to do this work, especially handling all the legal disclosures required when renting to tenants. I recently saw a property which was 50% vacant, horribly-maintained and after two years of the tenant-manager approach, was finally rescued by professional management. Unfortunately by that time the change was made, it was in need of a cash outlay exceeding $20,000 just to get the property ready for occupancy.
To sum up, when making your management decision, talk to as many professionals as you can. Talk to other investment owners. Ask them what has worked for them. If you know that a sale of your property is on the horizon in the next 12-36 months, enlist the help of an experienced commercial investment Realtor. Ask that Realtor for management referrals. Ask them to take a drive by for feedback. Ask your Realtor what buyers want and what it takes to get top dollar. Managing your investment carefully is as important as your first decision to purchase. Your investment is likely a large part of your retirement strategy and deserves professional management. And when you decide to sell your investment property, remember it is a business decision both for you as seller and for the potential buyer and his source of funding. Keep this in mind in all management and maintenance decisions that you make. Take this approach and whether you never sell or you sell today, you will likely enjoy the rewards of ongoing cash flow and financial good fortune.
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