Veteran real estate owner and investor Larry Arth has a great property manager who he has worked with for years. Other owners and investors struggle at times to find the right management style themselves to work with a property manager. Here are some thoughts on how to make the relationship between owner and investors and property managers work better.
By Larry Arth
I was having a conversation recently with an investor who owned a rental property free and clear and had been happy for years that all things were going well, with tenants paying regularly and checks coming in on time.
For the past five years, this investor was collecting rent checks from the property management company like clockwork. The property management company had been sold to another owner a few years back, but things were still going well. The checks came in right on time every month.
Just what an investor wants from a good property management company, right?
This investor never dreamed a simple change in ownership of a property management company could be a red flag.
However, behind the scenes and unknown to the investor, the property management company handling the property had not been paying – since the ownership change – the annual property taxes due on her rental.
You all know what happens when you do not pay taxes.
In the case of property taxes, they put a tax lien on your house.
If the taxes are not paid, they can actually sell your house out from under you.
Since the investor owned this rental property free and clear, there was no way to know the taxes were unpaid.
The first time the investor found out there was a problem was when a legal notice was received of years of past due taxes. Now the investor is trying to redeem the rental property after the tax sale.
What is the lesson here for investors and property managers?
How well do you manage your property manager? Photos copyright DragonImages via Canva
Passive real estate investments are great. But it is really important for real estate investors to properly manage their property managers.
My company helps passive real estate investors, and everyone here at Equity Builders Group believes in watching out for investors and looking forward and seeing all of the possibilities of what could go wrong to keep all the benefits an investment may offer – plus how we can make them better.
This forward vision is like looking through the windshield of your automobile. You will note however that every windshield has a rear view mirror (or now in some vehicles the backup camera in the dash too.)This view is small in comparison to the windshield. But it offers an opportunity for you to look around from time to time so you can get a 360-degree view of where you are going and identify any unforeseen challenges.
Passive real estate investments are of course those with which you have very little to do but sit back and collect checks while your property management companies run your business for you.
That is, until your property management company changes staff and our passive investor, mentioned above, now has to try and redeem the rental property after the tax sale.
This investor of course will look into finding a new, and better property management company going forward.
Based on this investor’s experience, I thought I would offer some thoughts on managing property managers.
7 ways to manage your property manager
- Talk with them regularly. Even if checks are coming in, you still want to touch base and make sure the team members you hired are still managing your property and all is good.
- Create a checklist of things you want to do throughout the year. Perhaps enter these tasks in your calendar so they get done.
- Confirm property taxes are being paid. You should see this expense on an owner’s report. However as this is typically an annual expense, and you are not accustomed to seeing this expense, it is easy to overlook a missing expense like taxes. So log this most important tax expense in your to do list. You can also check the local tax record to ensure it is always paid up.
- Review all leases. Know when your units are expected to turn over.
- Track your vendors. Like any business, it is turnover of employees or vendors where changes occur. If your property manager switches vendors you want to know why and check on the new ones to avoid unexpected surprises. If your property management company switches ownership you want to vet them as you did when you first hired them. Here is a handy property management questionnaire that I developed over the years that will assist you to hire a great property management company.
- Spot check market rents. It is easy to become complacent, but markets are always changing. As an owner you want to know if you are getting fair market rents or whether the market has shifted? If you can raise rents, you want to. On the other hand, if you are charging more than market rents you may risk losing tenants. If you have several units that are overcharging you may find yourself in a sudden escalated vacancy position.
- Get pictures of your property at least once a year, and more if possible. Investors love it when you do not have repair expenses. But investors should also be concerned if the property is being properly maintained when they are not seeing some periodic repairs. Keeping a log of pictures as the years go by will allow you to see firsthand the condition of the property.
You can see that there is very little time commitment to help ensure that your property is properly managed and maintained.
As a passive investor you want to let someone take care of the day to day details.
You, however, still want to manage your property managers. Happy investing!
About the Author:
Larry Arth is a landlord and the founder and CEO of Equity Builders Group, a Florida based Real Estate investment Group. As a 36 year veteran to real estate investing, Larry understands that we are now in a global economy and as times have changed, investment strategies must change as well. Larry is an international recognized consultant and speaker and assists hundreds of investors per year, both foreign and domestic to realize their investment potential. He analyzes locations across the country for economic strength and the locations that yield the largest most sustainable return on investment. Within these locations he seeks out and gathers the best teams to deliver sound, high performing and most importantly sustainable turnkey investment. He works with investors to ride the wave of each area-specific market surge. Larry’s primary focus is offering (Non Listed) safe and sustainable turnkey investments to the passive investor.