Why Should I Hire a Property Manager?

The Top 3 Reasons Why someone who owns a rental would NOT choose to hire a property manager:

1.       We can do it ourselves (we WANT to. It’s fun.)

2.       We have a friend (cousin co-worker, etc) who we are/ will be renting it to.

3.       We can’t afford the expense of hiring someone else to do it for us.

For Rent. 3 Bdr 2 bath. Fenced yard. No pets. $1,100 per month.  1st + Last + $500 DP to move-in.

This was the sign in the window of the house when I pulled up, the day the owner called for information.

Roger had lived there for 8 years and, after losing his job last year, he decided to rent it out to an ex co-worker. He had done a lot to the house (refinished floors, stainless steel appliances, cool antique bathtub) and wanted someone to take care of it. He worked for a local building association in town (he was a project manager) so he “knew something about being a landlord”.  His mortgage (without taxes and insurance) is $960.00 so he chose the rent that would cover it and pay the utilities, and the co-worker agreed. He told him there was no smoking, and the tenant agreed to only light up on the porch.

Five months later the tenant said he had 2 roommates with a young son who wanted to move in to share the costs. They were his old friends - so Roger dropped by to meet them personally. He determined they were “okay” – especially after realizing the boy was only 10 months old, so probably couldn't do too much damage. Then, 3 months later (in August) the tenants let Roger know they had adopted 2 cats. Because they agreed to pay an extra $150 deposit for the pets and the rent was always on time, (and Roger was out of town traveling for his new job and couldn’t really deal with it), he went along with it...

When they called on November 8th to say they’d be late on the rent and planned to move by Thanksgiving weekend anyway - they wanted to know how soon they would get their security deposit back.

Roger heard about me from a friend. He called and I came by the day before Thanksgiving to see the rancid mess they left... There was stuff everywhere and Roger was “not sure if they had fully moved out yet”. He was visibly discouraged, and he felt betrayed. He told me he was "changing the locks and just going to keep the damn deposit and sell the pool table and all the stuff in the shed they had left". His new plan was to spend the next month - through Christmas - fixing it all up on weekends, because his nephew was moving to Portland at the end of January, anyway….

He mainly wanted to know how much I charge, but he wasn't sure he wanted to hire me, because now he was even further behind. So... I mused, just how many mistakes had Roger made?

1..         Wrong rent (too low for the market).

2.          Wrong move-in charges (last month's rent guaranteed he be disappointed).

3.          Bad rental agreement (Stevens Ness).

4.          Wrong expectations (what make a good rental and how to qualify a tenant).

5.          Floors = scratched. Stainless = scuffed. Old bathtub = water damage. 

6.          Renting to a friend = "rapport hell" and anger and angst.

7.          No written non-smoking policy= new paint required throughout.

8.          NO pre-qualification on roommates. (Luckily they moved out too...)

9.          HUD violation on child (see www.fhco.org for details).

10.        Too little deposit and not properly accounted.

11.        No written termination notice.

12.        Wrongful entry on the day before Thanksgiving.

13.        Improper handling of abandoned property.

14.        Improper Lock out.

15.        Improper final accounting.

.

I told him I charge 8% per month + ½ month’s rent for screening and placing a tenant. And with my vendors, I could have the house ready in 1 week, but I wanted nothing to do with the prior move out.

After consideration, he reluctantly went with me, but after signing the management contract, he confessed to me that he felt relief.

SO WHAT HAPPENED NEXT?

I had it rented by December 15^th for $1,575 per month. $2,500 security deposit (including $500 for pet – 1 cat) and no last month’s rent on a 15 month lease (so it would be vacant next in the Springtime, not again next Thanksgiving!). Total cost for turnover was $3,350.

On Jan 4^th his furnace went out adding to his out of pocket costs (we took the call on Friday night at 8:00 pm and had it fixed on Monday after taking space heaters to the house).

By hiring me and taking my advice his (simplified) yearly rental income looked something like this:

$1,575 x 12 1/2 =     $19,687.50 GROSS RENT  - Rented in 5 days - getting him 1 ½ extra month’s rent.

-          $ 1,575 Management Fee

-          $    788 Vacancy Fee

-          $ 2,800 Cost of Turnover (painting and touch up repairs)

-          $    250 Cleaning – (Metro Professional Cleaners)

-          $    300 Yard care clean out (Green Source Landscaping)

-          $ 1,400 Furnace Repair  - (blower /gas valve but tech mis-diagnosed circuit board)

$12,574.50 Net EARNINGS

-          $11,520.00 Mortgage Payment

$  1,054.50 POSITIVE CASH FLOW

Had Roger not hired me, and completed his original plan on his own for convenience and economy:

$1,100 x 11 =       $12,100 GROSS RENT      - Spending 1 month to fix it. Vacant for January.

-          $ 1,000 Materials for Turnover

-          $ 1,800 Furnace Repair (owner would not have re-negotiated the circuit board)

$10,300.00 EARNINGS

Roger makes $40 per hour as a consultant.  ($40.00 x 15 hrs x 6 weekends = $3,600 in labor).

$10,3000.00 EARNINGS

-          $   3,600.00 Roger's Labor

$   7,100.00 NET EARNINGS

-          $11,520.00 Mortgage Payment

($ 4,820.00) NEGATIVE CASH FLOW

Here is the Apples to Apples Comparison:  

He saved $5,874.50. No out of pocket expenses for the heater. His weekends were now freed up.

The top 3 Reasons Why someone who owns a rental would choose to hire a property manager?

1.       We do it professionally (we WANT to. It’s our business.)

2.       We legally screen the tenants, use proper documentation and don’t rent to friends.

3.       We know the market value of rent and we have skilled vendors that work with us 24/7.

(I know that’s more like 6 reasons, but it just goes to show, you get more for you money by hiring us).