I've been trading email all day with the property management company I was going to hire. Basically, after speaking to some other PM companies and getting more details from this PM, I've decided to just sell the property. I asked the company that turned me down for managing it yesterday if they would be willing to list the property for sale. Here is their response:
I am sorry . We would not be interested in listing this property. It needs to managed and the management company would need to have about $1500 to maintain the yard and the property. I think it is going to need constant maintenance while it is for sale. It has been spray painted with graffiti the weeds are very high the utilities are cut off and the place needs to be cleaned. The back sill plate under the porch on the NW corner is rotted and disintegrated which will cause the porch to fall and some structural damage. We have people that provide these services for us but we would require a monthly management fee of $100 plus the operational funds necessary to maintain this property without getting citations for code violations. Without the management fee and operational funds I believe that it is more than we care to handle.
So I've agreed to sign on with them and pay $100 a month, rented or not, plus the costs of repairs that are needed to get the place in salable shape. But what really gets me mad is the fact that the old management company allowed the property to get into this shape in the first place. They obviously never visited the place in the five or six months they were supposedly trying to rent it. Yet another reason to avoid Bryan Properties.
Oh yeah...and I'll probably have to sell this property for less than I paid for it. So it's been an expensive education. More details on that when this is all over. But, the bright spot of all this is that I am now in a position where problems can be solved by just throwing money at them. Not the best spot to be in, but it is much better than being in limbo with no management company, no tenants, and no idea what is going on out there. After all, money is a renewable resource.
7 comments:
What Part Of Property OWNERSHIP Don't YOU Understand?
Would care to explain your comment? Perhaps you feel that, as an out of state owner, I am supposed to travel to the property monthly to maintain it? My management agreement states "The Owner authorizes the Broker to manage and maintain, at Owner's expense, the Property..." It seems pretty clear to me that the management company is supposed to maintain the property.
Shaun:
In all my years owning rental property I have never worked with a property management company that did not require some management by the owner. If I lived in Phoenix, I would manage my own properties there. Like you, I do not live within a convenient drivng distance, nor do I have a complete list of reliable trades people that I can call to get work done.
However, I do look at my properties at least once a quarter, and I report back all problems to the management companies. This keeps both the tenants and the managers on their toes.
In Phoenix, I own only single family homes in middle class areas where there is strong demand for rentals. Think Tempe and southwest Mesa. Even so, problems arise that the managers don't catch.
I can only imagine what would happen if I owned properties in low income areas with "high maintenance" tenants. In fact, my management companies will not take on properties in bad areas, because they are hard to keep filled and take too much effort to manage.
You are in a situation where you own one property in a bad neighborhood far away. It does not make financial sense to get on a plane every three months to go look at the property. Management companies do not want to take on the property, meaning they see it as a big headache.
If I were in this situation, I would sell this property ASAP and take the loss. This new management company seems to have been straightforward with you, and will manage the sale preparations for a fee. Unless you have a cheaper option, that might be the best way to handle the sale.
When you retrieve whatever is left of your equity in Oklahoma, start looking in your own back yard (Phoenix) again. Some of the foreclosures are attractively priced, and financing is available on reasonable terms for someone with 20 percent down and excellent credit.
...I agree with "another investor".
Shaun, your management contract is probably pretty boilerplate - it sounds like clauses I have in the agreement I have with my PM. The problem that I have found is that PMs are typically used to going the cheapest route - spending money that cuts into the owner's monthly check frequently earns them indignant calls due to reduced monthly checks, spending money on a vacant property gets them more calls from pissed owners who must now write checks to the PM. I now do a lot of my unit renovations myself - tends to be about the same, maybe a little cheaper dollarwise (especially for painting, although my time isn't accounted for), but I do a better job and the unit doesn't look like a slapped together repair job. This has been a tremendous pain-in-the-ass, especially in the earlier days, but I have found that keeping my apartments in better shape than the surrounding "general market" has helped keep my vacancies down. You are at a distinct disadvantage with the long-distance thing - it is indeed unreasonable to expect that you will visit on any regular basis, but I would very respectfully say that it is also a little naive to think that such a long-distance venture would go off seamlessly.
You are learning as you go, and they are important lessons, but as "another investor" suggested, maybe the way to go is to start in your hometown. Go ahead and use a PM to spare yourself the headaches, but use the opportunity to look over their shoulder, select the property yourself, and stay in the loop. You might be a little startled at how things are done (I certainly have been), but you will expand your experience base and be that much more prepared for your future endeavors.
Just my .02 - best of luck to you!
The reason I didn't get a property in my hometown was that prices in Tulsa are 50%-66% cheaper. And, by the way, this wasn't my first rental. I did have a local rental a couple years ago.
It seems like inept property management is in all too common theme amongst investors. I think part of the challenge is that a lot of the people that would be great property managers figure out that they can make more money selling homes rather than renting/managing them.
Unless you are going to be a hands on manager yourself, SFR's are a pain in the butt. That's why I only deal with commercial properties now. Cons - bigger cash requirements. Pros - national tenants who write the checks on time for multi-year leases.
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