The Property Manager: On the Front Line of Your Property
Why the relationship with your property manager is so important
As we did last week, let’s anchor in on where we are in the process of learning how to be a real estate investor.
You own your first property.
You have a business plan and are in the early stages of executing it.
You have hired a local property manager.
You are eyes wide open that unexpected issues will come up.
You understand how to review the monthly reports.
Today we are going to discuss how to work effectively with your property manager.
Your property manager is on the front line of your property. They are the main point of contact with tenants and vendors.
Your tenants’ experience of the property will be based on four things:
Where the property is physically located.
How much rent they have to pay.
The physical condition of the property.
How the property manager responds to their requests and challenges.
You can’t change the location and you want to maximize the rent. The physical condition is generally fixed other than the ability to maintain it and possibly improve it.
It is the performance of the property manager that is the most malleable. It is one of the few things that you as the property owner have the ability to influence.
Today we will discuss:
The role of the property manager.
Why being a property manager is so challenging.
When to hire a property manager and how to find a good one.
The importance of setting clear expectations relative to your operational philosophy and goals.
How much discretion to give the property manager.
What to do when things aren’t working out.
Let’s dig in.
The Role of a Property Manager
A property manager is the person or team that manages the property for you on a day to day basis. They will likely be an employee of the company you hire to manage your property.
In addition to the monthly reporting package generated by their team, they have two main focus areas:
Tenants
Vendors
Tenants
Property managers respond to tenant requests and give tenants direction. They use the lease (and instructions from the owner, if any) to determine how they respond to issues. Here are some examples of issues that will come up with tenants.
The tenant is paying rent late.
The HVAC unit in the tenant’s suite stopped working and needs maintenance.
The tenant is leaving trash in the common area.
The property manager has to interpret how to handle the issue, get approval from the owner, communicate the resolution to the tenant, and make sure the tenant cooperates.
This is very easy to say, but hard to do.
Vendors
Property managers also hire vendors to maintain, repair, and upgrade your property. Some of this is done proactively. Some of this is done reactively. You as the owner set the direction of the maintenance standards, but it is the property manager who has to execute this. Here are some examples of issues.
Exterior maintenance relative to cleanliness and the landscaping.
Preventative maintenance (if any) of the building systems.
Want to operate your property like a slum lord? It falls on the property manager to execute this and face the consequences of the unhappy tenants.
Why Being a Property Manager is So Challenging
Let me state this clearly:
The role of a property manager is one of the hardest in the real estate industry.
Why?
There are multiple reasons:
Lack of Time Control: a property manager is faced with a variety of issues each day, many of which are unplanned and time sensitive. Things break. Emergencies happen. Property managers have a very hard time keeping control over their schedule and time.
Workload: property management is a low margin business. Owners of property management firms tend to overload their property managers with a heavy workload.
Context Shifting: a property manager is a jack of all trades. From communicating with a tenant, to analyzing a lease, to reviewing and commenting on a financial report, to preparing a vendor contract, to interpreting a technical building issue - a property manager has to do it all, often in a single day.
80/20: 80% of what happens at a property goes well and unnoticed. It is the 20% of issues that go wrong (most of the time outside of the property manager’s control), that get noticed and complained about to the property manager. It can be a thankless job.
Let me say it again.
The role of a property manager is one of the hardest in the real estate industry.
The good ones do all of this with amazing customer service and keep everyone happy.
I have SO much respect for property managers.
When to Hire a Property Manager and How to Find a Good One
Some of you may be considering managing the property yourself. That is fine, but proceed with caution.
I did this for a year on my property. It is like taking on a part-time job. Once I received an emergency call while on vacation with my family, I realized I would much rather pay someone else to do the work.
Hiring a property manager is particularly important if any of the following criteria apply to you:
You don’t live near the property.
You have a full time job.
You have a low tolerance for customer service issues.
You put a high value your time and mental peace.
The good news is that there are great property managers out there. Here’s how to find one.
Ask for referrals. Search the internet. Ask AI. Note: referrals are the best.
Interview 2-3 firms. Yes this will take time, but it will give you a good comparison.
Check references. What are their existing clients saying.
Request an example monthly report.
Discuss your operating philosophy and goals.
You don’t always want to go with the cheapest option. Find the one that has the right balance of costs and service - and who is on board with your philosophy and goals.
A note of fees: property managers typically charge a fee based on percentage of rent collected from the tenants each month. This varies by market and property type. Here’s a rough range to give you an idea:
1-4 Unit Residential: 8-10%
Large Multifamily, Retail, Office, and Industrial: 3-5%
They may also charge fees for construction management, leasing, and other “one time” services.
Once you select the right property manager for you, make sure you set clear expectations.
The Importance of Setting Clear Expectations Relative to YOUR Operational Philosophy and Goals
In a previous newsletter - Daily Issues You Will Face While Owning Real Estate - I discussed the importance of being clear on your own operating philosophy using three types of cars as an analogy:
Do you want to operate the property like a top of the line Mercedes, a reliable but basic Honda, or a car that constantly breaks down?
If you don’t understand your own philosophy and goals, your unfortunate property manager will either (a) constantly be guessing at how to handle issues and coming to you regularly for direction or (b) taking action on issues that may or may not be what you want.
Take the time to be clear on your philosophy and goals.
Once you do this, you can set the framework of a good working relationship with your property manager that will benefit your property. Here are the specific steps I recommend:
Send an email to the property manager explaining your philosophy and goals.
Meet with the property manager onsite to walk the property and discuss your philosophy and goals. Make sure you take the time to get to know your property manager and understand their daily workload outside of your property.
Agree upon expectations for how the property will be operated day to day.
Agree upon how often you will have a call or meeting and what will be covered. This will be much more efficient than ad hoc communication.
Agree upon what communication should fall outside of the call/meeting schedule. What should qualify as an emergency? Do you prefer texts, calls, or emails?
Agree to check in after 90 days to discuss what is working and not working.
Setting the foundation up front will help establish a clear working relationship that will benefit each of you and the property.
Here are some examples of how you can operate a property to give you an idea of how to develop your own operating philosophy.
Tenant Compliance
“Letter of the Lease”: strictly interpret the lease. Don’t give the property manager any wiggle room. If the tenant is unhappy, too bad. They signed the lease. If they paid a day after the grace period, immediately move to eviction.
“Best of Alternatives”: use the lease as a foundation, but be practical. You may be strict on the rent, but be more flexible on maintenance issues. Maybe the lease says that the tenant has to maintain the HVAC, but you tell the property manager that you are willing to pay for maintenance issues for tenants who are consistently paying rent on time.
I like option 2, but it does run the risk of getting out of hand if not closely monitored.
Property Maintenance
“Reliable but Basic Honda”: keep the property functioning well, but don’t try to fix and improve every possible issue.
“Top of the Line Mercedes”: keep everything looking and functioning perfectly. Cost is irrelevant.
“Car That Constantly Breaks Down”: do the bare minimum.
I operate my property as a “reliable but basic Honda” and use the “best of alternatives” approach to tenant issues.
Once you have set clear expectations with the property manager, you will want to decide how much discretion they should have.
How Much Discretion to Give Your Property Manager
When I talk about discretion, I am mainly referring to financial discretion. Spending money.
Your property manager will be making decisions daily that don’t cost any money. This is what you want. There is no point in paying someone to manage your property if they have to come to you for approval on every issue.
When it comes to financial issues, I recommend setting a dollar threshold under which the property manager has the discretion to resolve issues without coming to you for approval.
For example, you could set a threshold of $250. This could be per issue with a monthly cap or per month. This allows the property manager to resolve small issues without having to come to you each time for approval. It will save each of you time and will benefit tenant relations as issues can be solved real time.
Try a dollar threshold for a few months. If it works well and you develop an increasing level of trust with your property manager, consider increasing the threshold. If it is not working, consider reducing or eliminating the threshold.
Remember that you can change things over time.
Start with an approach, set a time period under which to try and evaluate it, and then make modifications if needed.
What To Do When Things Aren’t Working Out
All that being said, you can do everything to set yourself, the property manager, and the property up for success, but still have problems.
There will be times when things aren’t working out.
Welcome to being a real estate owner.
Here are some red flags to watch for relative to the performance of your property manager.
Poor Property Condition: the property is not being maintained to your agreed upon standards. You see this repeatedly in your property visits.
Non-Responsiveness: your property manager does not respond to your emails or calls. You may also hear from your tenants saying they are contacting you because the property manager is not responding to them.
Poor Treatment of Tenants or Vendors: in short, your property manager acts like a jerk.
Deadlines Consistently Missed: your property manager is responsive, but never hits agreed upon deadlines.
Sometimes these issues can be resolved with a conversation with your property manager (or your property manager’s boss). Sometimes they can’t.
When they can’t, it is time to make a change. Don’t settle for poor performance. You will lose tenants and spend more money maintaining your property in the long run.
Interview 2-3 new property management companies to find a better fit for you.
Closing Thoughts
Finding the right property manager is critical to your success as a real estate investor.
In the property I own directly with a partner, I experienced three of the four red flag issues above with the first property manager. I ended up firing them and finding a new one.
Everything has been SO much better since then. It was worth the time and the additional monthly expense.
Take the time to find the right team for you and your property.
Your time. Your money. Your choice.