Does this describe you? You just received your Property manager certification and now you are ready to start a property management business. You have all the book knowledge you need to be successful, right?
Or is this you? You have owned a property management company for years, it is generating enough revenue to cover overhead and pay yourself a small salary, but you would like to take a vacation or build a new home. Or even give your staff a raise.
After 31 years in the property management business, we have narrowed down the most common mistakes made by management companies. These are mistakes that we made along the way as well as mistakes that we have seen in other management companies. We have all heard that saying, “learn from my mistakes…”
In this article, we will review the top 6 mistakes in property management that we have identified. If you correct these mistakes in your company, you are sure to see results.
Let’s start learning…
Mistake #1- Not Conducting Proper Inspections
Conducting regular, proper inspections of the properties is critical to monitoring the condition of the homes. There are two types of inspections that we recommend:
1- Monthly exterior inspections- An exterior inspection consists of driving by the properties each month and taking photos of them. You are looking for any signs that the property is not being taken care of. Are the residents watering the lawn? Any oil stains on the driveway? Any pets in the window and pets are not allowed inside the property?
If you find a violation of the lease agreement, like a dead lawn or oil stains on the driveway, issue the resident a violation. With the violation, issue a fine; just like an HOA does for a violation of the Rules and Regulations.
- Annual Inspections- An annual inspection allows you to see what the condition of the home is on the interior and not just the exterior. You will look for things like:
* overall cleanliness of the home
* checking for any un-reported repairs
* check for any signs of pets, confirm they are allowed to have pets
* Make sure the smoke and CO2detectors are installed and in working order
Just by doing these two types of inspections you will drastically improve the overall condition of the homes under your management.
Mistake #2- Not having a proper lease agreement
Most management companies will use lease agreements that you can purchase online or even download from your local Real Estate board. While these leases are “okay” in most items it does leave out some big topics. In an article titled “Top 18 Items to Include in a Lease Agreement” we cover all the items that you should include in a lease agreement. Next to a management agreement, this is the most important item that you will spend time making sure is on point. Spend the money to have it reviewed by your attorney as well.
The last thing you want to be doing is standing before a judge and lose your case because of some minor technicality in your lease agreement. It has happened!
Mistake#3- Not having a proper property management agreement
Take the time to create a clear and detailed property management agreement. You want to detail out what the expectations are for both, yourself as well as the landlord. Clearly define the terms of the agreement, will it be for one year or month to month? What happens if the landlord doesn’t perform as expected? What happens if you, the management company, don’t perform to the expectations of the landlord?
Read this article for a list of the Top 25 Items in a Property Management Agreement You Need to Know.
Mistake #4- Not Hiring qualified subcontractors/vendors
Maintenance makes up about 75% of a property management company. From needing to make properties rent ready during vacancy to handling every day repairs that come up, some companies have an in-house maintenance department while others have outside vendors that complete the repair. Either way, the vendors are an extension of your company and must provide top-notch customer service and complete repairs timely. Residents don’t move out because of a small rental increase, they will be quick to move out if repairs are not handled timely.
Take the time to interview contractors making sure they are licensed, bonded and insured. Call references, if they are a landscaping company then drive by several properties and see how they look. If you would like more information on hiring qualified vendors click here.
Mistake #5- Not charging ancillary fees
We are not suggesting that you nickel and dime your clients, however, we are suggesting that you charge for items that are above the scope of typical management. By charging ancillary fees you can afford to offer other services to landlords. Services like paying for an eviction for the life of the resident and providing monthly exterior inspections.
Do you charge the resident a trip charge for posting a 3-day notice? This is in addition to the late fees charged. If not, why not? After all, the late fees are for the owner for the resident paying late, but you had to pay someone time and gas to drive to the property to post that notice. How about violation fees to residents? Just like living in an HOA if you don’t put your trash cans away like you should then you will receive a fine.
Do you charge a supervisory fee for overseeing the process of making the home rent ready? If not, why not? It takes time to coordinate repairs at the property between contractors, not to mention going back and forth to the property to make sure all the work is getting done on time.
In a management company with 150 doors, you could be leaving $50,000 in ancillary fees on the table for the taking.
Please note: You should consult your attorney before setting the fees to know that you can charge for.
Mistake #6- Not having clarity across your company
One important element that is often lacking in a property management company is clarity from residents, to owners, to vendors/contractors, and employees.
There is partnership in play in a management company. Everyone is expected to do their part, but they need to know what their “part” is. Kind of like playing on a football team, every player as a position on the team and must do their part to win the game. If the coach doesn’t tell the player what their position is on the team, you will have a bunch of men running around the field not knowing what to do and chaos ensues.
By knowing what your position is on the team you now bring organization to the team and hopefully a win for the team.
Same holds true in property management. Residents are expected to pay their rent on time. Landlords are expected to send in money for repairs within 24-business hours. Vendors are expected to call the resident within 4 hours of receiving the work order. Employees are expected to provide superior customer service. The company is expected to provide training for its employees, hire quality vendors, and provide top notch service to its clients.
We have created a Partnership Agreement that we provide to residents, landlords, and vendors when they become part of our “family”. This provides clarity to each “player” and allows us to provide the best customer service possible. Click here to view our Partnership Agreement.
Correcting the mistakes
It doesn’t matter if you are just starting out or if you have a been in business for years, it’s not too late to turn these mistakes around! Start with deciding what ancillary fees you want and can charge. Then redraft your rental agreement and management agreement. Be sure to pass both by your attorney to make sure you don’t have any grave mistakes in them.
Craft a game plan to roll out these changes and stick with it. When leases come up for renewal, it is a great time to institute your “new” trip charge for any notices posted, or fines for violations. When management agreements are coming up for renewal that is an opportunity to roll out supervisory fees, etc.
According to Steve Murray with Real Trends, the property management industry is an astounding $39 billion-dollar industry, how much are you leaving on the table?
If you would like more information property management or how you can improve your existing company, click the link below to schedule a 20-minute consultation with Ron Sudman, himself. Ron is the Owner and CEO of Management One. His goal is to share with you the “secret” to running a successful property management company. One that you can work on not work in. One that allows you to take a vacation and never call home!