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Why (Almost) All Property Management Companies Suck

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Real Estate Agent with Maverick Investor Group

Why (Almost) All Property Management Companies Suck…And What To Do About It

If you are a real estate investor (not a ‘flipper’, not a ‘landlord’….a serious real estate investor), you have most likely used one or more property management companies and the majority of them have most likely sucked.

This is a chronic, industry-wide epidemic. There are economic realities that create and perpetuate this seemingly ubiquitous challenge and it is arduously frustrating in its consistency across markets.

It is important to understand WHY (almost) all property management companies suck and what we, as real estate investors, can do about it.

I should clarify at the outset that Maverick Investor Group does NOT offer property management services, but we do specialize in investment real estate and have helped many of our clients successfully navigate the age-old property management conundrum. I will share some of our findings, strategies, solutions and analysis here.

 

WHY (Almost) All Property Management Companies Suck

·         Simple Economics. Property Management is the least lucrative sector of the real estate industry. Getting paid 10% of the gross monthly rent (with virtually no potential of getting paid more than that) simply does not light a fire in somebody’s pants to jump out of bed and devote their day to maximizing YOUR net operating income.

·         More Simple Economics. The smartest, most ambitious and talented people in the real estate game typically go into sectors that provide them the potential to make a lot more money—such as being a real estate agent, developer, or investor. Since property management is the least financially rewarding sector of the real estate industry, the least talented and least motivated people who are unable to succeed in those other sectors, tend to fall into it.


HOW Maverick Has Helped our Clients Transcend the Property Management Problem

Change the Financial Incentives in a Major Way. Maverick Investor Group provides our clients with access to turn-key investment properties in different markets—fully renovated single family homes with tenants and local property management already in place. The seller of the turn-key properties usually owns the property management company or is affiliated with it. In this scenario the incentive structure is entirely different from the economics of the traditional property management company outlined above…and so typically are the results.

Let’s compare.  For the sake of round numbers, let’s take a $100,000 property with the following assumptions:

  • The seller makes a $10,000 net profit on each sale
     
  • The property generates $1,000 per month in gross rent
     
  • The property manager is making 10% of the gross rent


Now consider the economics in each of the two scenarios:

  • Traditional Property Management Scenario.  The property manager makes 10% of the gross rent which is $100/mo or $1,200/yr with virtually no potential to make more.  
     
  • Turn-Key Scenario.  The seller knows that the average real estate investor buys 2 properties PER YEAR.  So, if the seller can ensure (through rock star property management services) that YOUR property performs as well or better than expected and YOUR net operating income is maximized, then YOU are statistically likely to buy a property every 6 months.  That means the seller is likely to net an average of $20,000 a year PER CLIENT on sales, plus the property management fees on those two properties ($1,200 x 2 properties = $2,400) for a total of $22,400 a year PER CLIENT on average.

The turn-key scenario HAS THE POTENTIAL to generate over 18 times more income than the traditional property management scenario, BUT ONLY IF the property performs as well or better than expected. 

So, the lynchpin to making $22,400 per client instead of $1,200 per client is delivering rock star property management services to make sure that YOUR net operating income is maximized. 

How is THAT for an incentive for someone to get out of bed in the morning and make sure that YOUR property performs?

 

 

Your Comments inspire ME to get out of bed in the morning, please leave one below and let us know what you think!  

 

Posted by
MATTHEW BOWLES | PARTNER
MAVERICK INVESTOR GROUP LLC
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Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

ROTFL * I've been an EVIL Fricking Property Manager for almost 50 years and property management has been very, very good to me.....but then I am knowledgable and experienced

Real estate agents and investors who search for a property manager via their PRICE are doing themselves a disservice......I am a property manager and I OWN investment property.

Jun 05, 2012 07:49 PM
Matthew Bowles
Maverick Investor Group - Los Angeles, CA
Maverick Investor Group - MaverickInvestorGroup.com

Wallace, I had to google ROTFL to see what that meant :)  

I appreciate your comment.  You will notice I carefully included the word "Almost" in parentheses.  I know of only a few exceptions but I'm sure you are one of them.  And you are absolutely right, when people shop property managers based on price (wanting to pay 6% instead of 10% for example), all they do is further reduce the property manager's incentive to make their property perform.  Saving a few bucks in the short run costs big money down the line when it comes to property management, that is for sure.  

Jun 05, 2012 08:10 PM
Bob Crane
Woodland Management Service / Woodland Real Estate, KW Diversified - Stevens Point, WI
Forestland Experts! 715-204-9671

Hi Matthew, I am not sure that I understand the mechanics of these deals, do you have a different property management company for each property?  If these property managers are the previous owners and are the best people to manage these properties, then why sell them?

Jun 07, 2012 07:55 AM
Matthew Bowles
Maverick Investor Group - Los Angeles, CA
Maverick Investor Group - MaverickInvestorGroup.com

Bob, we are talking large scale operations here.  So, the way most our buying opportunities for turn key properties work is that the 'seller' is a multi-million dollar company that systemically purchases distressed properties at liquidation prices on a large scale, renovates them, rents them out to qualified tenants and then sells them through private buying channels (like Maverick Investor Group).  The reason why they sell them is because that is their business model....they deploy millions in cash per month to acquire and renovate properties, so they need to sell them in order to replenish their capital to keep their business running.  But the owners of these companies certainly keep SOME of the properties for their own personal portfolios and build their personal wealth through rental properties as well. 

Jun 07, 2012 06:25 PM
Bob Crane
Woodland Management Service / Woodland Real Estate, KW Diversified - Stevens Point, WI
Forestland Experts! 715-204-9671

Thanks Matthew, that makes it much more clear, it sounds like you have a well run operation.

 

Jun 08, 2012 03:53 AM