Welcome to Week 16 – in which I share the Benefits of working with a Licensed Property Manager – but first, I’m going to tell you a Horror Story…
(spooky horror sound effects!)
It was a dark and stormy night…
An out of town investor stumbled onto some of the cheapest homes in the nation – in Springfield, Ohio! Seduced by low prices, they purchased 70 single family properties, sight-unseen.
They didn’t know the condition, the true cost of rehab and maintenance, and they consistently over-estimated their rents and the number of months they could collect it. They paid reasonable prices for the properties, but significantly overestimated their profit margins.
Like many, they thought they could remotely manage their own properties. Unfortunately, scattered-lot, single family housing requires a day-to-day, hands on approach. And any house under $20,000 probably needs some big-ticket upgrades – like roofs and windows.
They hired a local contractor for the rehabs, and in time, the contractor offered to help them find tenants… and collect rent… and do the ongoing maintenance and repairs.
This sounded like a terrific arrangement…at first.
But eventually—largely due to a lack of tenant screening and selection processes—the business plan started to fail. When they called us, barely half the properties were occupied, and half of the current tenants were not paying rent and in need of eviction. The owners were increasingly angry and frustrated, and the unlicensed manager was in way over their head.
While our owners lost a great deal of money in uncollected rent, they really got killed in the cost of repairs and rehabs. Not only was there no competitive bidding for the work, but it appears that the manager was billing them at a very substantial mark-up. Costly improvements had even been performed on houses that should have been torn down!
The unlicensed manager and the rent-free tenants were the only ones making money on these houses. It may be hard to prove that the manager’s actions were fraudulent or criminal. But the owners supported his actions by giving him a free hand. Had the manger been caught by the Ohio Division of Real Estate, he would have at the very least owed thousands of dollars in fines.
Fortunately for our investor, this story has a happy ending, eventually. But there are several lessons to be learned:
First you can NOT manage property well on your own from a distance.
Second, you need to have a set of basic standards for your property manager, including being licensed.
And third, an owner should invest as much time and effort in selecting a property manager as they would to qualify a new tenant.
A good property manager will make you money far beyond the fee you will pay them.
The benefits of working with an experienced, licensed property manager are too numerous to mention. As an owner, you can trust that a licensed property manager has a moral, legal, and fiduciary responsibility to protect your interests as your agent.
They are your expert on the ground in the local market and your connection to your tenants and your property. And let me be clear, the key point here is that your property manager must be licensed to practice real estate in the state in which they are doing business.
Being licensed is not a bonus, it is the law. Only a licensed real estate broker or licensed agent working for a broker can legally and competently provide property management services.
State licensing laws help insure that your property manager is not only qualified to manage your assets, but up to date on all of the laws and regulations that affect housing, including Fair Housing laws.
Each state has its own set of penalties for the unlicensed practice of real estate; with many classifying it as a felony. And there is an ethical component to selecting a property manager: would you want the person or team managing your real estate investments to also be committing a felony?
Brokers engaged in property management must understand what activities their unlicensed employees can perform and provide clear guidance to their employees regarding the duties they are permitted to perform under state law.
It is the broker’s responsibility to make sure that their employees do not cross over this line and perform activities limited to only licensed agents.
This is important information to have when interviewing, evaluating and selecting a property management firm.Thank you for joining me today – I hope that horror story never happens to you! Join me next week, to learn about the ROOST Landlord Advantage!
For a free copy of the full book, A Real Estate Investor’s Guide to Profitability, email FreeBook@ROOSTRealEstateCo.com and we will send you one. Or download a free e-book version here: MakeRealEstateWork.com/free-book