Should My Indianapolis Property Management Company Own Rental Real Estate?
I came across a blog post recently that discussed some tips on choosing the right Property Management Company. It was written in the highly popular Bigger Pockets blog and was directed, of course, toward investors.
There were 8 tips and I whole-heartedly agreed with all but one.
It was point #2…
“2. Do they own any rental properties themselves? For me this can be a deal breaker!”
The author went on to explain that if, indeed, the PM company you are considering owns rental real estate, they may very well fill their vacancies before yours.
I guess that makes sense.
I guess that can happen.
But, if you make this a make-or-break, do-or-die, requirement, I think you are missing the much bigger picture.
INVESTORS GENERALLY MAKE BETTER PROPERTY MANAGERS
My business partner, Scott Hallberg, and I own a lot of rental real estate. We bought our first property together back in 2000 and have acquired many more since.
Early on, we did everything:
- Move-In Walk Throughs
- Lease Signings
- Rent Collection
- Maintenance Dispatching
- Turnover work (yes, we painted our fair share of houses)
- Security Deposit Disposition
- Etc., etc., etc.
You get the idea.
We both have operational backgrounds, so we started writing processes and policies. We set-up a nice lease. We developed an Access Database that tracked our Tenants. (You may not know, or may not care, but single family property management software didn’t really exist in 2000).
So, the point is, we did literally everything. We learned as we went. We created processes that work very well (which we’ve retained) and we created processes that worked horribly (which we scrapped).
We treated it like a business, which it is.
When we opened our Indianapolis Property Management company for 3rd party Owners, we were, naturally, well ahead of other people who were entering the business at the same time.
Simply because we were investors ourselves.
Douglas Skipworth is an Owner of Crestcore Realty, a large Property Management Company based in Memphis, TN. Doug is a member of NARPM, and is a trusted voice in our industry.
Douglas and his business partner own around 500 rental properties and manage around 2,500 properties in total. That’s a lot and they are obviously good at what they do.
His key to success? Owning his own properties.
Queue the golf clap.
BENEFITS OF YOUR PROPERTY MANAGER OWNING RENTAL REAL ESTATE
1. Been there/done that – As I noted above, we have experienced, first-hand, nearly every scenario regarding Landlord/Tenant issues. Fortunately, most our staff has as well. But, if our immediate staff member doesn’t have a solution to a problem, my business partner and I can almost always fill in that gap.
Experience is important. Experience will save you money. A lack of experience, due to mistakes, missteps, poor practices, etc. will cost you money.
2. We feel your pain – We know what causes you to lose sleep at night, because we’ve already lost sleep over it. Getting properties filled quickly, with highly qualified Tenants should be a basic requirement of any PM company. But, a PM who has never went thru a vacancy, or a tough move-out, or an eviction can’t really relate. Not REALLY, REALLY relate.
For you cynics out there, I understand your concern about steering, so I’ll try to address it the best way possible.
1. Products aren’t the same. At least in our case, the rental real estate that we own is an entirely different product than 95% of the customers we represent.
We own a lot of homes near Broad Ripple that are very old – we’re talking 75 years old or even older – that in most cases demand less rent than the homes of our customers. Most of our customers own newish homes in the suburb.
So, even if we devised a totally unethical plan of steering Tenant prospects toward our properties, they wouldn’t be interested – no matter how hard we tried to sell them.
2. Property Managers have ethical responsibilities. All Property Managers are Realtors… wait, all Property Managers should be Realtors. Your Property Management Agreement should define an Agency relationship, where the PM has ethical and legal responsibilities to act in your best interest.
Clearly, steering a client toward their rental property is not serving your best interest.
3. Ultimately, it comes down to trust. Look, trust is a big deal in our industry. We represent Investors who have never met us face-to-face and, in some cases, have never been to Indiana. It’s critical that you feel that trust when you sign-up with a management company. If they are a trust-worthy company, you shouldn’t have anything to worry about regarding rent steering.
I’m certain there are examples of PM’s who have been guilty of steering. Just like there are examples of PMs who have co-mingled security deposits, have failed to conduct necessary maintenance, have failed to respond to their owners… you get the point.
There are plenty of reasons not to hire a Property Management Company.
The fact that they own rental real estate shouldn’t be one.
In my opinion, it should be a main reason you do hire them.