Chandler Properties Blog

Spring is in the air and tenants have finally started renting again.  Two weeks ago I rented my Sharon Drive apartment which had sat empty for over five months.  Having a unit open for that long was unnerving and I was beginning to wonder if it would ever rent.  I have never had a property sit empty that long in seven years of owning rentals.  Renting in winter time is always difficult, but with the downturn in the economy this time was exceptionally difficult.  I had several interested prospects, but most did not qualify either because of bad credit or bad rental history.  As much as it hurt to be without rent for five months I was not about ease up on my tenant standards.  It’s a lot easier to get a bad tenant into an apartment than to get them out.  

I was please to get a young couple in the apartment the other week.  They had good credit and excellent personal references.  I did have to drop the rent from the original $465 to $415, but I think the decrease in rent is just part of the recession.  It’s great to be getting rent on the unit and not having to pay the utility bill.

The lessons learned from this experience are:

1) Build into financial projections the potential of having a property sit vacant for an extended period of time.  Make sure I always have enough cash to cover these types of events.

2) Don’t let up on my rental standards.  Eventually a good tenant will come along and a little lost rent is better than the cost and hassle of trying to evict a bad tenant.

I’d be interested to know if any of you out there experienced a rough winter with vacancies and have noticed a pick up in rentals this spring.  If you have feel free to post a comment.

A topic of hot debate is whether a real estate investor should hire a property manager to handle the day-to-day property management of their properties.  I have seen arguments for both sides, but I tend to believe that for most investors it’s better not to hire a property manager. 

What a Property manager Does?
A property manager generally is in charge of the day-to-day activities of a property.  This includes showing the property to prospective tenants, collecting rents, answering phone calls, coordinating repairs, paying bills, etc.  Property managers will charge a fee of 5% to 10% of gross rents collected for their services.  This fee pays for rent collection, phone calls, and paying bills.  Most other services are in addition to the 10% fee. For example, if you have a leaky faucet, the property manager will field the complaint and then hire a plumber to go do the work.  The owner is responsible for the plumber’s charges. 

The reason I don’t believe most real estate investors should use property managers is because answering the phone and farming out the labor to subcontractors is the easy part of the job.  I’m not sure it is worth 10% of my gross rents to have someone answer the phone, and pay my bills.  The hard part is mowing grass, painting, cleaning, fixing toilets, repairing, and did I mention painting.  None of these tasks are covered by the property manager’s fee.  Property managers simply subcontract out these tasks and pass the bill along to the owner.  If you are a young investor trying to get ahead, then it’s probably best to save the fees and do as much as you can to keep your expenses to a minimum.  Besides, managing the property on a day-to-day basis is a great way for a new investor to really learn the business.  

Bad Property Managers
No one else will take of your property as well as you do.  If I am going to invest a couple hundred thousand dollars on an asset, I want to know that someone is keeping a close eye on it and will keep it in great shape.  I have heard several horror stories about a property management group in my town that charges low rates, but has very poor service and does hardly any maintenance on their properties.  They don’t paint the units in between tenants, clean, or remove trash.  I just rented to a tenant the other day that commented on the stinch that was coming from a rental that this property manager was showing to him the day before.  The property manager had not bothered to do any cleaning before showing the property.  Not only did this scare the prospective tenant away, but it is not good for the long-term viability of the property.

When to Use a Property Manager
I do not think all property managers are bad.  There are some situations I can think of where using a property manager is a good idea. One is if you inherit a property and you don’t really have any interest in managing properties.  Another is if you are moving away for a few years and do not want to sell your house.  However, I would be sure to screen property managers and make sure you get a good one that will take care of your property.  

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