# Entrepreneur of the Week # Post 2 Why are companies managing this? I know there will be quite a few people going…
Why management companies this ?????
I know there will be quite a few people who are going to get mad at me and that's fine, the purpose of this post is not to make anyone feel comfortable, these are talking about one of the most painful points in real estate investing in the US, certainly when we do it from Israel.
It's time to talk about the structural failure that exists between us investors and management companies, conflicting interests and why this is the most common reason for failure in investing in the United States.
There is hardly a week that people do not approach me, to consult on investments in the US, on a specific transaction or in one area or another. I give everyone the same answer, there are good deals everywhere, Ohio / Florida / Texas שוק Market analysis הג Immigration data…. Employment data… Municipal plans… Everything is nice but mostly background noise.
The only thing that will turn a good deal into a good investment is who manages the investment!
Yes it is so simple…
The goal of a good management company is one, to make the property work and produce us investors a return on money!
She has to choose the best tenants with the highest chance of paying us the rent in time and all this without destroying the property (much harder than it sounds). It needs to take care of the tenants' maintenance calls in the best and fastest way in order to keep our tenants happy and paying, bookkeeping in an orderly and proper manner, collecting funds, paying taxes, bills, etc.
For the service, we usually pay an amount of between 8% -10% of the gross salary. For a tenant replacement, a rental month is usually paid, and for maintenance and preparation calls for the property after a tenant replacement is paid as needed.
So far Pierre sounds no? Sometimes we forget a little but overall we got a service and also the management company that worked so hard for us deserves to make a profit. So why in so many cases does it just not work? Why do I have customers who replaced no less than four management companies in a year? Why are there so many people who have been burned so hard that they have sworn to me that they will never go back to investing in the US or at all in a place that is not where they live?
Here are some key reasons why management companies may not be able to perform well:
1. A company that is too big - no matter how good a will they have, companies with a lot of assets simply are not able to give a personal and specific solution to the problems. For example, if a tenant does not pay at best the computer will update the amiable clerk to contact the tenants and ask them to pay, or at the very least simply send the property manager in the area automatically to give notice before eviction.
What do you think is the motivation of the clerk to try to understand and solve the problem before the expected abduction, which is going to cost us between hundreds and thousands of dollars at best? How much does it hurt her when she records the check from your account for the preparation of the property for a new tenant worth thousands of dollars? Or for a monthly management fee even though there is no tenant in the property at all? (Yes, it exists in quite a few companies).
2 LACK OF IDENTITY OF INTERESTS AND GRIDES - "GREED IS GOOD" One of the sentences that everyone who knows me knows that I love the most, and there is no situation in which you will pass on a day and not hear me recite it at least twice. There is no problem with greed per se, on the contrary… The problem with greed begins when there is no identity of interests, no transparency and no control. The management company needs to resist temptations and be in a self-war on a daily basis between the desire to give a good service to the investor and the desire to make money here and now. It has to withstand endless temptations to take advantage of our investors' lack of understanding / control / distance.
What interest do you think will win over time?
Ours or of the management company?
Example of conflicting interests: You as an investor want to keep the tenant as long as possible in the property, so the property will not stand empty, you do not have to spend money on paint and repairs, you do not have to pay for replacing a tenant, etc.
The management company, on the other hand, misses out on thousands of dollars, which it will have to pay if it changes tenants and will have to prepare the house for rent again (paint / carpets / floors, etc.).
In the case that happened to me personally with a property owned by my mother, a new construction we bought her for retirement in an excellent area with a quality population. Following the negligent behavior of a management company (lack of attention, time, caring and collection of mistakes) we found ourselves with a wayward tenant who did not pay for nearly eight months. We paid $ 1000 for the auction, a little expensive but a little money, at least we managed to get the lady out in the end.
Happy and satisfied asking for photos of the property from the management company, getting the photos, walla the property is in a much less bad condition than we expected. Need a light paint in some rooms, one carpet that needs to be cleaned and that's it. ומת However, the bill my mom got from the management company is about $ 3500. I told them thank you but no thank you, I contacted Hendy from a local I got a recommendation for, and it offered to do the job for $ 1200 including materials. Fair price for all parties.
guess what? The management company did not agree to give him keys to carry out the work, claiming that its insurance did not cover outside professionals. I'm not saying the management company does not deserve to make a profit, but once again the Gordians have won the war and I am sure most of its investors are not even checking or arguing. As you understand the management company no longer manages the property.
I have countless other stories and similar examples but it seems to me that you have understood the idea.
When do management companies work?
Ready to verify inside? ????
it's simple…
When they profit from somewhere else!
A management company is not such a profitable business as everyone thinks, certainly when it comes to a company with less than 200-250 managed assets. I know a lot of companies from all over the United States, and what they have in common is that the management company is just a service to them and not their main business.
They provide the service to investors who purchase properties from them, and allow them to earn a nice commission in buying (equal to a profit of years from a client in a management company). They benefit from the renovation you will have to do after you buy the house, and you will want to improve it in order to rent it out (another profit of a few good years). They will be very happy if you buy more houses or you recommend and bring with you more investors (another profit of a few good years).
I am sure that there are investors who work with a "regular" management company and are very satisfied with the service. I'm sure there are exceptions, but the conflict of interest just screams to heaven and can not be ignored. I say again, there are the righteous!
But at least I'm in my character as an investor, it's very hard for me to trust a person on the other side of the world to beat his nature and think about me before he thinks about himself, and all this every morning anew.
Lest you misunderstand me, I do not recommend anyone to manage their own assets.
Asset management is a profession for everything and some would say it is an art. Especially if we work in rental markets that are characterized by high returns, but also in a slightly more challenging management population (Cleveland).
I have no doubt that the overwhelming majority of investors do not have the tools / ability / desire / time to manage the property independently on a remote control. Beyond that I think it would be a pretty stupid move to do that if you are not really experienced in it.
So what do you do? Next post on how to neutralize the dependence on the management company and improve our performance by 30% -50%.
The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion
Great post you wrote beautifully.
Agree with every word!
So I think your next post should talk about strategies like Land contract and Rent to own where there is no need for the same management companies ..