There’s a dirty little secret that property managers don’t want you to know. It never gets talked about but as an real estate investor who owns rental properties, you have to think about this when you are deciding who is going to be your property manager. So the dirty little secret that property managers don’t want you to know is….
Their financial and business goals as property managers typically do not line up with your goals as an owner of rental real estate.
What do I mean by this? Their goal, in order to produce profits for their business, is to make money and do it in an efficient way. Obviously, if they have an opportunity to make a lot of money, they are going to jump on that opportunity. But if they have the choice to make a little less money and decrease a ton of their workload, they’re probably going to do that too, right? As business owners, that’s a decision that is in the best interests of their business.
So, as property managers for your rental property, they have a choice. They can try to rent your property out for top dollar, but it’s going to be a lot more work. Or they can rent it out for a little bit less, and decrease their workload a lot. However, when property managers do that it hurts you as the owner of the rental property.
Here’s a little example: Let’s say that your property rents out for $1,000 per month. A typical property management fee is 10%. So, your property manger would make $100 per month if the property rented out for $1,000 per month. And they’re going to have to work pretty hard for that (let’s assume $1,000 is the top dollar rent for that house.) Now, that property manager may decide “Hey, ya know what, it’d be a lot easier for me to rent that property out for $950. My workload is going to decrease a lot.” And look at what happens…
How much money do they “lose” if they rent it out for $50 less per month? Only $5 per month! But it might decrease their workload by 10, 20 or 30 or more hours. Do you think they are motivated to get top dollar rent for you if it is only going to put $5 more per month in their pocket? Of course not! As a business owner, it makes more sense for the property manager to rent the property out for $950.
But it doesn’t serve your goals as the investor. That $5 per month to them actually is $50 per month to you. And that’s $600 per year. And that $600 per year might make the difference if its a successful investment that year or not based on your return on investment. Plus, if you want to do rent increases, you would have to start from $950 rather than $1,000 to increase the rent each year, and that hurts your returns in the long-run as well.
So the dirty little secret about property managers is that their financial and business goals do not line up with your goals as an investor more often than not. It would be like you hiring a salesperson and telling him/her, you can slash the price of the product you’re selling to whatever you think is easiest for you to make a sale, but I’ll still keep your commission the same. If you know of a sales job like that, let me know about it :).
You have to find a property manager who has that investor mindset; someone who was there with you when you bought the property so they know the return on investment you require for this to be a successful investment for you. You can’t just pick up a property manager as the end of the process and expect that their goals are going to be in line with yours.