Today, I want to share some eye-opening insights from our recent acquisition of a property management company.

We got to open up their books, see everything they were doing, and manage about 120 units from them. So, let's dive into the four key lessons that you, as a property owner or someone looking for management, should focus on.

The Hidden Cost of Monthly Management Fees

It's Not Just About the Monthly Fee

Let's start with the big one: your monthly management fee. It's often the smallest fee you'll pay. You might think you're getting a good deal with a low management fee, but that's just the beginning. There are numerous other fees that can sneak up on you, like fees for setting up Section 8, turning services on and off, and more.

Kickbacks and Hidden Costs

Some companies even get kickbacks from vendors without disclosing it to the owners. We found that the vendor was marking up invoices and kicking back money to the management company. This is not only unethical but also costly for you. Always look at the entire fee structure and ask for full transparency.

The Cost of Hiring a Cheap Property Manager

Remember, the most expensive mistake you can make is hiring a cheap property manager. They might save you money on the surface but will cost you a lot more in the long run through poor management and hidden fees.

Making Money Doesn’t Equal Good Management

The Illusion of Profit

Just because you're making money doesn't mean your property management company is doing a good job. We had owners who thought everything was great because they were making money. However, they were ignoring severe issues like tenants without hot water or electrical sockets catching fire.

The Long Feedback Loop

There's a long feedback loop in property management. A bad tenant placement today might not hurt you for six to eight months. But when it does, it's devastating. Always look beyond the immediate cash flow and consider the long-term health of your property.

Not Making Money Doesn’t Mean a Bad Property

The Vicious Spiral

If you're not making money, it doesn't necessarily mean the property is bad. Poor quality tenants or poor management can turn a good property into a nightmare. You might not want to spend money on repairs because you don’t have it, but this only perpetuates the problem.

Breaking the Cycle

Sometimes, you need to invest to break the cycle of poor management. It might mean spending money on a full make-ready to attract better tenants. Good management can lift up a problematic property, while poor management can ruin a good one.

Not All Property Management Companies Are Created Equal

Different Goals, Different Outcomes

Not all property management companies are the same. Some are in it to build up a portfolio quickly and sell it off. This approach can be very disruptive for property owners. Always ask about the long-term goals of the company.

The Importance of Ownership Experience

Interestingly, not all property management company owners own property themselves. This lack of firsthand experience can lead to poor decision-making. Make sure your property management company has a vested interest in the same things you do.

Conclusion

Here's a quick recap of the four main points:

1. Monthly Management Fees: Look beyond the monthly fee and consider all the hidden costs.

2. Profit Doesn't Equal Good Management: Immediate cash flow doesn't mean your property is well-managed.

3. No Profit Doesn't Equal Bad Property: Poor management or tenants can make a good property seem bad.

4. Not All Property Management Companies Are Equal: Understand the long-term goals and experience of your management company.

You’re essentially partnering with your property management company, so make sure they're aligned with your interests.