SS91: How To Fire A Property Manager

SS91: How To Fire A Property Manager

Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how to fire a property manager.

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Talking Points:

  • I’ve luckily only had to fire 2 property managers during my investing career, however; changing property managers for one reason or another is very time-consuming and costly.
  • First off, I would speak to the current property manager and see if you are able to resolve the issues.
  • Are they not collecting rent in a timely fashion, do you believe they are using contractors or tradespeople that are too expensive? Are the properties not maintained to a satisfactory level? Was there a breach of contract, are you not receiving the services you are paying for, are they unable to respond to you or your tenants in a timely fashion? Are their services ineffective and/or is there a poor cost-to-value ratio? Are the costs out weighting the benefits? Does the manager not have enough resources? Whatever, the issue; speak to them and explain the issue and see if it can be corrected. The goal is to resolve the problems without changing property managers. If they were stealing money or violating the law; you are going to fire them immediately.
  • Just a side note here; it takes time for a new manager to have an effect on properties. If they are inheriting problems from the last manager or you were managing the properties prior and now you have hired a manager; make sure to provide sufficient time, depending on the size of the properties, before looking for a new property manager. It took the first property manager I hired nearly a year to get the properties running smoothly under their management. They managed those properties for nearly 10 years before they were sold.
  • If you have spoken to your manager, and provided ample time to correct issues and the problems are still apparent; it is now time to begin the process of reviewing your signed property manager’s contract and researching new managers. If you have had this manager for over a year; it might be a month-to-month contract now with a 1-month cancellation fee and a 30-day written notice for cancellation. Review the current contract with your attorney to make sure you fully understand what you need to do.
    • Another side note here; if you don’t have access to your funds (you are not a signer on the current manager’s bank account with your funds); you have less leverage. Most property management contracts say they can hold funds for 30-90 days to pay the remaining bills but usually, this is overkill and a way for them to hold onto your money. Speak to your attorney about this when they are reviewing the signed contract.
    • The final point would be to anticipate costs associated with the change in property management. In most cases, you are going to be covering some property expenses during the switchover and it is important to have these funds readily available.
  • Next, is finding a new property manager. I would consider this the hardest part of the process. Speak to other landlords in the area with similar properties and see who they use. Drive by other properties they manage. You really need to interview several managers and vet them fully. Be completely honest with them about the problems you are facing with your current manager and why you want to switch.
  • Prior to actually canceling the contract; make sure you have another well-vetted property manager lined up and aware of the situation.
    • Review the new property manager’s agreement in great detail and have your attorney review it as well.
    • Make sure you will be a signer on all accounts. Better yet, you open the accounts in your company name(s) and add them as a signer.
    • Prepare the written notices to tenants about the change in management (your new manager should do this) and on what day that will start. This will include the new manager’s information; where to call if there is an issue or emergency and how to pay rent.
  • Send the cancellation notice in writing as indicated in the contract and by your attorney. Clearly state when their services are being terminated. Explain that the new manager will be picking up the keys, tenant applications, and leases on this specific date. As the owner, you should already have all of the financials including tenant rent rolls and ledgers. You can send these to your new manager.
  • Once the new management takes over; you should walk all of the properties with the new manager and evaluate; noting any deferred maintenance that should be immediately addressed.

In closing, always make sure you interview several property managers and fully vet any new manager prior to hiring them.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how to fire a property manager.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
I’ve luckily only had to fire two property managers during my real estate investing career. However, changing property managers for one reason or another is very time consuming and very costly. First off, I would speak to the current property manager and see if you’re able to resolve the issues and some common issues that I have found when speaking to property managers and with investors you know, are they not collecting rent in a timely fashion? Do you believe they are using contractors or trades? People that are too expensive? Are the properties not maintained to a satisfactory level? Was there a breach of contract? Are you not receiving the services you’re paying for or are they unable to respond to you or your tenants quickly, you know, are the services ineffective? I mean, is it too expensive for what you’re getting? And you have the costs that are outweighing the benefits and what is the problem with that? I mean, is it the manager that doesn’t have enough resources, so they’re not spending enough time at your property, you know, whatever the issue, speak to them and explain the issue and see if it can be corrected.

Charles:
You know, the main goal here is to see if you can resolve the problems without changing property managers. If they were stealing money or violating the law, you are gonna fire them immediately. But if there’s another issue and I’ve usually found it where you go to a property and it’s just not maintained to level that you wanted to, and that’s something where speak to the manager and say, Hey, you’re gonna have to have someone else stop by here. And like, verify this work is done because your handyman are telling you one thing, but the property is not what they said it is. So you, that’s something where, Hey, can you stop by the property every week or every other week, and verify that tasks are being completed and the property is being held at a certain standard. I’ve had it before, when I’ve gone into a just a few months ago, I went into a basement of a property we had, and I saw that the main was leaking water and it was before the meter.

Charles:
So we weren’t paying for it. However, I literally went back out to my truck, grabbed the wrench and I fixed it within 30 seconds. And that’s something, a poor management because a handyman should have done the same thing and, or one of the supervisors should have done the same thing and been like, Hey, listen, get this fixed. This is a simple fix. I mean, this wasn’t a major problem. And just a side note here. I mean, it takes time to find a new manager and it takes time for them to have an effect on the properties. So if they are inheriting problems from the last manager or if you were self-managing them properties prior, and now you have hired a manager, you know, make sure to provide sufficient time, depending on the size of the properties before looking for a new property manager, you know, it took the first property manager.

Charles:
I hired nearly a year to get the properties running smoothly under their management. And they manage those properties for nearly 10 years before they were sold. So it just depends. And you have to make sure that they have enough time, because if you have people on long term leases, you know, you might not be moving everybody in one year. If there’s some problem tenants there that are creating issues, you need to give them time to rectify those issues and get rid of those tenants or to retrain those tenants on the new rules for the property. Now, if you’ve spoken to your manager provided ample time and the correct issues, and the problems are still apparent, it’s time to begin in the process of reviewing your signed property manager is contract and researching new managers. Now, if you have had all the manager for over a year, it might be now a month to month contract with a one month cancellation fee and a 30 day written notice for cancellation.

Charles:
So I would review your current contract with your attorney to make sure that you fully understand what you need to do to cancel the contract. Another side note here is if you don’t have access to your funds, so you’re not the signer on your current manager’s bank account with your funds in it, you have less leverage. Most property management contracts say they can hold your funds for 30 days or 90 days to pay remaining bills. But usually this is overkill and kind of a way of them holding onto your money legally. So speak to your attorney about this. When you’re reviewing the signed contract, the final point would be to anticipate costs associated with the change in property management. In most cases, you’re going to be covering some property expenses during the switchover. And it’s important that you have these funds readily available. Next is finding a new property manager, and I would consider this the hardest part of the process, speak to other landlords in the area with similar properties and see who they use or who they would recommend or who they would use.

Charles:
If they weren’t self-managing drive by other properties, they manage, you really need to interview several managers, vet them fully, be completely honest with them about the problems you are facing with your current manager and why you want to switch managers now prior to actually canceling the contract, make sure you have another well vetted property manager lined up and aware of the situation, review the new property manager’s agreement in great detail and have your attorney reviewed as well. And it’s also not set in stone. So there’s many times I reviewed it. And there’s one I was reading that like had me paying healthcare for her, for for the workers, for the property manager. And, you know, you can go back to them. They’re like, oh, just cross that out and initial it or whatever it is. So you have to review it. They have probably a boiler plate Le contract that’s never been updated.

Charles:
So make sure you review it and make sure you have your attorney review it before you get back to that product manager and have it signed, you know, make sure you will be the signer on all bank accounts better yet you open the bank accounts in your company name and add them as a signer. That way you’re retaining like online banking. And you’re really the owner of those accounts with just an additional assigner who is the property manager now prepare written notices to tenants about the change in management. Now your new manager should do this it’ll say on like what day they will start. It includes the manager’s information where to call if there’s an issue or emergency usually like a 24 hour line, if there’s an emergency and how to pay rent, is it online? You mail it to this address, whatever it is, you have all that information.

Charles:
That’s going to be in the initial letter from the new manager, but just make sure it’s being taken care of, send the cancellation notice in writing as indicated in the contract and by your attorney. Now clearly state when their services are being terminated, explain that the new manager will be picking up the keys, tenant applications and leases on this specific date. As the owner, you should clearly have the financials, including tenant rent roles and ledgers. You can send these to your new property manager right away, and they’ll know exactly who owes rent, who has a balance, all that kind of stuff. And they’ll know when they’re collecting rent where it goes and what’s owed and what they have to collect going forward from that tenant. Now, once the new management takes over, you should walk all the properties with your new manager and evaluate noting any deferred maintenance that should be immediately addressed.

Charles:
So, because that’s a big thing, cuz you’ll have some managers that are just very lackadaisical and you’re getting rid of ’em. That’s probably one of the reasons why, and there’s probably deferred maintenance at your properties. So you want to walk ’em and you wanna make sure you have a plan of getting items addressed immediately in closing, always make sure you interview several property managers and fully vet any new manager prior to hiring them. So I hope you enjoyed. Please remember a rate review subscribe. So make comments on potential show topics at global investors, podcast.com look forward to two more episodes next week. See you then

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