How Poor Property Management Kills Profits

For rent sign.

The following was originally written by John Marion and published on BiggerPockets.

For rent sign.
Home for rent by Georgia Rental Group.

Our property management company just picked up another client. The client is a licensed agent who markets to the public for home sales listings, buyers, and rentals for tenants.

However, the agent doesn’t seem to be able to effectively manage her own rental property, so she called our company to sign up for property management.

Property Management Specialization

Managing rental property requires a specialized set of skills, knowledge, and experience in order to do it well. Few investors are capable of managing their own properties well and often create problems that greatly reduce the ROI.

For example, some renters are professional tenants who know their rights better than the average new real estate investor. And many licensed agents don’t have specific knowledge of landlord – tenant laws.

Property management is a specialization within the real estate industry and the professional investor is usually wise to hire this task out to professional property managers.

The Story of a Landlord’s Nightmare

Another client who purchased a property last year through our company decided to try out do-it-yourself property management. Two weeks ago he called to tell me his horror story. Well his story started off good. He and his wife advertised the property and found someone they actually knew to rent the house. They were able to get it rented at the highest end of the rent rate and things started off very well.

Then within a few months, the tenant began paying rent late. Then rent stopped being paid. The renter and landlord worked out an agreement to allow the renter to catch up on rent payment. When the tenant failed to pay rent again, the landlord filed for eviction.

Just prior to the court date, the tenant made a partial payment, which the landlord accepted. Then the eviction was denied by the court because the landlord accepted the payment, thus resetting the timing of late rent payments.

By the time the landlord called us, the tenant was 6 months behind on rent

The Lost Profits

In the nightmare story above, the landlord lost a lot of money in an attempt to save money on professional property management fees. If he would have hired professional property management, he would have had positive cash flow.

The landlord has lost at least $10,050 in lost rent and repair costs being a DIY property manager.

However, the costs for doing the property management would have been $2,254.

While professional property managers may not have prevented a late paying tenant, the eviction time in this story would have been reduced from 6 months to less than 1 month. This alone would have reduced the landlord’s losses by $5,750, which more than pays for annual property management fees.

Additionally, an experienced property management company has skill screening tenants and will usually have a robust lease contract which comprehensively covers a myriad of landlord – tenant issues. Effective tenant screening greatly reduces the risk of getting a bad tenant and a robust lease blocks the professional tenant from taking advantage of the landlord’s inexperience.