Breakeven opportunites are closer than you think

[ybc]

Any landlord here who’s using property management companies? I actually think that owning real estate is very nice (with a good cost base, of course), but don’t think that can handle the hassle of managing it. So what will the math be if one has to use a property management company (considering vacancy time, management fee, etc)? what type of places are the best for rentals?

[SD Realtor]

Hi ybc, I have 3 rentals all local here in SD so I do not use a prop manager. If I had out of town properties I DEFINITELY would recommend a manager. I believe the cut is anywhere from 6-10% rent. There may or may not be an up front expense as well. However a good property manager is golden. What type of places are best for rentals? I guess it depends on what you are looking for. It depends on your level of experience and your goals.

[ybc]

SD Realtor: thanks for your reply. I have no experience; goal is to make it a good long-term investment. I am not looking to buy now, I just think that opportunities may come up in the next 3 years or so. I think that real-estate is a favored asset class in terms of tax (federal, and California’s prop 13), it’s a good inflation hedge, so a good entry point makes real estate a good long-term investment. But I can’t deal with the hassle of managing rentals. I’m thinking that 2 bedroom condos/townhouses in neigborhoods like UTC probably are the easiest to rent out. Probably too early for me to think about this.

[PerryChase]

Managing property sounds nice. There are benefits but be prepared for that nightmare tenant — one who will trash your place and walk. People start out with good intentions but when they get angry, watch out.

[no_such_reality]

The Prop Mgmt cut in OC is 4-6% with a $100/minimum. But that’s on all units that you have under their assignment.

[ybc]

Nightmare tenants — I know someone who’s suing the landlord for about 6 to 7 month’s rent! Of course, I don’t know the relative merits of both side, but it sure won’t be pleasant.

If anyone has a prop mgmt company in SD to recommend, please let me know, and I’ll keep a note of it.

[Anonymous]

I might also add that in many other states, the housing law is a bit more landlord-friendly. I moved from New York City, where you had quite a few ‘professional tenants’. These are people who knew the housing courts well enough to play them like a fiddle — living for months free while the landlord was trying to evict. Now, I’m not saying all these tenants were bad seeds — there were negligent landlords there too. I’ve no experience in California, but I’ve heard the housing courts here are relatively pro-tenant.

Anyway, I do pay for property managers. I might even do that if I lived locally, because I don’t want owning property to become a full-time job. I’ve already got one and don’t need to be bothered in the middle of the night because someone’s heat broke. That’s just me — I’d rather leave some money on the table for some peace of mind.

[(former)FormerSanDiegan]

ybc –
I still have one SFR in San Diego. Have always used property management company since 2000, even when I lived there. For 10% of rent they screen tenants, handle day-to-day calls, and they structure the relationship so that you make the decisions to ensure tax-preferred status (active handling). I’ve always had good tenants through them, though one asked out of his lease a couple months early which I allowed.

[(former)FormerSanDiegan]

The company I use is American Heritage Properties. http://www.renthomes.com. Based near Mira Mesa.

[Anonymous]

10% seems pretty high. Do they charge you when a new tenant is found as well? My Vegas property management company charged 8%, but I also had to pay for the advertising budget and a commission when they rented to a new tenant.

[Carlsbadliving]

I actually rent through American Heritage Properties (AHP)right now. They seem fairly competent but some of the staff have horrible followup skills. I’ll have to call several times to get a maintenance issue resolved.

I was also dissatisfied with how they priced the house. We had rented the house for one year and when it came time to sign a new lease we were informed that the rent was going to increase. We felt the increase was rather steep. AHP said that they were just raising it to what the owner wanted (who happens to live in Texas) and that it wasn’t negoitable. Well, later on the owner actually contacted us directly and we found out that he had instructed AHP to raise the rent a reasonable amount to be in line with the local market. He left it up to them since he had no clue about the SD market. So, AHP had lied to us about it and after calling them on it they ended up lowering the increase.

[lendingbubblecontinues]

Regarding AHP..I have a good friend who rented through them for a year, had all sorts of service follow-up issues, and ultimately, went direct to the homeowner to re-new the lease for the same price she had been paying, effectively firing AHP. Definitely would stay away from AHP.

[no_such_reality]

Seems a common complaint many have is the tendency of the PM firm to churn tenants through rent increases because of the fees for cleaning, advertising and tenant placement. Renter’s complaints are slow/poor maintenance and churning on rent increases.

Whenever I’ve dealt with a PM firm or establish larger complex, every lease period would see a rent increase and month to month wasn’t possible after the initial term.

When I’ve dealt with private landlords, after the initial lease period, there never an increase and going month to month was fine when I balked at singing a new lease.

[(former)FormerSanDiegan]

gunbuster – The 10% includes screening tenants, but does not include any fees associated with advertising in the UT.
There is no additional commission when they find new tenants. They take the 10% off the monthly rent and send a check for the rest.

Carlsbadliving – Obviously they are good at finding quality tenants 🙂

Regarding rent increases, that is up to the greedy property owner, not AHP. When the lease is nearly up they send a standard form to the me to offer a new lease, continue on month-to-month per the original lease, and whether to change the monthly rent. It is solely up to the OWNER.
As a reasonable property owner, in my case I always ask them what the tenant wants (new 12-month lease or month-to-month) and give it to them. I’ve also never raised the rent to an existing tenant. I rented for 10 years, I know what I did when the rent went up … I looked at other options. When it didn;t go up I continued along.
Raising rent by 10% to get a new tenant does not pay off for the PM company or the owner. For the owner, the rent increase will not cover the cost of turnover. There is always at least 2 weeks between tenants, along with carpet, paint, proefessional cleaning, etc that eat up that cost. These costs are paid to third party cleaning companies, painters, not AHP.

AHP actually would make more profit by keeping tenants rather than churning. It is easier to continue to take your 10% off the top and handle the day-to-day, than to continually screen applications and schedule viewings by potential renters to secure a new tenant.

I can’t comment on the maintenance issue from the tenants point of view. Perhaps it is non-responsive. But, in non-emergency issues where the value of the repair/replacement is > $100 they contact me, the owner, first before proceeding. I suspect that maintenance issues and rent increases are due to having non-responsive owners. The contract I have with AHP (the standard contract) is that they cannot proceed without my authorization on those issues.

I don’t think it is possible from a tenants point of view to separate the property management company’s actions from the owners’ actions. I suppose there are a fair number of negative dealings people have had with AHP and that it probably reflects the overall population of landlords out there.

[(former)FormerSanDiegan]

I think I need to send an independent survey to my tenant to grade the PM company from her point-of-view.

[Author]

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