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Commercial Real Estate – How Important is it to Manage Your Property Manager?

September 19, 2017

What originally prompted me to write on this subject? In one year, we had two of our investors report to us that their property managers stole money from them. I was shocked, and wanted to warn investors to be sure to manage their property managers.

Nearly always, your business is more important to you than it is for someone else who is not an owner. You have more at stake. If you are having big challenges about your property, you are the one who  might be in danger of losing the property. You are the one who could be waking up at night worrying about your property, not your property manager.

But, what do I believe is at the heart of the matter concerning managing your property manager? If you don’t manage your property manager, your property manager could very well be tempted to relax too much about managing the property effectively, consistently and ethically.

Let’s say that the property manager never experiences the property owner inspecting the property manager’s financial activities connected with managing the property. And it’s getting to be the end of the month. The property manager is chronically short of paying some bills including taxes, and is getting threats from the IRS about putting liens on their house, bank account, etc. He borrows money from the bank account of the property owner to cover the bills. He rationalizes it by saying he’ll pay it back.

Now, he doesn’t pay it back, and towards the end of the following month he falls behind again, and borrows more money from the property owner’s bank account again to cover his daughter’s college tuition. This pattern continues, and within a year he has borrowed around $50,000. But, the truth is that this is not borrowing, it’s stealing - a serious crime.

Another very important reason to manage your property manager is that some property managers have been known to be very lax when it comes to making sure they keep the apartment complex at a very high occupancy rate. Some property managers have let the occupancy level fall down to the point where the apartment complex was seriously losing a lot of money, resulting in serious hardship for the owner.

One of our investors reported that he experienced a property manager letting the occupancy of the investors apartment building fall to 55%. Obviously, the property owner did not inspect the property manager’s management. The 55% occupancy was of disastrous consequence.

Is it correct to put 100% of the blame on the property manager? I don’t think so because the property owner has responsibility in the matter for the gross lack of inspection.

An analogy would be that fire fighters put out a fire in a house that was caused by lightning, but fail to stay at the scene of the fire to make sure the fire stays extinguished. A couple of hours later, a small ember reignites and the house reignites with it.

Now the house has double the damage. Don’t the fire fighters have some responsibility in the matter because they failed to do the inspection requirement?

And another reason to inspect your property manager some property managers have been lax on making sure that the outside of the building is kept clean and free of trash, as well as the individual units themselves. Recently I posted an article with an example I came across of a property manager who allowed a discarded mattress to stay on the outside of an apartment building.

Of all 3 examples here involving irresponsible property managers—there is something major they all have in common, and that is that the owner of the property did not manage the property manager. This can result in substantial financial loss.

Some property owners actually don’t inspect their own property for months at a time, or not at all. They just assume that the property manager is doing a good job.

In a recent article, I posted a very important business saying, “Inspection equals profits.” When employees are not inspected, their production tends to be lower. Why? Many employees do not have a high level of responsibility. They have to be told what to do and when to do it. And they may have to be told a number of times.

Some employees are even less responsible than that. They will sabotage others, sabotage themselves, or the company. For example, they may spread gossip and ruin the reputation of someone. Or they may claim to do work they didn’t do.

When you inspect the actions of your employees, including property managers, your production will rise, and it may rise significantly.

I remember a sales job I had, in which I was told that there were managers always watching. This is not an uncommon practice. Knowing someone could be watching, I was particularly careful to work towards doing a very good job.

How to inspect your property manager.

Get a very good statistical management program. This is quite possibly the most important thing you can do to manage your property manager. Why? Because it will have you inspect all statistics having to do with financial matters, production, etc.

When the property manager fills in all statistical data, it will be virtually impossible to fudge, steal, lie, or coverup any of the statistics. This is because for example if a figure is fudged, the fudging will show up somewhere, and the statistics will trace back to the person who fudged the numbers. Of course the owner of the property needs to know how to carefully analyze the statistical data.

Personally inspect the property yourself. Or if you live very far away, have someone inspect the property themselves and have that person take lots of photos of the property each month– outside and inside.

Do a surprise visit, or have someone you trust do a surprise visit. During the surprise visit, inspect as much as possible. See as many units as you can. Take lots of photos. Interview tenants to get what they see is going on with the property. For example, in asking tenants questions, you find out that the outside of the property has trash laying around at times. Or you find out that the police have been called out to an apartment unit several times that has serious domestic problems with disturbances -  loud levels of yelling inside and outside of their unit, threats of violence between each other, etc.

Interview some of the tenants yourself (in person if possible) or by Skype or equivalent. You will have the opportunity to be able to read non-verbal communication. For example, if the property manager appears very uncomfortable/stressed, it is possible that the property manager is feeling uncomfortable about something being done wrong by him, and he’s covering it up. 

On the other hand you cannot be sure. Maybe the person has a major upset with her boss, and is very stressed. You can ask some questions to work at seeing what is going on.

If you catch your property manager doing something wrong like not filling vacant units, then I recommend you have a consequence. Why? Lots of people nowadays get away with things they do wrong. This includes children. Not having consequences gives the message to the offender that they can do bad things and get away with them. So, they quite likely will do it again and again followed by getting away with doing worse things.

Remember to put attention on managing your property manager. It can save you many thousands of dollars, many hours of time, and many hours of grief. Even if you fully trust someone, I recommend that you manage them, because to not manage them may cause them to be a lax. A little bit of laxness can turn into a lot of laxness months later. Remember, “Inspection equals profits.” Hold it in your mind that inspection is a principal money-making activity because it is.

Contact us to see if you pre-qualify for our best multifamily, new construction, rehab, or hard money/bridge loan rate and terms. Also, contact us if you would like to discuss your particular multifamily lending needs, or if you have any questions. Call 214-695-7310, or send an email to bruce@businessloanstore.com

To discover more about our loan products as well as our rates and terms, visit https://www.apartmentloanstore.com

Bruce Painter, Director of Marketing, Business Loan Store

Item Date: 
Tuesday, September 19, 2017