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Property Management Companies – Signs That Your Intervention Is Needed
When you have a number of properties under your care or have a whole building in your property portfolio, it is about time you hire a property management company to manage them. A lot of people may laugh at hearing about owning a whole building. If you are one of them, this is because you are too accustomed to the property market in Singapore that you are unaware of overseas real estate opportunities. There are a lot of buildings available for sale at less than $1m in overseas markets. And you might be surprised that some of them are located in the capitals of our neighboring countries.
When you have indeed hired a management company to take care of your properties, they become the most important aspect of the performance of your investment. Penny pinching on these professionals is not ideal. Good higher priced managements companies usually pays for themselves by delivering the goods. Management companies have a huge effect on your cash flow. And as an investor, cash flow is the one most important factor that keeps your operations running.
The best scenario after hiring a management company is that you do not have to get involved in any way and just collect the cheques at the end of each month. You have after all hired them to do the job. But not all companies are well run with efficient staff. So you can expect to have more communication with the management staff to judge their performance and subtly relay you expectations. Remember that they work for you and their performance directly impact the cash flow you use to pay them. And since the staff that work for these companies collect a fixed monthly salary, they might not realise just how important their work is to their pay cheque.
When you expectations are slowly registered by your management company, you will seldom need to get in touch with them anymore. It will be a heavenly situation if your involvement is just to read up a one page report every month with the key numbers. These companies know what they are doing and how to get things done. It’s just that sometimes there is a mismatch of expectations. When you make some noise, you get your needs attended to. And when you shut up, people tend to neglect you. It’s like a nursery.
Signs That Your Intervention Is Needed
Any investor has the right to fall over their chair over this one. But you have to be mindful that although you can set a target of 100% occupancy in Singapore,, the market can be different overseas. If you see that there are basically no public listing for properties in your area, being the only vacancy in the area does raise a little suspicion on how well your management company is doing their job. When vacancy falls below your expectations, ask for reports on how many people enquired and actually viewed your apartments. If you really care for your investment like a baby, get the contact numbers of those who viewed but didn’t close. Then politely ask them what was it that they didn’t like. When people physically come to view an apartment, they are already satisfied with the location hence the viewing. So leaving without closing means that it must be the price or the condition of the apartment. Probe and ask.
Sometimes prospects also walk away from deals because they didn’t feel like the management company who attended to them was polite or not professional.
If there was a lack of interest and inquiries, you should get all details of the marketing method and material the management company used. They could be running ugly ads or advertising in papers with less circulation just to save some money. If this is indeed the case, hold them accountable and demand improvement. You pay them for the best performance, and vacancies below fair expectations are unacceptable. If numbers do not improve after your intervention, it could be time to interview other management companies.
Increases in Notice to Vacate Served To Tenants
Good and happy tenants living in your properties always pay their rental promptly. When they are suddenly not paying, it means that either they are not the good kind of tenants you want or they are not happy with the apartment they are living in. Of course, there is the odd situation where a good tenant have a sudden cash flow problem. But when many people are not paying, there is definitely something going on.
The most common reason for tenants to be unhappy is that management is not managing the property very well. It could be that the grass is overgrown for an extended period of time, air-conditioning is not repaired, it takes days to get a plumber to fix the shower, housekeeping does not do a good job anymore, etc.
The fact of the matter is. When tenants run into these problems, the first thing they do or the only solution they can think about is to get management to solve the problem. Tenants are after all just looking for a place to stay without having to take care of these issues. And when managements does not solve them satisfactorily, tenants be come disillusioned and unhappy. A common frustration that can send a tenant bonkers is having an emergency problem and being unable to reach anyone at all.
Good management companies have hotlines and are quick in having the relevant people attend to problems like plumbing and electrical issues. Even if an issue can only be solved the next day, having someone to inform the tenant about this is reassuring the the tenant.
Taking Too Much Time To Get An Apartment Ready
Housekeeping can get a hotel room ready for the next tenants in a matter of minutes. But of course, you are not running hotel. This does not mean that you should accept your management company to take as long as a week to get it ready. Preparing an apartment for new tenants is one of the most exciting things to do when you first started out. But as you do more and more properties, it can get as mundane as a job in a production line. No matter what is the condition your last tenant left your apartment in, your management company should not take more than 4 days to get it ready. Actually, if they are really professionals with all the expertise, they should just take 1 day to do all repairs and refurnishing. The longer your apartments stays less-than-ready, the higher your opportunity costs and adverse cash flow. A management company that does not see how important it is to quickly get the property in shape obviously does not have your best interest in mind.
If you are going to let out a unit that is not is perfect condition, you have yet to see the big picture. The type of good tenants that every landlord crave for is not going to take up a unit that is not in good condition. You will lose the prospect and your reputation as well. People who take up apartments in bad shape are usually desperate and could be problematic is future.
Just ask yourself this. If you have a good stable job and a family to take care of, would you rent an apartment that is in bad condition?
If your management company starts making excuses on how they are unable to get everything ready in 4 days, look for another management company. Or politely ask them to rebate your opportunity costs. 4 days is a fair amount of time for a serious investor like you.
On average, you can expect to use 10% of your rental receipts on maintenance. This is something that you should not be a miser on. You are using the rental to sustain the condition of your investment and keep it valuable. Not only good maintenance keeps existing tenants happy, it also helps to attract more good tenants as well. You will be really pushing it if you want to rent your apartments at market rate but do not keep it maintained at a good standard.
A lot of property owners defer maintenance for as long as possible to save on money that they eventually have to pay. Don’t do that. Since you will have to spend on it sooner or later, just get it done. See it as the costs of doing business. So remember to set the budget for this and communicate to your management company not to neglect it.
When your management company is negligent with upkeeping maintenance, 2 big issues can arise that will hit your bottom line.
1) It will become tougher to attract good tenants. Quality tenants will not want to live in a place that is run down like a dump. They have cash to spend. In many cases, they have housing allowances provided by their companies that is higher than your rental. They have options and will give your apartment a miss if it is not in good condition.
2) When simple maintenance is not done on a property, it can costs you a lot more in the long run. Just like you give your car an engine oil change every 6 months for a couple hundred dollars to keep your engine in good condition. If you fail to do an oil change regularly, you could be looking at an engine problem in future that will costs you thousands of dollars.
One of the things that need quick attention is your paint work. Peeling paint is contagious and can spread quickly if not rectified. Ignoring it could mean a new paint work for your whole property in future.
Visit your property every 3 months unannounced and do a quick inspection. If you find that management has not been taking care of maintenance issues, it’s time to call for a meeting to hold some people accountable.
Being Scammed For Repairs Maintenance
When you are a passive property investors who is not involved with the running of operations much, it is easy for the management company to think that you are complacent. Opportunities will then arise for them to scam you.
Common scams include:
1) Charging you for repairs for issues that are non-existent
2) Selling maintenance jobs to related vendors at obscene prices
3) Pocketing the difference between what you are charged and the actual costs
These things do not happen often. But they do happen. This is also a reason why you should hire the best people for the job. Reputable companies have their reputation on the line and will not scam you for a few thousand dollars. Their reputation is worth more than that. You might find that the people that are more likely to scam you are management companies referred by people you know. So It is best to do your own sourcing.
To communicate to your management company that you are on the ball, you could set up a system that requires the company to take pictures of damages and send to you with date and time stamp. And when work is completed, another picture of the completed work sent to you. This will keep them on their toes knowing that you keep up with what is happening. You may even file it away without looking. The important point is the perception that you are on-the-ball.
Vacant Apartments And Unaccounted Tenants
Occasionally, you might be stuck with an apartment that just seem unrentable. But since you have hired a management company to manage your properties, they are now accountable for vacancies. When you find that an apartment is spending an extended amount of time being vacant, you should take a look at it. The company could be housing people there and collecting rental in cash for themselves. Go and take a look and ask neighbors if the apartment is indeed vacant.
And remember that you are running a business. In some instances, you will be renting out to tenants on a per head basis. Having more people in your apartment than what is accounted for means opportunity costs and also a higher utility bill as well. Check records if you have a sign in system. If your apartment uses a smart card system for entry, go through the records to see if there are more cards issued that what is accounted for. Tenants could be subletting to friends or management could be trying to be funny as well.
The above situations don’t occur very often. But when they do happen, your pockets are going to be hit severely. So it is always good to keep abreast of what is happening on your properties and let your management company know that you keep up with what is happening while holding them accountable. Being a quiet passive investors can encourage complacency.