What are the ethics involved in property management companies also providing maintenance and repairs?August 30th, 2006
I found a great investment property that I would like to purchase. During my course of due diligence I am also interviewing management companies and have noticed that some companies seem to be charging lower management fees and at the same time have their own “in house” maintenance. The present management company is a perfect example. Although their fees are low, when I examined the financial statements I noticed that the maintenance bills are extremely high. The property appears to have tons of deferred maintenance. As a matter of fact, 8 out of 48 units need total rehab! Needless to say I won’t be using their services. At any rate, what are the ethics involved in property management companies also providing maintenance and repairs. I would think that there is a conflict of interest, wouldn’t you. Can I sign with a company and insist that they NOT use their own maintenance crew?
Dennis in distress
Dear Dennis in distress,
Thank you for your questions. I hope these answers remove your distress:
1. What are the legalities involving a property management company (pm) that charge you a low management fee but have an in-house maintenance and repair company?
In my opinion this is a bait and switch concept. Though not illegal it could be unethical especially if any profit derived from the maintenance company is not disclosed to the owner. Property managers are licensed by the state and owe the owners a fiduciary obligation, which means in simple terms to act in a position of trust for the benefit of the principal (owner).
2. Can you hire a pm company and insist they not use in-house maintenance?
The answer is yes! You can and should. The real question to be answered here is what is the job description for a pm and what qualities do you demand, compare then hire a pm?
- The first job of a pm is to extend the life of the asset thereby extending the life of the income stream.
- Shield the owner from the cares of day-to-day operations so owners can make informed business decisions.
- Provide monthly accounting showing all income and expenses with copies of all invoices and checks written.
- Establish a budget to reach ownership goals providing stability, equity growth and then a cash flow.
- Provides the tenant with quiet enjoyment of the unit they pay rent for.
Now then we can establish a check list to hire a pm.
- Hire a company that only uses licensed and insured vendors, not in-house staff.
- Hire a company that has a certified property manager C.P.M. on staff.
- Hire a company that is only in the property management business. You don’t want a company that manages your property as a loss leader to attract owners to sell them more lucrative services like maintenance or listings and sales.
- Hire a company that has been in business more than 5 years and has a qualified and trained staff.
- Hire a company that can demonstrate having an organization of more than simply accounting, maintenance, and management.
Finally, when you hire a company that will be charging you approximately $2.00 per day per unit, don’t ask how to get it done cheaper! Instead, you should be asking what efforts will be made to extend the life of your property, develop a budget to increase your equity and cash flow and assist in reaching your written ownership goals. The answer to those questions will help you decide who is best qualified to manage your property!
Dennis, please check the web site for REMS, Inc. at www.wemanageproperty.com. I think you will find a property management company to remove your distress and assist you in reaching your ownership goals!
Tom Loegering, C.P.M. (firstname.lastname@example.org)