Wednesday, October 31, 2018

The Beauty of A La Carte Property Management

Loving A La Carte Property Management
A friend of mine runs an amazing property management company – they offer on demand white glove property management services. I call it a la carte property management.

I think this service is amazing. In fact, it’s just perfect. I tried it last month on one of my rentals and absolutely LOVED it.

To start, let me share my view on traditional property management and some challenges that I've come across.

This will help me explain why I am so excited about a la carte property management!

The Pains of Traditional Property Management

Traditionally, property managers charge a percentage of gross rent per month. Usually, somewhere between 5% and 8.5% of your gross rent. For example, if you rent a unit for $1,500, you’d be paying around $100 a month to the property manager. You pay based on proforma, not actual, i.e whether or not your tenant pays rent, you still pay your property manager.

Given a skinny average cash flow of $200 per unit, property management could easily take away half of your cash flow. So instead of getting $200 a month in your pocket and self-managing the unit, you’d be getting $100 a month from the unit when you outsource property management.

The biggest benefit of hiring a property management company is that your property manager becomes the point of contact for your tenants, instead of you. You never see, communicate with or hear from your tenants. Your tenants contact your property manager with all their questions and issues. The property manager coordinates issue resolution, gets your approval on costly items, and sends you an invoice at the end of the month. This invoice includes:

  • Property management fee of 5 – 8.5% 
  • Cost of labour to resolve issues
  • Cost of materials to resolve issues
Traditional Property Management can get Ugly
Here are some examples of what is not included in the property management fee and will be added as an extra line item on your invoice:

Painting / cleaning / making unit ready for a new tenant, plumbing issues, snow/grass care, new tenant search, sending an eviction notice to a non-paying tenant, representing you at the landlord and tenant board, fixing a broken screen on a window, etc. 

Basically, everything is extra with the exception of:

  • rent collection 
  • the contact phone / email that your tenants get to call when they need help
  • in some cases, annual rent increases. In my case, I have to remind my property manager about these.

In theory, this model works great for hands-off investors. You pay someone else to take care of your property and your tenants. You pay the invoice to cover all associated costs. You trust your property manager to do a great job and believe they will act in your best interests. You sleep great at night and can spend your time doing something more exciting than answering your tenants’ calls.

However, in my experience so far, the model seems to fail frequently. 

Some property managers that I’ve run into would let your unit stay vacant for many months. They wouldn’t put in any effort into collecting rent. 

They’d procrastinate for many-many months keeping issues that are important from owner stand-point in their waiting queue, and decide that it's not necessary to address these issues at all. 

They’d find a gazillion excuses and explanations of why some issues cannot be addressed or addressed timely. 

In the meantime, your have zero interaction with your tenant and practically no insight into what is actually going on at your property - you are at the mercy of your property manager. 

While you are becoming more and more frustrated with how things are going, the property manager still collects the monthly fee.

And the issues that are bothering you and costing you time and money still remain open, adding up to hundreds and sometimes thousands of dollars.

The Beauty of A La Carte Property Management

The way on demand property management works is very simple.

You run your property the way you like. You keep in touch with your tenants. When you need an extra set of hands or an expert to do a certain property management or tenant management task, you pay for the service.

There is no monthly fee. You pay as you go.

In my case, I have a triplex in Guelph. My monthly gross rent is $3,126. I have long term tenants in two units. They are great tenants and rarely have issues or requests. They keep an eye on the property and bring up issues that need my attention. We have a great relationship. There is really no need to hire a property manager to manage these two tenants.

The third unit has higher turnover. My last tenant was a young professional. He bought his own place and moved out. I needed to find a new tenant. 

The property is about an hour away from my place. I have so much going on that I really had no time to clean, freshen up the unit, market it, screen applicants, etc.

In addition, I recently re-financed the property and pulled out most of the equity. As a result, my cash flow is barely positive. Every penny counts. There is no room for an ongoing property management cost.

Hiring a traditional property management company doesn’t feel right and, frankly speaking, isn’t cost effective.

A la carte property management, on the other hand, is just perfect.

What I needed was:
  • Great team to freshen up the unit and get some work done - mainly cleaning plus repair a couple of minor things
  • Expert marketing and advertising - respond to numerous requests timely
  • Run an open house for all interested applicants and show the unit
  • Complete applicant screening, reference / background checks, etc.
  • Help me choose a great new tenant.

This was exactly what I got! It took them under a week. I got a great price. 

I loved the experience and the result:

Feeling Happy!

Zero vacancy.
Perfect new tenant.
No ongoing cost.
Got exactly the services I needed when I needed them.

Would you like to try a la carte property management? 

Ping me in comments below, if you’d like a referral to my friend’s firm. They are based in Toronto and serve a pretty wide radius. 

A la carte property management also works great for 2nd homes and cottages. For example, you can outsource your Spring / Fall routine to a professional property manager. 

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