Why Most Real Estate Management Companies Are Not Good? - Amir Ben Bassat - Entrepreneur of the Week - Post 2
Why most management companies are 💩?
I know there will be quite a few people who are going to get mad at me and that's fine, the purpose of this post is not to make anyone feel comfortable, these are talking about one of the most painful points in real estate investing in the US, certainly when we do it from Israel.
It's time to talk about the structural failure that exists between us investors and management companies, conflicting interests and why this is the most common reason for failure in investing in the United States.
There is hardly a week that people do not approach me, to consult on investments in the US, on a specific transaction or in one area or another. I give everyone the same answer, there are good deals everywhere, Ohio / Florida / Texas Market Market analysis Hag Immigration data…. Employment data… Municipal plans… Everything is nice but mostly background noise.
The only thing that will turn a good deal into a good investment is who manages the investment!
Yes it is so simple…
The goal of a good management company is one, to make the property work and produce us investors a return on money!
She has to choose the best tenants with the highest chance of paying us the rent in time and all this without destroying the property (much harder than it sounds). It needs to take care of the tenants' maintenance calls in the best and fastest way in order to keep our tenants happy and paying, bookkeeping in an orderly and proper manner, collecting funds, paying taxes, bills, etc.
For the service, we usually pay an amount of between 8% -10% of the gross salary. For a tenant replacement, a rental month is usually paid, and for maintenance and preparation calls for the property after a tenant replacement is paid as needed.
So far Pierre sounds no? Sometimes we forget a little but overall we got a service and also the management company that worked so hard for us deserves to make a profit. So why in so many cases does it just not work? Why do I have customers who replaced no less than four management companies in a year? Why are there so many people who have been burned so hard that they have sworn to me that they will never go back to investing in the US or at all in a place that is not where they live?
Here are some key reasons why management companies may not be able to perform well:
1. A company that is too big - no matter how good a will they have, companies with a lot of assets simply are not able to give a personal and specific solution to the problems. For example, if a tenant does not pay at best the computer will update the amiable clerk to contact the tenants and ask them to pay, or at the very least simply send the property manager in the area automatically to give notice before eviction.
What do you think is the motivation of the clerk to try to understand and solve the problem before the expected abduction, which is going to cost us between hundreds and thousands of dollars at best? How much does it hurt her when she records the check from your account for the preparation of the property for a new tenant worth thousands of dollars? Or for a monthly management fee even though there is no tenant in the property at all? (Yes, it exists in quite a few companies).
2 LACK OF IDENTITY OF INTERESTS AND GRIDES - “GREED IS GOOD” One of the sentences that everyone who knows me knows that I love the most, and there is no situation in which you will pass on a day and not hear me recite it at at least twice. There is no problem with greed per se, on the contrary… The problem with greed begins when there is no identity of interests, no transparency and no control. The management company needs to resist temptations and be in a self-war on a daily basis between the desire to give a good service to the investor and the desire to make money here and now. It has to withstand endless temptations to take advantage of our investors' lack of understanding / control / distance.
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