According to the 2014 U.S. Census, 43 million Americans are renters (35%). A large portion of these renters rent detached single family homes. Based on my experience as an investor over the past 10 years, working with nearly 100 property managers in Austin, Dallas, San Antonio, Charlotte, Columbia, and other markets, I’ve come to the conclusion that most property managers who focus on the management of single family rental housing, for the reasons below, provide a poor quality of service. This is a big problem. This low quality of service affects millions of American renters.

 

All SFR Property Manager Do Not Suck

 

Keep in mind that my remarks are based on my experience, which I believe is a sufficient sample size, however there are property managers in the space that are reputable, hard-working, and provide a decent level of service. However, my experience shows that they are not a majority. If you are an investor and your experience working with property managers who manage single family homes has been positive, consider yourself fortunate.

 

Please note: This article focuses on property managers who focus on the management of single family rental homes, not multifamily apartments.

 

Common Complaints

 

Whether they are a real estate agent/broker providing property management services part-time or have grown large enough to focus exclusively on providing single family property management services, the common problems usually include the following:

 

Insufficient value provided. Most single family property managers charge 50% to 100% of the first month’s rent for leasing services (to locate a qualified tenant) and 8% of all gross rents for ongoing property management services. Property management services usually include managing tenant move-ins, turnover, contractors, and any/all tenant interaction. They also may charge extra for project management or evictions. Based on my experience, the most critical item is locating a qualified tenant. However, because property managers get paid regardless of the type of tenant that leases the rental home, they generally make more when problems occur. So it’s not necessarily in the property manager’s best interest to locate the best quality tenant, but an okay tenant that might be close, but doesn’t quite meet the qualifications.  Accepting a less than qualified tenant to rent your property will open you up to all sorts of potential problems like late or missed rents, significant property damage, and possibly eviction proceedings.

 

Padding contractor charges. Though I’d rather not generalize, I am qualified to say that many property managers pad contractor estimates in order to make extra income when managing investor properties. They may do this because either (1) they are just plain greedy and they can, (2) they don’t feel they’re generating sufficient fees to justify their property management business, or for a variety of other reasons.

 

Poor service quality. Slow or completely non-responsive to tenant repair requests. If property management is their main business, property managers will likely be managing over 100 rentals in order to generate sufficient income to make it a viable business. Being responsive to requests and providing a high quality of customer service is quite difficult when you’re managing over 100 different properties and tenants and the income generally isn’t great enough to enable the property manager to hire additional personnel.

 

Why is property management of single family rentals such a difficult business? There are several reasons for the poor service quality. It’s usually not their main business. Most are real estate agents or brokers managing single family rentals do so part-time.  It’s not their main business because they (1) tend to generating more fees from transactions (representing buyers and/or sellers) or (2) they do not manage enough properties to generate sufficient income to live on. For these reasons, the majority of individuals, usually real estate agents/brokers, who decide to start a property management business usually give up and clos shop within 12 months or less.

 

Many of the problems may be alleviated by requiring property managers to be certified and have other credentials before they are allowed to provide property management services. The lack of required education and certifications enables anyone to hang a shingle and begin providing services even though they are not qualified to do so. Requiring additional certifications and educational requirements would help add credibility to the property management field.

 

Possible Solutions

 

Possible solutions that may help alleviate the poor service quality common in single family rental property management include:

 

  1. Create review and rating system (Yelp.com for SFR PMs) and seek to get industry-wide adoption

 

By having a central place for reviews and to collect feedback, property managers, tenants, and investors would benefit. A central review and rating system would give tenants more power, which would encourage property managers to continuously improve their level of service to obtain good reviews. Property managers providing a high-level of service would benefit from high ratings and positive reviews, which would likely result in referrals. Property managers providing poor service quality would not benefit as the poor reviews and low ratings would make it hard for them to obtaining new clients.

 

A central review and rating system would also help investors more easily compare the service quality of property managers so they can make an informed decision when deciding who to hire.

 

  1. Develop service standard guidelines and allow single family property managers to voluntarily commit to them (opt-in).

 

Developing high-level service standards would help provide new property managers with guidelines of what would be expected of them when entering the business. It would also discourage individuals unable or unwilling to provide this level of service from entering the industry. Again, property managers already providing a high-level of service would benefit, those providing poor service would not.

 

  1. Create SFR property manager service quality certification

 

This certification could be provided by the Institute of Real Estate Management (IREM) or a new organization. IREM currently provides the Certified Property Manager (CPM) designation however, based on my experience, a majority of property managers do not have or do not seek this designation. The management of single family rental homes is significantly different than the management of multifamily apartment buildings, so maybe a new designation specifically for single family rentals is needed (maybe CPMSF?).

 

As the ownership of single family rental housing becomes institutionalized, the economic and social costs of poor property management with grow. It is in the interests of all concerned, property managers, investors, renters, and others in the residential real estate business, for the service quality of single family home property manager to be improved. Simply allowing the market to dictate which property managers grow and prosper and which do not isn’t sufficient. Because the economic cost of inexperienced property managers who hang a shingle, provide a poor level of service, and eventually leave the space is too high. American renters and America in general cannot afford it.

 

I will work toward developing solutions to help alleviate the problems discussed above. If you have an interest in doing so as well, please contact me.

 

 

 

 

 

Have you been a renter and/or an investor? If so, what was your experience with your property manager?

 

Are you a property manager that “doesn’t suck”? If so, what’s your secret? What do you think about the possible solutions highlighted above?

 

Interested in some way being involved in my efforts?

 

Agree/disagree with my comments? Please post your response below.

 

Thanks in advance for your comments.

 

 

 

 

 

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Jon Strishak is founder of Alegria Capital Management, a residential real estate investment management company that invests in high-growth developing U.S. markets nationwide. These are cities that are affordable, are expanding at a rapid pace, have a great mix of job diversity and culture, and have tremendous population and job growth. To learn more, please visit www.alegriacm.com