Podcast Episode 120: “Property Management Nightmare.”

I got an email recently from an unhappy investor about problems with his property manager in Edmonton. Real estate investing is all about relationships, and you need to be able to rely on the people in your team. Property managers are supposed to find tenants, collect rent, and deal with maintenance, among other things. The following Tale is an example of what can happen when you hire the wrong property manager—and how to do it the right way. The email is so descriptive I’m passing it along verbatim. See below:

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Hello Barry,

We own a rental house in Edmonton. We found a guy to look after this rental property as our property manager.

He is a registered realtor and has no property management license. At the beginning, he mentioned his girlfriend had a property management license and would look after the property. But for the whole 7-month rental time, we never got a chance to see and talk to his girlfriend. We talked about signing a property management contract with him but he never got back to us. The only evidence we can provide are text messages about rental issues and receipts (we paid him 8% of monthly rent). These could prove he did management work for our rental and received the management fee.

The tenants did horrible damage to the house. Lots of scratches on the hardwood floor, holes/stains on the wall, heavy dark oily stains on the carpets, missing lighting covers for all lights, cigarette butts everywhere in the front/back yards, missing hardwood on stairs, broken hood fan and curtain. The whole handrail from the second floor to the first floor was loose because tenants grabbed the railing when they made the turn running down fast from second floor to first floor. Often, tenants texted our property manager about house issues, he just passed the message to me and I had to find somebody to fix issues.

He rented the house out without any walk-through with tenants. Because of his poor & unprofessional management conduct, we suffered substantial losses. Currently we have paid over $18,000 (damage renovation fee $12,000 plus 3-month vacancy). Please advise how we can, or even if we can recover the money losses.

Thanks,

Victor
(name changed for privacy)

Can You Get Money Back from a Bad Property Manager?

Victor wants to know how he can recover his losses. First, with the greatest respect, Victor needs to learn about property management if he is going to continue to be an investor. Second, Victor can sue the dastardly property management due in Small Claims Court. If Victor has kept records and has photos/video, he should be able to prove to the court that they did not do their job. If the realtor and his “property manager” girlfriend are even still around, Victor has a decent chance at collecting his Small Claims Judgement.

Lessons Learned:

This is certainly a nightmare for the investor who sent me the email! Here’s my take-away for all of you folks out there who own investment properties and rely on property management.

1.    Hire a licensed property manager.
The Real Estate Council of Alberta requires property managers to be licensed. The requirements for licensing vary by jurisdiction, so find out what the rules are in your own area. In Alberta, you don’t need a license to manage your own investment real estate.

2.    Use a property management agreement.
This document should set out the duties and expectations. Make sure that both parties read, date, and sign it.

3.    Meet with, check on, and give instructions to the property manager.
Although having a property manager can be a big help, it doesn’t mean that the landlord isn’t involved. You need to manage your manager. In this example, landlord Victor never even met the realtor’s girlfriend who was supposed to be the property manager.

4.    Don’t ignore warning signs.
A professional property manager would not just text the landlord that there are issues; they would generally fix the issues within the authorized monetary limit set out in the property management agreement. The email I received from Victor is a little vague on what those fixes were, but the fact that there were probably quite a number of them should have been a warning sign.

5.    Landlords should always do their own inspections.
Even with a property manager running the rental, it’s important for the landlord to see how tenants are treating their property. Don’t just leave this duty to your property manager. In this case, all the warning signs should have had Victor inspecting early and often. He could have stopped the damage before it got too bad.

The kinds of problems, issues, and trouble that Victor experienced were caused by failing to hire a licensed property manager, not doing that hire by the book, never inspecting the property, and not managing the manager. Of course, if you have a good property manager, you don’t need to micro-manage them. But stay on top of them until you are confident that they know what they are doing.

These are hard lessons. Hopefully my readers can learn from Victor’s mistakes. Don’t let this happen to you!

“Hands Home Protection Protect Guard Concerns Care” image by geralt used under CC0 Public Domain.