How Does Property Management Handle Maintenance?

This week’s question comes from Bryan on the Real Estate Rookie Facebook Group. Bryan is asking:  How do PM (property management) companies handle maintenance? Do they fix the issue and submit invoices to the owner or withhold the amount from monthly payments to the owner?

This is a great question for those who want to transition from self-management to hiring property managers. Both Ashley and Tony have the same type of payment setup with their property managers, but it can vary company to company.

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Ashley:
This is Real Estate Rookie episode number 80. My name is Ashley Kehr and I am here with my co-host Tony Robinson. How are you doing today, Tony?

Tony:
What is going on, Ashley? I’m doing well, another beautiful day here in [SoCal 00:00:18]. It’s so crazy, like it was raining yesterday and it’s like a hundred degrees today, so the beauties of being in SoCal, and so I think we might head out to the pool after we hang up here.

Ashley:
Yeah, we had rain yesterday and we have rain again today, so same beautiful day here.

Tony:
Yeah, well, what have we got today, Ashley? What are we getting into?

Ashley:
Okay, this one I’m really excited about because I feel like I never talk about property management anymore since I outsource my property management, and I love it, I love talking about it. So, today’s question is from Facebook and it is from Brian Parker. He says, “Good evening all, I’m new to the group and to real estate investing in general, I’ve been getting as much education as my time allows. I have a question about property management. How do property management companies handle maintenance? Do they fix the issue and submit invoices to the owner or withhold the amount from the monthly payments to the owner? Just not sure how this part works. I really have been enjoying the amount of comments and great ideas that are shared in this group.”
So, if you guys haven’t already make sure you join the Real Estate Rookie Facebook group and leave us a question and also you can interact with people like Brian who need your advice and, or you can ask for advice in there. So, thank you, Brian, for leaving your question. Tony, you want to jump into this first or do you want me to take it?

Tony:
Yeah, no, I’ll kind of share my experience. So, for my long-term rentals I exclusively use a property manager, so I never self-managed any of my long-term rentals. And the way that it worked for us is the property manager had a threshold for repairs. I want to say it was like, I don’t know, 150 bucks or something around there where they could spend freely to complete repairs and maintenance on the property. Anything over that amount needed my or my partner’s approval to proceed with. Typically the way that it worked was if there was a repair that needed to be had, the property manager, if it was below the threshold, they would just take care of it and then they would deduct that from the rent that they collected from the tenant.
So, like on our first property the rent was $1450, if there was a repair during the month, that was $50, then that rent collection would go down from $1450 to $1400, and then we would obviously get the balance minus their management fee. If the expense was over their threshold, they would contact us, let us know, “Hey, how do you want us to proceed?” Most of the times we would ask them to get a bid or two, and then once the bid was selected it would be the same process. The property manager would pay for it upfront and then they would get reimbursed by deducting it from the rent that they collected from the tenant. So, that’s how we had it set up for our properties, the property manager fronted it and then they just deducted it from the rent that they collected on our behalf.

Ashley:
Yeah, my property management company is somewhat similar except it’s a higher threshold, it’s $500. If anything is over $500, they ask for my permission to go ahead and do the work or to allow a contractor to do the work. One thing I would say is if you’re looking for a property management company, if you can find one that has software, which most do, it is really amazing because you can log into the software and you can see right away what the invoice looks like. So, even though they’re not actually physically sending you an invoice and they’re taking it out of your rent, you can log into your portal and you can see, “Okay, for my expenses this month they deducted $123 as a maintenance expense,” and you just click on it and then up comes your invoice as to here’s the unit it was done on here’s what the repairs were, maybe there was labor, sales tax, so you can see all that broken down.
For remodels or rehabs during turnovers, the company has usually asked me to pay them, send the funds in before they start the work. So, these are typical for big dollar amounts, maybe over a thousand dollars where maybe we’re doing new flooring, paint and it can be a couple thousand dollars. They’ll ask for that upfront before they actually start the work on the property, so that is one time where they have actually invoiced me. And I really like the process they do for those turnovers if there’s remodels that are required, because they go through and they do a full estimate, a full workup of what it’s going to cost and send it to you along with photos, so you can go through everything.
I mean, they charge you for everything, of course. So, you can even see like, “There’s a garbage bag charge, this is how much they’re going to charge,” and then from there you have the ability to go through and break down that estimate like, “Okay, so the door knobs, I’m not going to replace the door knobs, I don’t care if they’re brass and now they should be silver or something.” Whatever, you can go through and you can take things off like, “I’m not ready to upgrade the flooring to vinyl plank yet, take that off.” Or, if you know you can get that done cheaper, you can also say, “You know what? Do these things, I’m having somebody else do this part.” So, that’s a great option, then you approve the request, [inaudible 00:05:18] you sign electronically, and then once they get that back, they go ahead and they start work after you’ve sent your money, and you can also send your money in through the online portal too. So, those are great options to have.

Tony:
You brought up a good point, Ashley, about being able to source your own person to do the work as well. If it was a bigger expense, my PM would always say, “Here’s the person that we recommend. If you have someone else let us know and we can coordinate with them as well.” Again, because I was pretty busy with my W-2 at the time, I usually just kind of said, you know, I would always ask them to get a bid or two, but I wouldn’t really do a whole lot of homework myself. But it is a good point to make, that you as the property owner, can always tell them, “No, I want this person to do it, I just need you to facilitate the repairs.” I guess one question for you, Ashley, have you ever been in a situation where maybe you felt like they overcharged you for something? I know it’s happened to me before, I’m curious if you’ve seen something like that?

Ashley:
Yeah, for the typical maintenance that they do, that small dollar amounts that they don’t even ask, I don’t even scrutinize over it because it’s so convenient for me to have them do it, even if it’s maybe costing me more than it would if I called the plumber and got him to come out there. But it’s just under $200 and I’m saving $30, it’s not something I scrutinize over. But when you get up to thousands and thousands of dollars, I definitely scrutinize, and there’s been times they’ve gone and done a full bid and I will say, “You know what? I actually have someone else who’s going to do the whole thing,” and I don’t even use them for it at all because it was such a high dollar amount and way more than what the other estimate was. So, that’s where I do really scrutinize and look and see, because they do have an advantage that they are convenient, and they have access to the property, they know the property and things like that.

Tony:
Yeah, but like you said, they’re going to charge you a premium for that convenience, right? Your property managers will probably charge more than the local handyman [inaudible 00:07:11] person, whoever it is. We had a situation once where the property manager completed a repair that was above the threshold without consulting us. And it was significantly over the threshold. There was, like I said, I think ours is like, it might be $150, it might be $200, it was a relatively low dollar figure and this was like a $700 expense. And we were able to negotiate to make them credit us back that $500 difference. So, the difference between their approval threshold and what the expense was they refunded us as the property owners for saying, “Hey, that was our bad, we didn’t communicate this repair with you before it happens.” So, just a little tidbit if that ever happens to some of the other owners, you should be able to leverage that part of your contract.

Ashley:
Yeah, and just to give some advice too, if there’s anyone that’s thinking of switching from being self-managing to using property management, it’s not always about the property management company, it’s also about how to be a good landlord too and how to work with the property management company. I have been a bad landlord for the property management company to deal with. I’m sure the property managers hated me so much some days, but it has taken me so hard to learn, and I feel like I’m finally learning and adjusting. But timely responses because yes, they send you things, they need decisions on that you want to think about like, “Okay, should I go and get another bid on this?” Or, like I got one recently as there is this problem tenant, do we do this with them, do we do this with them, do we do this with them? And I just, I don’t want to make that decision, so I [inaudible 00:08:41] it, but I’ve learned that, “Okay, quickly responses things get done.”
And if you are going to go out and get bids on different things, be up front with your property manager, don’t send them there to do the whole assessment, do the bid, have a guy lined up, and then you say, “Oh, you know what? I’m going to go get other bids.” Be upfront with them so they at least know that if it does come back higher, you’re going to do that. I think being openly communicate with your property manager and being able to work with them will make it a better relationship too. So, it’s not always on them, it’s on you too as the landlord. And like you had mentioned, doing your own maintenance even too, if you’re really going to go that route, be upfront and tell them that you want to do that ahead of time.

Tony:
Yeah, I’m cracking up, Ashley, because like that’s the epitome of my relationship with my PM also. They’re like, “Hey, Mr. Robinson, dude needs to do X, Y, Z.” And I’ll say, “Okay, give me a second to think about it,” and then I forget about it. I’ve got a million other things going on, they’re falling up the next day like, “Hey, did you have a chance to think about that?” Like, “Oh, yeah, I’ll get back to you this afternoon.” And then like two more days go by, so it’s a really good point to make that you as the owner also have responsibility to the property manager to hold up your end of the bargain, which at the end of the day is really just to make the decisions, right? They’re going to do all the work, you just have to tell them which way you want to go. So, very valid piece of advice that I think it’s very easy to fall into that trap of you being the biggest roadblock to your property actually succeeding.

Ashley:
I liked how you just phrased that last sentence because that’s exactly how I feel sometimes and I’m sure they do too. Okay, well today we talked about maintenance and property management companies, so our biggest takeaways I think should be is that make sure you know upfront how your property management company handles maintenance, because it can be different, like just Tony and I gave examples of the thresholds being different, know what that threshold is and make sure you’re comfortable with that. And also if you do need to put money in, how does that money be sent to the PM? If they’re taking out of your cashflow, how can you look at what they’re actually taking out and seeing the invoices? And then also being a good landlord and making those decisions in a timely manner. Is there anything else you wanted to add, Tony?

Tony:
I think we hit it all. Property management is a critical piece of being a successful real estate investor, so I think getting this part right is super important, so I’m glad that today’s rookie asked this question. Brian, we appreciate your brother and best of luck to you in getting that first deal done.

Ashley:
Thank you guys for listening to this week’s of Rookie Reply. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson. Thank you guys for listening and we will be back on Wednesday.

 

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