Want to maximize your ROI?

Choose the right property manager.

Property management is no different than any other industry. ‘How much is it going to cost?’ seems to be the first place we all want to go when purchasing a product or service. But is this the best approach in hiring a property management company?

Investment property is an interesting place because you bought it to get the highest return possible, I get it. When buying other products, price plays a role, but there is no ROI per say on a pair of shoes.

“Hey Rick, check out this graph, 8.3% return on my 2017 Nikes.”

Where price and value meet is where and when we typically purchase products. When investors look at PM companies, the more a firm charges, essentially the lower their return is, so they put more value in price over quality. So they hire the inferior company to save on the monthly expense thinking it will help their ROI, because hell, if that’s what it says on paper then it must be true, right?

A few months ago I was interviewed by an investor named Steve to manage a newly acquired property. Steve was excited about his new venture and he put in a lot of time interviewing local companies to manage his new home.  I thought my interviews went well and I could tell he liked what we had to offer. In the end Steve said he would like to hire my company if I would match another competitors rate, saving him $20 per month. As not to come off as soft,  weak, and desperate to my family, future grandkids, and many generations of my posterity, I held firm to my price. So Steve decided to go with the other company to save the money.

Several months went by and I got a call from Steve. Their property had not been rented yet and they decided to make a change and hire my company. I won’t get into the all the details of why the first company failed to deliver, but I’m confident to know that this would not have happened under my management. To put it simply, the first company over promised what they could rent this property for and never adjusted. If there is one thing I know in rental property, it is that the market never lies! So when it speaks, you listen and adjust. We had his property rented within a couple weeks.

Now I’m not at all saying don’t pay attention to price, obviously it matters. My advice to any investor would be to locate the best companies without the influence of price, then see what the price will be at that point. If they are competitive, then hire the right company! By not asking price first, you will have an unbiased, clear path to who will provide the best care for your investment which is what matters most.

So what did saving $20 a month actually cost Steve? About $6000 in lost rent based on four months of vacancy. As you can see by this example, the company that provided the best ROI on paper was not company that provided the best ROI in reality.  

You know, the investor who brags about how high their rents are?

They must be smarter than everyone else (insert sarcasm).

Something that has been on my mind a lot lately are the investors who feel the need to over exaggerate the success of their rentals. They just loooove to brag about how much rent they are getting and how smart they are. It’s like some crazy high that I can’t relate to, but so many investors are addicted to.

A while back I was speaking with a client of mine who at the time had a vacant home that we were trying to rent. The owner happened to stop by and run into another investor who owned a home across the street. As I’m sure they were talking about their rentals, this particular investor claimed he recently rented his home for $1800 in 2 days! Problem with this statement is after I had done

my market research, I recommended that we try and rent our home at $1500. My client immediately called me to inform me of the super investor across the street who got $1800, and then started to question me as to why we were only going for $1500?

This is not my first rodeo, and I’ve been around a little bit. So I got the address to the “$1800” home and went to trusty ol’ Zillow to see if I could find. Just as I suspected, the home had been listed for 3 weeks (not 2 days), and at a list price of $1475 (not $1800). Thank you Zillow for not removing such valuable info! I jumped right back on the phone to inform my client of the information that I had found so I could bring him back down to reality.

I don’t know why this particular investor felt the need to go straight peacock mode and lie about his investment. There are investors all over the place that portray the same behavior and I’m constantly taking those calls of “I heard the property next door rented for _____.” Then I have to pull the data, and explain why this mystery number is likely a lie.

Here is the reality, establishing a rent price is not that difficult. It is a supply and demand problem, taking into consideration what your direct competition is doing at that moment. How does your property stack up against what is available? How many comparable properties are available? That’s it folks, based on that you should be able to position your rent price pretty accurately. And let me ask you this, if there are 4 homes in the area, all comparable to yours in the range of $1400-1500, what makes you think someone will pay $1800 for yours? You are correct, they won’t. So when I hear the outlier stories of absurd rent amounts, I instantly know that some investor feels the need to peacock (I like that term, it’s funny) and over exaggerate how smart he or she is.

So can we just be honest with each other? Just owning a rental is cool, so no need to go down Exaggeration Lane.