This continues the series I’m writing about property managers. I started with Property Managers Revealed. Then, I wrote How NOT to Treat A Property Manager. In the interest of being fair and unbiased and expressing my own perspective of property management, I want to tell you the true stories of our own dealings as rental property owners using property managers.

Early on in our investing career, we had a an investor friend who was gobbling up fixer-uppers as fast as he could get them to perform rehabs, install tenants, and sell the houses to other investors for prices well over what I later believed them to be worth.  He was making huge profits doing so.  I had what I believed to be a better idea–I wanted to buy fixer-uppers, perform rehabs, install tenants, and keep the rentals for long term cashflow.  And, in fact, that’s what we set out to do.

Since we were beginners and didn’t know anyone in the business, I asked this friend of ours if he’d give us the name of the contractor and property manager he was using.  He gladly did so.  The contractor and property manager were a husband and wife team.  They were excellent at selling themselves and easily snowed us.  We never personally met the wife, the property manager, but we met the contractor husband numerous times.  He made rehabbing and renting sound so easy!  We were elated to have found these very important members of our team (which is a Kiyosaki reference, the guy who wrote many of the REI books I was reading at the time).  I’ve called them Contractor 1 and Property Manager 1 many times in past posts.

Things went along swimmingly at first.  We gave Contractor 1 our payment for the first half of the bid to remodel a fixer-upper for us.  It took him roughly four times longer to finish than we expected.  But, we thought that was an error in our initial time estimates.  We waited on pins and needles to hear from Contractor 1 that the house was finished.  But, before we heard those words, PM 1 rented the house for us!  Contractor 1 finished it in time for the tenant to move in.  About this same time, our friend who referred us to these two told me he’d been experiencing problems with them not returning his calls.  I wasn’t sure what to think about that, since they’d been just fine for us.

Well, after our tenant settled in and our first rent check came, we decided to purchase more fixers to continue what had been proven to be a good investment idea.  We were making a profit!  So, we bought many more cashflowing houses, which PM 1 easily filled with tenants!  I heard from my friend that his relationship with PM 1 and Contractor 1 had deteriorated further–they’d stopped sending him rent checks so he was withholding payment for a remodel they did for him.  Of course, we were both amazed at the completely opposite experiences we were having with the husband and wife PM team.  Truthfully, I figured he’d been a jerk and had done something to really piss them off.  I thought that he may have been bending the truth to me a bit, and that he probably refused to pay them–so, they were withholding his rents.  I had seen him being a jerk to other people.

If anything, I had noticed that Contractor 1 had become increasingly difficult to reach on the phone.  Our remodels were taking longer and longer.  And, it seemed like our requests for certain repairs and upgrades on our houses (we were giving them all central heat & air systems, etc) weren’t getting done in any timely fashion.

I started really looking into purchasing commercial property.  I found a retail strip that I thought would be perfect!  I even contacted our agent and asked him to talk to the seller’s agent to ask if they’d take our equity in our houses as part of the downpayment.  They said no, of course.  So, I decided to sell as many of our houses as quickly as I could to get together a chunk of change to put down on the retail property.  I notified PM 1 that we were going to start selling off our houses to other investors.  I reassured her that the buyers would most likely still use her services in managing the properties.  She seemed happy to help anyway she could.

Well, we sold several houses and got some money together.  But, by the time all the houses closed, the retail strip was gone.  Someone else got it.  I figured–no matter, it wasn’t meant to be.  I’d find another commercial property to purchase.  We’d sold our houses in two packages with 1031 Exchanges to put off having to pay capital gains on them.  But, I just couldn’t find a property to purchase before the first 1031 expired.  It didn’t help that it took about four months to close on the sale of the second package of our houses.  So, the 1031 Exchanges deadlines were spread far apart.

Anyway, PM 1 stopped answering the phone for me shortly after I told her we were selling our houses.  I thought she was mad at me for selling.  But, as time went on, as I was trying to coordinate the sales and helping to set up property manager services for the buyers, I discovered that her mailbox was full.  I could no longer leave a voicemail.  Other people must’ve been having trouble reaching her as well!  We still had several houses with her at that time.  So, I was imagining our tenants not being able to reach help if a situation occurred with one of our houses!  Not to mention, I was sure that new prospective tenants couldn’t reach her to lease any properties we had that were empty still.

PM 1’s silence was becoming deafening.  Not to mention, I was really embarrassed that I’d even recommended her to our buyers.  They seemed to have problems reaching her immediately.  Our rent checks became few and very far between–and, didn’t come at all without my harrassing PM 1 anyway I could think of.  I called both her and her husband over and over and over again.  I eventually started knocking on the door of their personal home.  Our rent checks came four months late at a time.  And, then, there would be all kinds of mysterious maintenance charges which reduced the total check amount to about half what it should be.  The math didn’t make sense on the statements whatsoever!  We discovered later that the houses they leased for us were being destroyed by the tenants they picked.  They didn’t seem to do any kind of tenant screening.  Our empty houses weren’t being rented.  And, in fact, I drove by them to find waist-high weeds and no signs in the yards!  Why were we being charged for lawn care?????

My friend told me that Contractor 1 had installed central heat and air for him in one of his houses, only to supposedly steal it back that same night after receiving payment.  He thought Contractor 1 was using stolen water heaters, furnaces, A/C units, and appliances in the houses he remodeled!  And, I have no evidence otherwise!  In fact, it did make sense.

Eventually, after coming to work with a decent property manager doing leasing, I learned that property managers in our state are supposed to be licensed brokers.  And, I knew there was no way PM 1 was a licensed broker!  So, I took the matter to the Oklahoma Real Estate Commission and filed an official complaint, hoping to shut PM 1 down before she and her husband had the chance to damage any more lives.  It didn’t turn out like I hoped it would.  But, the OREC did slap PM 1 with more than $8K in fines.

PM 1 and Contractor 1 are still operating here in Tulsa.  And, I met another investor that they were driving right into the ground.  I believe he eventually had to go into foreclosure.

And, tomorrow, I’ll tell you our horror story regarding PM 2!

June 11th, 2008
Categories: Uncategorized . Author: Trisha

3 Comments

Comments RSS TrackBack Identifier URI

Leave a comment