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Property Management Dilemna

I was talking to another agent about a potential property management opportunity this week. The potential client has seen an ad for another agency here in Virginia that guarantees to pay them rent, whether they actually rent out the property or not! What a deal! She wanted to talk about how I would compete against that kind of offer.

It's an interesting question both on a macro and a micro level.

First of all, I really thought that one of the lessons we've all learned over the last year or two of the markets melting down, is that things that seem too good to be true probably are. Seriously, if someone is giving you money without receiving anything in return, there's a problem!

Looking at this particular case, here is what I'd be concerned about.

First of all, trust me, there's some fine print here. You should read very carefully anything you sign. Specifically you should look at who decides what the rent will be. Can they cut the rent so they can get someone in there quickly and they can stop paying you without any income coming in? Who decides whether a tenant gets accepted, you or the property management company?

Think for a minute about the incentives that are now driving this property management company. When I help my clients find tenants it is definitely in my best interest to get them a tenant who will pay the rent every month and take good care of the property. Because if those things don't happen, they're going to be my headaches.

But if this company is paying out rent every month without a tenant paying anything, their biggest incentive is to get someone, anyone in there as quickly as possible. They need to stop the bleeding. No business survives with a negative cash flow for any length of time.

I believe it also shifts the property management company's focus off of their clients. It's hard to be focused on protecting your clients when you're bleeding red ink.

I don't like this business model and suspect it's not really in anyone's best interest. But they've created a nice, shiny, pretty package if you're a property owner looking to rent out your property.

Again, if it looks too good to be true, be very, very careful! A lot of people who have lost their homes to foreclosure in the last few years would echo that advice.

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Tenant's Market?

Date: Mar. 11, 2009
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The rental market is soft, whether you're talking residential or commercial the story isn't pretty.

I spend more of my time looking at residential and I've been thinking about this change. Over the last few years more and more fees and special clauses have been piled on tenants.

There are lease clauses that say you have to have the chimney cleaned before you leave. There are clauses that say you have to have the carpets professionally steam cleaned before moving out. There are deductibles charged any time a service call is made. There are clauses that state that tenants will make repairs on anything under $200 with their own money.

And, now there are lots and lots of empty rental properties. So will the pendulum swing the other way?

My hunch is it will to some extent. You're already seeing apartment complexes running all kinds of specials to lure tenants in.

We've had a buyer's market for several years now.

Welcome to the tenants' market?!

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