It started with little things. I would check my invoices at the end of the month and learn about repairs that were never communicated to me. Twice, I was charged $185 to re-secure a toilet to the floor. Biweekly lawn mowing ($66 per month), which I was told would occur for seven months out of the year, was actually done for eight months. It’s little things like this that eat away at your bottom line. It was a series of little and big things that led me to firing my property manager.
Don’t get me wrong: Repairs come up, especially when you’re talking about a 100 year old duplex in the midwest. When I signed the property management agreement, my manager bragged about the in-house maintenance team, and stated that while I could get other quotes (for the “low” cost of $50 to open up the property), the in-house quotes would “always be lower.”
As I began to feel uneasy with the small repairs, I started seeking third party quotes for each item I was concerned about. Cost for a third party to re-seat a toilet, replace the flange, and check for leaks? $100. Cost to secure biweekly mowing? $40. I never spent more than five or ten minutes seeking a quote, sight unseen. Where were the quotes that would “always be lower?”
“Only $41 More a Month”
The breaking point for me came late last year. My fall quarterly water bill came in, and it was astronomically high. Water and sewer costs for the duplex were $525! This meant that my property was on track to cost me $2,100 per year in water bills, or $500 per year over my property manager’s high estimate. I sent the senior property manager an email asking for steps we could take to reduce water use. When I was interviewing the company and expressed concern about out of control water use, they had pointed to a clause in the lease which indicated the tenant would be held responsible for “excessive” water use.
Now that I was actually seeing use that most people would consider excessive, it occurred to me that I had few ways of proving which of my tenants had used water excessively. Both units in the duplex were individually metered, but nobody was reading those meters– only the master meter was read by the water department. When the response came in from my PM, I just about blew my stack.
Your bill is slightly higher than an overall average we would expect but unfortunately there really is not much that can be done about it. We can install low flow toilets if you like but $2,100 vs $1,600 is only $41 more a month.
Only $41 more a month? On this property, after setting aside a reserve for vacancy, maintenance, capital expenses, and other items, $41 a month represented 16% of the safe cash flow!
It’s probably important that you understand why I was paying water in the first place. While I was purchasing the property (my first in this market), my PM explained that “landlords always pay water in (city).” I took it at face value, but always had a bit of unease, not feeling completely comfortable that there was at least one item on the budget that was totally out of my control.
After my first two water bills arrived (the first covered only the first six weeks of my ownership, so I decided to wait for a full bill to respond), I started talking to a lot of landlords in the area who I had come to know. Every single one of them had their tenants paying water. Every single one, including the owners of duplexes. Some of them had curious methods of determining use (one offered $20 off rent to one of the tenants to do the meter reads and send him pictures), but they all managed to make it work.
It became clear that my property manager, who lacks an online portal and computerized billing, simply didn’t want to deal with the hassle of billing tenants for water.
Who’s in Charge Around Here?
Because some parts of my PM’s service had been acceptable, I didn’t immediately decide to fire them. I began to act to reduce my losses. I informed the PM that I would not be using their landscaping services any more, and that I would arrange for my own services in the spring.
Cash flow increase: $26 per month per property.
Then, I began seeking a method to hold tenants responsible for water use. I quickly discovered many companies offering submetering services, including one headquartered in the next major city. These companies exist for exactly my kind of situation. Assuming the property is properly plumbed (mine are), the submetering company can install water meters for each unit, generate monthly bills, and collect full utility reimbursement from the tenant. I had leases which stated I would pay the water, but this was still an excellent development. As leases expired, and as I purchased new property, I could drop the rent $25-50 per month, sign new leases, and bill tenants directly for water. All I needed was the cooperation of my property manager.
Projected cash flow increase: $150 per month per property.
Since the name of this article is “Why I’m Firing My Property Manager,” I’m sure you can imagine what happened next. My PM threw a fit. They cited their “efficient systems” and said that they were unwilling and unable to provide billing services for me. They said that they spoke to their legal counsel, and that they believed that they could not evict for non-payment of water. They would attempt to sign a lease addendum, but all billing and collections would need to be done by me.
I was angry, but I had not yet spoken to other property managers in the market about this issue (it all occurred in the last few weeks of the year). I decided to try to make it a win-win for everyone. I laid out how charging for water would drastically reduce my costs and increase my cash flow. Since a reduction in rents would be necessary, I recognized that their PM fees would be reduced. I offered to pay $10 per unit per month if they would attempt collections only for the unpaid bills, and $20 per unit per month if they would take over all collections.
To their credit, my PM agreed to collect the bills for $10 per unit per month. It was already too late for that. I was so insulted by the way the PM handled the whole issue that I knew that I would be firing them. In the end, the property belongs to me, and is a huge asset. If my property manager doesn’t put my needs first, they need to go.
In the days between my last email and their response, I had begun speaking to other property managers. I quickly discovered that every other property manager I spoke to was willing and able to collect water bills, and had experience in doing so. They saw no issue with collecting based on bills from the submetering company, nor did they foresee an issue with evicting based upon unpaid utility bills. Most had computerized systems that made it easy. I resolved to fire my existing property manager. I’ll have to do it in phases to move all of my units to the new manager, but in the end, the hassle will be well worth it.
I have been in the middle of a new property purchase, using my original PM’s brokerage services, since December. The in-house maintenance team quoted me $5,000 to make a number of small, but needed, repairs to the property. This did not include installing the needed water meters. I spoke to a contractor referred to me by the new PM (not employed by them), provided the inspection report and photos, and quickly received a quote of $4,500 or less for all the repairs, to include the installation of the water meters. “Always be lower,” indeed. The new property manager simply provides contractors with a lockbox code to access the property. The cost for me to get a quote is zero.
Firing My Property Manager is Bittersweet
I am excited at the thought of both the additional services offered by the new PM, and the additional cash flow I anticipate on my properties in this market. Still, my real estate agent (employed by the PM which I’m firing) has actually done a relatively good job for me. I’m torn between returning to him for my next purchase in a few months, or writing off his employer entirely due to the clear lack of respect for his customers.
I can’t even be completely sure that I won’t run into issues with charging tenants for water. In my view, the property manager works for the owner, not the other way around. If I’m wrong (and based upon the practices of other landlords in the city, I don’t expect that I am), then perhaps I’ll owe my original PM an apology. Time will tell.