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Real Estate Partner died, how to handle property manager?

Discussion in 'Real Estate Investing' started by RealOG, Nov 14, 2007.

  1. RealOG
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    RealOG Bronze Contributor Speedway Pass

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    Hi Folks,

    I have run into a difficult situation and am looking for some opions as to how you would handle this situation.

    My partner and I pulled together an investment involving six investors that culminated in closing on a 30-unit C-class apartment building in June of this year. Our goal was to purchase an underperforming apartment building, go for the value play with a five year hold. We closed on the investment and flew out of town to visit the building. Everything looked to be in order as we were gearing up to head home. Then my partner started complaining of back pain... twenty days later he died from lung cancer.

    Putting aside all the sadness and emotional loss of losing a close friend, I am left with several business decisions. I am now the sole manager of this investment, in charge of all the issues we had originally been sharing and full signing authority.

    When we had selected a PM, we chose one that synch'd well with his personality type. I had my reservations about this property manager from the beginning, but agreed to use them as it was his responsibility. Fast forward to now, the responsibility is mine and I am having conflicts with this manager. Part of it is due to personality type conflicts and part of it is philosophical differences.

    My question is the following: if I am unsatisfied with the PM, under what conditions should I fire them?

    Before answering, there are some things to take into account:
    • The PM is honest and hardworking, qualities I feel are hard to find in an individual, but I believe she lacks the systems and processes to be successful managing our particular building.
    • PM has shown a propensity to being emotional. Firing her could cause repercussions such as bad mouthing to tenants, refusing to collect rents for the the thirty day notice period, etc.
    • Changing PMs will be quite expensive (the new PM will probably take a while to boot up) and may require me to go back for emergency funds from the investors.
    I am open to hear everyone's advice. Thanks for your help everyone!

    RealOG
     
  2. Redshft
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    Redshft Contributor

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    My advice would be to sit down with the PM and see if the two of you can get on the same page of business. Let her know you are here to help her when she needs it, but make it clear what your expectations are of her. Managers and owners are partners too, you need to work together to be successful. If she doesn't want to cooperate with you, there is someone else who does.

    What is it exactly you feel she lacks to manage successfully? I'm guessing she tends to get angry easily?

    As far as your worries of a consequence of firing her. I would think there may be some type of legal action that could be taken if she refused to collect rent, but I've never been involved in rental properties so someone will have better advice than I can provide. If she bad mouths or takes any other actions like that...what goes around comes around and you don't need anyone like that managing YOUR property. You would eventually realize you made the right decision for the long run. If she has a short temper, other people will also recognize this, therefore your damage control shouldnt be much of an issue.

    I am very sorry to hear about your loss. You sound that you are able to keep your head on straight and work through the natural speed bumps of life. Best of luck to you and my prayers are with you.
     
  3. RE Taipan
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    RE Taipan Contributor

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    OG,

    I am sorry to hear of your loss...my condolences.

    Generally speaking, you state that the PM is an honest and hardworking person which as you point out is a hard thing to find....very hard. If your partner trusted her and liked her enough to hire her, I would strongly encourage you to give her a try and not dismiss her out of hand. She may be a gem that you can yet work with on this project.

    If she has a skill set shortcoming(s), is it possible that you could assist her in that area? -- that is, to set up systems that you establish and she then follows...or that the 2 of you can work together to develop with the understanding that you word is the final say. It might take a little work and effort on your part, perhaps more than you are willing/want to invest, but that is the role you take on when a key member of your team is no longer a participant.

    Keep in mind that many times, a personality conflict in a business setting can be significantly mitigated by keeping a focused, mature and rational approach. You would not want to go from what you see now as the "fire" into a genuine frying pan.

    Alternatively, if you do decide to terminate the PM, be sure that you check whatever agreements might exist with her to make sure that you terminate in compliance with the letter of those agreements as well as any applicable federal and state laws.

    Finally, if you are concerned about a back lash, I would strongly suggest that you have the new PM in place and ready to begin work the minute that you terminate the current PM. It would basically be a "thank you for your service to the project, but your services are no longer required...." so that it is done quickly and with finality making sure that all keys, access info/capability, financial records access, bank info, etc are turned over to you...as well as any passwords that are relevant to the operation. As for computer info and passwords as well as banking access, check signing, those would of course all get changed immediately.

    Again, these are just general comments that I have found have worked in different situations. Others here on the board may have more direct experience with terminating PMs.
     
    Yankees338 likes this.
  4. Yankees338
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    Yankees338 Bronze Contributor

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    Good advice. Sounds like the best route to take.

    IMO, always try the fair, diplomatic method first. If that's unsuccessful, it's time to take serious action.

    Good luck.
     
  5. RealOG
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    RealOG Bronze Contributor Speedway Pass

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    Hey All,

    For a little more context, some selective cut' n' paste from our email exchanges (we have had twice as many phone calls on the subject). I will try to be as objective as possible:
    ----------------------------------------------------------------
    From PM -
    Hi Mike,
    10 AM is fine for a discussion between yourself, *** and I. During our call we need to discuss your reasoning for wanting <broker>'s involvement. He's not your property manager. I am. He's doing maintenance for the building now but that is all. If you're not comfortable with me being your property manager we need to discuss that. <Broker> does not want nor does he feel he needs to be involved.


    From Me -
    <PM>,

    *** and I decided that we would go with you as property manager because of your work ethic and ability to figure things out. You are smart and have a "can-do-anything" attitude. We liked that. It's difficult to find people who have that personality and it's definitely not something one can just learn.

    However, your experience with managing a 30 unit building starts with <our building>. As you know, managing a property of this size is not trivial and requires hefty work. We were very impressed with <broker>'s knowledge and ideas when we were at lunch and decided we could get the best of both worlds by having him involved with you running point. With this, <name withheld> and I decided to give you a shot with the understanding that <broker> would be involved. If he is not going to be involved, that changes things.


    From PM -
    ***, LLC,
    Please accept this email as my 30 day notice to cancel our Property
    Management Agreement dated April 30th, 2007 for <address withheld>.

    I will gladly refer some property managers to you if you'd like and will
    continue to manage until December 6th, 2007. I will transfer management
    sooner if you'd like.

    Please respond with your acceptance to this cancellation.


    From Me -
    I understand. However I still want our collective conversation tmrw at 10am.

    ----------------------------------------------------------------

    Needless to say, she would not allow her broker to speak to me and he would not answer my phone calls. I eventually reached another broker in the company, who is knowledgeable, but he was not the original reason we signed up with said company. I want her to involve her broker in the day-to-day stuff as I feel she is falling short. It almost feels like a struggle for power here, am I asking for too much?

    I have left out some of the other items we talked about that are immaterial to this power struggle, but I am completely perplexed here. I should not have having this kind of an issue with someone I employ to do my work. I have other properties and property managers and have not had this issue with them.

    Like I said before, I am concerned with her abilities and systems. I can help teach her what to do, but it will take time and means she is learning on my investors' dime. If I was an investor, I would be pissed...

    I do have a very good PM waiting in the wings to take over and legally speaking we are covered, but I want to make sure it is absolutely the right thing to do. This will lead to additional investors and larger projects, so the success of this project is critical.

    Thanks for all your inputs folks!

    RealOG
     
  6. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    How do you have this deal setup for management? Is this a real estate agent or apartment property manager?

    Good job in getting this deal to this point. Sorry about your partner.
     
  7. kimberland
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    kimberland Bronze Contributor

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    RealOG,

    If you already have another PM lined up,
    it sounds like your decision has been made.
    The other PM, if he is good, won't wait around forever
    and I doubt the old PM can redeem herself in so short a time
    (it also sounds like she doesn't want to work with you either,
    by the tone of the email and
    the speed in which she offered up her notice).

    So accept her resignation with grace
    and move on.

    As for learning on another person's dime,
    that is every single project (non real estate) I have ever worked on.
    There is always an aspect of the project that I've been unfamiliar with
    and needed to ramp up with quickly.
    Frankly, I don't take on projects for others
    UNLESS there is some new learning in it for me.
     
  8. tbsells
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    tbsells Contributor

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    I'm with Kimber, its time to accept her resignation with grace and move on. She doesn't want to work for you, and you really didn't want her working for you. The how's and the why's are no longer important. The next PM is what needs to be focused on now.
     
  9. RealOG
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    RealOG Bronze Contributor Speedway Pass

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    This is a management company. The manager is a licensed agent working for a real estate company that has both sales and property management arms.

    The company I would switch to is a dedicated PM company who manages lots of similar properties and has years of experience. They were my first choice originally.

    *Update* - I spoke with current PM this morning and we sorted some of our differences, she wants to retract her cancellation. I am still undecided on whether to can her or give her another chance. I do realize that my new guy won't wait around.

    The new question is whether hitting the reset button is worth it. SteveO, any experience with this?
     
  10. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    I have not had good luck with management companies for properties this size. The alternative is risky but could work if you can provide guidance.

    If you can find a good management couple or someone that has the ability to lease and perform maintenance tasks, there might be an opportunity to save some money. The problem with this process is keeping them focused on income growth. Since they are doing the apartment turnovers, the desire to keep the units full and not have the extra work is hard to overcome. It would likely take some direct involvement from your side.
     
  11. RealOG
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    RealOG Bronze Contributor Speedway Pass

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    Wow, how things have changed in a year. I decided to update this thread for posterity. :smxB:

    Let's see how things have progressed since 2007:
    • I canned the old property manager, but was able to part on good terms. She lacked the experience I needed and I lacked the personality she works well with. I pulled the plug in February 2008. Rather than parting in a big fight, I explained to her why it wasn't working in a very non-confrontational manner. I focused on my issues as opposed to what I felt she was doing wrong. This worked out well for me as we have stayed in touch and she continues to fax mail/bills over that haven't had the addresses changed.
    • After that, I hired a new property manager, a big corporate type. This is one of the large PMs in the area. I spoke directly to one of the partners. Very intelligent guy, great ideas, but got the feeling that my small building would risk being neglected for the larger money-makers. Unfortunately I was right, and that became especially evident as the company ran into massive liquidity issues when they bought out two partners using coporate cash on hand. I pulled the plug on these guy in July 2008. This was most disappointing because the company really has the infrastructure to be successful.
    • I ended up hiring a smaller company that was referred by the corporate PM. They were a smaller company just getting started. I originally interviewed them for a smaller collection of buildings I had several miles north of the apartments and they started in January of 2008. I was very impressed with their abilities and moved the apartment building to them in September 2008. I made the switch clean and immediate as I leared from the first situation that once a PM is given notice, they typically take their hands off the wheel.
    At the time my current PM took over, the administration of the building had fallen into a regrettable state. A lot of the work we had done was ruined, creating major setbacks:

    One of the more colorful issues, in particular, came from an industrious but misaligned tenant who obtained keys to the vacant units as well as the basement and was renting them out for $100/month to people on the street. Despite loading the property with the riff raff I had just evicted, he was pocketing all the revenue himself. He will have plenty of time to discuss his next business venture with his cellmate.​
    Other issues included a drug dealer/tough guy who took up residence on the top floor. He would bully many of the good tenants but was smart enough never to be caught doing anything wrong. He and his scumbag buddies quickly left the building when my PM started Coffee & Donuts Nights for the local police department. The police would come by nightly and visit with my PM.​
    Now, about the new PM I am using: the guy is an absolute stud. He is down to earth, incredibly good with people (from the millionaire investor to the class-c tenant late with rent), very humble, fearless, frugle, an excellent negotiator, and absolutely loves his job. I pretty much hit a royal flush with him. Edge has had a chance to chat with him before and I think they got along well too.

    Since the company has taken over, they have been able to not only implement my business plan to a T, they have the creativity to adapt and solve problems with haste like I have never seen before. Some of the more notable achievements they have at my building:
    1. Refinishing three floors of hallways by giving free rent to an out of work hardwood guy. Total retail cost = $4500, effective cost to me $1350.
    2. "Evicting" individuals in less than a week, getting them to clean the units and forfeit their deposits. He does this by showing them respect and empathy, explaining the situation, helping them find another place, even a job, and using his van to move their items out. Its incredible what someone is willing to do when you give them a little respect and help.
    3. Increased revenues every month like clockwork. Each month has been the best month the property has had. The site is much safer, cleaner, and more attractive leading to increased rents which tenants are more than happy to pay. There is also a pride of living that the tenants have now - no more cigarette butts on the patio, garbage on the landing, or muddy footprints in the hallways.
    Goal was to stabilize the building and increase the income by a total of $2000/month. This is very doable and we are about three months away from being there. At an actual cap rate of 10%, this will mean an equity increase of $240,000. We will sell in 3 more years moving the proceeds into a larger opportunity.

    Personally, I can't even explain how good it feels to succeed to this point despite all the difficulty I have run into. I have experienced some of the worst situations you can imagine and emerged successful. It's these hard knocks that make success all the more sweet.

    For those of you Moral-of-the-Story types:
    • You hear this all the time on this board, but your health is your most important asset in any investment endeavour. If you have good health, any other problem can be overcome.
    • Hire people for their aptitude, not experience. Experience is something that comes with time, aptitude is something that cannot be learned. Be wary that your personalities mix well.
    • It sounds cliche, but never give up. Through these difficult issues, for a solid three months everyday I woke up I said to myself, "I will never give up." Eventually you hardwire yourself for success.
    • Respect is one of the easiest ways to solve people problems. Giving it costs nothing and seems to motivate people of all types to be better citizens. A disrespectful attitude, on the other hand, is one of the most expensive and destructive character flaws I have encountered.
    Hope you all are doing well out there in Investor-land. Keep that friggin' chin up and...

    Never give up!:icon_super:
     
  12. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Congrats Mike! Good to hear how well things are turning out. And I thought you were taking MMA so you could become the PM for your building. ;)
     
  13. bflbob
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    bflbob Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    Great Update!

    I'm at 9 units now, and have had minor thoughts about hiring a PM.

    You may have just convinced me.
     

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