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May 27, 2008

Get Your Property Management Deals in Writing, Up Front!

Posted in: Property Management

Continuing on the theme that I was writing about in my last article, I wanted to give you a specific example that happened to me just last week in property management. A friend on mine that I manage property for referred me to one his friends to help him get his property leased. This man seemed very friendly and easy to work for. His house payment was somewhere around $1,200 per month, and you guessed it, the going rate for a property like his in that area was somewhere around $1,200-$1,300 per month.

So after talking with him, he wanted to gross $1,350, but I needed to make at least $100 per month to manage the place. So I decided to go ahead with the property management marketing for him without an agreement up front. Now, normally when I manage property, all the money flows through me, so the problem of having the up front written agreement with the owner is not “as much” of an issue. So I proceeded to market the property for $1,500 per month, well over the going rate for the area.

Well, when the rubber met the road, I was only able to rent the property for $1,400 per month. So I went ahead and got the contract going with the new tenants. But when I talked to the owner about it, he wanted to manage the property, and just pay me the monthly fee that we agreed on. Now, I went ahead and met him in the middle, and dropped my fee down to $75 per month. So getting the news that he was going to take care of all the hassle of the tenants really had me excited.

The Penny Drops… 

So I was really thinking that I had a quality owner that was going to take care of me for helping him get the property leased. But when I drew up the paper work between me and him, he fought me to take out the fees after the term of the lease expired. I didn’t put any fees in for the owner to pay me if that tenant decided to buy, or anything that would force the owner to use me in the future. All I added was the $75 per month even if the contract expired and the tenants went month to month. But I decided not to fight him for the fee and just took it out.

The Lesson to be Learned in Working with Owners

I have other owners that are very close to me socially, and knew what they were all about and can trust them. But the problem is, I trusted one of those owners with the referral he sent me, which turned out to be a wheeler-dealer. So the lesson I learned was to not trust anyone that I am not absolutely sure about, and have known personally for quite a while. When this owner comes back to me to do more business, he is going to be surprised when I stick to the standard “10%” fee to manage property.

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