How to lose $53,900 on a rental town home (Part V): Property Management Blue(s):

This series (here, here, here, and here) may feel long, but not as long as the 11 years required to take a bath on this venture.  Many investors think property management is the panacea to their rental headaches.  I’ll discuss why that may not be so.

At first blush, Blue seemed like a good idea.  They would receive 10% of the rent to take care of everything: property showing, background checks, repairs, the whole shebang.  What could go wrong?  One should never ask that question.  Ever.

 

For starters, Blue required a $250 maintenance account held by them at all times.  They would have discretion on minor repairs and expenses, below $250, and would provide notice if an expense greater than $250 was required.

What this meant was that Blue would make minor changes and repairs not otherwise approved and deduct the expense from the account.  They would send a bill stating the repair account fund needed replenishment.  This happened frequently, giving Blue a nickel and dime vehicle each month. 

Also, it became apparent the vendors to which Blue outsourced repairs and refurbishment were billing higher than market rates.  I’m sure this was a requirement to get Blue a cut as middleman.  Instead of dealing with renter and contractor headaches directly for $X there was a different, yet similar set of headaches with Blue to enjoy while payed $X plus.  

To put salt in the wound, Blue would collect the rent from the renter the first of the month, but wouldn’t take their 10% and pay out the balance until after the 20^th of the month.  The property note was due the first of the month.  Blue enjoyed the “float” of an interest free loan on the rental income for three weeks before releasing the balance of funds.

Needless to say the Blue contract lasted the year for which it was signed.  Afterwards, activity reverted to self-management from whence it came.

We’re on the home stretch now.  Rental real estate freedom is in the next post!