Red Flags Owners Must Watch Out For
To manage or not to manage. That is one of the toughest questions for a beginning investor. On one hand, learning the business and controlling the asset is crucial. On the other hand, hiring a property management company frees you to focus on growing your portfolio and becoming an asset manager instead of a landlord.
This article focuses on the Manage Right portion of the Buy Right, Finance Right, Manage Right framework, and specifically on ten red flags to watch for when you hire a property management company.
Should You Self-Manage or Hire 3rd Party?
New investors wrestle with this decision. Self-management teaches you the business. You learn the tenants, the maintenance, the systems, and the numbers. Third-party management lets you focus on strategy and scaling.
If you hire a property management company, you still need to manage the manager. You do that by watching the numbers, paying attention to systems, and looking for clear warning signs.
Here are ten property management red flags every multifamily owner should know.
Red Flags That Hurt Your Multifamily Performance
- Excessive or Misaligned Fees
When you sign a management agreement, the management fee is usually based on gross collected income. It can include rents and other income like application fees, pet fees, and laundry. Security deposits are not income and should never be included in the calculation.
Security deposits belong to the tenant and should sit in a separate escrow account. If your management company tries to count deposits as income or tries to charge a fee on uncollected rent, that is a major red flag. Only let them bill on rent that is actually collected. - Lack of Income Growth
Many owners watch occupancy but ignore income growth. Your job is to keep rents at or near market. Ask your management company for rent comps and compare your property to the competition. If you are below market, work with them on a plan to raise rents responsibly and explore other revenue streams. - Hidden Listing Clauses
Some management contracts include a clause that gives the management company the exclusive right to list the property if you sell. If you are not comfortable with them as your listing agent, have that language removed. You want the flexibility to choose who sells your asset. - Negative Feedback From Tenants
Tenant feedback is a powerful tool. Most Management Softwares have this ability built in on an automation. On smaller portfolios, you can mail surveys with a self-addressed stamped envelope so tenants can respond easily. Customers are far more likely to tell you when you are doing a bad job than when you are doing a good one. Surveys help you see how the management company is performing on service, response time, and communication. - Getting Charged for Fake or Questionable Repairs
Require three bids for any repair over an agreed amount, such as $500. Ask your manager to get your approval before they proceed. Spot-check the two losing bids to confirm they are real companies. Require before-and-after photos of the work. This protects you from inflated or fictitious repair charges. - The “Empty” Apartment That Might Not Be Empty
If the same unit is listed as vacant on the rent roll for several months, dig deeper. In rare cases, a tenant may be paying the manager off the books. Do a surprise inspection or talk to the neighbor. Check utility usage. Property management software can show how long the unit has been “vacant” and whether it is being marketed.
How Professional Software and Systems Protect Your Property
- No Professional Property Management Software
A professional management company should not be running your asset off spreadsheets and guesswork. They should use cloud-based software so you can see performance in real time. Platforms like AppFolio, Yardi, Buildium, Resman, and Entrata allow you to access financials quickly and track trends.
Accurate, up-to-date financials are the only way to analyze performance, spot problems early, and be proactive. If you want to refinance or sell, clean reports make it simple to respond to lender and buyer requests. You will also want to confirm whether or not the software they use has the ability to run both Cash and Accrual Basis when generating reports.
Many software platforms also offer benefits like discounted application processing, renters insurance, and online payment options. Ask what your manager’s system provides.
- Unaddressed Maintenance Requests
Property management software should also track maintenance requests. You want to see how quickly new requests are entered, how long they sit open, and when they are completed. The number one reason tenants do not renew is poor service. Staying on top of maintenance reduces turnover, which is one of your biggest expenses. - Slow Rent Collection
Your management company should send a weekly rent collection report. By the second week of the month, 90–95 percent of rent should be collected in a stable, well-managed asset. If they consistently miss that mark, it may be a sign of poor screening, weak follow-up, or unhappy tenants who are less motivated to pay. - Slow Unit Turns
When a tenant moves out, turning the unit should be a priority. A normal turn without major repairs should take about 3-5 days. You never want to show a dirty or unready apartment. Every day a unit sits vacant, you lose revenue. If rent is $1200 per month, that is about $40 per day or $280 a week. Fast, clean and quality turns matter.
Decide If You Have the Right Property Management Company
Your task as an owner is to decide whether you will self-manage or hire a property management company. If you hire one, take time to interview at least three companies. Read the contract carefully, verify required licenses and ask to interview other current clientele. Ask about systems, software, reporting, fees, and staffing.
The Manage Right portion of the framework is crucial to the success of your asset. When you manage right, you protect your income, your tenants, and the long-term value of your property.
If you need help evaluating whether to self-manage or hire a manager for your multifamily property, continue educating yourself, talk to other owners, and build relationships with operators who are already doing what you want to do.
