Top 10 Worst Property Management Mistakes

The question that will come to mind as you read about these property management mistakes will be: who does that?  The unfortunate answer is far too many people. Property owners and managers allow the following errors to occur all the time.

In the professional ranks, it's not a matter of knowing what to do. We are in an industry full of talented people, mostly. The sad storyline is when these mistakes are knowingly allowed to continue.  Sometimes these property management mistakes are willful; they just don't care.

Property Management Mistakes

People often ask me, "what is the number one thing to be aware of (fill in blank here) in real estate investing, residential property management, or homeownership?  My response often begins and ends with complacency.  Complacency kills NOI (net operating income)! And complacency can let a matter of public safety dwell unnecessarily.

When real estate owners or property managers get comfortable and begin to coast, it's probably time for them to move on. There is just too much at stake to take this responsibility lightly.  Allowing property management mistakes to persist from one month to the next is a clear sign of disinterest.

You wouldn't want your doctor to have this perspective.  Don't allow your property manager only to do half the job, either.

If there is a pattern of the following mistakes occurring on your property, it is probably time to seek new management, as current property management has taken their eye off the ball.  Replace them, first, to stop the damage and second to remedy the potential of ongoing issues and the financial and legal exposure they present.

Suffice to say these property management mistakes are all bad.  You can change the order around if you like. It will not make you feel any better to see them as “less bad.”

residential property management mistakes Broken Down House wrong way signs

Don't Make These Residential Property Management Mistakes!

1. Allowing a danger to public safety to persist.

A suspected electrical problem, known illegal drug use, endangerment of children, domestic abuse, violent behavior. There are no good choices here. All or any similar issues must be addressed in real-time once known. Frankly, this is not a “save yourself perspective.”  It’s a human decency act of kindness to report and remedy.  Doing so is an opportunity to arrest or eliminate pain, now and in the future. From: Kuharski, Levitz & Giovinazzo, Attorneys:

The most common apartment building safety hazards include:

  1. Poor lighting
  2. Bare, wet floors
  3. Ice and snow accumulation on outdoor steps and walkways
  4. Exposed wiring
  5. Loose or missing handrails on stairs

2. Creating, ignoring, or allowing fraudulent acts.

No one should be skimming off the top. Residential property management is a business.  If you cannot conduct business without a high level of integrity, then get out of the market, please. We thank you in advance for leaving. Diligence is equally, if not more important, for property management companies to protect assets under management from the fraudulent acts of tenants and potential tenants.

Ninety-five percent of property management companies have experienced fraud in the past two years, according to a new Forrester study commissioned by TransUnion. Eighty percent have experienced it more than 20 times. It’s running rampant, and the growing preference for online application processes only adds to the problem. TransUnion

3. Keeping a bad hire.

A bad hire is one of the worst property management mistakes made in-house. The primary reason is that it is difficult to view the entirety of the damage done; in relationships with your property owner clients, with tenants and vendors. Other than a fire or natural disasters, keeping a bad hire is one of the costliest mistakes. It is one thing to make a mistake, quite another to allow the error to persist and potentially cause more damage. At-will employment provides for a fast remedy to a wrong decision. Consistent communication with employees is paramount. The annual employee review is dead. Formal quarterly communication, or personnel reviews, is an improvement that allows for course correction in behavior, performance, and intended outcomes.

While there are many ways to calculate the cost of turnover (recruiting costs, training costs, severance, Etc.), I would argue that not firing a lousy employee far outweighs the turnover cost. The Balance Careers

4. Inadequate tenant screening (or no tenant screening).

Anymore, the expense of obtaining a background screening is inexpensive insurance. Having this tool available and failing to implement its use is trouble waiting to happen. We all have tenant screening standards, and no two are exactly alike. Tenant screening takes in a vast amount of data for consideration. Finding the balance for your assets requires time and testing, too tight, and no one qualifies, too loose, and everyone qualifies. Once your tenant screening standards are in place, use them, and do not deviate. If they are not working, evaluate, and change the criteria accordingly.

When a clear, concise, and legally permissible rental policy is available for applicants, they can decide before they apply whether your vacancy is a viable option. Clear policies protect you by setting out clear boundaries and communicate expectations to potential applicants (From Ten Tips for Finding Great Residents by Ryan Green).

5. Letting the water run.

Indoors. Outdoors. Running water is seldom positive. Find the pliers. Call the plumber, the roofer, the candlestick maker- whoever has the answer to get that water stopped.  Same day. Preferably the same hour. Age discrimination is not a good thing, but you have to give it to the old heads sometime. We had a building with a drip water leak FOREVER from a second-floor unit into the parking garage below. No one could find this thing. We eliminated ice makers, checked tubs and showers, inspected HVAC condensation lines. The old guy found it; it was a dishwasher leaking into the floor and carrying the water some 40 feet. Water uses gravity to annoy us all. The only way to fight back is to keep up the fight. The Culture of Safety provides the following Statistics:

  • Water damage is the second most frequently filed insurance claim in the United States
  • Water damage claims account for 11 billion dollars in damages annually
  • The average cost of a water damage claim is $5,000
  • Up to 93% of the cost of water damage could be prevented by using a shut-off system or water leak detection system
  • 8% of all water damage to buildings is due to weather

6. Allowing insurance to lapse.

'Enough said.  Murphy's Law lives here. My clients spend well over one million dollars a year in property insurance premiums. I have never heard, seen, or read about an insurance provider back-dating coverage after a filed claim where the premium was unpaid. There is no reason to think your insurance claim will be the first to cross over this line of non-payment of premium.

7. Ignoring maintenance calls.

News flash! Maintenance calls do not go away, no matter the day or week or weather.  The goodwill earned from addressing maintenance on time is hard to obtain and easy to lose. If residential property management you have hired doesn't care about your customers, who will?  The issue is performing the investigation – getting to the root cause of the call. A non-operable toilet in a one-bathroom apartment is a high priority, whereas a broken kitchen drawer is not.  Both incidents require the same level of initial investigation to ascertain the required immediacy and where the repair should be in the queue.

8. A passive view of lease renewals.

The number one objective of retaining a stable income stream is making sure your customers stay with a proactive renewal policy: no renewals policy and no steady income.

9. Lack of record keeping.

Uncle Sam eventually catches up, and when he does, it's like an ocean wave hitting a single piece of sand. Keep good records.  File tax documents on time using quality service providers.

10. Avoiding the telephone.

There are different policies regarding telephone etiquette and responsiveness. Implement a system and stick with it. Your customers and potential customers want consistency.   Having the attitude of  "they'll call back" is self-deception.  "They"  (prospective tenants) do not.  They talk to the next person that picks up the phone.

10(a).  Unavailability of Product (as commented by Vicki Sharp).  "Having empty units with none available to show is one of the seven deadly sins in property management. It's one thing to be momentarily out of units during make-ready "season."  Having zero units available for showings because of ____  (fill in the blank) means gross potential rent (GPR) just dropped like a rock.  Livable space is our product.  Having a comfortable space in ready condition for showings to potential paying customers is why property owners hire property managers.  Granted, this sets financial considerations aside.  To quote Malcolm X, "by any means possible," try to have one unit available at all times."

10(b). Lowering credit standards (as commented by Mark Dewey).  "Reducing credit qualification standards during the application process.  Yes, lowering credit standards will provide an immediate bump to occupancy but at too high a cost.  Reducing credit standards creates a "downward" spiral as collections and other similar activity increases.  Lowering credit standards increases the risk of rental revenue.  You are taking part in your limited inventory off-line.  With this strategy, over time, the average income per unit decreases".

10(C). Under-estimating preventative maintenance costs  (as commented by Terry Graves). You are underestimating the need to do your monthly and quarterly preventative maintenance.

Professionals in residential property management are aware of the items represented here and have these items top. Address these matters is mind and part of standard operating practices. Hiring professional property management is your best defense against lapses and these property management mistakes.  Doing so will drive revenue for successful operations. There are no shortcuts in rental property ownership. If you decide to look for plausible alternatives, stay clear, or removing professional management to save a buck. Doing so will only hasten the demise of your cash on hand.

John Wilhoit is the author of the best selling book on rent roll analysis: How to Read and Rent Roll. See also the companion guide to measuring the quality of rental income: Rent Roll Triangle.

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