Another Problem with Investing in 4-plexes in Austin
Today I received a call from an out-of-town Austin 4-plex owner looking for his 4th property manager in 2 years. When I receive calls from Austin 4-plex owners looking for a property manager, I tell them 2 things:
1) I don’t manage 4-plexes. Period.
2) None of the good property managers that I personally I know in Austin are taking 4-plexes for management.
He railed on about his current and 2 former property managers, telling me things I’ve heard before. They don’t get the properties rented. They spend too much money on maintenance and repairs. They seem disorganized and not on top of things. Don’t return phone calls. And on and on.
It occurred to me that his property, located in a rough area even by 4-plex standards, attracts not only low-end tenants, but low-end property managers. What would motivate a property manager in Austin to take a new property management listing that is guaranteed to cause trouble and headaches and pay very little in management fees? Either they are desperate for new business (not a good sign) or they haven’t been around long enough to know any better (also not a good sign).
To be fair, just because a property manager would manage a 4-plex, or does currently, it doesn’t mean that property manager is not an excellent one. It could also be that they’re loyal to long term clients and have managed the properties for a long time. Or a multi-property client may have several great properties, and one 4-plex, in which case the property manager might grit his teeth and take it on as a favor more than anything else.
In the year 2000, I dumped 25 of the 28 4-plexes that I managed. These were 100 units of never-ending problems and headaches. That was a great day. The other three I kept out of loyalty to those long-term clients until they eventually sold. What prompted this purging was that one day I finally put my entire property management portfolio of almost 250 units into an excel spreadsheet and rated them as A, B, or C properties (C being the worst) and created a grid measuring management fee income against a “hassle” factor (“A” properties being low hassle and “C” properties being high hassle).
The result was something I already knew intuitively, but seeing it in black and white was a stark and sobering picture. The 4-plexes represented 45% of our managed units, but they created 80% of the work while generating only 32% of the management fee income. Interestingly, those property owners were also the most bothersome and difficult to deal with, just like their tenants.
The decision to drop those properties was a no-brainer and I had the letters in the mail the next day. Two months later, when they were finally all gone, I felt like I was working part-time all of a sudden as my work load suddenly plunged.
Today in Austin, as most good property managers have more new business than they can handle, this leaves the 4-plex owners having to look hard to find someone to handle that type of rental property. So, to one of my first rules about purchasing rental property in Austin, I’ll add a companion rule.
Rule 1: Purchase a rental property that will attract good, qualified tenants.
Rule 1a: Purchase a rental property that will attract good, qualified property managers.