Property Management – Sherman Oaks

The pros and cons of using a property manager for a rental apartment

A call came in from my manager to discuss the new tenants who had just moved in. We already proactively had performed many repairs to ready the apartment, but the tenants had further demands. It’s the double-edged sword for the landlord:  Once you’re charging sky-high rents, your tenants expect first-class service.

That’s where my manager comes in.

If there is one particular aspect of my experience as a landlord that I definitely would not recommend to anyone, it is doing it from more than 1,500 miles away. I moved my family to Denver for my job with a telecommunications company more than 10 years ago, and despite the distance we have held onto our Dupont Circle rental apartment.
Kitchen at Douglas Hsiao’s apartment (Photo by Douglas Hsiao)

The primary problem with being a long-distance landlord is managing the apartment.  And I was never good at it to begin with, even when we lived nearby.  When I started out as a landlord, I generally left maintenance entirely to the tenants, despite the fact that I lived only a few miles away in Chevy Chase.  If there was a broken HVAC unit, I told the tenants to get it fixed and I would pay them back. I was very naive, but the tenants (who were fellow attorneys at my firm) were perhaps just as naive, so they didn’t know any better that I was completely falling down on the job as their landlord (or at least were too nice to say anything about it).  My attitude — for right or wrong — was that I was providing a very good deal on the rent to a colleague, so I couldn’t be bothered to perform my duties as one would in a business relationship.   Of course, this attitude wouldn’t fly when I started renting to strangers and even less so when we moved to Denver.

So we contracted with a real estate management company.  I don’t even recall how I found them but they seemed professional, had a nice Web site, and catered to a numerous international clientele, who are from Washington’s many embassies and NGOs like the World Bank. With a staff of four or five, they were big enough to give 24-hour service but small enough that they could provide personal attention to me.

We negotiated a deal where they take approximately 5 percent of the rent for managing the property and get a commission of one month’s rent as a leasing agent for the property.  As part of their services, they vet tenants, collect rent, send me an accounting and deposit whatever is left over after expenses into my accounts.
Living room at Douglas Hsiao’s apartment (Photo by Douglas Hsiao)

After so many years of using them, I trust their judgment implicitly.  They have carte blanche to do any work on the apartment that costs less than $500, but anything above that requires my approval.  When the plumbing backs up or the condominium association has a noise complaint, I expect that the manager will take care of it, and I will be blissfully unaware of such day-to-day problems.

Having a manager doesn’t mean that I don’t exercise my independent judgment, however.  While I seek their advice, I choose who the tenants are, what rent to charge, and how much to spend on major repairs.

For example, when it comes to setting rent for a new tenant or a renewal, I tend to push a higher figure than the manager.  I probably should trust her sense of the D.C. rental market more — after all, I’m the one 1,500 miles away — but I always suspect that she is discounting the rent.

Part of my suspicion is rooted in research about how sales commissions affect economic behavior.  I am a big fan of the University of Chicago economist Steven Levitt, co-author of “Freakanomics” and I recall a chapter of the book about how real estate agents have incentives that may work against their client’s interests.

Levitt showed empirically that real estate agents, in subtle ways, obtain lower prices when negotiating the sale of a client’s home than when they are selling their own home, because the incremental increase in a sales commission in obtaining a higher price is outweighed by the agent’s incentive to get the certain, quick deal at a lower price.   In the same way, my agent encourages me to set rent five to 10 percent lower than I want because, subconsciously at least, she knows that a lower rent will result in a faster, easier transaction and will only make a small difference to her commission.

Conversely, I’m a cheapskate when it comes to upgrading the apartment, and with the new tenancy, my  nature was putting my manager in a difficult spot.   Before the tenants moved in, I had already decided to make several changes — a new microwave oven, reglazing  the bathtub and a fresh coat of paint.  But rather than the pat on the back that I felt I deserved, the tenants had a punch list of other items, none of which was major (e.g., fixing the window latches, replacing a closet door) but, taken together, added up to more than $2,000.  I balked at doing all these repairs.

The business case was hard to swallow:  With the addition of the manager’s commission, the additional cost of repairs would mean that I would get no income from the apartment for three full months, and I would have to cover the mortgage and condominium fees out of my own pocket.

But this is where having a long relationship between landlord and manager really pays off.  My manager knew from experience that with a little bit of coaxing over the telephone and a naked appeal to my generosity, she could talk me back from the ledge. She told me that she had met personally with the tenants. She emphasized what a pleasant couple they were, how appreciative they were of the renting the apartment, and how there were just these few little things that would make their experience perfect.

Stepping back, I could see exactly what levers she was pulling, but, even so, when I hung up the telephone, I’d given her approval for every item on the punch list. She’d earned her commission.

By Douglas Hsiao

A Colorado-based lawyer, Douglas Hsiao has rented out his Dupont Circle condo for 18 years. In his occasional column, he details his experiences as a long-distance landlord.

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