Before we start here, we want to say that what lies ahead may be controversial.
In fact, we want to talk about something most property managers refuse to discuss in public. We want to talk about the different landlord types we come across and grade them from good to bad.
Like we said, it’s controversial.
I mean, why would we, as property managers, risk offending an entire cross-section of landlords? How is this good for us when our business is working with landlords to look after their rental properties?
Well, some things need saying, and we’re not the first. In fact, the reason for this whole topic is because of a video we were watching.
Anyone who’s interested in property management could do worse than check out a company called Holton-Wise.
Holton-Wise is a property management company based in Cleveland, Ohio, and these guys are good. They know property management inside out. If any reader has a rental property in Northern Ohio, we’d recommend Holton-Wise for you without hesitation.
And they also have a damn good YouTube channel, full of interesting videos and info.
The name of the particular video that sparked this blog post is Slumlord vs. Good Landlord and it features Holton-Wise’s James Wise and Brad Larsen, the founder of Rentwerx, another solid property management company in San Antonio, Texas.
Brad also heads up Property Management Mastermind, a site everyone in the business should check out.
In Slumlord vs. Good Landlord, James and Brad talk about bad landlords and what separates them from the good ones out there.
The origin of their chat came from an article Brad wrote called C-Class Landlord, where he separates landlords of rental homes into three grades, A-Class, B-Class, and C-Class, and invites the reader to determine which grade they are.
It’s a compelling topic, and we decided we’d like to discuss Brad’s landlord grades as we understand them ourselves here at GTL Real Estate.
As mentioned, many property managers balk at labeling their landlord clients for fear of causing offense.
Like James and Brad, we reckon not talking about this does landlords a disservice in the long run. We consider it imperative to talk about this in the open, as we see so many landlords making huge mistakes in how they deal with their property management company, their rental properties, and their tenants.
These mistakes end up costing landlords a lot of money, even though they might think they’re saving money.
We’re in the business of helping our landlords to save money, time, and stress.
So if we can achieve that by grading landlords into different categories and inspiring them to become better, that’s all good. If we’ve helped a C-Class landlord become a B-Class landlord and then a B-Class landlord reach A-Class status, we’re happy.
Brad Larsen’s grading system is like when you were at school. A-Class is the best, and C-Class is the worst. We’re not talking rocket science here.
So what makes an A-Class landlord? What makes these guys stand out from their peers and allow us property management companies to give them the top grade?
Well, it’s simple. Again – not rocket science.
An A-Class landlord treats his property like a business. Not his home. Not his hobby. But his business. Pure and simple. He knows his rental property is an investment, and he hires the best property manager he can, and he doesn’t interfere with them.
Much like he hires a financial adviser to look after his investment portfolio and doesn’t interfere with their work, an A-Class landlord knows the value of hiring experts and letting them do their jobs. He knows the value of listening to said experts and taking their advice. It’s as simple as that.
Your A-Class landlord realizes his property manager knows more about managing property than he does. And he lets them get on with it.
By trusting his property manager and knowing his experience in property management is more extensive than his will ever be, the A-Class landlord will end up seeing a much better return on his property than he would otherwise. Just like he would when he leaves his investment portfolio to an experienced money manager.
You want to be this landlord.
You want to be a passive investor, not at all involved in the daily running of your property because you have an expert looking after it for you. An expert with your best interest at heart.
Sure, you might pay a little more for your property manager than you would by scraping around the bargain-basement guys, but you know that quality costs more, and you get what you pay for.
As an A-Class landlord, you also understand that by being passive and hands-off with your rental property, you have more time to focus on accumulating more investments to make more money.
What about B-Class landlords?
Well, it shouldn’t come as too much of a surprise to realize a B-Class landlord lies between A-Class and C-Class (duh – say it ain’t so!). If A-Class is the best and C-Class is the worst, then B-Class is right there in the middle.
Let’s see if you fall into this category or not.
If you’re a B-Class landlord, you’re generally a decent landlord. But you’re making some mistakes, which we’d like to help you rectify.
The first mistake a B-Class landlord will make is to keep looking for the cheaper property management companies or try to wangle deep discounts. A B-Class landlord hasn’t quite grasped the lesson about quality and getting what you pay for like his A-Class friend has.
The B-Class landlord will get involved in his property too much, hassling his property manager over repairs or trying to get exceptions made. This is not being a passive landlord and in the long run does not work out well.
A landlord who shops around to get that one or two percent-cheaper management fee ends up with a less experienced, less capable property manager. This means their property will be vacant more often and they won’t get the rent increases on renewals they would have gotten with a top quality property manager. A cheaper, sub-standard property manager will also not keep tenants as happy as they could, meaning more turnover.
All this will end up costing a fortune, just for the sake of saving a percent or two costing around the same as a Netflix subscription.
This is the main difference between A-Class and B-Class.
But there are other differences too. A B-Class landlord speciality is hassling your property manager over repairs.
Believe us when we say that as property managers, we dislike nothing more than having to do repairs. Repairs to a rental property are about the most time consuming pain in this business. We don’t do repairs for no reason, and if we could get away with never having to coordinate repairs again in our lives, we would.
Every property manager in the world would agree with us here.
But when a tenant requests repairs, we need to look, and if necessary, carry them out. This is how we keep tenants happy and how we keep them renewing their leases and staying in your property.
Ignoring a tenant’s request for repairs is the fastest way for them to move out and leave you with an empty property.
And nothing costs you more money than tenant turnover. We’ll repeat that. Nothing costs you, the landlord, more money than tenant turnover.
If your tenants end up leaving because you’re bilking on repairs and hassling the property manager about doing those repairs, then you’re making a major error that keeps you from graduating to A-Class landlord status.
An A-Class landlord understands repairs are inevitable, and he lets the property manager carry them out when needed, thus keeping the tenants happy and paying their rent. To move from B-Class to A-Class, you need to realize the same.
Plus keeping up to date on repairs also preserves the value of your property if you want to sell it sometime down the road. Allow the property manager do repairs when needed, without interference, and everyone will save time and money.
Then you get those landlords who keep trying to get their property manager to make exceptions for them. This is another textbook B-Class error.
It goes back to not interfering. A good property manager operates in a certain way for a reason. Because how they do things work, based on their extensive experience – years, decades, even – looking after rental properties.
If you ask a property manager to deviate from their established, proven way of doing things, it never ends well. You’re asking them to operate in a sub-optimal way, a way the property manager knows won’t work, and this will cost money.
Let a property manager do their job according to the best processes and procedures they have established through sheer experience and don’t deviate from the norm because your circumstances or your property is different. Trust us when we say with the greatest respect, that your property is no different and your tenants are no different to anything we’ve dealt with before.
We’re doing in this way because it works. Again, another thing the A-Class landlord gets and a B-Class landlord still needs to learn.
Now, despite what we’ve said here about B-Class landlords, we realize the vast majority of them are decent clients. We know their faults, especially the ones mentioned here, are more about inexperience and ignorance than willful neglect.
Most B-Class landlords we’ve seen are eager to learn and most of them do and end up becoming A-Class landlords. So don’t despair if you recognize yourself as a B-Class landlord. We can help you become A-Class in no time, which will end up making you more money down the line, we promise!
Which brings us to the C-Class landlord.
We’re using the C-Class moniker here because of Brad Larsen’s grading system, but we’d rather call a C-Class landlord F-Class. Because a C-Class landlord is failing in every single way and is losing money hand over fist.
Another word for a C-Class landlord is a slumlord, and you’ve heard that expression before. A slumlord (or C-Class landlord) is the worst type of landlord and gives everyone in this industry a bad name.
He refuses to do repairs on his properties, or if he does, he wants to do them himself or use his cousin Eddie, a guy with no experience, license, or insurance. You get the picture. You recognize this guy. We hope you’re not this guy.
A C-Class landlord, despite refusing to do any repairs, will tell his property manager to charge rent above the market rate. He’ll hassle his property manager over the way he operates, insisting he knows best and he should do things his way.
He’ll haggle the property manager down to the minimal fee, ensuring that he’ll only ever get the most inexperienced, bargain-basement property managers out there. And even then, that inexperienced property manager will end up wondering if it’s worth working with this jerk for the tiny amount of commission he’s receiving.
I mean, if the worst property manager in town doesn’t even want your business, you’re not getting a good service from him, right?
So your C-Class landlord isn’t looking for quality and experience from his property manager. He’s looking for cheap. He’s looking for someone he can dominate. And when his cheap, inexperienced property manager who doesn’t know what he’s doing falls short, he gets that opportunity to bully, dominate, and micro-manage.
This is not a good situation. No-one’s making money this way.
And while the C-Class landlord is whining and complaining and micro-managing his property manager, his rental property is in a state of continual decline and disarray because he doesn’t want to pay for repairs. This limits his ability to hold on to tenants, who want to get the hell out ASAP once they realize what kind of place they’re living in.
The C-Class landlord can’t see the forest for the trees. He’ll pat himself on the back for saving money on repairs and on hiring cheap property managers while not realizing how much more money his behavior is costing him in the long run.
After a while it’s inevitable that even the cheap, bargain-basement property manager he hires will get sick of dealing with a slumlord. And then it’s back on the roundabout again looking for someone else to hassle, nickel-and-dime, and dominate.
Do not be a C-Class landlord.
If you’re a C-Class landlord, understand that experienced property managers will refuse to do business with you from the get-go once they figure out what type of landlord you are. And we’ll figure it out fast, we promise, either before you’ve signed with us or not long after. We’ll have no problem ending your contract because, to be honest, we don’t need the hassle.
No quality, experienced property manager in the country needs business from a C-Class slumlord.
We’re not that desperate and we need not compete on price because we’re providing a quality service and get most of our business from referrals.
We know what works for us, our clients, and our clients’ tenants, and we’re not prepared to put up with the crap a C-Class slumlord brings to the table. And we won’t put up with slumlords yelling at us for fixing an A/C unit in a property when it’s 95 degrees outside. Not today, not tomorrow, never.
If this C-Class landlord is you, and you’re doing all the things we’ve mentioned here, understand you’re only ensuring you’ll never work with an experienced, quality property manager unless you wise up. Being honest, we don’t need or want to deal with you.
Now we have our three grades of landlords, what else are we saying to you here?
Are we saying you should only go for the most expensive property management companies in your city and follow their methods, without question?
Of course not. We’re not saying that at all.
What we’re saying is when you’re looking for a property manager, you want to get the most quality and experience for the price you’re paying. So ask them why they’re more expensive than their competitor. It’s a simple question and a quality property manager will answer it with ease.
They should explain what sets them apart from their competitors, in terms of length of time in business, the number of properties they manage, and their procedures. If they can’t easily explain why they’re more expensive, don’t use them.
It’s worth noting too that a quality property manager who charges a 10% management fee rather than the 7% his cheaper competitor charges, will return you ten times that amount of money by ensuring your property rents quicker to better tenants who stay longer.
And like we said earlier, that couple of percentage points usually costs around the same as your Netflix subscription. You’ll make more money back than that through the rent increase he’ll get you on the lease renewal with a happy, satisfied tenant.
The A-Class landlord understands all this while the C-Class landlord refuses to understand or accept or adapt. And you know which one is losing money every year. Meanwhile, the B-Class landlord is open-minded and learning.
So if you’re an A-Class landlord, or a B-Class landlord looking to become A-Class, we’d love to chat with you.
Please contact us to chat about your property and how we can help you get the best return on your investment. We look forward to working with you.
But if you’re a C-Class landlord, a slumlord even, don’t bother talking to us. We have nothing for you so please move along to our cheaper competitors. We’re not a good fit for you.
As always, if you have questions about the property management business and rental properties, please contact us at firstname.lastname@example.org.
Until next time.