Hello and welcome!
My name is Zac and I am one of the co-owners & founders of Astro Property Management LLC, located in the beautiful city of Huntsville Alabama. Our property management (PM) company’s forte is managing single family homes (SFH) in Madison County Alabama; including the cities of Huntsville and Madison as well as the smaller towns throughout the area. Besides managing investment properties for our clients, we also help with the acquisition and liquidation processes involved in the investment life cycle. Now, I did not get started out in real estate as an agent or as a property manager. I started out, like many of you, as an investor that was looking to capitalize on cash flow (passive income) or appreciation as I pursued financial independence, a.k.a. financial freedom. Yet, through a series of fortunate events, my wife and I were able to partner up with the manager of the PM company handling our first unit and, along with her husband, start our own company. Together, we bought the former company’s management agreements (as the owner went into retirement) and Astro was born.
Entering the PM field as an investor, albeit a relatively new one, I brought with me all the research I had done from this perspective. Now, if you remember when you started looking into REI (real estate investment) then you may have some similar recollections to mine; and I clearly remember all of the mixed review, pros & cons, etc. other investors stated about property managers. It was many of these issues that helped me select the company I did for managing my property and it is these same issues that drive the way I analyze property management operations today. The former company appeared well aligned with my interest and goals in REI and, now that we are on the PM side, we continually strive to improve upon this alignment. Professional, licensed property managers are bound by the same fiduciary responsibilities that other real estate agents are when working with clients. This responsibility is to safeguard the interest of your client above all others, including one’s self, within the rules of law. It was through my own observations and analysis as an investor combined with the knowledge I gained as I entered the property management field and got my real estate agent’s license that brought forth my current understanding of how these responsibilities and business models interact, for better or worse.
When you hire someone who’s sole position is based around acting on your behalf you would expect that their interest would be aligned with yours; be it a lawyer, a financial advisor, or a property manager. However, what appeared to be the underlying theme for all the various ‘cons’ of PM was a counterintuitive alignment of interest and goals. At its simplest level one might think of the process as a partnership; that when one profits the other does as well. I doubt that anyone would jump to the conclusion that when their investment goes through a rough patch the partner would profit from this misfortune, but this is exactly what misalignment can lead to. Consider the various fees that people mention on forums and in person when discussing their property management situations. Obviously, the classic PM fee will be brought up and occasionally this alone is used as the selection criteria for management. This can be unfortunate since some other fees might go overlooked and can drastically change the total cost of management. For instance, should there be a fee or markup attached to repairs and maintenance (R&M) contemplate the alignment issues here. Is there an incentive to take the higher or lower bid? What’s best for your bottom line is not the most profitable route for the more short-sighted manager. Another example would be a vacancy fee, if you are paying a PM company to place a tenant in the unit and they are failing to do so why should you pay them for that as well? Lastly, the tenant placement fee, which I hear can easily range from half to a full month’s rent; where is the alignment in this fee structure? Lower turnover rates are great for the ROI and keep the cash flow moving over longer periods, but these placement fees are far higher than the monthly management fee of a unit that’s occupied. Financially, it appears the incentive here is to have higher turnover on one side in conflict with the owner’s needs. When all these other fees get tacked on it makes you wonder what’s actually covered by the management fee.
Alignment issues, such as those above, are the driving forces of our business philosophy. At Astro, we don’t want to just provide a service, instead we want to be a valued partner in your investment strategy. Our strategy forces us to evaluate every property brought for consideration like it’s our own investment. Should a property show it will have serious vacancy issues we can’t afford to add it to our portfolio; we can’t sit back and collect vacancy fees while our clients eat them and holding cost. The same goes for tenant placement fees and R&M markup fees. Greater vacancy equates to greater income loss for us, same as you, and passing on higher than necessary repair bills will not convince our clients to remain with us. That this approach is the only viable way to develop trusting and positive long-term business relationships, the type necessary for the success of both parties, seems obvious to us. This is why every property is thought of as our investment too; if we don’t think the property will turn a profit for you then it won’t turn one for us either. Simply designed and stated, our fee structure doesn’t allow us to profit at your expense; we would rather earn our keep. Only a short-term strategy can operate in misalignment, as it necessitates high client turnover. It is from partners sharing in the highs and, more importantly, also the lows that they come out on top in the end.