Management Companies

This chapter is of vital importance if you want to avoid an unpleasant vacation home ownership experience. Management companies can make your life wonderful or miserable. Rest assured that there are many income producing holiday homeowners purchasing additional properties because of the excellent, hassle-free return on investment they realize, as well as the great personal enjoyment they experience. Conversely, there are also the unfortunate families who regret the day they ever considered buying. This polarity of experiences exists with practically every investment opportunity. So is it luck or wisdom that determines the future for each purchaser? Luck certainly does not hurt, but knowledge is the "not so secret ingredient" of wisdom.

Because it is no secret, let's list some of the things we know about management companies, and those things of which a buyer should beware. Don't let this list scare you. If I listed the things to be aware of before getting a drivers license, no one who read it would be on the highway!

1. Management companies have no state or federal regulatory bodies. Be certain you do your homework thoroughly before contracting home management.
2. There are many program choices from dozens of management companies. Each program has associated charges and fees. Shop for the best offer.
3. Although management companies take care of the details for their clients, ultimately, the homeowner is responsible for everything. Be sure that the taxes are paid and that the necessary permitting is maintained.
4. Only the items written into a signed management contract are legally enforceable. Make sure that the company's responsibilities and associated fees are clearly spelled out.
5. In order to avoid liability, most Realtors, agents, and developers remain neutral about recommending, or commenting on, a specific management company. They will usually offer a list of several companies for you to research. Compare them in order to find the best fit for you.
6. There are companies that offer enticing management programs in order to reap their true objective: the up-front sales commission profit. Research their reputation if a deal sounds almost too good to be true.
7. There are constantly evolving laws that require specific signage, such as safety warnings, to be posted on a short-term rental property. Although your management company will probably be on top of it, you are responsible for your business. Periodically ask your management company, or check with the state, to see if there are any new requirements. Confirm that every notice required is posted.

Because there are no regulations governing management companies, there are people who offer management services who should not be in the business. Time will undoubtedly show them the way to another vocation; however, their inept efforts will leave a wake of holiday homeowners proclaiming that the industry is a rip-off. Those homeowners who selected poor management companies will usually not take responsibility for their lack of wisdom, content to blame someone else for their misfortune. In some cases, they did do their homework and thoroughly checked out the company. Their bad experience could have been an unfortunate event. But, more often than not, a buyer's naivety or excitement about the purchase overrode their usual caution and common sense. When there are no regulations, you can be sure that there are predator types that will exploit a buyer.

Here are some tips regarding the investigation of a management company:

1. Check with the Better Business Bureau to make sure that the management company is a member. Confirm that they do not have a list of complaints.
2. Ask the company for several clients you can interview. Naturally, they will only give you names of satisfied owners, but the point of this request is to make sure they at least have some of those. If they have none, move on to another company.
3. Ask the company for a complete list of all expenses (start-up and monthly). They should also be able to provide an example of income versus expenses, projected over a year.
4. Find out how the company will verify to you, in a timely fashion, the payment of state taxes and the procurement of all necessary licenses / permits. You may prefer to select a management company that will allow you to send those payments yourself.
5. Ask what signs and notifications are required to be posted in the home and then verify the information with the state regulatory agency (the Florida Division of Hotels and Motels is a good place to start).

You should also talk to people who already live in the communities. Ask them to tell you what they know about management companies. They are the ones that have the experience and know what has been happening. Homeowners will give you an unbiased opinion. However, you may not necessarily want to act on the information you get unless you hear it from more than one individual. Also, communicate with other homeowners who solicit bookings on the web to get their input.

Thoroughly investigate companies offering a "guaranteed income" management program. Some of those companies may be able to continually honor their agreement to pay, but others may miscalculate their home rental marketing abilities and fail to honor their commitment.
Almost every management contract has an "out clause" that provides a 30 to 90 day notice of cancellation for both the client and the management company. That means that any management contract is only good for the stated length of time (30 to 90 days) once cancellation notice is given. Management companies are not going to place themselves in the position to take a loss. The contract is only as good as the company that wrote it. The nice part about the cancellation clause is that it also gives you an out.

Be cautious with the companies that require the use of their real estate services in order to have the privilege of being enrolled in their management program. Once they collect the up-front real estate commission, some may not provide the quality service you had expected. Certainly there are good, and even great, management companies. Most of the good ones that have attractive programs will also wisely ask you to use their realty services. After all, they want as much business as they can get. Just stay smart, do your homework and find out which companies are first-rate. And always use your common sense.

©2007 Vacation Capital Real Estate, Inc.

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