Sunday, June 1, 2014

Fixing some things that are broken

When Nightingale moved in with me, she hired a guy to find her a tenant for her condo and manage the place on her behalf.  This Property Manager  (Captain Ahab) owned several units in her condo building and was on the condo board for many years.  It made sense to offload this job to him because he had the experience and bandwidth to deal with issues and would be a shield between us and the tenant.

When we bought our house it made sense to let him do the same for me, even though my condo was not the same type of building as Nightingale's in the south loop.  Her's is a high rise building with hundreds of unit and indoor parking and a management company; mine is a simple 14 unit self managed building.

Two flags immediately came to light that I overrode my natural tendency to say "fuck off" on.  First, my next door neighbor had suggested her sister might want to rent my place.  I told Captain Ahab that we might have an easy renter and he still wanted to collect a Finders Fee even though I would technically be the one who found the renter.  I let this pass because she never called me to follow up.  The second flag was his Exclusive Contract. There is a clause that essentially says if a renter decides they want to buy the place at some future point, Captain Ahab gets 6% commission.  I asked him about this and he said while it has never happened in the time he has done this, he wasn't going to take it out because it is Standard.  This pissed me off more because it's not like he is doing anything to persuade the renter to become a buyer.  He is simply riding the curtails of entropy and if he would have even admitted that I would have been less annoyed.  Remember Captain Ahab is a business entity with its own goals, which may only tangentially align with  mine.  Nightingale said "what are the odds" and so I begrudgingly signed the agreement.

I knew going in that his business model was basically do some work up front to get a tenant and then sit back and collect 10% of the rent each month in exchange for holding the money and also dealing with any issues, which if you get a good tenant is usually minimized.  We didn't have a good first tenant and so the Captain earned his pay quickly.  But the 2nd tenant was very quiet and we hardly heard from her, except when an appliance broke.

Captain Ahab simply hired people to go over and fix the problem and passed along the bill to me.  Unfortunately he hired people in the burbs who charged travel time.  This bothered me because I'm already operating at a loss.  So basically I got more involved with my tenants issues over the last few months.  Hence, there is no need to keep paying a guy simply to collect the rent, skim 10% off the top and then send me the rest.  In hindsight we should have modified our arrangement to 5% or just used him to find a tenant and managed the place myself. 

Eventually I told Captain Ahab that I needed him to end our arrangement of him being property manager. 
So I let him go.He was fine with this understanding that I am losing money each month and that we are in no position to recoup this through rent increases.He even offered to waive his 30 days notice clause.  I declined since he's held up his part of the contract and didn't want to risk any issues later down the road.

Because of our two rental properties, there was no realistic way Nightingale and I could do our own taxes without having to learn more about the tax code than we want.  It made sense to farm that out to  a professional.   And the guy is whip smart and very experienced...and costly.  I don't mind that.  What I mind is that instead of advising us on how to reduce our tax burden, he makes statements like "not too bad, could have been worse."  Thanks Captain Obvious!  Well you only lost one leg to polio, could have been both!

For some reason, we have not been able to deduct our losses from our rental units.  CPA guy told us it was because we made too much money. Ahab said this didn't sound right and that he has been able to deduct all his losses.  He naturally offered His Guy to take a look if I wanted.

The problem is His Guy isn't going to do this for free.  So imagine I pay a few hundred dollars for
piece of mind and find out that he is doing his job correctly. Or I find out that he did take a minor short cut and could have saved me a couple hundred dollars, which I've now spent on His Guy to audit This Guy.  Remember, he doesn't get anything beyond what I pay him for doing my taxes so his only incentive is to do them quickly enough so that he makes more money on time saved versus Level of Effort.

The worse case scenario is that This Guy is totally taking short cuts and in doing so is screwing me out of tons of money. Then I have to hire a lawyer to go after him and then it becomes a wash anyway.

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