Real estate investors interested in building wealth by acquiring property and holding for long-term rentals will be well served to find a good property manager. But with hundreds of management companies out there, how to find the good ones?
If you are just starting out and only have a few properties, you may want to manage them yourself, at least for a while. This is a great way to learn what potential issues can arise and how they can best be fixed. As your portfolio of properties grows and you begin investing outside of your local area however, you will want to have a method for finding and retaining good property managers. Finding a good property manager is not always easy. The barrier to entry is low. Everyone thinks they can be a property manager. Many people think the job is easy money. I’ve worked with a lot of property management companies over the years, and I’ve found that it is worth taking the time to find the right one. If you don’t, you’ll end up spending as much time managing your property manager as you would have spent managing your property if you’d done it yourself. To help you find the best property manager out there, I’ve come up with a list of 20 questions to ask. Use them all or pick and choose to fit your situation.
Questions to Ask Property Management Companies
- What are your fees? Do you charge a flat fee or a percent of rent?
Seven to twelve percent of rent is typical, but you may be able to negotiate a lower percentage depending on the circumstances. For example, if they will be managing multiple properties for you, they may cut you a deal.
- Do you have references?
Get references of both current and former clients, and call them all. Search the internet for reviews. Ask around.
- How many properties are you managing? Do you manage both short-term and long-term rentals?
These days, many property managers are involved with managing short-term rentals through sites like Airbnb and VRBO. Short-term rentals are a different business and can take up a lot of a property manager’s time. Make sure they have the time to focus on your long-term rentals.
- How long have you been in business?
You want to make sure they’ve been in business long enough to have a track record and evidence they plan to stick around.
- How many people work for your company, and what are their roles?
You want to know who is taking care of business behind the scenes. If your contact leaves or goes on holiday, you want to know who to contact. You also want to get a sense of the infrastructure. Are they trying to do everything themselves, or do they have a support staff?
- Do you have electronic and automated systems set up?
These days, property managers should have client portals and electronic payment systems set up for convenience and record keeping. For example, is there an online portal where you can go to generate reports and see property accounts in real time (instead of waiting weeks for a monthly report)?
- How often do you check in on tenants and properties? Do you do an annual walk-through?
A good property manager will check in with the property and tenants even if they haven’t heard from them. Some tenants won’t report needed repairs and damage leaving you and the property manager in the dark. You don’t want to find an unpleasant surprise when the tenant moves out.
- Who keeps the damage deposits?
Don’t let the property manager keep them. While most people are honest and trustworthy, I did have a property manager steal the tenant damage deposits, which ended up costing us a lot of money to replace the deposits!
- What financial institution do you use?
Try to get the management company to work with a bank account at yourfinancial institution instead of letting them put rent receipts in to their own account. This usually only works with larger properties and portfolios though.
- What do you charge for evictions?
Hopefully this never comes up, but it is better to know upfront than to be surprised if an eviction is necessary.
- Will you advertise and show a property while it is occupied, or do you insist on properties being vacant before you will start advertising them for rent?
If the latter is true, this will lead to 1–2 months of lost rent every time a tenant switch happens.
- How long does it take you to turn a property around in between tenants? Can you do it in 24 hours or does the owner have to lose weeks to a month of rent every time a tenant change occurs?
Questions to Ask About Tenants
- Do you conduct credit and criminal background checks on prospective tenants?
This is easy to do these days and a must.
- What is your philosophy on tenant selection, getting properties rented? Do you try to get top dollar and raise rents aggressively or do you prefer more of a value play?
The rent amount is ultimately the owner’s decision, but if your property is outside of your local area, you will most likely rely on your property manager to know the market. It is beneficial if you and your property manager have similar philosophies on tenant selection and where to set the rental amount.
- Do you take photos of the property before and after move in and out?
They should, and this is easy to do. Documentation of the property condition is critical should any disputes arise.
- Do you offer a tenant placement guarantee?
If the tenant is evicted or moves out before the lease term is up, will the property manager find a new tenant for free?
Questions to Ask About Repairs
- How do you handle tenant calls for repairs? Do you try to solve the problem before sending out a repair person?
I’ve found that often the problem can be handled by asking a few questions and the tenant doing a few easy tasks. This can end up saving a lot on unnecessary repair expenses.
- Do you establish a threshold $ amount on repairs above which you always call owner? If so, what is that dollar amount?
- Who do you use for repairs? Electrical, plumbing, appliances?
Do they have a handy man that they try to use for most repairs or do they use outside vendors? If they have a skilled handy man you may get quality work for less.
- What is your philosophy on repairs and replacement?
Do they try to find the least-expensive solution since this is a rental, or do they prefer a value solution so the repair or replacement will last? Different owners and property managers have different approaches. You want to find a property manager that shares your same philosophy.
I’ve found that maintenance costs are THE biggest problem with outside managers. One thing to delve into when interviewing prospective property managers is how their company treats maintenance. Do they treat maintenance like a profit center, or do they just pass along costs they get from outside vendors to owners? Management companies that treat maintenance as a profit center (either by marking up third-party bills or by employing their own people and then billing owners at a higher hourly rate) generally have higher maintenance costs. This can kill your profitability so watch out for this.
There are some great property managers out there and they can provide a valuable service to you, particularly as your portfolio grows and you expand beyond your local area. Before hiring, spend some time, do your research, talk to others and then conduct a thorough interview before making your final selection.