By William Bronchick, Real Estate Coach
If you are in the real estate investing business, you have built up a portfolio of a few properties. So you’ve decided that you will hire a property manager. You have weighed the upside and the downside of doing so and have decided that it is in the best interest of your business to forge ahead. In business, we have to make a lot of choices, some small and some big. Hiring a property manager and trusting them with your portfolio is a big decision! If you haven’t decided yet whether you should hire a property manager please read our article on “Should I Use a Property Manager or Not?” on our legalwiz.com website to help you make a solid choice.
There are a lot of things to take into consideration when choosing a property manager. There are a lot of questions to ask. We’ll go into detail on considerations for choosing a property manager and the questions one needs to ask to make sure that both you and the management company are a good fit.
Type of Property Management Company
One of the first things you need to consider is the type of management company you will need for your real estate investing business. For example, do you own single-family homes, small multifamily, apartment houses, or commercial properties such as strip malls or office buildings? Some management companies specialize in one type of property and others are multi-faceted. Whatever company you choose it’s important that they can handle all your needs. In some cases, if your portfolio holds a lot of various types of properties you may have to choose more than one.
Check Them Out
It’s really important that you choose a property management company that not only provides the type of management that you need but also provides the various services that you need or want. One of the first steps in choosing the right property management company is checking out the company. We would suggest starting with an online search starting with the company’s website. We would also Google the company to see what comments have been posted by past and present clients. Understand that even the best of companies can’t possibly satisfy 100% of their clients but if there are numerous complaints and there seems to be some sort of a pattern- that could be an indication that you may want to look elsewhere or at least check out that company more in-depth.
When checking out a potential property management company we would request a list of current and past clients and get permission to contact them. We would ask questions of these folks such as what services were they provided, what their satisfaction level is/was with the company, have they had any problems in the past, and what items they would change about the company. For past clients we would ask why they currently aren’t working with that company and if they had issues that caused them to not continue to use them.
Interview More Than One Company
If you are hiring a new employee or screening a tenant for one of your rental properties, it is likely that you would interview more than one. As a matter of fact, you would probably interview several and pick the best. Choosing a property management company is no different.
Here a list of items to consider when interviewing a potential property management company:
- Number of Properties. How many properties are they currently managing and what types? How many staff do they have and what are their qualifications?
- Fees. What are their charges and what services they provide? Make sure you have a thorough understanding of what is and is not provided and what it costs.
- Repairs. How are repairs and maintenance handled? What are the associated costs? Do you have to use their contractors or can you use your own? How are repairs and maintenance items tracked and documented? What is their system for handling tenant complaints and repair issues?
- Evictions. How does the company handle evictions and what type of experience do they have? What is their protocol?
- Communications. How will the company correspond with you? We prefer e-mail but we also want the company to respond quickly to any phone calls that we might make to them. Your management style is also a factor. Some companies may be very good at what they do but they may not be a good match for your personality, business, and management style. This could lead to clashes in communication and in other areas that can greatly reduce the effectiveness of property management.
- Accounting. How is accounting done? Does the company use software that integrates easily with your company accounting software? How often will you receive income and expense statements? How quickly will you receive your checks each month? Timely accounting allows you to manage your business by knowing where you’re at financially at any point in time. Collecting checks from your management company on a specific date allows you to maintain and preserve cash flow.
- Eye on the Ball. How often do they physically visit the property? Personally, we would prefer that the property management company made regularly scheduled and documented visits to our properties. Please note that this does not free you from occasionally checking on your properties yourself or having a staff member from your company doing so and reporting back to you.
- What’s My Role? What are my responsibilities as a property owner? Depending on your schedule you may wish to take on additional responsibilities to help defray a bit of the property management cost. Be careful you don’t bite off more than you can chew!
- Vacancies. How are vacancies handled? What is the company’s system for handling vacancies? Do they use some sort of move out letter and checklist to inform the tenant leaving the property of the specifics in order to leave the property in the best possible condition and for the quickest possible turnover?
- New tenants. What is the process for screening new tenants? How thorough is the screening process and what qualifications do they use? Does the company have a system using such items as a move-in letter and other documents in order to make the tenant feel welcome? Do these documents also outline specifically the tenant’s responsibilities in caring for the property and paying on time? If you own section 8 properties does the management company have good expertise with this type of rental?
- Advertising. What type of advertising does the management company utilize? Do they advertise aggressively? Do they use signs, website, craigslist, and social media? Take a look at the management company’s website. Does it list available properties? Does it have downloadable documents such as a rental application and other applicable documents?
- Security deposits. How are security deposits handled and escrowed?
- Certifications. Is the property management company certified and a member of some of the national, state, or local certifications? Are they bonded and insured? Do they have a state real estate license?
- History. What is their company’s history? How long have they been in business? Have they changed ownership or management recently?
- Getting Out. Finally, what if things don’t work out? What is the process of severing ties with the company?
As you can see there are a lot of questions asked and a lot of considerations to keep in mind. You also have to weigh the cost /benefit of using a property manager as you will spend anywhere from 2% to 10% of your gross rents (depending on your type of portfolio and how many properties you have with a particular company) with the property management company. There can also be additional costs for bringing in new tenants, repairs, maintenance, and more. It’s important for you to get a thorough understanding of what specific services are provided and what they cost. Read the property management contract thoroughly before you sign on the bottom line. A review of this contract by your real estate attorney or qualified mentor is a good idea.
There is something to be said about learning the ropes of property management by managing a few single-family or small multifamily homes yourself but you will soon find as your portfolio grows, your time is better spent in managing your company, acquiring new properties and moving your business ahead.
As always, having a trusted advisor such as a real estate coach or real estate mentor can really help you make this leap smoothly!
As always, here’s to your success!