Many real estate investors have found that a good property management company can be a real asset, allowing them to leverage both their time and properties more effectively. Others have had bad experiences with companies that either did a poor job, or simply were not a good fit for their property or investment goals. So, if you’re considering hiring a manager, how do you tell the difference between a company you would want to work with and one you would avoid? Here are a number of things you should look at.
You’ll find that fees vary widely from company to company, but it’s important to be able to break them out and understand what services they offer for the money. Keep in mind that quality of service and long-term ROI is the ultimate consideration, not price. Make sure to identify all the potential fees that a management company may charge by reviewing their management contract. For a breakdown of the common fees found in property management contracts, see the guide linked to at the end of this article.
A competent property manager will have a clearly defined and transparent process for handling tenant and owner funds. They should be able to demonstrate that they keep detailed records and make these available to their respective owners, both to provide an audit trail for tax purposes and to help with potential legal situations that arise. Make sure to ask them how they collect, store, and handle security deposits, and when they mail checks to the owner.
Setting the Rental Rate
There is a science behind maximizing rents. A good property manager will know the local market and perform solid research on the last 10-20+ recently rented comparables. The goal should be to optimize the rental rate based on current market conditions and get the property rented within a month.
A seasoned management company will have a clearly defined process for collecting rent and dealing with late payments, bounced checks, and delinquencies. Ask about the payment methods they accept, whether they offer a grace period, and what their current rate of delinquency is.
Inspections, Maintenance and Repairs
Ongoing maintenance is an area where a good management company will shine, and a poor company is likely to fail. A competent company should have a process for and track record of tracking incoming repair requests, following up promptly, practicing proactive, preventative maintenance, and performing high quality work. In addition, they should inspect the property periodically to look for problems. This is possibly one of the greatest benefits of hiring a property management company, but you’ll want to do your homework to make sure that this is a company that will take this responsibility seriously.
Tenant Marketing and Retention
Attracting the right tenants and keeping them is what property management is all about. This is one of the most valuable services that a firm can provide, so it’s important to make sure you will be getting your money’s worth by examining their process for each task. Find out where they advertise and ask about their current vacancy rate. Ask how frequently they are willing to show the property. What you’re looking for is a company that has the expertise and will put in the extra effort to get your unit rented. Finally, they should have a strategy for keeping tenants happy and minimizing costly turnover.
Finding qualified tenants can be difficult, and a property manager you consider should have a strategy for evaluating prospects and avoiding rental scams. Ask about what tenant qualifications are most important to them, and what exceptions they are willing to make. You should find a company that you can trust to perform this critical function. It is typically unwise for the owner to intervene in the screening process, since it raises the risk of discrimination and fair housing lawsuits.
Company Background and Qualifications
There are some general questions you should ask about a company’s background and qualifications. How long have they been in business doing property management? Are they licensed? How much experience do they have managing your type of property? Do they have any trade organization certifications? What does their current management portfolio look like? How long is their average client relationship?
You should also ask them about their staff, how long they’ve been with the company, and who would be assigned to manage your property.
The Property Management Agreement
The contract you sign with a management company will serve as the sole agreement between you and them. Ask for a copy of their typical agreement early on, while you are still doing your research, and make sure you understand the terms and principles involved.