Good property management pays for itself.
As an income property owner, you should look at your property management company as a business partner. Under savvy management, your investment will grow and run smoothly.
But be careful! Because let’s face it- no property management company is going to care as much about your property as you do. That’s OK because we don’t need them too. Property management companies want to keep you as a client, and that’s enough motivation for them to do a great job.
The most important thing is to find a company you trust. There is big money involved, and that means temptation. It’s not hard to imagine a dozen ways for a property manager to steal from the owner. Unfortunately, it happens. You want to find a company that takes pride in its quality of service and cares about its reputation more than anything. It is difficult to find a great manager, so when you do- treat them like gold!
Finding the right property manager depends on you, your property, and type of service you want them to provide. If you are a very experienced investor that likes to be hands-on with your investments, you may want control over the maintenance of your property. Some property management companies will let you do it and others won’t. You might want to have your hand held by your property manager because this is your first investment and you are nervous. Then a smaller company with more time resources might be a better fit. Let’s suppose your property is located in an area where the residents predominately speak Spanish or Korean- then a property management company with multilingual staff might be needed.
Hiring a property management company is one of the most important decisions as an investor you make. Interview at least three companies before choosing one.
Types of Property Management Companies:
-Family member or friend
-Real Estate Agent who does property management on the side
-Small sized management company 150 units or less
-Medium size companies 300-500 units under management
-Large Management Companies -1,000+ units under management
Family member or friend property managers are best in small towns with single-family houses, condos, and 2-4 units, and the area is not under rent control. They will be the cheapest property management available but they will probably have the lowest standard of service.
Real Estate Agents are great for luxury leases, houses, and condos, or for working with a few of their clients that they might have sold an investment property to. They are great if you just want them to help you lease the property and you can handle the rest yourself. I would be very careful working with a real estate agent on commercial apartment buildings. Most agents will be distracted and too busy making sales to pay attention to managing your building.
Small sized management companies are great for single family, condos, 2-4 units, and apartment buildings up to 15 units. They may not have any buildings under management that are 16 units or more, so they won’t know how to handle onsite managers yet. If you find a really great small company that is expanding you can give them a chance on a bigger building if they are hardworking and honest.
Medium Sized companies are great if you have a portfolio of 10-100 units, they can easily take on your buildings without any hiccups during the transition.
Large companies achieve great economies of scale. They can offer owners management fees as little as 3%! They have very high overhead, so they need large properties. Usually, they won’t take a building smaller than 30 units and their bread and butter is 50-100 unit buildings.
Questions to Ask a Property Management Company
1. How long have you been a property manager?
You want a property manager who is experienced. If they possess a CPM (certified property manager) designation that is a good sign because that designation is tough to get and it shows that they are seeking out and furthering their education. I look for a minimum of 5 years experience. It takes many years handling leasing, tenant screening, evictions, maintenance, tenant-landlord laws, and contractors to become a seasoned manager and learn the local rental market. Any property management company that has been in business more than 30 years (45-70 years) could be past its prime and not up to date with modern technology.
2. How many units do you have under management?
The number of units a property management company has under management determines its size. Bigger companies will have more staff and better technology. They may not be able to make site visits to your property as frequently or lease vacant units as quickly as smaller companies.
3. How many people do you have on staff and what are their jobs?
You want to compare the number of people on staff to the number of units under management. Does it seems like the company is understaffed? You can follow up by asking them if the company is growing or shrinking. Do they have an in-house maintenance person? Do they have a leasing agent? Do they have a receptionist? (it is much better to talk to a live person than an annoying prerecorded voice message) Ask how many units their ‘field managers’ are assigned to, a good ratio is around ~300, when a field manager gets around 500-600 units it starts to get very sloppy.
4. What kind of property do you specialize in?
Most management companies will say they can do everything because they want your business. Make sure they have the right skills to handle your specialty: HOA management, Leasing services only, vacation rentals, College rentals, Section 8 affordable housings, Luxury Rentals, Single Family Homes, Condos, 2-4 units, Multifamily apartment buildings, 16+ unit buildings that require an onsite manager, Rent Control, Multilingual.
5. Where are your property management company office locations and service areas?
A property management company’s office is its home-base. Their office location is centrally located in their service area. The closer their office is to your property the easier it will be for them to manage. In addition, if the property management company has a lot of buildings that are close to yours then it will be more efficient for them to management. Conversely, the farther a property is away the more costly it is to manage. Workman and field managers will have to drive farther for maintenance and site visits spending more travel time and gas. Some of the property management company’s regular vendors may not service the area your property is in. They will either have to find a new vendor or pay their existing vendors extra.
6. Do they have good Customer Service?
The most common complaint about property management companies is that they are hard to get a hold of, or even worse they are rude! Great customer service will improve tenant retention. How do they handle you? Does a LIVE, pleasant, person answer the phone? If they don’t pick up the phone or return your call quickly- what’s the likelihood they are going to respond to your tenants? I hate Automated phone systems- especially when you hit “0” to speak with the receptionist and it sends you directly to voicemail. Distinguishing how to use a ‘dial by name directory’ is usually pretty Greek to average person (how are you suppose to know who to need to talk to?)… “If this is a life-threatening emergency, please hang up and dial 9-1-1” is NOT a 24 emergency maintenance hotline!
7. Do you own any properties yourself?
I don’t mind if a property management company has their own buildings since they are owners themselves, they understand you better. I do want to find out what percentage of their portfolio is their own verses third party. Ideally, I’d like to see at least 50% of their units under management be the third party.
LEASING & SCREENING QUESTIONS
8. Do you show units on the weekend, Do you show units on Weekdays after 5pm?
Most tenants who have a job work M-F 9am-5pm. So if you aren’t able to show them the units on the weekend or after work you will lose a lot of good tenants.
9. How long does it take to fill vacancies and how many vacant units do you have right now?
This is a tricky question to answer because you could fill a vacancy immediately by renting to anyone with a pulse. We want our tenants screened. I have found that one of property management company’s Achilles heel is poor advertising and showings. Going more than two or three months with a vacancy is inexcusable. If your property management company can’t fill vacancies in a timely manner you need to dismiss them.
10. Who shows the rental units?
The property management company should have a leasing agent(s) to personally conduct showings and be available to show on weekends. Weekends are when most potential renters are off work and looking for apartments. If your property manager is not available on the weekends then renters are going to go find someplace else. Make sure that they do not tell a prospective tenant to come to their office and drop off their driver’s license as a deposit and hand them over the keys to the unit to show themselves- this really lazy and unprofessional! As a test, you might want to try to call their phone number listed in one their ads and see if you can get a hold of someone on the weekend and schedule a showing.
11. What kind of Tenants can I reasonably expect to get for my property?
Properties are very desirable areas like Beverly Hills, West Los Angeles, and Westwood are going to attract really great tenants. Lower income areas with affordable housing will have a very different tenant profile. You want to know what they expect for credit score, monthly income and employment, and what they are willing to accept in regards to past evictions, criminal background, and previous landlord references.
12. Do you have in-house maintenance staff?
When a property management company has a full-time maintenance person that really lowers maintenance cost. A licensed plumber or electrician is going to charge $100-$150 just to come out and take a look at something. You need a handyman for the basics- any job under $500, so that you won’t be run up with a huge bill, like a $200 light bulb!
13. How often do you do make site inspections?
At a minimum, your property management company should enter every unit in your building to inspect it at least twice a year. This can save you big money if you can spot hazardous conditions before they turn into a major loss.
14. When hiring third-party vendors, do you require them to be bonded and carry workman comp insurance?
This will tell you if the company does everything on the up and up or not. Many owners choose to hire unlicensed workers that don’t pull any permits to do work on their property because it’s cheaper. This work can be really low quality and may cost you more in the long run than doing it right the first time. You have to decide if you are comfortable with the risk.
15. Do you have a 24-hour emergency line? How fast is their response to emergencies?
A 24 hour emergency line is absolutely essential. A broken pipe, leaking roof, flooded floors, can happen at any time. Having an immediate response to fix the problem will make for happier tenants and less damage. Expect to get gouged a bit on prices for these emergency calls.
16. How often have you filed for eviction on tenants in your properties in the past year?
Evictions are unavoidable. Deadbeat tenants can sometimes slip past your screening, and sometimes good tenants go bad. As a landlord you have to be very careful with the number of evictions you have, because in recent years the timeline for an eviction has gotten longer, three to four months, and they are expensive, sometimes costing as much as $5,000 to $6,000 for one eviction, in legal expenses and lost rent when it is all said and done. The most important thing is to get possession back of the unit as soon as possible. The legal system favors the tenant, so it is best for a landlord it to avoid evictions if it can be helped.
17. What is the name of the attorney or law firm you use to handle your evictions?
When you get the name of their eviction firm you can do some research on them to see how good they are.
18. What methods do you make available to tenants to pay their rent?
You want to see, pay online, money order, mailed check, or dropped off check to office.
19. How often do you send owners a financial report?
I like to see a financial report each month, delivered by email in a pdf or available for review in the owner’s section of their website. I also want an end of the year annual report in addition to the monthly reports.
20. Do keep records of all invoices paid on maintenance and capital improvements?
Much to some landlord’s shock, they paid for a remodel of five units and only two were completed. You want to make sure your property management company isn’t just blindly paying invoices, and that they are making sure the work they are doing is completed satisfactorily. Having records of the invoices paid makes them accountable to you.
Property Management Company Fees
21. What is your management fee?
Typical management fee ranges from 5% to 6%. A property management company will usually want a minimum of $500 a month to manage a property (this would be 5% of $120,000 Gross Income)
22. Besides the management fee – what else will you be charged for?
Here are some other costs associated with property management:
Leasing Fee – Advertising cost, and time to answer calls, screen applications and finalize a lease with a new tenant. Price ranges anywhere from $150-$500 per unit
Re-Leasing Fee -when a tenant the property management company put in leaves before 1 year, they usually release the unit at no charge
Maintenance/repair – there are two components to maintenance: labor and materials. It is not uncommon to see a 20% mark up on both, but I’d be wary of double the vendor invoice
Turnover Cost – typical turnover cost for a unit can be $400-$600, see how much they usually spend to get a unit rent ready
Evictions – how much does it cost to do an eviction, can range between $600-$1000
23. Can you provide me references to some of your current clients that I may call?
Online reviews are pretty useless for property management companies- most of the time it is bad tenants complaining and very few owners bother to write. Get two or three references and call them. When you talk to the owners ask how long have they been with the property management company, which of their properties they have with them, and are they happy etc.
24. Will you please send me a management contract to review?
If the property management company passed the interview with flying colors, ask them to send you their contract. The main thing to look for when reviewing the contract is the term length. Traditionally, property management companies want to put you on a 1 year contract with an early termination fee. When starting out with a new management company I like to do a 3 month trial period first before signing a year contract. Some property management companies now are doing month to month contracts in Los Angeles which is great for you as the owner. Make sure the termination clause is 30 days and not longer. Don’t give the management company the exclusive right to sell your property!