1. The first thing I always want to know is how many properties (units is a better measure) are they managing. This is followed up with how many employees are managing these units. Here is what I have found based on our experience building our property management capability internally and then handing the entire portfolio over to property managers: a trained employee with the right tools and proven processes can manage between 30 and 40 units – assuming the accounting function is not included. So, if you are qualifying a property manager and they have no employees and are currently managing 37 units and you want to hand them 7 more, how good do you think their service to your portfolio will be?
2. Do they own any rental properties themselves? For me this can be a deal breaker! Here is what I have experienced: while it may seem like a benefit for a manager to own properties because they can better relate to what an investor experiences, I see it differently. The way I see it is my properties and my tenants are in constant competition with the managers and their properties. If the manager has a vacancy at the same time you do, how can you know that your property will be filled first? You don’t!
3. A critical component in managing both properties and tenants is getting into those properties on a routine basis. As part of your discussions with prospective managers, you want to get a commitment from them how often they will conduct formal inspections of your properties. In some cases, managers will be very accommodating. In most, however, they will balk at this requirement or use it as a way to increase the fee they will be charging. I am not too impressed with property managers who believe that conducting routine property inspections is an extra – not part of their normal package of services. I would be very leery of this type of property manager.
4. During the discussions if you find that the property manager is constantly cutting you off, or trying to finish your sentences for you, you will be in trouble if you hire them. Any time you have an issue or question about your investment you will get the same treatment. The best managers are those who know who their clients are and are constantly looking for way to make sure those clients are happy.
5. The number of automated tenant management systems on the market can be overwhelming. The good news it that there are just a handful that really matter. You want to make sure that the property manager you select is using a quality property/tenant management tool and that they can provide samples of output reports from this system during the interview. If they don’t use software to improve efficiency or hesitate to share reports with you, your experience may be less then profitable.
6. Most property managers charge between 7% and 10% of the rents for managing your properties. Be sure that you know what that percentage is based on. Some managers will require that you pay them the agreed percentage on the total rents that COULD be collected whether they are collected or not. That is a non-starter for me. It would be a darned cold day in you know where, before I ever paid someone for rents they didn’t collect. It should be for you also.
7. Be sure that you know how a property manager will address maintenance issues. There are a variety of ways you as a property owner will pay for getting maintenance issues resolved. You can expect that the property manage will want to make maintenance decisions (spend your cash-flow) up to a certain dollar value amount before they have to obtain your permission. I never let that amount exceed $250. You shouldn’t either. Also, many property managers will add a 10% fee on top of the invoice, and while it is often times hard to find a manager who doesn’t make this a non-negotiable requirement, I would still negotiate to get that item waived.
8. Regarding that software I mentioned in item #5 above, make sure that the property manager commits to providing reports to you no later then the 6th day of each month and that your portion of the rents are paid to you at that time as well. And if you don’t receive those rents from the manager by the 6th, go camp out on their doorstep! I’m not kidding!
Well, this is turning into a mini-course and I am sure there are several more items that could be added. If you have additional items which you find critical to selecting a property manager please add them to the comments below.