4 Essential Questions to Ask Your Property Manager Before Hiring Them
Your property manager plays an integral part in the success of your real estate investment. They can easily make or break the experience. Considering how relatively easy it is to become a property manager, you need to be very cautious about whom you hire. Technically, a person can call themselves a property manager if they have a real estate license or if they work under a brokerage. Having that license allows them to engage in leasing and to collect rents legally. But that’s it. It doesn’t mean they’re a professional property manager. It doesn’t mean they know how to manage your very important real estate investment successfully.
What Could Possibly Go Wrong?
A property manager is not a real estate “babysitter.” It’s not enough to just keep an eye on the property while the landlord goes about their business. It’s not enough to get just any tenant in there and tell them where to mail their monthly check. A quality, professional property manager takes their responsibilities very seriously.
A hundred things can go wrong if you have a bad property manager. The tenant could directly or indirectly damage or destroy the property and its contents. Minor repairs could escalate into expensive replacement costs. The property could go vacant for months at a time. Worst of all, your bank account could be drained, and your entire real estate investment plan derailed; all because you didn’t ask the right questions of a property manager before you hired them.
What Experience Do You have?
You need to ask how long the company has been in business, or how many years of experience the key personnel have. A company might be brand new, but if the key personnel has been managing properties for several years, that counts for a lot. Ask about specific experience. If the company has been in business for a long time, but it’s all C and D class properties, and you have an A or B class property you need managed, they probably won’t understand what your needs are. They won’t understand what kind of tenants you need to get in, or how to market to the right tenants. So the experience has to be specific to the type of property you need managed. You need to find a company that has a long history of managing your type of property and your property class. Either the company or its key personnel need to have that experience.
Follow up this question with a request to contact a handful of past or current clients. An established property management company will always have a few clients you can call or email to ask how well the company has served them. It’s perfectly acceptable to ask, and most quality property managers will be proud to provide you with a short list of references.
What Kind of Infrastructure Do You Have?
The infrastructure of the property management company is integral to its smooth operation. Is this company just one guy with an entourage of a couple of local handymen? Or is there a network of personnel, departments, and technology that forms a foundation to support the management of the properties fully? At a minimum, you want to look for a company with an infrastructure that manages and supports:
- communication between the tenants and the PM
- communication between the PM and the landlord
- automatic payouts to the landlord
- process for tenant payments such as an online portal
- established process for handling repairs and maintenance costs
- established process for vetting and onboarding tenants
- established process for late/missed rents and evictions
- dedicated departments for admin, bookkeeping, customer service, etc.
- system for landlord report generation
Find out exactly what kind of infrastructure the company is operating with, because the infrastructure will directly impact your landlord experience.
What Are Your Fees?
Never base your decision solely on who’s giving you the lowest monthly property management fee. You don’t want the cheapest PM, but you also don’t want one that’s overcharging you. 10% is considered reasonable in the industry, but there may be some PMs that charge slightly below or over that amount. If a company wants to charge more than 10%, you should probably keep looking because that’s generally considered too high. In certain markets, it’s more common to see 8%, so that could be reasonable. But if you find a company that’s only charging 5%, move on. They are probably charging a lot less because they’re just trying to bulk up their inventory. It’s highly likely you won’t get good service from a PM that’s just trying to undercut the industry; mainly because it’s impossible to properly manage a property using the proper infrastructure with those lowball figures. It can’t be done. If the monthly fee is unbelievably low, they have to be cutting corners somewhere. As a landlord, you don’t want any part of that.
What is Your Vacancy Rate?
At the end of the day, you can’t make money as a landlord unless your unit is occupied. Find out the average that this PM has vacant units. They might try to tell you they don’t know; that it depends on the property. This isn’t an acceptable answer. They should be able to tell you how many days it takes them to turn a property. How long is it, on average, from the time a tenant moves out to the time a new tenant moves in? Sure, repairs and maintenance take time. But a good PM will make sure they repair crew gets in quickly and finishes up promptly, so the property can generate income. The vacancy rate figures into your direct return as the landlord. Be sure you get a straight answer.
Be very careful when choosing your property manager. Ask these four questions at a minimum, but be ready to ask as many questions as you need until you feel comfortable. Your property manager will be a long-term partner in your real estate investment project. Find one you can trust and one that will treat your property with the care and attention it deserves.