PODCAST EDUCATION

89 Questions To Ask Your PM Before Hiring Them

Episode 017

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys go over 89 questions, yes 89, you should ask your property management company before hiring them.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.  

John Larson: Hello everyone and welcome to another episode of the Real Estate Cowboys. Today we’re talking property management and I have 89 questions that you should ask every property management company before you hire them. And I know you’re thinking to yourself 89 questions. Wow, that’s a lot. And why 89? Um, well I just kind of ran out of questions at 89, but if you think that 89 questions is too much to ask, it’s really because you have to keep in mind that to achieve that passive experience that you’re looking for, to achieve a successful investment experience with your investment properties or single family homes, your apartment complex, your whatever it may be, um, if property management is involved, if you are not managing it yourself, it is a very, very key aspect when it comes to owning a rental portfolio, and with cash producing properties, that income comes from tenants.  

And so the property management company can easily make or break your investment. You want to make sure you’re working with a very professional team. It’s easy to become a property manager. You need to go get a real estate license and you know, if you operate under a brokerage or you are a real estate broker, you can start a property management company. You can become a property manager. Doesn’t mean that you know, the ins and outs of finding tenants, qualifying tenants, uh, you know, you obviously need to have some knowledge of, you know, how to repair things around the home and what things cost and so on and so forth. So although it’s, I wouldn’t say easy, but you can become a property manager by simply getting a real estate license and you can practice property management. It doesn’t mean that you are a professional property manager.  

And so I have identified 89 questions that you should ask every property management company before you determine that this is the right company to work with. And I’ve broken them down into some different categories. One would just be general info, communication, lease terms, renewals, advertising, screening, and the lease-up process, late fees, evictions, inspections, maintenance and repairs, vacancy and turnover. And finally fees. And so one thing I’m going to caution people when it comes to property management, you know, don’t go with the cheapest company or the company that has the lowest fees. If you’re just shopping around for a company that has the lowest fees, you could be setting yourself up for disaster. Don’t go with a bargain property manager if they’re offering very low fees, it’s just, that’s their tactic to bring on doors. It’s not their service, it’s not their credibility, it’s not their performance that are bringing on clients.  

It’s a cheap fee. So I would be very wary of that. Do not go into hiring a property manager based on who’s going to give me the lowest property management fee. No, no, no. Generally, if you’re working with a company, industry standard is about 10 percent. If someone’s charging over 10 percent, I wouldn’t go with them. I feel like that’s, that’s too high. But the industry standard is 10 percent. Um, I know at our property management company, American Real PM, we charge eight percent in Texas and 10 percent up in Missouri, uh, because the rents up there are a little bit lower. So we charge 10 percent in that market, the rents are higher down here in Texas, so we give the investors a little bit of a break and charge eight percent, so it kind of balances out. But if a company’s charging more than 10 percent, I’d be wary the company’s charging less than eight percent or a flat fee, like some big conglomerate companies out there charge.  

I’d be a little wary of that for sure as well. Um, just because, like I said, it’s, it’s they’re discounting pricing just to bring on a high volume of doors and does not usually relate to a very passive experience or a very good professional experience with that type of company. And so that would be my advice there. But let’s get into it. Let’s start with General Info. Number one. I’m going to want to know who the head of the company is. Now with real estate investing and real estate in general, you need to know who you’re working with. Uh, the team is very important. You need to know that you’re working with a good team and, and a good person. So I mean anybody I do business with, I immediately will go online and you know, this is the 21st century, you can pretty much easily find out information on people unless they change their name and that would be a pretty shady as well, but I’m going to take it to the Internet and I’m going to look this person up and see if there’s any bad reviews on them.  

Do they have any negative publicity or they’ve been convicted of any type of fraudulent activity, anything like that? So I want to know who the head of the company is. First and foremost. Then I’m going to want to know how long has the company been in business. Now if it’s a new company, but they have a lot of experience in the field; maybe it’s somebody that’s been managing properties for a long time, but then just now started their own property management company. I’m not going to really knock them if they’re new, if the company’s new, but if they have a lot, a lot of experience in property management and hey, they just have a story. I just started the company, but I’ve been working with another company for 10 years. I have, you know, 10, 20 years experience managing properties. I’ll feel pretty comfortable with that.  

Um, but I do ask that question, you know, I mean obviously the company’s been in business for a long time. They should have some reviews online. And be wary of the reviews on property management companies. A lot of times you’ll have some upset tenants that are just, you know, saying some, some negative things just because they’re unhappy about something. They got charged something that’s really their fault and they’re just unhappy with the property management company. So going to take it to the Internet and start yelping. Um, so I will give a break though on the company if they haven’t been in business very long and I’m having a hard time finding out any reviews or any information on them. That goes back to, okay, who’s the head of the company? What’s the experience look like? How long have you been a property manager?  

Um, and I will give you a break if you’re still a relatively new company. An example is, you know, when we started American Real PM, it was a new company in 2016, but American Real Estate Investments had been in business since 2011 and myself and my partners, my partner had been doing single-family rentals since the early two thousands, so we have a ton of experience in dealing with single-family rentals and tenants and renovating homes and things of that nature. We were just using a third-party management company for a very long time to do so. But when we brought in our head of operations for our management company, he came with over a decade of experience. So although the company was new, he had over a decade of experience in multiple markets and also had worked with a very large property management company that had just recently sold for $60,000,000.  At least that’s the word on the street. So he came with a lot of experience.  

Number three, I would ask, how many units does the company manage? This goes back to, hey, if it’s somewhat new, I understand if you don’t have that many units just yet. But, uh, I think that’s a very important question to ask. Um, I also think that you should ask how many of those units are currently vacant? You want to make sure that this property manager is, you know, keeping the property occupied. Obviously, you know, managing, uh, a good functional portfolio. Um, so you have very low vacancy. That’s all very important. Then I’d want to ask, who is my property manager? Who will be my property manager? Um, I’d like to have a name of that, of the person that’s looking after my investment. If I decide to go with this company and then asked will I have one specific property manager?  

Sometimes larger companies, they like to spread things out over multiple people. I like having one direct point of contact. So I want to know, do I have a specific manager that I will be able to speak with in case I have any questions or concerns about my property? How long has the property manager been a property manager? I think that’s a very important question. That goes back to question number two, um, that the company has been in business for only a short time, but the head of the company or the person managing my property has a lot of experience. I’d like to know how much experience that person has. How many units does my property manager manage? I think that to professionally manage single family homes, you need to make sure that your property manager’s not overloaded, depending on the property class. C-class, I would say, you know, it’s very difficult to manage more than 150 or 200 properties as one property manager. With A-class  I think you could get up into the 250 to maybe 300 range per manager. Um, but obviously they’re going to need some help too. If a property manager is managing 150 doors to 300 doors themselves, they better have a pretty large infrastructure behind them. So I’d want to know what that infrastructure is. Okay. If a property manager is managing 250 doors and doing everything himself, you know, the utility transfers, the leasing, dealing with the maintenance, dealing with the calls from the tenant. What does the infrastructure look like at that point? You know, if you have a company that has departments for everything involved with property management and then employees that are part of those departments and then just one property manager overseeing everything, then I think you can potentially manage just as one manager up to 300 properties. Um, if they don’t have that in place, then I just can’t see how that’s even possible.  

I would also want to know out of the units that my property manager specifically is looking after how many of his properties are vacant? What is the shortest, longest and average length that tenants stay in the same property? I think that that’s a very, very good question to ask. Uh, what do you offer that sets you apart from other companies? For example, I think American Real PM, that’s my management company. I think the thing that sets us apart from other management companies is we are very investor friendly. We run our company with limited fees. Very simple so you understand fees. No hidden fees, and you know, we strive for rent increases year over year and you know, are always beating down bills and things of that nature to make sure that our investors are having a positive experience and are seeing positive cash flow year over year and month over month. Uh, so I think that that’s very important and I think that that’s what sets my company apart from other property management companies out there who are just looking at you as a number on a screen and you know, a cash flow generator for them, um, and are not gonna try and push rents, rents up and are not going to try to beat down bills and get multiple bids on high-cost repairs and things like that. Whereas we do that because we know how important it is to provide our clients with, you know, positive income each month.  

How is rent paid to the owner? I think that that’s very important. We do an ach, we’ll do whatever you’d like, but most of our clients go with an ach. Um, but that’s, that’s important to know. And I’d also want to know, how do the tenants pay rent?  Do you have an online portal system? Do you have an online system where renters can easily go in and pay their rent? I think that that’s very, very important. And when is rent paid to the owner, when are these ach’s dispersed into my account, when should I expect to see that money each month?  

The next category would be communication. Um, what do you expect from me as the owner in regards to communication? Do I have to reach out to you monthly for updates or are you going to be reaching out to me? What are the expectations on me as being your client? I think that that’s important and setting proper expectations with the company. And you as the client at the beginning of any business relationship, how often do you communicate with the owners? Um, you know, some companies might tell you, well, we only reach out to the owners when something’s gone wrong. Me as an owner,  I like the passive approach. I don’t really want updates all the time. Uh, but it would be nice to maybe receive a monthly update from the property manager or at least a quarterly update if everything’s going as according to plan, just to say, hey, everything’s going good, but just touching base, just letting you know, I’m keeping my eyes on your property. And, you know, it’s, it’s good people like that warm fuzzy feeling and they like the fact that, you know, the property manager is being proactive in terms of communicating with them and keeping lines of communication open.  

Do you provide the owner’s information to the tenant? I think that that’s a great question to ask. Um, I believe any professional property management company will say, no, we don’t because the last thing we want, or I would want my tenants to have my personal cell phone or email because then they’re just going to go around the property manager and try and come to me for every issue that’s going on with the home. And that’s not why I hired a property management company and pay a monthly management fee.   

Do you have a policy about owners contacting the tenants? Most companies should. You don’t want your owners talking to the tenants, either you don’t want to create an open line of communication between you and the tenant, then that will eliminate the third party of the property management company. You need that property manager in there, is that buffer to protect you and also make sure you know that the tenant’s property is in livable condition and you know, there’s that fine line that the property manager walks, but you want that property manager representing you as the owner. Uh, how often do you reach out to the owners? And that’s pretty much the same as like communicating with the owners. But um, you know, reaching out in terms of just to kind of say hi.  Like I said, keep that, that open line of communication. So I just threw that in there.  

Again, can you give me examples of how and when you would communicate various problems? That’s a great question to ask, in my opinion, just because there’s different problems that can arise with property management and eviction. Maybe it’s just a maintenance request, whatever it may be. Like if it’s a simple maintenance request, most property managers will probably just upload that to your portal and you’ll receive a notification through email to check your portal or a portal for a minor maintenance requests that may need your approval, but something like an eviction is a more serious problem. So that should probably be a phone call and if you don’t answer, leave a voicemail and follow up with an email so you can have a phone conversation with this owner about this potential problems.  

Some problems are larger than others. I would like to know, hey, if it’s a very severe problem, how are you communicating? To me if it’s just a minor issue, how is that being communicated? What is your turnaround time on phone calls and emails from owners? I believe, and what we practice here that, uh, the communication needs to be within 24 hours. If an owner calls and is not able to get in touch with their property manager or sends an email. Uh, it is protocol that the property manager follows up within 24 hours. And I think that that’s a good benchmark in terms of good communication with your property management company. You know, sometimes the property manager can be in the field, they’re dealing with other stuff, so maybe they’re not able to get to their phone, maybe they’re in court and doing an eviction, you don’t know.  So they’re not able to answer their phone or they’re not able to get a certain email right away. But there really should be no excuse as to why you can’t respond to somebody within 24 hours.  

And what is your turnaround time on phone calls and emails from tenants? Uh, if it’s a professional property management company, you should probably have people on staff that are fielding calls from the tenants and fielding emails from the tenants around the clock, especially during business hours between nine to five. So I would say if it’s something after business hours after 5:00 PM, you know, that should be answered very early the next morning. Um, so that shouldn’t go 24 hours with the tenants. You know, what, if it’s an emergency situation? Most professional management companies also have, you know, an emergency line that would pick up 24/7. I think that that’s very important in keeping the tenants safe and keeping the tenants happy because we do want tenant retention.  

We want tenants to continue to renew the lease and eventually maybe sign long-term leases to rent their property long term. Want to cut down on turnover. So we want to make the tenants happy and obviously, there’s a careful balance. We don’t want to abuse our owners by making the tenants too happy and we want to do things within reason. You know, tenant induced damage to the property needs to go back to the tenant. Should not be put on the owners. So, you know, there’s some property management companies out there that abuse their owners in my eyes because they take too much care for the tenant and don’t think about the owner enough. That, in my opinion, is not an investor-friendly property management company. Uh, we’re gonna take a quick break. When we come back, we’re going to get into lease terms the next category, but let’s go to break right now and we’ll be right back.  

And welcome back to the Real Estate Cowboys. This is John Larson. We are talking about 89 questions that you should ask any property management company before you hire them. Uh, for time purposes. Let’s get right into it. Uh, the next category is lease terms. Who is the lease between? The lease should be between the owner and the tenant. If it’s anything different, that’s definitely a red flag to me. So it should always be between the owner and the tenant. Next, you should ask, do you provide a copy of the lease to the owner? And if so, when? Yes, that should always, you should always have a copy of the lease and that usually if it’s a professional management company that operates on an online system Propertyware, APPfolio, whatever it may be, um, when a lease is signed, a copy of the documents will be uploaded to the portal so the owner can see that.  

What lengths of lease do you offer?  I think that that’s also very important, uh, it’s a very important question to ask. You’ll have some management companies that, you know, only do year leases at a time. Um, we like to push for two-year leases at my company with a rent escalator in year two. I think that that’s very important because, you know, we’re in a market right now, where property values are increasing as are rents and so I think that you do need to try and get that escalator even if it’s a year, a two-year lease. Um, but we push for two-year leases. I want to cut down on turnover for my investors. This goes back to being an investor-friendly management company. Um, but one year leases are fine. That’s actual bare minimum that we’ll do. And if an applicant is a solid applicant and they have a good reason as to only wanting to sign a one year lease, we will still potentially accept that one year lease. But we do push for two years.  

Do you do a breakout clause? Well, that be like pretty much a break lease clause and yes, we do. There is a penalty for breaking the lease early unless it’s for something like military duty, uh, you know, a job relocation and that tenant’s going to have to back that up with proof for us to be able to release them from that lease with no penalty. If they just decided to break a lease for and have no reason, can’t provide any documentation, there is going to be a penalty for that. So you want to definitely ask your potential property manager, well, how does that look? Do you have a rental deductible? That would be like a security deposit. Do you know what you charge for a security deposit? Our standard is one month’s rent, but there might be an applicant that has a 550 credit score. It’s a little bit lower credit score than what we’d like to see. In that case, we might ask for a month and a half to a two month’s security deposit to mitigate that risk.  

Do you do sight unseen leases? If yes, do you have a special addendum? We don’t do that, but that is a good question to ask a potential property management company. Who is responsible for pest control? When the property is occupied, we typically put that on the tenant, if it’s not occupied than the past control is going to be on the owner. Uh, who’s responsible for lawn maintenance. That is also at our company. If the property is vacant, the owner is going to be responsible for the lawn maintenance. If the property is occupied, that’s on the tenant. Who is responsible for maintaining the HVAC. We put it in the lease, in our leases that the tenants are supposed to change filters and all that sort of stuff while the property is occupied.  

If they don’t, they’re subject to lose that security deposit. Um, but we also make sure we do routine checks about every six months on our properties to where our property managers are getting in for just a routine inspection and checking for, you know, AC filters and things like that. Have they been changed? Um, if the property is vacant, that’s going to be on the owner, obviously, and the property manager is going to be taking a look at the property pretty consistently while the property is vacant, before we get a new tenant in that home. Who’s responsible for utilities? When it’s vacant, usually it’s always the owner. Uh, when it’s occupied, usually it’s always the tenant. Good question to ask. So how much move-out notice do they require? At our company, we require 45 days. Many other companies may only require 30 days. It’s good to know that so you have the right expectations, however. Renewals. Is the lease audit automatically renewable? That’s a good question to ask. What is your renewal policy? Do you perform a market evaluation for every renewal, and how do you determine to raise the rent or keep the same? Very good questions. In the Dallas market, since property values are increasing pretty rapidly and median household income has also been increasing year over year, we’re generally charging three percent $50 or $50 increase flat, $50 increase year over year on our homes. Eventually, you’re going to get to a point where some of these neighborhoods, the rents have kind of plateaued. You can’t really push them up anymore because you’re talking about an area where the median income might only be $50,000 or $60,000 in order to qualify for our lease or to at least one of our homes. You need to make at least three times that monthly rent gross.  

There’s going to get to a point where just some of these areas you just kind of plateau. You can’t push it anymore. But we do actively push rents and we are doing a comparative market analysis every time the property is up for renewal so we can show the tenant, hey, rents have been going up in this area. If you’re going to renew, we have to adjust the rent. That’s one of the investor-friendly aspects of our company, and I think if you’re an investor and looking for a property management company, that sort of stuff’s important. You need to know that your property manager’s trying to increase rent year over year because we know property taxes go up, expenses could potentially go up, so you need to account for that in increased rent year over year, every two years or whatever it may be. And you also don’t want leases, in my opinion,  automatically renewable, um, they go to month to month with us.  

There is an increased fee on the lease for going month to month. So that’s another way that you can kind of generate some more rental income as the tenant’s maybe exploring options, and in that month to month period. Some tenants just like to go month to month. We don’t really like to do that. The owner is able to get more rent, uh, when the tenant’s going month to month. But we really try and push them into another commitment because we don’t want our owners in limbo, you know, each month wondering is my tenant going to move or stay? So we do a very good job and I think any other company that you’re interviewing, you need to make sure that they do a very good job at keeping the tenants renewed, locking them in for longterm leases if possible. Uh, so you have that assurance that your property is going to be occupied and cash flowing for years to come.  

Advertising, screening and lease-up, how does that work? Uh, what is your advertising strategy? I think that that’s important. How do you get your properties out on the market for lease? Um, how many eyes are seeing these properties? You want to make sure that the property management company that you’re working with is using all outlets to get your property. At least that’s the best way to keep vacancies down and keep your property occupied consistently. Also on turnovers. You want to make sure that your property manager’s marketing the heck out of that property so you can get a new tenant in there right away. And I think we do a very good job with that as well. Once we know a tenant’s gonna move out and they give us that notice, we already start actively marketing the property on our website and letting potential tenants know that, hey, this property is going to be available on this date and we’ll do our best to try and get that property pre-leased. So when the previous tenant moves out, we can get in, perform the turn right away and get that new tenant moved in. So we have a very low vacancy window for our owners. Uh, how do you determine the recommended rental rate? We have in-house real estate agents and brokers. At least our properties that run CMA, comparative market analysis’s. And we know exactly what we’re going to be, uh, we have a great idea of what this property is going to be able to rent for it. Because the last thing you want to do is list it for too high. Properties in, in fast-growing markets like Dallas and Texas in general, they’re going to lease fast unless they’re in bad condition or overpriced. If they’re in good condition and they’re priced at or around what the market value is, what the market rent is in those neighborhoods, they’re going to leave very quickly.  

Do you recommend any work be done to get top dollar? I think that’s a good question to ask. Sometimes we do that. Um, if we feel like, Hey, your property is positioned in an area with a lot of, you know, young business professionals or you know, higher income earners. You know, I think you got to recommend sometimes to put in some granite countertops at least in the kitchen, maybe in the bathrooms too, to command that higher rent. Uh, maybe a nicer flooring as opposed to like a vinyl plank flooring. You know, if the property’s in a nicer neighborhood that’s commanding higher rents and just commanding, you know, higher earning tenants who want some nicer stuff and might be better to put in some engineered hardwood flooring or something along those lines instead of vinyl plank flooring.  

Even things like just putting nice little handles on the kitchen cabinets, updating things like that can help you get some higher rent just because the property is more appealing. Uh, how long do you expect it to take to get a property rented out? Think that’s a great question. What’s your average period when there’s a turnover? How long does it take to get the property back on market? That’s a great question to ask. Uh, how quickly do you schedule showings and return calls? Great question to ask as well. I think you want to hear from your property management company that you’re very responsive on any inquiries when it comes to tenant potential tenants looking at your property. ‘Cause obviously these properties don’t work unless there’s people living in the home willing to pay you rent, so you want to make sure that your property manager and their leasing agents are all over all inquiries that come in.  

The next question would be, how quickly does it take you to approve tenants and have a lease signed? Is that a long process? How does that process work? Typically with us, you’re going to see an application come in through our website. We direct them through there, fill out the online application. Our team here reviews the application. We typically have an answer back to these individuals within 24 hours, so very quick. And you want to hear that, because the longer it takes, these potential tenants might just go and find another property. So you want to make sure your property management company’s very much on top of that. And what is your schedule for paying payments when installing a tenant, what does that look like? How quickly are you getting the security deposit and when is the first month’s rent due and so on and so forth.  I think that that’s important as well.  

How does that whole schedule look like when putting in, when onboarding a new tenant, what is your application and screening process? Many companies, almost all property management companies charge an application fee. What does that application for you look like? If it’s a company that charges too high on the application fee, I would be wary of that. That I think would scare potential tenants away. I believe our application fee is $50. That’s typically the industry standard and it’s usually $50 per applicant. Um, and you want to know what the screening process looks like. You don’t want to be putting felons in the property or people that have a ton of outstanding debts, um, or they have very low credit score. Below 550 in my opinion, is very, very low. You also want to make sure that they have a good rental history with previous landlords.  So you want to double check on all that.  

So know the process through and through. And then that goes into what are your screening requirements, know what the requirements are. So you know what you’re getting yourself into. You don’t want property management companies that are just putting anybody in these homes, you want to take them through a very rigorous screening process because these investments, very much rely, the success and failure relies on the type of tenant that’s going to be placed in the property. Do you run the tenants by the owner before you approve them? Um, many of our tenants or owners, they just sign a power of attorney with us. They let us kind of handle that for them. They want the truly passive experience. You know, they know what the screening process is, they know that we’re not going to take anybody that doesn’t meet the screening process and they give us that power of attorney to just place that tenant for them.  

Um, but that’s kinda how we make our model. Very passive and investor friendly. Uh, other property management companies are probably running all applications by the owner first. Just know what that process looks like. What do you charge for your application process? Like I said, $50 is typically what we’re charging. But know what that fee is. Late fees, uh, what is your late policy? Um, what is your late fee amount? Who keeps the late fees? If the fees are not collected from the tenant, will you still charge the owner for them? How many late payments does it take to have a fee assessed? What is your late policy? Typically companies are, after the fifth of the month, the late fee kicks in. What is your late fee amounts? Most companies, I believe the late fees, probably $50, maybe $100. There also might be thresholds. You know, if it’s late after the fifth, it’s a 50 dollar fee.  

If it’s late after the 15th, it’s $100 fee. And then after that, it’s eviction. Whatever it may be, know that process, who keeps the late fees? Generally, you’re going to see that the property management company keeps the late fees. That’s a lot of work to try and go and collect this rent on behalf of the owner. Some companies may share the late fee with you as the owner. Just know how that process works as well. Uh, if the fees are not collected from the tenant, will you still charge the owner for them? That answer should be no. And how many late payments does it take to have a fee assessed? One late fee, one time missed or late rent accounts for a fee. I mean any professional management company should have what the late fee structure is clearly stated in the property management agreement and also the lease agreement with the tenant. Evictions. How many evictions did you perform last year? Typically with lower-class properties, C and D class properties, you’re probably going to see a much higher volume of evictions. When you get into high B or A class inventory, you’re probably not doing as many evictions. So I would know, you know, what type of, what does the portfolio look like, what does this portfolio look like that you’re managing? Is it comprised mostly of C investments? Is it comprised mostly of A investments? And then understand, you know, if a property managers managing 500, 1000 C class doors, they’re going gonna have evictions. If it’s somebody that’s managing primarily A class doors and they still have high evictions, I’d be concerned. Um, that tells me that they’re not putting in the right tenants, their screening process is not up to snuff. It’s not where it should be.  

So it’s a great question to ask though, is how many evictions have been performed? How do you handle the eviction process? Is the eviction part of the cost or is it additional costs? Those are all great questions to ask too. Like at our company, we only charge a property management fee, a lease fee, and a renewal fee. We don’t charge fees for evictions and things like that to go to court for an eviction. There’s no fee with that. We handle that the same. It’s included. But many management companies will charge for an eviction or charge to go to court. You got to look for those hidden fees in the property management agreement inspections. Do you do pre-inspection prior to the tenant move in or out? I think that that’s very important. You know you need to. The property manager needs to have eyes on these properties as much as possible.  

You want to make sure that the house is safe, that it’s up to our standard, um, that there’s nothing broke, nothing leaking, nothing like that. So I think it’s very important to do a pre-inspection prior to the tenant moving in, and then obviously you do an inspection when the tenant moves out to assess any damage or anything that needs to be done and you can assess how much money from the security deposit you can apply to that. How often do you do inspection during the tenant’s term? I think it’s important not to bug the tenant too much. If they’re paying their bills, not making maintenance requests, you know, it’s good to just kind of leave them be. But I do think it’s pretty smart to do a biannual inspection of the property, uh, just to kind of get your eyes on how things are looking.  

How do you document the inspection? Do you send it to the owners? Yes. That should be, yes anyway. What forms do you use for the move in? Move out inspection? Most property management companies are going to have a list of things that they check on the move in and move out inspection. So they should be able to provide that to you upon request. Do you take video and pictures? I think that’s a great question to ask. Um, I want to see videos and pictures of my move out inspection. Um, so when a property manager says, Hey, you need to replace this, this, this, and this. You need to repaint this wall and you need to replace this carpet; well I want to see some photo and video documentation of that. And I think that that’s not a big request at all. And what is your criteria for what you put down on the forms?  

Just, uh, you know, I think that’s a great question to ask as well. If a wall has a few scuffs on it, are you saying, hey, the whole room needs to be painted, or is this touch-up paint? What does that look like? Alright, we’re gonna take another quick commercial break. When we come back we have a few more categories that we’re going to run through. We still have security deposit, tenant damages, we still have maintenance or repairs, vacancy, and turnover. And then finally fees. So let’s take a quick commercial break. When we come back, we’ll finish off with those last few categories 

Hey, welcome back to the Real Estate Cowboys. We’re talking about 89 questions. You should ask any property management company before you hire them. We are on to security deposit, tenant damages. How do you handle the security deposit? Where is it held? I think is a great question to ask. It should be held in an escrow account at the property management company. Um, how do you charge for tenant damage during their lease term? Um, I think that that’s a great question to ask as well. If a tenant breaks something in a house that should go back on the tenant. It should not go back on the owner. And the property manager should do a good job of training tenants to understand that, that hey if your child breaks something, it’s not going to go back on the owner. It’s going to go on you, and set that expectation early with the tenant.  

If the tenant has damages that exceed the security deposit, do you come up with the documents and pursue the tenant? You know, do you take them to collections. I think that that’s a good question to ask. I know we do. All professional management companies should be doing that. When do you return the security deposit? I think it’s pretty much standard in law that it needs to be returned within 30 days after the tenant moves out of the property. If there is no damage and no reason to take any money from the security deposit or even if you take some of the money from the security deposit to fix some things that are not normal wear and tear, you still have to send the remainder to the tenant within 30 days. Do you get approval from the owner first? Yes. Of course, that answer should be yes.  

Do you have lease language that requires the tenant to pay for any damage that they cause that is not wear and tear? That’s a great question. And that should be in the lease, yes. Uh, just a great way to protect the owners. So I think that’s a very important question to ask. Next category. Maintenance and repairs. Do you require a maintenance deposit for each property? Most management companies are going to call that just kind of like a threshold that they’ll escrow, you know $300 in any repairs under $300. They’re just going to go ahead and fix that with the money that you hold in escrow for, for that property. I like that because I want it to be a passive, a passive experience. I don’t need to hear about a $50 repair. I would just prefer the management company just goes ahead and takes care of it and keeps the tenant happy.  

You know, I want that passive experience but some owners might want to hear about everything and you will hear about it with my company. It goes in the portal, tells you what was repaired, shows you an invoice for it and just lets you know, hey, it was a $50 charge, $100 charge and then we just keep that account replenished. So it’s always at $300, just in case there’s a minor repair. Do you charge a markup fee for maintenance? That should be. No, in my opinion, we don’t charge that. We work that stuff up with the uh, contractors and our in-house people, our in-house maintenance staff. We don’t charge any upcharges for maintenance and if it’s something like an HVAC person or something like that, we’ll negotiate with something on them on the back end. So where it’s no inflated pricing to the owner to get something replaced. It just kinda is a deal with the contractor where, hey, we’re going to send you a lot of work. I need you to give us a discount on that work and you know, we can be paid through that discount or whatever it may be. Just know how that whole system works. I don’t think you should have to pay an upcharge for maintenance. I know there’s some management companies that charge for that, for coordinating the maintenance. I would be wary of that. I would kind of steer clear of that. Do you get multiple bids? If so, how many bids and at what threshold definitely should be getting multiple bids on high-cost repairs, you know, a drain breaks, a foundation issue, window replacements, and roof replacement. Things of that nature should come with multiple bids. Uh, is your maintenance in-house or third-party vendors? I doubt management companies keep all maintenance in-house. They’re definitely using third-party vendors for specialty things like foundation, like HVAC, possibly even roof replacement. Um, but then little minor maintenance should, in my opinion, be done in-house and we have like a handyman staff that handles that stuff. That’s how we’re able to keep costs down for the owner. But that’s a great question to ask.   

How do you handle off-hour emergencies? I kinda already went over this, but any management company should have a 24-hour service because you never know what could happen. A pipe could burst in the middle of the night. You need to make sure that that tenant safe and that that issue is being taken care of right away because if it’s left untouched, it can cause a lot of excess damage and a lot of excess costs.  

So what do you consider emergencies? I think that that’s a good question to ask your property management company. What is an emergency maintenance request? How does that look? Do you ask permission of owner or just fix and bill? If it’s an emergency thing, like a burst pipe or something like that. I want that stuff just fixed right away. Bill me later. Uh, I need it fixed immediately. Don’t wait on my response. Uh, that’s my opinion. I’ve done thousands of homes, over a thousand myself. If you leave things unattended, it could cause a lot more damage and a lot more, um, it could hurt your pocketbook a lot more. So I want my property manager to be very proactive with emergency situations, fires, things like that. I mean, yeah, you got to be all over that stuff.  

What are the largest and smallest in average annual repair costs for a single-family property over the past three years? I think that’s good to know. What are your small little knickknacks stuff that that happens? What are the large things that happen? What is the annual that you’ve seen across the portfolio? If you’re a property manager has been in business for a while and they’re managing a good number of doors, they should have that information readily available. What was the reason for the largest repair costs? Hey, throw it out there. You know, the large repair costs you saw this past year. What was it and what was the reason? Do you troubleshoot with your tenants when they call for repairs? That answer should be yes. Definitely, want to make sure you know, if it’s something like a thermostat’s not working, change the batteries. I mean, there’s, there can be easy, easy fixes for a lot of this stuff.  

Let’s get into vacancy and turnover. How much time between tenants do you leave?  You know, I would want to know what is the average turnover timeframe? Um, you know, some cities make you go through a municipality inspections and occupancy inspections like St Louis is like that every time the property changes hands, the city needs to get in for an inspection, so that can slow up turnover times that can slow up getting the property released and can increase your vacancy timeframe on turnover. So I think that that’s a great question to ask. What has been your shortest, longest, an average vacancy over the past 12 months? Like I said, if this company’s been in business for a while and manages a decent amount of doors, that should be very easy information to provide. What was the reason for your longest vacancy? Hey, if there was a vacancy for three months, just tell me why. What was the problem?  You know, did it take a while to get the owner to fund the turnover? If there was an extra cost that was associated with a turnover, what was it? You know, just let me know.  

Do you show the property while the current tenant is in the property? In some cases, yes. If the tenant tells us, Hey, I’m giving my 30-day notice, yeah we can start showing that property at that point to new potential tenants. Uh, do you have the heavy termination clause? If it is not rented after so many months? That’s a great question to ask. I just throw that out there. Hey, if your property manager isn’t doing their job getting your property leased for you, do you have a way to get out of that property management agreement with no penalty?  

Finally, we’re going to go to fees. This is, this is important, but like I said, don’t make the fee structure your ultimate decision on what property management company to go with. I think that fees are important. You obviously don’t want to overpay. Like I said, 10 percent is the industry standard. If someone’s charging more than that, I’d be wary of it. But Hey, if someone’s charging 10 percent, and I like the answers that they gave me on these previous 80 questions that I asked, I’m probably going to hire him because it seems like they got, you know, good practices in order, proper infrastructure and seem very professional. I don’t mind paying a company like that 10 percent. What does the monthly fee include? Uh, do you have any additional charges or fees? I’d definitely read that property management agreement thoroughly. Give it to your lawyer, whatever. Have them read that. So you’re seeing if there’s any hidden fees or anything like that. So you’re in the know about that sort of stuff. Don’t work with a management company that has a property management agreement that’s riddled with fees, that’s going to just set you up for disaster.  

What does my monthly charge not cover? That’s a good question too. So if a property is vacant, you’re not paying a management fee with my company. And most property management companies should operate like that. The property is not generating income. You should not pay a management fee. But then that also means, like I said, you’re paying for the lawn maintenance, the property management company, we will still coordinate all that sort of stuff, but you’re paying for the lawn maintenance, you’re just not paying us the property management fee while the property is not occupied. Some companies may charge you a property management fee when it’s occupied or vacant though, know what that is.  

Do you charge for renewals? Um, so that’s renewing leases. Some management companies do not do that. Um, we do charge a small fee. I think it’s a quarter month’s rent for renewal and we do that just because we want to keep our leasing agents incentivized to keep tenants in the property too. And the only way to incentivize that is to compensate them. Uh, if we weren’t giving them any sort of compensation to work to try and keep the tenants in place, they would just let the tenants move out so they can collect a full month’s leasing fee or whatever it is. So I think that that’s very important to know; who keeps the fees that the tenant pays? And does the owner pay any fees when the property is vacant? That was a question that I just, or one of the answers that I just gave you, if the property’s vacant, you should not pay a property management fee. But you know, obviously, maintenance that goes along with maintaining the property, that side, then it’d be on the owner. These are all good questions. These are very thorough questions. We’ll have a copy of this questionnaire on the RealEstateCowboysDFW website. Go to RealEstateCowboysDFW.com to download a copy of all of these questions so you can easily send these out to any prospective property management companies. And uh, maybe you don’t want to ask all these questions. 89 questions is pretty intimidating. But, um, I think, you know, you just gotta know your stuff. You’ve got to know good questions to ask these property management companies and keep them on their toes and make sure that you’re hiring the right company. Like I said, do not make the mistake of just hiring a company because they have cheap fees. Make sure that this company has the proper infrastructure in place, has the right knowledge in place, has the right experience in place to professionally manage your investment.  

I say this all the time that I could produce the best property, do the renovation in the best neighborhood and the best market. But if I have a poor property management company looking after the investment, it will fail. So I hope you found this information useful. Uh, for those of you who are interested in learning more about passive real estate investing, go to our website, RealEstateCowboysDFW.com. Download our investor starter package, passive income starter package. Take our investor quiz if you’re not sure what option works best for you. We have private lending opportunities for high fixed rate, double-digit returns, great options for the IRA and 401k crowd, single-family rentals. Take advantage of Fannie Mae financing, leverage 80 percent of the purchase of these homes. We have those options and information on that. And, also vacation rental opportunities in beautiful Belize in the Caribbean. Great options there as well. So if you’re not sure what you are interested in and want to get started, or you’re already an investor and want to explore some of these opportunities in Texas or Missouri or Belize, go to RealEstateCowboysDFW.com, put in your information, join our mailing list, get first right of refusal on all these great opportunities that are upcoming. Learn more about these great opportunities. And once again, thanks for tuning into this week’s episode of the Real Estate Cowboys. I hope you found this information helpful and I will see you next week. Have a great week. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.