What to Look for in a Good Property Management Company
Rental property investors have enjoyed buying, owning and selling income investment properties during this phenomenal period of economic growth and prosperity. It’s not over yet because the rental market has a growth outlook for 2020 and beyond.
You may have built up a sizable portfolio of properties doing all on your own. And now you’re looking for some help with property management.
How to Choose a Property Management Firm?
Given the complexity of managing properties physically and financially a property management company can add a lot of value. From buying and selling, to tenant management, to property accounting, they might be your savior. But out of the many, which should you hire?
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Property Management Software
Even property management firms big or small use specialized software. Without it, they can’t be effective. Property management software (online apps) lets them manage and communicate efficiently, anytime and anywhere.
When You Own Many Properties
At the point that you have above 25 properties, you may need help. You could begin by hiring an assistant or handyman with some experience. But at 100 property plateau, you may find it difficult to keep up with the demands of tenants, leases and onboarding, processing receipts, bills, and payments, and managing upkeep and repairs.
If you’re at this point and pondering this gut wrenching decision, we’d like to offer our thoughts on what to look for in the best property management company. Whether you’re in Texas, California, or Florida, property management is similar.
You need to be smart with a long term view to ensure your business is protected. You’ll come up with a value estimate of their service and know what you must willingly pay to get that value from them. That’s good business!
Experience, Professionalism and Hard Working
Local laws and building codes, local and state tenant rights and landlord responsibilities, and building structures are unique to each state or region. A California property management company will have unique knowledge and experience compared to a Florida property management company or one in Texas.
Other than knowledge specific to local housing markets, property types, and service trades, you need them to get work done, and done efficiently without you having to push for it and check every day. And keep you informed.
The Value of a Good Property Management Company
What makes the best property managers worth their weight in rent money? Here’s 10 areas to investigate with some questions you should be asking.
1. Tenant Marketing: As covered in the post on Tenant Advertising, they may be able to target and sign high quality tenants that pay on time and keep tenants. Ask them how they manage tenants from start to finish, set the right rent price, and then verify their tenant retention rates.
Where do they advertise, what does their website look like, and do they use the MLS? What is their current vacancy rate? What is their cost per lead? If they’re on top of these things, they may be a competent property manager.
2. Tenant Screening: The task of tenant screening is vital since the risks of nightmare tenants can ruin your business and cash flow. Ask them about the top 3 questions they ask tenants which might be: who are your previous two landlords, why did you leave previous rentals, and why is this rental so important to you? Yes, use credit checking and renter background checks, but ask them what they do to mitigate the limitations of these reports.
3. Tenant Onboarding: Greeting tenants writing leases, getting them amended and signed, informing them of their obligations in the home, helping them get settled, and arranging rent payments.
4. Tenant Communications and Relations: Check the quality and frequency of their communications with tenants. Read reports and ask about specific tenants to verify that they really do keep in touch and get concerns and requests handled effectively. If they have tenant software, you may be able to verify by seeing those records. Ask to speak to at least 3 of their tenants from different homes or buildings. Do you believe they will be good for your tenants? Do they speak respectfully and professionally? Are they friendly?
5. Are they tech savvy? Property management and landlording are undergoing big changes due to digital technology tools such as landlord apps, property management apps, accounting functions, and online services.
More property owners, landlords, and managers are utilizing software. Find how they handle maintenance tickets from tenants? Are the software apps simple enough that owners, tenants and contractors feel comfortable using them? Check the software they use and the reports they prepare. Are you comfortable with them?
6. Property Inspections, Maintenance and Repairs: Do they know their housing and mechancial systems? Ask them to describe their property maintenance and repair program. Does it all sound too good to be true? Check their maintenance schedules and assess what was done. Ask to view the properties and check out the quality of the work. Ask to see what was done, fixed, or replaced and why.
7. Rent Collection and Late Payments: How do they accept rent from tenants: checks, etransfer, bank transfer, paypal, or other electronic payment processors? Review payment records and note how late the overdue payments were. Ask them how they handled specific cases of delinquent payers. If they’re managing a budget and large funds, are they bondable?
8. Contractor Management: Contractors can steal your money, produce shoddy repairs, not maintain the property, and create disasters. Ask about who the most reliable professional contractors are which they use and why they chose them. Ask about contractor problems, ask for names and company names, and how the problem was resolved, or if it actually ever was resolved. Investigate these contractors on your own to gauge whether you feel comfortable with their professionalism and prices.
9. Property Management Fees: What are their yearly fees and what risks are there for you if something goes wrong? Do they charge by the property? Will they take responsibility for late payers or a default? How much will they charge if you add 3 to 10 more properties? Do they have property manager insurance and have made a claim? Do they provide detailed owner reports and income reports?
Do they break the fee down into type of property and a percentage of rent? It is usually 4 to 12% of monthly rent but could be up to 20% for small portfolios. You might want to build in a performance penalty/bonus to test whether they’re confident of their skills. Ask them if their fees are billed or deducted directly from owner accounts.
Do they need a reserve fund or maintenance fees up front? Do they notify you beforehand on maintenance/repair work of more than $500. How do they protect you from contractor fraud? Do they have their own contractor crew and how do they charge for that service?
Do they charge a fee for serving notices, dealing with attorneys, court appearances, evictions, etc.
How much is their leasing fee? 30% to 100% of first month’s rent is normal, however can they guarantee quality tenant results? Will they agree to a penalty if they bring in a tenant that leaves within 12 or 24 months? If you find a good tenant on your own, do you still pay the leasing fee?
What is the term of your agreement and how can it be terminated? What are the fees if you cancel early?
There are plenty of fees they could charge you so it’s best to know beforehand how much that could all add up to, before you sign a property management contract.
10. Property Management Experience: What properties have they managed: houses, condos, large apartment buildings? How long have they been in business? What are the qualifications and experience of their current staff and contractors? Visit some of the properties they currently manage. Ask them questions about some of the issues you find, and complement them on positives.
It Takes More than Common Sense to Make a Good Decision
There you have 10 areas of concern to drill down on. Some would call this common sense, but there’s enough complexity here that you could be on the hook for some substantial financial losses. Ask yourself what is the worst that could happen.
In the final analysis, you need to assess accurately what they are worth in dollars and whether they will take care of the property and your tenants. They should be able to present you with a quantifiable report on their success and that report should be deep and real, not something that looks like a press release or brief summary of accounts.
Add up all the fees that would apply to your current and projected future tenants over 5 years. How much will you need to raise rent to cover these fees to protect your property investment ROI? Will your ROI grow?
Reliable, Trustworthy Property Managers
Reliable, trustworthy property management companies will be as transparent as they can legally be with you. The usual process of catching them with an untruth is good.
References are also okay but everyone has a few prepared/coached references that will speak well of them. That won’t really help you. Instead, you’ll learn more from why other former clients did or didn’t work out.
If they had clients that didn’t work out, it might only suggest they took on the wrong clients out of financial pressures. So are they doing that with you? Their philosophy of customer first is critical because your tenants are your financial lifeblood. A little extra charge isn’t important if your big picture is taken care of.
In need of a property management firm near you? Get your sourcing started with California property management companies, Arizona property management companies, Hawaii property management companies, Florida property management companies, Colorado property management companies, Illinois property management companies and Boston property management companies.
Best Property Management Tips
See also: Property Maintenance Checklist | Best Time to Sell Property | Landlord App | Best Rental Property Management Software | California Housing Market | San Francisco Housing Market | Texas Rental Market | South Florida Rental Market | When to Buy Rental Property? | Rental Housing Market | Rental Property Management Software | Time Management for Landlords |Apartment Rental Price Growth | Energy Efficiency Tips | Apartments for Rent | Renters Insurance |Best Cities to Buy Rental Property | How to Reduce Tenant Turnover | How to Use Rental Property Software