11 Apr 7 Questions to Ask Before Hiring a Property Management Company
Here is a simple question. Would you hand over $200,000 in cash to a stranger after reading a few pages of their website and say, “Here, take care of this for me and don’t lose it.”? It sounds silly, however that is exactly how many landlords go about hiring a property manager.
All property managers are not created equal and retaining the services of one should not be entered into lightly. After all, you’re giving them control of your extremely valuable asset.
In fact, at the beginning of 2018, the median home value in the United States was estimated to be $210,200. So in essence, the average landlord is handing a property manager nearly $200,000 to take care of for them.
Regardless of whether your investment home’s value is above or below the average, invest the time to do your homework when researching which property management company you are going to hire so you can feel confident you’ve given your asset to the right company. The questions you need to ask go well beyond simply finding out what their fees are.
Ask the following questions when interviewing property managers and you’ll be well on your way to selecting the best company to meet your needs.
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Contents
1. How long have they been in business?
Select an established company
Starting a property management company is surprisingly easy and a savvy individual can make their basement closet operation look like a Fortune 500 company online.
It is not advisable though to risk your high value rental asset to the management abilities of a company that is just getting started on a bootstrapped budget.
One of the significant values of hiring a quality property manager are the relationships they bring to the table – relationships with maintenance vendors, HOAs, insurance companies, etc. A new company just getting their start will not bring this value to the management of your property.
Sufficient staff
Property management is an extremely task intensive business.
Property managers have to manage an array of activities such as advertising, showings, background screening, lease contract preparation, make-ready repairs, inspections, maintenance coordination, rent collection, owner statement preparation and customer service requests from tenants and owners.
This is doable for one person when only managing a small portfolio of properties. But what if the company manages 50, 100, or 200+ properties?
Do they have a sufficient staff in place to ensure important tasks related to your property aren’t dropped? Is one team member responsible for the end-to-end management of your property, or are they departmentalized where multiple team members handle specific areas of management?
Track record of good reviews
Getting a lot of 5-star reviews over a short 1-3 month period isn’t as difficult as receiving good reviews over a sustained period of time. Make sure the company you are considering has a good track record of 5-star reviews over multiple years.
Also consider that it is a lot easier to get great reviews when the company is a one-person operation with the company owner doing everything. Business owners obviously have a vested interest in their company and go above and beyond to give good service.
For a more established company with a team of associates, consistent 5-star reviews shows that the company has excellent business systems in place and a culture of customer service that results in a consistently positive experience for their clients.
2. What are their fees?
If you talk to 10 different property management companies, you’ll be quoted 10 different pricing models. This can be confusing for property owners who are unfamiliar with the industry.
Some management companies may even leverage this induced confusion to their advantage.
The primary thing to be cautious of are unusually low fees. Quality property management isn’t cheap to provide.
There are salaries to be paid for quality staff members (you know, the people who are actually taking care of your property), investments in advanced technology tools, licensing costs (most PM’s must have a real estate license), insurance costs (liability insurance, errors & omissions insurance, workers comp insurance, vehicle insurance, etc), and a host of other costs just so they can have the privilege of getting to serve you.
If the fee quoted seems significantly lower than the average of other quotes, you’ll want to dig into their fee structure and/or service plan more deeply.
Be on the lookout for: 1. bait-and-switch fee arrangement, and 2. stripped down service offerings.
Bait-and-Switch Fees
You’ll typically start with either a phone call or in-person meeting with a potential property manager. During this discussion, they will quote you their “general” fees and this is usually what most owners will formulate their hiring decision on.
The next step is the written Property Management Agreement.
It is not uncommon for these documents to be in excess of 20 or more pages and written in a manner that would require most people to have a law degree to fully understand. And it is in the details of these pages that some management companies will include a host of “nickel and dime” fees that more than make up for the fantastically low rate they originally quoted you and you hired them based off of.
When adding up these unforeseen costs, you may find that you end up paying more than what the average management fees are for other companies.
Stripped down service offerings
The other way some companies are able to provide lower than average fees is by stripping down their service offerings. Now this may not be a bad thing if your primary concern is achieving lower than normal management costs and you’re concerned to a lesser extent with lower overall management of your property.
However if you are expecting high-level, high-quality management service, don’t let the shiny low price blind you from investigating whether or not the management company is offering less services than you’re expecting.
3. How is maintenance handled?
When hiring a property manger, the management agreement will usually give them authority to incur costs on your behalf for maintenance expenditures. This is important that they have this power so that they can promptly respond to legitimate maintenance requests from tenants.
Most property owners however are not comfortable with giving their property manage carte blanche authority to go spend whatever they see fit.
This is where having a pre-authorized spending limit addressed in the management agreement for non-emergency repairs. The amount of this limit will vary from management company to management company, and can be specific to the kind of property they are managing for you. A common range is between $250 – $500.
Outside vendors or in-house
You’ll want to know if the management company contracts with outside, independent vendors, or if they have a maintenance team on staff. Neither way is necessarily better than the other, but it is important for you to understand how each can impact you.
If they are using in-house maintenance, you’ll want to consider what their fees are compared to using outside companies.
Also, does the management company require that you use their in-house maintenance company? If so, this can potentially cause a conflict of interest because now the management company is not only making an income from managing your property, but also by having repairs done to your property. This could possibly create an incentive for them to have unnecessary repairs performed at your expense.
Vendor markups
If outside vendors are used for maintenance, you’ll want to be sure to ask if the management company marks up the maintenance invoice or if you only pay what the vendor charges.
If property managers are required to be licensed by the real estate commission in their state, it is most likely a requirement that they fully disclose to you any markup they receive on services they recommend or contract for on your behalf. Don’t wait until after you’ve signed a management agreement with them though to find this out.
Ask up front while interviewing them.
Similar to the potential conflict of interest created when using in-house maintenance that we mentioned above, marking up maintenance invoices potentially creates a financial incentive for the management company to have unnecessary repairs completed on your home simply so they can generate additional revenue at your expense.
Bids for costly maintenance
For more costly repairs, does the management company have a standard practice to get multiple bids?
This isn’t practical for the odd and end repairs such as the occasional garbage disposal replacement or faucet leaks. But for high tickets items – furnace replacement, major appliance replacement, painting and flooring – it’s a good idea to have at least 2 competing bids so that you can be sure to get the best price and quality.
24-hour emergency service
While property managers would love for all floods or heating outages to occur during normal business hours Monday – Friday, they commonly happen at night and on weekends.
You’re hiring and paying a property manager to service not only your property, but your tenant. Are they available 24 hours per day, 365 days per year, to handle emergency maintenance needs?
Not only do they have the ability to receive the call, but do they have maintenance vendors available to also respond to emergencies during off hours? One of the benefits of having a property manager is that you don’t have to deal with those calls at inconvenient times, but make sure that your management company does.
4. Do they conduct routine inspections?
Move-in/Move-out Inspections
One of the biggest mistakes that do it yourself landlords commit is not completing a thorough move-in inspection prior to a tenant taking occupancy. Even more surprising are property mangers who don’t complete a move-in inspection.
Hey, doing a move-in inspection, especially doing it right, takes time and many management companies don’t have appropriate staff levels to complete this all important step in the move-in process.
It is important that you ask them if they take the time to complete their own, independent, move-in inspection, or if they merely give a blank move-in inspection packet to the tenant and depend on the tenant to complete it. It is highly unlikely that the tenant will take the time to complete this inspection which results in ambiguity regarding pre-occupancy condition.
Where the move-in inspection helps is at the end of the tenancy when the tenant moves out and claims are needed to be made against the security deposit for cleaning and/or repairs.
The counter part to a good move-in inspection is the move-out inspection. Ideally this is on the same form as the move-in inspection, however the most important thing is that the move-in inspection can be easily compared to the move-out inspection.
This allows the landlord/manager to be able to definitively prove that damages or needed cleaning discovered at move-out were not pre-existing at move-in. Having supporting photos and/or videos is also extremely important in the case a tenant decides to challenge a security deposit claim in court.
The security deposit dispute is one of the most common disputes between landlords and tenants. If there is not sufficient documentation to substantiate that damages or cleaning clearly fall on the tenant, the legal system will usually favor the tenant in residential rental disputes.
For this reason, it is extremely important that the property manager you hire not cut corners in this area.
Periodic Interior Inspections
You will also want to ask if they conduct periodic inspection during the course of the tenant’s lease in addition to the inspection at move-in and move-out. Doing routine inspections has a host of benefits:
- Discover lease violations – Believe it or not, most tenants don’t remember what the lease says. They may be committing violations without even realizing it and addressing it during an inspection is a great way to straighten the situation back out without it becoming a big deal.
- Discover needed repairs – Opposite the tenant that calls you every other day with maintenance requests is the tenant that never calls. Usually these tenants don’t want you to view them as troublesome or annoying. So instead of telling you about that minor drip under the kitchen sink, they just through a bowl under it. The problem is that small maintenance problems have a tendency to become big problems if left unaddressed. Getting in the property a couple times a year is a great way to catch these issues so they are dealt with.
- It keeps the tenants on their toes – It’s good for the tenant to know that they are not completely unsupervised. If knowing the property manager is coming makes them scurry around and fix any issues/non-compliances, then the inspections are fulfilling one of their major purposes. The idea isn’t to “catch” the tenant doing something wrong. The idea is for nothing to be wrong to begin with. Inspections help accomplish that.
Once again though, as with move-in inspections, doing periodic inspections takes time and effort. If the management company is over worked and under staffed, they won’t have time to complete these inspections and therefore may not offer them as a part of their service.
Inspections additional or included
So you made sure that the management company does in fact complete inspections. The next question is do they charge for them? It’s by no means a red flag if they do, but you need to know that up front so you can factor it into your total cost of management.
This feeds into what we discussed in Question 2 regarding fees and knowing what their standard fee covers or if there are going to be surprise fees as you move forward.
5. Do they embrace technology?
In today’s age, technology has become integrated in everything and property management is no exception. Property management companies must take advantage of available technology and online tools in order to meet the needs of both owners and tenants.
Not only should you as the property owner expect this, but most of your tenants will as well since the largest group of renters today are part of the millennial generation. Here are some of the key online and tech tools that the property management company you choose should have.
Online rental application
After the showing is complete, most property managers will require a rental application be completed as the first step of the approval process. This should be available to the tenant both online from either their computer or a mobile device.
Nothing says “we’re old school” like handing the tenant a paper application packet and telling them to bring it by the management office. Online applications make the process much faster and increases the chances that the prospective renter will actually fill out the application.
Rent payment online
As more and more people are going online to pay their bills, it is essential that they also be able to pay their rent payments online. This has many benefits.
First, the tenant doesn’t have to drive a rent check across town to the management company’s office or put it in the mail and depend on the postal service to not lose it.
It also speeds up the notification timeline for bounced payments since there isn’t a paper check that has to be driven to a bank for deposit.
Online maintenance requests
When it comes to houses, things break, and when they do, your tenant will want to have these items fixed. Handling maintenance is one of the most common reasons that landlords seek the assistance of a property management company in the first place.
Other than emergency request or other more complex maintenance issues, most maintenance needs are fairly routine. Garbage disposals leak, window locks break, garage door springs snap, etc.
Having an online maintenance request function is essential to handling the large volume of maintenance requests that a manager will receive.
Consider these scenarios. The tenant calls the property manager to let them know that their garage door won’t go up and it appears that the spring has broken. Since the property manager was driving when they got the call, they couldn’t write down the information and completely forget about it before they get back to their office. Result? UNHAPPY TENANT.
With an online maintenance request feature, the tenant instead submits a written request describing the problem and is able to upload photos of the broken spring for the property manager and repair vendor to view.
Now their is an electronic paper trail for the request and a better chance that it will be addressed promptly when the property manager arrives back to their office.
Electronic owner financial statements
Most property management companies will provide their owners with monthly owner statements that show the breakdown of the income and expenses generated on their property.
In todays age, you shouldn’t have to wait for a paper statement to be mailed to you. Your property manage should be able to send these out electronically.
Owner and Tenant portals
The hub of most of these technology offerings is the Owner and Tenant Portal.
There are many routine interactions that take place every month between both the owner and the management company, and the tenant and the management company. Many of these interactions can be conducted on a self-service basis through an online portal for expediency.
As an owner, you should be able to login to your portal to get your monthly owner statements, yearly Form 1099 at tax time, download documents such as copies of lease agreements on your property or the management agreement, and submit additional funds to the management company if needed to cover repairs costs.
As mentioned before, your tenant will need to pay rent each month and this feature will usually be available in their tenant portal. The online maintenance requests function also should be available through the portal along with the ability to download their lease agreement at any time in case they misplaced it.
6. How do they communicate?
If you read the negative reviews for multiple management companies, you’ll find that the underlying theme is poor communication. This is the number 1 complaint most owners have and the reason many owners decide to change management companies.
Do your research up front to determine the quality of communication for the management company your are considering.
Who will you be speaking with?
The first thing you’ll want to know is who you’ll be dealing with.
There are predominately two different organizational structures for property management companies: Portfolio and Departmentalized.
There are arguments on both side as to which is the better structure however and we won’t dive into the merits of each in this post. However it’s important for you to be aware of how the company you’re choosing is structured so you’ll know what to expect in regard to how communication will be conducted between you and them.
In a portfolio system, you will usually be assigned a single point of contact and this is the primary, if not the only, person you will speak to or email with. This person (usually called your Property Manager), will handle almost all of the activities for your property from leasing, showing, maintenance, delinquency processing, and so on.
In a departmental system, there will be a team of individuals working on the various needs of your property. You may still have a single point of contact for customer service, or you may talk to various team members depending on what the particular issue is.
As mentioned, one way isn’t necessarily better than the other. But it’s important for you to know what to expect so that you aren’t frustrated along the way.
Response time
How quickly do they return phone calls? Will your email be responded to or lost in cyber space? Do they value quality and prompt communication or are your inquires viewed as an annoyance?
Find this out before you sign their agreement. Regardless of how they answer these questions, read their online reviews to see if what they tell you aligns with the experiences of other clients.
7. Are they members of NARPM?
NARPM stands for the National Association of Residential Property Managers.
Property managers who are members of this organization are required to abide by a code of ethics that governs how they interact with you the owner, the tenant, and other property managers. They also receive regular continuing education specific to the property management industry resulting in a higher level of knowledge and professionalism when it comes to managing residential properties.
Do not assume that all property managers are a member of this organization. In fact, the majority are not.
Being a NARPM member, especially one with a professional designation such as the RMP (Residential Management Professional), requires a commitment of time and money in order to meet the requirements of membership and designation.
If a property manager is a member of NARPM, there is a much better chance they they consider property management to be their primary area of focus and they aren’t a real estate sales agent or company that merely dabbles in property management.
Just like serious dentists are members of the America Dental Association, and serious lawyers are members of their state and local BAR Associations, serious property managers are members of the National Association of Residential Property Managers. Don’t hire one who isn’t!
Find out if the property manager you’re considering is a NARPM member here.
Summary: Blessing or Curse
Having the right property manager overseeing your rental property can be a huge blessing and give you peace of mind knowing that all of the common headaches and hassles of landlording are being handled by a competent professional.
Hiring the wrong property manager on the other hand can be a curse that results in a nightmare you just can’t seem to wake up from. Don’t let this happen to you. Take your time when researching companies and, armed with these questions, be confident that you’ve partnered with the right company to help you achieve your rental investment goals.
