Questions to Ask When Hiring a Property Manager
Written by a 3rd Generation Property Manager
1. How long has your company been in the property management business in my area?
This question is very important today for a many reasons. First of all you need a property manager who is familiar with the local rental market including local laws, rental rates, marketing strategies, qualified contractors, etc. Second, you want to make sure you are working with an experienced and established company. Many real estate agents are turning to property management as a "side business" to get them through the slow selling market. Having a real estate license does not automatically qualify someone as an experienced Property Manager. You don't want a inexperienced property manager representing you with a standard lease agreement from the office supply store.
2. Who specifically will be managing my property and making decisions on daily basis? Are they a licensed real estate broker (required in Colorado)? Do they have assistants?
One of the most common complaints from owners in the property management industry is that they can't get a hold of their property manager. We get a lot of clients transferring to our company because of this. Many companies take on more properties than they can actually handle and they can't be responsive to their owners. If they don't respond to their owners what's the likelihood they are responding to tenant issues at the property?
It's best to have one central point of contact for your property. We believe this is the most efficient and effective way to manage any investment; commonly called "Portfolio Management". It's confusing to everyone involved when multiple people are answering the phone and making decisions for the same property.
3. What are your management fees and other fees/costs?
To compare "apples to apples" between different companies you need to know how much you are paying for all their management services. It's not as simple as "10%". There are lots of different ways that property management companies make a profit. Here are some specific areas to ask about:
Signage (placement of signs on the property)
Leasing Fee (upfront fees to find a new tenant)
Re-Leasing Fee (renewing a lease with an existing tenant)
Management Fee (percent of monthly rent withheld)
Maintenance/repair mark-ups (charging you more than the vendor invoice)
Inspections (included or extra)
Typical Move-in/Move-out expenses
Beware that property management has become a business about hidden fees and mark-ups for some companies. Some property management accounting programs allow managers to hide fees from owner's statements and mark-up costs behind the scenes.
Ask for an all-inclusive fee schedule for a typical 12 month period.
4. Accounting: When/how do I get paid? Can I see a sample monthly and yearly account statement? Is there a reserve amount kept in my account? What spending limits does the manager have and what needs owner approval?
The answers to these questions vary greatly between property management companies. Have a clear understanding of how your rent money is managed and when you can expect to receive your monthly payment and account statement.
Confirm the answers to these questions with the owner references you contact (Question #11 below). A common complaint is this business is owners not getting their rental income when promised.
5. Rent Collection: Explain the rent collection process, due dates, late fees, etc. When am I notified that the rent is late? When is the eviction process started (posting of demand notice)? If a tenant doesn't pay the rent how soon can you have them out?
You want aggressive answers to these questions. You don't want a passive manager letting a tenant get two months behind on the rent before putting pressure on the tenant.
Ideally the property manager will have possession of the property by the end of the first month in which the tenant skips rent. Many managers will say it can't be done that quickly!
6a. Advertising: Where do you advertise properties for rent? Do you take calls and schedule showings over the weekend? How long does it typically take your company to find a tenant for my type of property? Can I see a sample of your "for rent" ads?
These questions are very important and directly effect your vacancy rate- which costs you money. Advertising dollars are cheap compared to lost rents. A property manager should be following market trends and changing their advertising campaign as necessary to get the phone ringing. An advertising campaign that worked well last summer may not be effective 12 months later.
Weekends are when most tenants are off work and looking for housing. If your property manager isn't answering their phone and showing your property on the weekends you are losing money. Before hiring a property manager try to call their phone number listed in their ads and see if you can get a hold of someone and schedule a showing over the weekend.
6b. Advertising when occupied: When do you start advertising/showing properties if the lease is ending and the tenants are not staying? How many days of vacancy should I expect between tenants?
This is a major source of lost rental income in the property management business. There are management companies that refuse to show properties while tenants are living there. Others are "uncomfortable" about it and give minimal effort to showing properties while it is still occupied. It's much easier to wait for the property to become vacant before showing it, but that will cost you weeks of lost rent.
Hint: Find a company's rental advertisements online- are most of them vacant? "AVAILABLE NOW" is the result of someone's poor planning or poor business practices.
7. Who is on call for emergencies after hours?
Every property management company will tell you they have "24 hour emergency response" but is it true? Just as important: who is answering the phone and making what could likely be the most critical decisions of the year? Before hiring a property manager it's a good idea to try their emergency number yourself. Call them on the weekend or after hours and see if someone will respond to you.
8a. Legal: How many times have you been in court (or represented) in the past year for any reason? Last five years?
This includes evictions, tenants issues, owner's issues, security deposit issues, etc. The best indication of future performance is past performance. If a manager is going to court on a regular basis they are probably uneducated, inexperienced, and unorganized. Example 1: If a manager is constantly filing for evictions they are doing a poor job of screening and qualifying tenants. Example 2: If a manager is going to court for security deposit disputes on a regular basis they may have inadequate inspection, documentation and accounting procedures.
The legal system favors the tenant so as a landlord it is best to avoid it.
8b. More Legal: Do you have a REAL ESTATE attorney you can consult when needed? Do you have an attorney handle your evictions? When was the last time your lease and other tenant documents were reviewed by a REAL ESTATE attorney?
Property managers should not practice law and they require easy access to legal advice and representation when needed. The tenant/landlord laws are constantly changing and attorneys who specialize in this area are the best resources.
The Lease Agreement is the most important document involved in this business and therefore should be reviewed and updated by a real estate attorney on a regular basis.
Many property management companies try to handle legal matters on their own to avoid the expense of consulting with an attorney. The end result could be a costly mistake for the owner.
9. Review the Management Agreement and other documents.
Everything must be in writing. READ the management agreement and other contracts. Confirm the terms you are quoted are the same terms listed in the contracts. Ask for clarification or amendments if necessary before you sign anything.
10. DO SOME RESEARCH ONLINE and know who provided the information.
In this "information age" you will likely find a lot of information online about the company you are considering including their own website, reviews, blogs, and other social networking sites. Spend some time "digging up" what you can on your own. Here are a couple tips:
Online reviews are a helpful tool and can be found on the major search engines such as Google, Yahoo, Bing, etc. Many local directory sites also allow users to post reviews like dexknows.com and yp.com. Not all companies will be listed on all the sites. Don't just read the most recent reviews. If a company has negative reviews they will post positive reviews (sometimes even themselves) to "bury" the negative ones so the top few you see at a glance look good. Not every review will be positive but consistent complaints in negative reviews are significant and should be considered.
There are dozens of different websites that are PAID property management specific directories with "pre-qualified", "preferred", or "featured" management companies listed on their site. Many of these sites are paid advertising or pay-per-click campaigns. Management companies are paying websites to list their company at the top of these misleading "directories" that come up when you search common phrases online like "find a property manager". Understand that a "featured" property manager on one of these sites wrote a check to be in that spot and didn't provide any credentials.
Nothing is more valuable than good old fashioned references from actual clients...
11. Ask for references and CONTACT THEM.
When contacting references it a good idea to get some information that verifies the reference is legitimate. In addition to the owner's contact info you may want to ask the management company to provide the street name of the property under management or the date they were hired by that owner. You can verify this information when asking for the reference.