Every real estate investor wants the same thing: freedom. Those of us that discovered the wealth building power of real estate investing most likely did so after years and years of working hard at a dead end job, feeling unfulfilled with his/her career or realizing that working a 9-5 was no way to live. Investing in real estate can be a liberating endeavor. One quickly realizes, however, the amount of work it takes to ensure that one’s portfolio performs. As liberating as investing can be, it can also be very overwhelming once one’s portfolio reaches a certain size. Managing properties is a difficult task and there are few qualified enough to do it well. When one reaches a point where one decides it is time to hire a property manager, one can find that it is difficult to discern between a qualified and unqualified manager. Below you will find a list of ten (10) questions one may want to ask, while interviewing a property manager. It is not an easy task but can bring you the freedom you sought after, when deciding to invest in real estate.
1) What services does your company offer?
You will want to find a property manager that provides “full service.” This means that the manager can lease, manage, maintain, and sell your property. Leasing can be tricky and only the best managers have put systems in place to attract and find the best tenants possible. Maintenance is also a factor. You want your tenants happy and proper maintenance of your property is key to retaining quality tenants. Collecting rent on time and ensuring that your property is financially sustainable is another key factor in property management. In the end, you may decide to sell your property and move on to other projects. Who better to market and sell your property than the manager who intimately knows it? You manager should be licensed and able to list/market/sell your property.
2) What is the size of your rental portfolio?
This can be a tricky question. A manager with too few units may not have the proper experience. A manager with too many units, may not be able to offer the level of care you deserve. Try and look for companies with 200-400 units. This seems to be the sweet spot.
3) Are you an active real estate investor in your market?
The best managers are those that are also real estate investors. They know what it takes to ensure that your property performs because they have dealt with the same issues you have and have failed exactly where you have failed. With this experience comes a level of wisdom that cannot be found in managers that do not actively invest in real estate.
4) How do you determine rent amount?
A property manager is a licensed real estate professional and would most likely have access to your local market’s Multiple Listings Service (MLS). This allows them to do a comparable market analysis and compare closed rental transactions with currently active rental listings to be able to determine the most accurate rent amount for your property.
5) Do I have to sign a contract? Is there a penalty for early termination?
Most managers will want you to sign a contract to be as transparent as possible about their services. The best managers will not lock you into a long term contract. Try to find managers that will offer a yearly contract with a 30 day notice to cancel with no penalty.
7) What are the management fees and/or pricing options when the property is being rented?
Try and avoid managers that charge a flat rate for rentals. This causes them to become less motivated since they will make the same regardless of who is in the property. The best managers will charge a percentage of gross rents collected. This incentivizes them to ensure that you get the highest rent possible and the best quality tenant. Fees range from 6%-10% depending on the number of units, with the percentage decreasing as the number of units increases.
8) Do you use a property management software?
The best property management companies will use software that automates various processes. From collecting rents to paying their owners and vendors, there are a plethora of options for managers to use when it comes to property management software. Such programs allow tenants to pay their rent online, direct deposit for owners and vendors to avoid mailing checks, automate the reporting of maintenance issues, as well as facilitate proper accounting of all income and expenses for each owner.
9) What is your process for screening prospective tenants?
This process is key to the performance of your property. Property managers must have standards and criteria in place for screening tenants to ensure the best quality individuals are allowed to rent your property. This process should include a credit check, criminal background check, personal and professional references, and maybe the most important criteria, their rental history. If you are unable to speak to their current landlord and possibly landlords from previous properties, this is a red flag. Find out why they are moving. It could be that they have a pending eviction or are not in good standing with their current landlord. These are things you need to find out before accepting applicants. You property manager should be able to accomplish this.
10) Do you mark-up maintenance and repairs?
Property managers should not be marking up maintenance and repair expenses. This will greatly affect the profitability of your rental and should be included in the management fee. There may be exceptions to this if you are relying on your manager to oversee a renovation or some other project that falls out of scope with regular management. Make sure to be specific and ensure that the manager is extremely transparent about this.
We’re hoping this article has been helpful to you and has given you more insight into the world of property management. It is funny, most investors get into real estate because they want “passive” income. You quickly realize how non-passive real estate can be as your portfolio grows. A property manager can be a great partner and help you carry much of the burden of management, so that you can focus on growing your business.
Looking to be more hands off with your investment property? Give us a call at (786) 758-3100 to ask about our Property Management services.