The 9 Things You Need to Know About
Property Management Companies
“Still, sometimes it makes sense to hire a property management company (PMC), especially if you’re new to the business.”
A professional PMC can help you conduct your due diligence on a property and learn how to manage it after you’ve closed. In today’s post, I want to give you 9 things to look for when hiring a PMC. I’ll do that by walking you through the key questions to ask and what you should hear in response.
To determine whether a PMC can adequately serve your needs, you need to know where their office is located and who in the neighborhood they’re already working with.
How close are they to the property?
Your manager should be visiting the property regularly. To make sure they keep up with that, choose a company that’s located within a reasonable driving distance.
Do they own any multifamily properties near by?
If one of the principles in a PMC owns property near yours, they’ll be inclined to rent their property first. Move on to a company whose interests don’t conflict with yours.
Do they manage similar properties in the area?
Not necessarily a deal-breaker. Just keep in mind that a 200-unit complex down the street will demand more of your manager’s time and attention than your lowly 15-unit.
Keeping your units rented out is imperative to sustaining consistent cash flow. That said, you need to know how your PMC plans to get tenants into our units.
What marketing methods and channels do they use to advertise?
Whatever specific channels they mention, be sure that your property will be advertised on the manager’s website, Facebook, and Craigslist.
Do they have a marketing plan? If so, what does it consist of?
Marketing a rental isn’t exactly rocket-science, but it does take a certain level of strategic intentionality. The PMC should have a plan in place to not only post your property in the relevant online channels but to refresh each one on a regular basis.
What’s their average turn-around time from when a unit is vacated to when it’s rented again?
Time is money; you can’t afford to wait for a slow PMC to “get around” to filling a vacant unit. Make a note of this number so that you compare several managers to one another.
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3. Tenant Screening, Applications, and Leasing
You want to fill your property with tenants who respect you, the property, and their neighbors. Tenant screening and leasing are the primary tools a property manager uses to ensure your property brings in nothing but high-quality renters.
What’s their process for screening potential tenants?
At the very least, screening should include a credit report, background check, verification of employment, and a call to the potential tenant’s current and former landlords.
What does their lease look like?
Every lease should include the following:
- Names of every tenant
- Occupancy limits
- Rental term
- Monthly rental rate
- Any deposits and fees
- Repair and maintenance expectations
- Rights of entry
- Noise/activity restrictions
- Pet restrictions and fees
How do they conduct a lease signing?
The lease signing is an important occasion to establish a relationship with new tenants and set expectations. Be sure that your PMC will be willing to use this opportunity to communicate your policies (rent collection, eviction, etc.) with new tenants. It’ll be your manager’s job to keep up both the physical appearance and the mechanical operation of the property. You need someone you can trust to stay on top of repair needs and get them taken care of in a timely and economical manner.
How do they handle tenant emergencies?
It’s important that you hire a PMC that takes seriously its responsibility to provide a safe, serviceable environment for your tenants. That said, pass on any managers who don’t keep a 24-hour emergency hotline.
How often do they inspect units?
Judging by the age and condition of the property, use your best judgment to decide how often the PMC should look at each unit. What matters most is that they do regular inspections to ensure expenses don’t multiply due to deferred maintenance and neglect.
Who does the repairs?
Either the PMC’s maintenance staff will do repairs, or they will subcontract the work. In either case, make sure repairmen are licensed and insured to cover the scope of the work and that they’re reasonably priced. Maintenance is often a lucrative profit center for managers, so look closely what they intend to charge you for repairs.
5. Rent Collection
A streamlined, meticulous process for rent collection makes for reliable monthly income. Look for a PMC who understands that basic principle.
What’s their procedure for collecting rent?
What’s spelled out in the lease concerning deadlines and late fees? Also, how do they actually collect the funds? A physical check at the office? Online payment? In the case of the latter, find out what fees are involved.
How often do they report rental income?
Some PMCs will offer to send quarterly reports. In my judgment, you should insist on receiving a monthly statement. That way, you can keep a closer eye on operations and address any inconsistencies right away, rather than on a three-month lag.
Don’t make the mistake of sitting back and letting your PMC work on auto-pilot. I know from experience that’s how you set yourself up to be taken advantage of.
What reports do they provide?
Here’s what they should give you:
- Income statement
- Expense statement
- Current rent roll
- List of all vacancies
- List of all delinquencies
- Annual budget
There’s no avoiding it: a property manager is going to cost you. That’s one of the reasons I ultimately advocate for self-management once you have enough of an infrastructure to take it in house. (but only after you stop buying property) You do not want to distract yourself from acquisitions to manage. With a little research and smart shopping, you can keep your management costs down to a reasonable level.
How much do they charge?
A PMC will typically charge around 4-8% of your gross monthly rent. For small properties, however, they may charge upwards of 10%. Shop around to see who can offer the best rate without compromising on value.
Are there any additional leasing fees?
A PMC will often charge a leasing fee when they rent a vacant unit. This fee can range from 50 to 100% of the monthly base rent. Depending on your market, this expense can be passed on to the renter.
“Nobody is perfect. Accidents happen, and mistakes are made. Protect yourself from legal liability by hiring a licensed, insured management company. “
8. Licensing & Insurance
Are they licensed?
Like any other real estate professional, property managers are required by law to carry a license in the state where they operate. Google ‘[your state] real estate license search’ to find your state’s online resource for looking up active licenses.
Do they carry liability and errors & omissions insurance (E&O)?
States also require that property managers carry both liability and E&O insurance. Get your hands on copies of both policies so that you can review them with your lawyer.
Once you’ve satisfied yourself concerning the previous 8 categories, then you’re ready to start talking about contract terms.
Can you see a sample of their contract?
A PMC shouldn’t hesitate to provide you a redacted or sample copy of the contracts they use with existing landlords. Take the time to review that contract with your attorney.
How and when can you cancel the contract?
One of the most important terms to look for is the contract’s cancellation clause. If the PMC fails to do their job, what rights do you have to terminate your agreement? If a manager refuses to make this concession, then move on to the next one.
Is there an exclusive right-to-sell agreement in the contract?
Many PMCs will slip a section into the contract giving them exclusive rights to list your property in the event you choose to sell. Don’t agree to it. Whether you’ve established a relationship with another broker or not, you want to leave your options open for the future—especially, if you can sell the property without using a broker at all.
We’ve gone through quite a bit here. But, when it comes to hiring a property management company, you need to do your due diligence. No other partner will have as direct an impact on your property’s success than its manager.
So, take your time and choose a good one. Your bottom line depends on it.