So you’ve decided to pull the trigger and buy an apartment building or rental home – congrats! One of the next steps is choosing who will manage the property on your behalf. Most busy working professionals cannot commit to self-managing rental property. And that’s OK! The important thing is to select the right property manager who can run day-to-day operations for you.
It’s important to realize that not all property management companies are created equally. Some are more sophisticated than others. Levels of experience and rates can vary widely. Some companies may leverage new technology; others may be operating the say way they operated decades ago.
Just as you’d do your due diligence on an investment property, you should be doing your due diligence before you choose the property manager. In today’s article, we outline several steps to pick the best property manager.
Step 1. Research property management companies online.
You’ll want to start by doing your homework on property management companies. A simple Google search for “property manager + [your area]” should turn up a list of many different companies servicing your neighborhood. Once you have this list in hand, you’ll want to investigate each property manager individually.
Before calling a property manager, set up a spreadsheet to track information. Then, start to find as much information about the property manager as you can online. Look at any and all Facebook, Google, and Yelp reviews. What are their customers saying about their experience with this property manager? Look up the company with the Better Business Bureau to see how long they’ve been in business and whether any complaints have been logged against them.
While you’re at it, look at whether the property manager has a social media presence. Are they active on Facebook, Instagram, Twitter, Snapchat, VSCO, or LinkedIn? This will serve as an indication of the company’s willingness to adopt new technology and engage in creative marketing of properties – signaling a shift from “old school” property management to a more modern-day management style.
This is also a good time to look at the companies’ websites. See what services they offer and what geographies they serve. Do they seem to work more with one product type vs. another? Review the bios of key leadership, as well. This will give you a sense of their level of experience. Take detailed notes about each property manager that you can reference when calling or interviewing the companies in person. You’ll want to fact-check that the information you’ve found online aligns with what you’re being told by those you speak with directly.
Step 2. Call each property manager.
Through your online research, you’ll probably weed out a handful of property management companies. Some may not really serve your geography, or some might specialize in a different property type. Now, focus on those that at least appear (on the surface) to be a good fit for your needs.
Then call each of these companies, one by one, to start probing for additional information. Calling a property manager will tell you a lot about them. For instance, it might be a red flag if you call a number and the line just keeps ringing and ringing. What does this say about their level of customer service?
Once you have someone on the phone, explain that you’re interested in hiring a property manager and would like to know more about this company’s specific services. Ideally, the property manager will invite you to go meet with them in person. Face-to-face interviews are always the best way to get a read about a property manager. But let’s say you’ve invested in a multifamily apartment building in Michigan and you’re currently living in Florida—it simply might not be practical to travel for each interview. In cases like these, a phone interview can suffice.
During the call, ask a series of probing questions. At a minimum, you’ll want to confirm that the information you’ve found about the property manager online remains true. Consider asking additional questions, such as:
- How long have you been in business? We recommend a property manager be in business for at least five years. This allows a long enough track record to call references prior to hiring.
- How has your business model changed during that time? This will tell you how responsive the property manager is to industry changes and the evolution of technology.
- What challenges did you face during the last real estate cycle downturn? The real estate market ebbs and flows. It’s important to find a property manager who knows how to handle your apartment building during the goods times, as well as the bad.
- What property management services do you currently offer? Not all PM companies offer the same services. Be sure this property manager offers a full suite of services that meets your needs.
- How many rentals do you currently manage? This will help you gauge property manager size and expertise. Be sure the company isn’t stretched too thin given staff capacity.
- Do you manage any other rental properties in my area? You want to be sure your property manager understands the nuances of your sub-market. To gauge their familiarity with the market, ask them to identify any local comps that they’d consider to be your competitors.
- What types of properties do you manage? A PM who manages single-family rentals will have a different approach than someone who manages commercial or retail, etc. Be sure to find someone within your market niche.
- Do you have a broker’s license? Full-service property management companies will typically have at least someone on staff who is a licensed broker, which, in some cities and states, is required to lease apartment buildings. Be sure to check that their broker’s license is still valid, which you can usually do by searching state licensure records online.
- What additional training or certifications do staff have? In addition to having a broker’s license, you should see whether any of the property managers employed by this company have specialized property management training or additional certifications. These certifications and licenses could include: REALTOR® membership, Certified Manager of Community Associations (CMCA), Residential Management Professional (RMP), Certified Property Manager (CMP), and Certified Apartment Manager (CAM).
- Do your team members have specialized roles or are they generalists? You’ll want to know whether one person is responsible for managing your rental, or whether the company takes an all-hands-on-deck approach to service delivery (one person for marketing the units, another for repairs and maintenance, another who manages all accounting, etc.)
- What type of insurance do you carry? Look for companies that carry at least a $1 million general liability policy, property casualty insurance, and an errors and omissions policy.
Step 3. Learn more about how the property manager rents out units.
Leasing apartments is one of the most important duties of any property manager, yet PMs will often approach leasing much differently than others. Different approaches can be equally successful, but it’s important that you at least understand how the PM handles leasing. Ask some of the following questions:
- How do you set rental rates? Any credible property manager should be able to run a market analysis that informs rental rates across a number of variables: submarket, unit size, amenities, etc.
- What strategies do you use to fill vacant units quickly without sacrificing tenant quality? This provides insight into their leasing strategies when pressed with a timeline. You’ll want to know, for instance, where the property manager advertises vacant homes, whether they put signs in front of the property, whether they advertise in newspapers, websites, at nearby colleges, etc.
- Can you explain Fair Housing laws? A good property manager should be fluent in all local, state and fair housing laws. This includes understanding all laws around renting to Section 8 tenants and those with other similar housing vouchers.
- What is your average attrition rate? In the multifamily sector, property management companies tend to see a 10-20% turnover rate in any given year. You’ll want to know how often units in this manager’s portfolio turn over, as a higher than average turnover rate could be an indication of poor management practices.
- What is your procedure for qualifying tenants? Learn whether the property manager uses background, employment, credit and landlord reference checks as part of their screening procedure. It is critically important to understand how the management company will vet potential tenants.
- What is your rental portfolio’s current vacancy rate? A good property manager should know the overall vacancy rate for your submarket (by asset class, such as multifamily, office, retail, etc.). You should probe to understand how the vacancy rate in their portfolio compares to the overall market vacancy rate. For instance, in a market where residential vacancy rates are around 3%, you’d want to be sure that the property manager’s multifamily assets exhibit roughly the same rate – otherwise, it could be a sign that the company does not know how to effectively recruit tenants. They may be overpricing units, using overly burdensome screening procedures, or avoiding the use of technology that would make it easier to show and lease units quickly.
- How long do units typically stay vacant after turnover? Look for companies that will have units rent-ready and leased up again within 30 days, which should be plenty of time for general repairs and maintenance.
- What is your average customer acquisition cost? How much a property manager spends to acquire a new customer (e.g., a tenant) is critically important to owners. What’s even more important, though, is that the property manager actually knows what its average customer acquisition cost is.
- Can you send me a copy of your standard lease agreement? You’ll want to take a look at the language the property management firm uses in its standard lease agreement. Some leases are more detailed than others. You’ll always want to review with your attorney before committing to use any standard form agreement, just as a precaution to ensure your assets are fully protected.
Step 4. Ask about the property management firm’s procedures.
There are procedures related to leasing an apartment building. Then there are a whole host of procedures related to managing the day-to-day operations of a property once it has been fully leased up. To understand the company’s operational capacity, ask questions such as:
- How are rents collected? Some companies use online technology (software like Buildium, for example), whereas others still require tenants to write a check each month. Some will accept rent via bank transfer, or via apps such as Zelle and Venmo. Be sure to ask whether they accept rents in cash.
- How do you track rental payments? Using an online tool, such as cloud software, is the easiest way to track rents and provides owners with real-time information about their rent roll. Regardless of how rents are collected, it is important that rents be tracked closely.
- How are late rents handled? Be sure the property management company has a policy that is clearly articulated regarding the collection of late rents. Double-check that their procedures are all fully legal in your area. Most importantly, it is critical that tenants understand the consequences of late rents and that each tenant is treated the same – no special consideration to some tenants over others, for instance, which could result in lawsuits down the line.
- Do you collect security deposits, and if so, do you hold those in escrow? A good property management company will collect the appropriate security deposit on your behalf, and will hold these funds in a separate escrow account according to local laws, and will release funds upon move-out accordingly.
- How do you handle evictions? Find out, first, how often a property manager has to evict tenants. A good property manager will be thoroughly screening tenants and therefore, should have few evictions. However, evictions are sometimes inevitable. In a case where one is necessary, you should understand the company’s procedure for handling the eviction—including any fees they’ll charge you for this process.
- What is your process for handling service requests? You’ll want to know the process for tenants communicating service requests with the PM, as well as your role in the process – will you be making the final decisions about repairs and maintenance? Can you require authorization for any expenses above a certain amount? Look for a company with a well thought out process.
- Does the property manager self-perform repairs and maintenance, or are these duties outsourced? Most property managers will only handle small repairs. All others will be outsourced to third parties. Inquire as to whether the management company will charge a percentage fee on top of the cost for these third-party repairs.
- Do you have pre-existing relationships with local vendors? Find out who the PM subcontracts with and whether any discounts are available through those existing relationships.
- What systems or processes does the management company use to streamline operations? You want to be sure the property management company has 21st century systems in place for things like leasing, collecting rent checks and processing invoices, responding to O&M requests in a timely manner, and more. Many old-school property managers are resistant to change, and the industry is rapidly changing before our eyes.
Step 5. Understand how the company handles communication.
You’ll want to understand how the management company handles all communication – with both you and your tenants. Ask questions such as:
- Who will be my main point of contact? Make sure you’re able to communicate with the property manager through various means, including phone and email.
- How often will you provide me with updates about my property? You should be able to obtain information about your property as often as you’d like. More sophisticated PM companies will leverage technology (e.g. online dashboards) to provide you with real-time information about your portfolio.
- What is your preferred method of communication? If you are someone who insists on speaking by phone, but this PM insists on communicating by text or email, this could be a mismatch. Look for companies that are willing to communicate through various media – not just with you, but with residents.
Step 6. Ask detailed questions about fees and expenses.
Property management contracts are usually structured one of two ways: (1) Fees are based on a percentage of gross rents collected each month, or (2) Fees are charged on a flat-fee basis per unit each month. You’ll want to know how this management company structures their fees. Ask questions such as:
- What are the monthly management fees? Management fees generally run anywhere between 8-12% of total monthly revenues but can vary depending on the services offered. Be sure the fees you’re being quoted are in line with the area’s industry average. Fees that are too high or too low may be a sign that the property manager is not experienced.
- Do you collect management fees when a unit is vacant? If so, run away. Property managers should be incentivized to lease units quickly—and forfeiting a portion of their fee in the meantime is generally the industry standard.
- Can I cancel my contract without penalty if I’m unhappy? Avoid companies that try to lock you into a contract. You should be able to switch management companies if the service is sub-par. Find out how many days’ notice you’ll be required to give if you want to terminate the relationship. If you are not satisfied with your property manager’s services, it’s important to be able to terminate their services within 30-60 days, which will give you enough time to find a replacement.
- Are their miscellaneous fees that I should expect to incur, and if so, for what? Some companies charge extra for marketing units, tenant turnover, evicting tenants, etc.
Step 7. Ask about any add-on services the company may offer.
Some property managers will only manage the day-to-day operations of your building. Others will act more like asset managers, which some people really prefer. The latter function more like trusted advisors. To learn more about their services, ask questions like:
- Will you be able to provide me with investment advice or help me grow my portfolio? More advanced property management companies will be able to help you identify market opportunities – whether through the purchase or sale of assets – and help you position assets in a way that maximizes your return on investment.
- Do you personally invest in real estate? If so, that’s a good sign – indicates that the PM has an investor mindset and will care for your property the way they care for their own.
This may seem like a laundry list of questions, especially for a phone call, but any property manager worth their weight will be happy to answer these questions for you. If the PM does not have time or acts as though you’re an imposition, move on! A property manager will never be nicer than they are during the initial interview, so if you aren’t happy with their customer service (and attitude) then, you never will be. Trust your gut!
Have questions? Reach me at cathy@ryca.io. Excited to connect!
