Being a landlord is more than just signing a lease and collecting rent every month. For active duty landlords, knowing how to choose the right property management firm is a key tool to maintaining a productive rental property.
Vacant units need to be advertised, with open houses and showings for prospective renters. After collecting rental applications, you’ll need to run background checks on them all, and sign a comprehensive, state-specific lease package.
Then there are the 3 AM phone calls demanding repairs, coordinating with contractors, inspecting work. Maybe the tenants don’t bother paying the rent – someone needs to wade through all the legal paperwork and take them to court.
So you decide to hire a property manager. But how do you decide who to hire?
Here are some questions and tips for evaluating and comparing property managers, to find the right company to entrust with your real estate investments.
First and foremost, does the company specialize in your type of property and neighborhood? A company that specializes in high-end rental units will only grudgingly take lower-end units, if at all. Likewise, a manager specializing in low-end properties probably doesn’t have the finesse appropriate for higher-end units.
Does their professionalism match their market niche? A high-end company should have a sleek, modern website, with plenty of digital rental services (more on these later). They should have a professional receptionist, and an upscale office.
Lower-end management companies should have a more functional feel to them. They may not be sleek and upscale, but they should still be responsive and polite, with a clean office accessible to lower-end tenants.
Is the company also a real estate agency? If so, be sure that they don’t over-prioritize the real estate agency side of the business over property management. Ask how many rental units they manage, and how many real estate sales they handle each year.
Lastly, how long have they been in business, and how long has the lead manager been in this city? Like any industry, experience matters.
Vacancies are profit-killers for landlords. Filling them quickly and efficiently with qualified, long-term tenants is a necessity, so how does this company shape up?
First, how do they advertise vacant units? Their answer should depend on the target market. For mid- and high-end properties, a diverse assortment of rental listing websites (including AHRN.com!) is often sufficient. But lower-end units often need more offline support, including local newspapers and circulars.
How do they collect rental applications? Ideally, managers should accept both paper and electronic rental applications. Paper applications are particularly important for lower-end properties, and properties with high populations of older renters. Electronic applications are more important for mid- and high-end units, and those in areas filled with young professionals.
What are their tenant screening practices? A good management firm will run full credit reports, nationwide criminal background checks, and nationwide eviction history reports. They should also be contacting current and former employers, verifying employment history and income. And then there are former and current landlords, who managers should contact to ask about housing history.
Really excellent managers even visit prospective tenants at their current homes, to see how they live.
Finally, the lease package is critically important. Notice the words “lease package,” not “lease agreement” – a comprehensive lease includes additional disclosures and addenda, depending on your specific property. It should include a move-in/move-out condition checklist, for example, documenting the condition at move-in so that the manager can withhold money for damages from the security deposit at move-out if need be.
The lease should be specific to your state laws and regulations, and include any necessary language or additional documents in your state.
Once the lease package is signed, how smooth is the month-to-month management?
Ask detailed questions about the company’s monthly reporting and communication. Ask for a sample monthly report, to see what information is included. Ask who the primary contact will be, and how you can reach them in an emergency (or just to touch base).
What kind of accounting and tax information will they provide at the end of the year? Beyond a 1099, the annual report should provide detailed information about all costs and revenue.
Do they perform regular property inspections? If so, how often? They should be performing interior inspections of every rental unit at least once/year, preferably more often.
Do they have current customer references? Call a few, and ask about what kind of job the manager has done for them. Ask about vacancies, the handling of repairs, responsiveness and communication.
What About Cost?
Pricing matters, of course. Most property managers charge a percentage of the monthly rent collected (usually 7-12%), but many charge additional fees from there.
Be sure to ask about the following charges:
- Do they charge during vacancies?
- Do they charge for signing a new lease?
- Do they charge for renewing an existing lease?
- Are advertising costs included in their fee, or passed along to you?
- How much do they require in reserve for each rental unit?
- Do they charge additional fees for anything else?
The most expensive may not be the best manager, and likewise the cheapest may not be either. You are entrusting this company with some of your largest assets; ask them difficult questions, visit their office in person, talk to their staff and current clients.
Your property manager can make or break your returns as a landlord and investor. If you don’t feel 100% confident in a property management company, buckle down and keep looking.
Brian Davis is a co-founder of SparkRental.com, an online rental automation platform offering online rent collection, lease packages, tenant screening, and more. He is also a landlord and real estate investor with 15 rental properties, a weekly columnist for BiggerPockets, and has served as a rental expert for MSN.com, Realtor.com, Homevestors.com and many others.