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.
Market Niche
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.
Filling Vacancies
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.
Ongoing Management
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.
I definitely think research and talking in detail with different property management firms is important. One may do one thing that you want but not another or rates may be an issue. I think it is good to look at how satisfied other people are with their services as well. Great information, thanks for sharing!
You mentioned that being a landlord is more than just signing a lease and collecting rent every month. Do most apartment complexes decide to employ a property management firm? I can imagine that there are a lot of duties that need to be performed when owning an apartment property. Hiring a property management firm might be a good idea.
Derek – for most apartment complexes, the complex management will serve as property managers. But there definitely could be complex owners who employ a management company to handle that aspect
I like that you stress the importance of knowing the month-to-month management and communication of the company. When you know how the company works on a regular basis, it is a lot easier to see if they will work with the properties you own. Plus, this is a good time to see how well they handle maintenance issues with tenants, and how any damage is repaired or mitigated.
Keeping a good tenant is also critical for the investor. One of the most common reasons why good tenants leave a rental property is that the landlord does not provide a high level of service i.e. it may takes weeks to fix an air conditioner because the landlord is too busy with personal issues. By employing a property manager, landlords can be assured that all of their tenants requirements are dealt with promptly and this will in turn reduce vacancy rates.
Absolutely.
Monthly reporting is the best way to keep track of your property’s progress. Even though you have hired a management company to take care of the property, you are still the owner and should keep an eye on it as well. For example, if the property was under performing, you could work with your management company to find a solution to improve.
Absolutely! That is part of why open and effective communication is such a vital component of choosing a property manager!
Hey Kristen !!
Great share !! The content of your blog is valuable.In the past several weeks I have found myself in the position of providing guidance to several clients who were having tenant issues. While I enjoy engaging their issues and helping them to formulate the best approach to their respective situations, the part I have a tough time with is that these clients have paid property managers who should know this stuff. Most importantly, these property managers should be ready, willing and able to act to the benefit of the property owner (my client) to resolve any issues without the client having to guide their actions, or in one case, demand specific actions are taken!
Keep sharing
Have a great day
Good points made on market niche and costs , selecting a property management company that specializes in your type of property and area will be much better then other choices and also sometimes there can be hidden costs so clearing that first before selecting the company will make sure there are no issues in future.
Absolutely. Clear expectations from the beginning are key to a productive working relationship!
I didn’t realize that most property managers charge 7-12% of the monthly rent for their services. I appreciate your tip to look for a property management company that will do extensive research into prospective tenants when you are having new tenants move into a rental property. I wonder if the practices are generally the same for property management firms that work with vacation rentals, I’ll be sure to look into it!
Baxter – I’m sure that rates will vary based on what services the firm offers and what area you are in!
You wrote that vacancies are profit-killers for landlords and that one of the main responsibilities of a property or community manager, is to fill those. With an investment like a rental, you want to make sure you get the most of it. Having a manager could pay for itself it could help prevent long-term vacancies.
I have been considering buying a property to rent out for a while. I want to do it, but I am concerned I won’t have the time necessary to handle all of the needs of the property. If I do end up buying, I will definitely look into finding a property management service. I like that you mentioned to make sure to find a service that knows how to fill vacancies quickly. Having a vacancy could really cut into profit, so it would be huge to have somebody filling them as soon as possible.
I have a good friend who just recently invested in some real estate and now is looking for a property management company to take care of the renters. The point in this article that talks about filling a niche is spot on. My buddies property is really unique and he probably have to market it towards people who like unique.
I like that you pointed out that it takes a lot of work to be a landlord, and that, if you can’t handle that, it’s best to hire a property manager. In my opinion, many people try to manage an apartment by themselves and end up either losing money or wasting money and time because they don’t put the necessary time and effort into it. I think I’m going to buy some property to rent, and I will probably hire a property manager.
Excellent post!!. Great collections.. It’s really helpful to us.I follow blog for tips and guidelines.
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Very informative article,its true that a property manager can be a lot of help in finding customers real quick and get the best deals possible people think its a money wastage,they will surely get more clarity by reading this.Thanks for sharing
Great post! This seems perfect for those new to property management! I like how you mentioned the month-month management which is pretty important to keep up with. Thanks for sharing!
I highly recommend apartment management companies nyc, they helped me a lot. Very reliable company.
I agree that you would want to find out how a property manager would deal with a vacant apartment. It would seem that the way the market them would be really helpful to know because it would affect your profit. This would probably also affect your relationship with the manager as money is involved.
Thank you for sharing this insightful information about what to look for in a high quality property management company. There is so much that goes into property management, and having the right team on your side can mean the difference between positive or negative cash flow. As you mentioned, low monthly management fees, experience in the surrounding area, the ability to properly advertise and fill vacancies, and managing the day to day things that come with property management are key elements when looking to employ the perfect team. Thanks again for sharing. Anyone looking to get some help managing their property will surely benefit from these great tips.
These are some good tips for finding the right property manager. We are thinking of renting our our vacation home, and a property manager seems really helpful. We don’t want it to sit vacant, so finding someone who markets it well is a priority, for sure. I appreciate your advice!
Thank you for going over several different points that will allow me to determine which property management company to go with. I appreciate you going over the fact that a property manager does not just include collecting money each month but it includes a variety of different things like setting up open houses for example. I am looking into renting out one of my properties and I have a lot of research now — thank you!
I agree, one of the best reasons to hire a property management service is so that they can help you fill vacancies. After all, if no one is renting out your property then you are losing money on it. Fortunately, most residential property management services have several ways of screening tenants to make sure the best ones end up staying at your property.
Thanks for these tips for picking a good property management firm. It’s good to know that you can ask how many rental units the company is managing. I wouldn’t mind knowing if the number of properties they should manage depends on how large the company is.
These are some great tips for choosing a property manager. I like how you said that they should specialize in the type of property you want to rent out. We’re hoping to rent out our second home, so we’ll have to find a company that specializes in that.
A good accountant can usually draw out the relevant information with some basic questions, but the more effort spent on the basics, the less time you have to get what you actually came for: an informed opinion on how you did with your finances from a tax perspective and advice on how to minimize your taxes going forward.
Thanks for sharing this informative post. It really help me to improve my knowledge. Keep on sharing in future also.