Property managers are used by seasoned investors as a tool to keep their investment property profitable. Choose them wisely. Here are some reasons why and then some ways to do that.
I have always loved the phrase that Donald Trump states about networking with fellow investors. He says he is not interested in hearing about your successes. He is more interested in hearing about your failures. Hearing about peoples failures is the fast track to learning. When you hear of and understand where people have made mistakes you can utilize their lessons to your advantage and avoid duplicating that mistake.
In this spirit I want to share my number 1 mistake that I have ever made. Oh heck lets give you a bunch of them as they relate to each other. Here goes. Number 1 is being too quick to hire a property manager. That’s it, doesn’t sound so bad does it. Well it had some serious ramifications.
Being a “hands on” man in my earlier years of investing I managed my own properties. This is, for many, a mistake. Being a seasoned investor I will never manage my own properties again. I now understand that if I manage my own properties I am diverting attention away from actually investing.
Also I now have a high respect for investing in best markets that are poised for capital growth or cash flow. As markets are cyclical in nature you always want to ride the wave of growth and then sell and reposition to the next market. As you continue to do this repositioning of your investments you will need to hire a property manager.
When I came to the conclusion that “you should live where you wish but invest where it is best” I decided to move my family to the sunshine state of Florida. This was in the fall of 2003. I moved from Minnesota where I had several single family homes and 4 plexes. As I moved I hired a friend of a friend who loved investment property. I interviewed him diligently and believed indeed he knew a lot about investment properties. O.k. I will spare you the details here. In short he stole from me big time and I had to fire him.
Next I hired a property management company. I thought no more independents. I want an actual management company. So I hired one. They were not bad however shortly after hiring them the owner of the company came down with breast cancer and gave the business to her daughter. This should have been a red flag for me and ultimately turned into another mistake. “If a new person is suddenly taking over the responsibilities of running the company you should interview them all over again. Needless to say I had suffered some serious financial setbacks with bad property management. I know from talking to hundreds of seasoned investors that good property management can provide you a great business while a bad management company can break you.
Over the years I have been able to hone the craft of hiring great property management. So in the spirit of helping you avoid my painful experiences, I will share with you today the tough questions to ask your property management companies so you can hire an advocate that will work for your best interests and help you become a seasoned investor.
A property manager is to your investment as your engine is to your car. Without a great finely tuned engine your car does not deliver you your intended outcome (a safe journey without incident). Likewise, without a systemized, knowledgeable property manager, you will never get to your intended outcome (a safe profitable business operated without incident).
The first questions have to do with finding good tenants.
How many vacancies do you have right now? Out of how many total units that you manage?
What is the average length of time it takes to fill a vacancy?
Is that average time getting longer or shorter?
How do you market your rental units?
Do you use the web site to attract new tenants and to keep prospects informed?
What factors would make you reject a prospect?
Would you accept a tenant who met your qualifications in some areas, but not others? Which qualifications are most important to you?
What screening methods do you use?
Property Management Questionnaire – Tenant Management
The next questions relate to tenant management. It’s just as important to keep good tenants as it is to find them.
How do you collect rents?
What is your late rent policy?
What other rules do you set for tenants?
What percentage of tenants do you have to evict?
How does the eviction process work here?
How do your tenants contact you?
Property Management Questionnaire – Maintenance
Which kinds of maintenance jobs are handled in-house?
Which ones do you use an outside handyman for?
Which ones do you use professional contractors for?
How many quotes do you get for jobs?
How expensive does a job have to be for you to contact me before doing it?
What are your rules for contractors being inside occupied rental units?
Who are your preferred contractors?
Property Management Questionnaire – Experience
You want managers to know the local real estate world inside and out.
How long have you been a property manager?
Do you have any certifications?
Does your locality require landlords to have a license or permit to operate a rental and if so what are those fees?
Do you understand the local rules and ordinances to accommodate things such as local licensure requirements and or section 8 requirements?
Do you personally invest in real estate in this area?
Finally, you need to understand your arrangement with the property manager.
What is your fee structure?
Are your reports web based if not how do we get them?
Do you require an exclusive arrangement to broker the property?
How much notice will you give before terminating a contract?
Here are some other things to watch out for – a manager with a messy office. Chances are they don’t much care about the condition of the properties either. A manager you have a hard time reaching by phone or email. If he won’t return your messages now when he’s trying to get your business, what are the chances that he’ll do better later?
There you have it quality tool delivered straight from a seasoned investor and the school of hard knocks.