Most investors would be surprised that not all property managers are great at what they do, but is yours one of them? Is your property manager increasing your ROI? or just spending your money? We should also say, that for every bad management company, there are many good ones.
If you own investment real estate a good property manager will most likely be inevitable, especially if you plan on taking the first three words of a “set and forget investment plan” to heart.
In the world of work deadlines, rush hour traffic and family commitments it’s easy to forget an investment you purchased a long time ago, possibly in a town not so far away. But as you’re focusing on more pressing things in life, how has your investment been performing?
That’s a question you should be asking your property manager (or real estate advisor), and there are some very easy criteria for deciding if they have been doing a good job or letting your investment fall apart while spending your hard earned money.
You probably purchased your property to build your wealth and to help achieve your income and retirement goals. If you currently use a property manager or plan to in the future this article may save you a ton of money and may substantially increase your return on investment!
Tip: The key to great property management in addition to operational duties is in knowing how to minimize expenses, while maximizing rental income over the life of your property.
You may know that property managers exist, but you might not know exactly what a property manager doe’s (or should do). A property manager is a third party who is hired to handle the daily operations of a property (real estate investment). They can manage all types of properties, from single family homes to larger apartments buildings depending on their experience level.
Property Managers are normally responsible for the following…
- Finding New Tenants
- Screening Potential Tenants
- Handling Lease Paperwork
- Taking Care of Complaints or Emergencies
- Overseeing Move Outs
- Dealing With Evictions
- Responsible for Maintenance and Repairs
- Has a Working Knowledge of Landlord-Tenant Law
- Manages Budget and Keeps good Records
- Sends You a Check every Month…
These are just a few of their operational duties & responsibilities, the big question is, are they doing all of that correctly? How would you know? And are they overspending your money on unnecessary expenses? The answer is most likely yes, but it’s not your fault!
The 3 Big Mistakes or Red Flags:
1. Not Completing Unit Walk Throughs & Condition Checklist
If the carpet needs to be replaced in a unit, are you fully responsible for the full cost, or should the tenant pay part of the cost out of their deposit? If you Property Manager is doing their job this should be an easy answer. It would depend on the condition of the unit when your renter moved in.
Many property manager fail to properly document the condition of a unit before new tenants moves in allowing potential problems to exacerbate and tenant damage to persist. If photos are not taken and a walk through checklist is not completed (and signed off by the tenant) it can be almost impossible to determine who pays for what.
This one mistake results in a significant loss in revenue due to higher then needed expenses every year! Doe’s your Property Manager provide you with the condition report for every move in / move out? They should, or at least keep it on file for your reference if repairs are needed.
Solution: Ask your property manager to see the move in / move out condition checklist for the last 6 to 12 months. If everything is not to your satisfaction, put a new policy in place to correct the problem or hire a new manager. Tenants pay deposits for a reason, they are partly responsible for certain repairs outside of normal use.
2. Having In-House Maintenance
A lot of Property Mangers have in house maintenance crews or workers to take care of your property when it needs repairs, or may hire an outside vendor who may pay them a referral payment or commission. While this sounds ok, thing lets look deeper.
To say it simply, your property manager may make money on fixing your property. Have you ever wondered if the carpet actually needed to be replaced? Or if the unit really needed to be painted right now? If your Property Manager is making money on maintenance they have a financial incentive to fix more things! Even if they don’t really need to right now.
Solution: Always ask for a minimum of (2) outside bids from independent contractors for all projects. This will ensure you always have the best chance to get the lowest price and best service possible. Ask your property manager if they receive a referral commission, if so, tell them that you don’t approve and want to use another vendor. Your property manager won’t like this, but it keeps contractors from inflating their prices to cover property manager commissions (that cost you more money).
3. Not Properly Interviewing Your Property Manager
Most investors don’t want to have to interview their property manager, but this is probably the most important step of the process. If done correctly, many of the problems stated above can be voided all together before they start!
Below are a few of the questions you should ask all of the potential management companies you are considering.
How do you screen tenants?
Tenants should be chosen with care. You must trust that they’ll pay you on time and maintain your property. The thoroughness of the initial application screening will help you avoid the future headaches of difficult residents.
How close is your office to my property?
Doing business with a company that has an office near your property will give you peace of mind. You need a manager that will respond to your needs without delay. If your location isn’t in close proximity to their office, your manager may be less responsive.
Do you up-charge on repairs?
Starting rates advertised by property management companies may look enticing, but you should be weary. A closer look through additional fees will give you an entire picture of the management expense.
Do you charge me when the property is vacant?
Ask whether the property management company charges you a fee if your property is vacant or when the tenant isn’t paying rent. If managers are still collecting your fee even when your property isn’t generating income, they may be less inclined to be aggressive with marketing or eviction efforts.
Are there any other charges besides leasing, renewal, and management?
When in doubt, don’t beat around the bush. Ask property managers to go through their entire fee structure with you before you make a decision. Be sure you’ve located all hidden fees before making an agreement. Never feel pressured to sign a contract unless you understand the terms.
Don’t hesitate to ask questions about rates and services when you’re unclear. These are the important conversations that build relationships, and building a relationships is the goal.
We hope this information helps you decide if you property manager is one of the good guys. If not, there are other options out there.