Choosing An Accomplished Property Manager, So You Can Sleep at Night
As a successful investor, you may have already thought about hiring a property manager to take care of your investments. This article will give you some tips and tools you can use to help make a successful decision.
Property managers manage all investment real estate from homes to large apartment properties and commercial properties. Like doctors and attorneys, some are better than others.
Common reasons people use property managers
They are tired of dealing with tenants
Their onsite managers have been stealing from them
They do not have time
They do not have systems to collect rents and track the successful operation of their investments (i.e. all investment info goes into one checkbook … the personal check book)
There are too many laws and regulations
There are too many lawsuits or evictions
They want a professional to manage their property
The partners do not get along and choose a property manager to be the neutral 3rd party
Finding a property manager
Okay, you have established that you need a property manager. It is time to start researching the options in your area. Many people start by looking at the local yellow pages and computer search engines.
How do you pick the good from the bad? Usually asking others for referrals is the best way to find a property manager. You may want to consider asking:
Friends
Attorneys
CPAs
Vendors
A real estate broker who has experience dealing with the type of property you own
It helps if you understand the needs of your properties, and the direction you want to take. Once you have assembled a list of companies, but before you call them, you need to decide what your goals are for your property and your expectations for the property management company. Your goals might read something like this:
Keep property rented
Manage roof install project
Prepare an annual budget
Annually inspect the property and send you a report
Send you a monthly financial report
Help you lease up property
Once you have established your goals and narrowed down a list of property managers, you should view their websites and pre-screen them over the phone. As an owner, you will want to have some important information for the property manager you are calling:
The number of units you need managed
The unit mix
The per unit monthly rental income
Your effective vacancy rate
The address of the property/properties
The annual gross income of the property
Problems you are having that you want the property manager to solve for you
For houses and small apartment complexes, many property managers will quote a rate over the phone or a Zoom call. With apartments and commercial property, property managers may want to look at the property before they make a proposal or meet with a potential client. There are market norms for pricing, but every property manager has a different overhead structure and may charge more or less to you depending on if the property falls into their sweet spot.
Negative cash flow
If you have a property that has a continual negative cash flow, don’t expect a property manager to be able to turn that around for you without potential added investment of capital for tenant improvements and leasing fees. Often, negative cash flow is driven by a high vacancy rate, unforeseen economic conditions, high leverage, poor location, or a poor leasing agent. Fixing any of these items takes additional cash.
Preparing to interview a property manager
Before you dial the phone and the friendly owner of the management company answers your call, you need to consider what questions you are going to ask.
First you need to describe your property and ask them if they are interested in managing your property. Many property mangers will only manage certain types of properties or properties in certain areas in order to stay efficient in their operations.
Price
Of course, one of the first questions all owners ask property managers is how much the management will cost. This typically leads into a discussion about the property and the property manager. Some sample questions are listed below.
Once you have decided that this manager could work for you, you may want to set a meeting to discuss details. Remember that the least expensive price does not always equal the best service. Equally important is the personality fit between the owner of the property, the owner of the property management company, and the property manager that will be doing the day-to-day property management.
Questions to ask a property manager to screen them
How long have you been in business? (You are looking for long term stability.)
How many units do you manage?
Do you have experience with the kind of property I want you to manage? How much experience?
Is your staff bonded?
What does the bonding and your insurance cover?
How do you collect the rents?
If a tenant does not pay, what do you do?
How do you handle evictions? If you use an attorney, who is it and how much does it typically cost?
How do you select tenants for my property?
How do you take care of tenants? Do you have staff available 24 hours a day to handle tenant issues and maintenance emergencies?
How do you handle property emergencies?
How will you staff the investment?
Can I meet the property manager who will be directly managing my property?
How much do you charge monthly? Are there additional charges?
Describe the service I get from you.
Do you send monthly reports?
What is included in my monthly reports?
May I see a sample report?
How do you handle property maintenance?
How much could the maintenance cost?
How do you advertise vacancies?
What are your strategies for filling vacant units?
How do you hire/screen onsite property managers?
Can I visit your office?
Do you prepare annual budgets for my property?
Do you prepare a management plan? Does this plan include a method to reduce costs, increase rents, and improve the property’s net operating income?
Can you give me some examples of your attention to detail?
Do you manage similar properties?
Do you have a CPM® (certified property manager) on staff?
What kind of training and experience do your property managers have?
Are you accredited by a national organization?
Are you an Accredited Management Organization?
What kind of insurance do you carry (ex. liability, errors and omissions, and employment practices insurance)? What are the limits?
How do you stay in touch with the legislative changes to the Landlord Tenant Act and commercial laws that occur every year?
What sets you apart from your competition?
Tell me about some of your success stories?
Tell me specifically how you will take care of my investment?
Do you have references I can call?
Once you have answers to the questions, you will probably have a good idea of how the company is run and how well your property will be taken care of. You might ask or try to get a feel for the company’s key operating philosophies and focus on tenant and customer service. You may also want to establish if the company is a local, regional, or national company. There are benefits that go with each, depending on the kind of property you own. Finally, you will want to call the references.
The contract
Clearly, you want to read the property management agreement before you sign it. Many property management companies have a standard contract that they may or may not be willing to modify. Your real estate attorney can help you with the contract review.
You can probably get some give and take on the day-to-day business issues, like:
Who is doing maintenance
Price of management
Term of agreement
Other fees and charges
Most managers will not give up much on the basic body of their agreement, because they have had an attorney review and approve the docs. It does not hurt to ask. Some companies are more flexible than others. Bear in mind that the contract mirrors their company business practices, so any change from their standard operations may be difficult for them to accomplish.
Who is responsible for what?
Regardless of your decision to hire a property manager, you need to be involved. You cannot walk away from your responsibility as a property owner. A successful property owner is one who keeps their eye on their investment.
You must read your monthly financial reports. You should be sure that you are on the same page with your property manager, by approving a management plan and budget, and through regular property inspections. You need to invest enough money into the property to make and keep it competitive in the marketplace. No property will operate well without supervision and continued reinvestment. If you do this you may have an opportunity to develop a very successful investment. May the investor gods be with you!
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021.
He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN | Bluestone.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate-related topics. Cliff is the author of two books, 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC., designed to help investors and commercial brokerage owners successfully navigate their businesses. He can be reached at 503-267-1909 , Cliffhockley@gmail.com or Cliff.Hockley@SVN.com.
