As a real estate investor, you need to find and choose the right property manager for the properties in your portfolio. To find the ideal property manager, you’ll need to determine your needs, research their fees, check for good reviews, interview managers, ask the right questions, and ensure that your manager offers services you require.
Read on for more detail about how to find and choose a great property manager.
Step 1 – Determine Your Needs
First look at your needs before researching or interviewing any prospective property managers. By understanding your own needs, an investor can then locate the ideal property manager based on your budget, required assistance, etc.
Specifically, ask yourself:
- How much money you can spend on a property manager – If you can afford to put between 10% and 12% of your monthly rent toward a property manager, you’ll afford a manager that offers a wide range of features and services. If you only have a bit of spare income and can afford a cheaper property manager, they may only do the bare minimum, like collect rent or pick up garbage around the property. Thus, the amount of money you spend on a property manager directly affects what you get.
- What you need the property manager to handle – As noted, some property managers offer a robust range of services, and they usually cost more. Other property managers are basic services that handle trash pickup, rent collection, simple maintenance, and little else. Other responsibilities, like handling tenant turnover or interviewing new tenants, will be down to you.
- How many people you need. If you own many properties, you may need a larger property management company with many employees. The reverse is true if you only have one or two single-family homes. In the latter case, you may be fine with a cheaper, simpler property manager.
Once you have answered these questions, you can begin the research process in earnest.
Step 2 – Look for Property Management Companies Online or In-Person
Property management companies advertise both online and in the real world. Look for property management companies via TV or poster ads plus investigate online sites or advertisements.
For example, you might find property management companies listed on job boards or with PPC (pay-per-click) ads on investment and real estate-focused websites. Be sure to use keywords related to your local area (such as “property manager in [city name]”) so you only get results for property managers who can feasibly reach you!
Alternatively, you can find companies advertised in person by seeing posters or ads up around your local city. Regardless, you should look for potential property managers everywhere you can. The more options you have, the better the odds of finding the property manager best suited to your needs and budget limitations.
Ask for Recommendations from Other Property Owners
You have another option when looking for a great property manager: asking for recommendations from fellow investors. If, for example, you have friends with portfolios and rental properties in the same area, you can simply ask what property management companies those friends use.
If a friend or peer has a recommendation, follow up on it. Google the property manager’s name and start looking at their reviews.
Ask Realtors for Recommendations
It’s also a good idea to ask your realtor or real estate agency for recommendations. Other professionals in real estate probably have a few worthwhile contacts to check out. If a real estate agency knows a great management company, give them a call, especially if you are in the early stages of your search for the right property manager.
Step 3 – Research Services & Fees
Property management companies offer a wide range of services and perks. Investigate each potential company’s services in-depth before calling them for an interview. It’s a waste of valuable time to call a property manager who doesn’t, for instance, provide hedge trimming when one’s property needs hedge trimming every week.
Services Property Managers Provide
Most property managers provide services including but not limited to:
- Tenant screening
- Rent collection
- Property maintenance, such as groundskeeping, appliance repair, etc.
- Eviction processing
- Official tenant communications
The more services you need, the more money you can expect to pay for a property management company. Note that some property management companies outsource their services to contractors.
For instance, they may handle day-to-day trash pickup or groundskeeping. But they may hire a specialized groundskeeping company each month for in-depth lawn care and maintenance tasks. A worthwhile property management company should display this information upfront on its website or in an interview.
How Much Do Property Managers Cost?
You should also investigate how much a given company or individual manager costs before calling them for an interview. Property managers may charge a flat rate or set amount each month or they may take a certain percentage of your revenue. In the latter case, the cost is usually between 8% and 12% of your rental income for the managed properties.
Property managers either charge flat rates (such as a base monthly fee) or collect a percentage of the rent taken from a property’s tenants. The latter payment system is more common with larger property management companies that oversee dozens of tenants, whereas the former payment system is more common with smaller property managers/management companies.
If a property manager charges a percentage of monthly rent, it’s usually between 8% and 12% of the property’s total net rental income. For instance, if your property’s monthly rent is $1500, your management company may charge between $120 and $180.
Figure out how much you can afford to spend on a property manager before interviewing any companies. That way, you only interview managers you can feasibly hire.
Step 4 – Check for References/Positive Reviews
Before interviewing a prospective property manager, it’s a good idea to check for online references or positive reviews, like testimonials.
Websites like the Better Business Bureau or Yelp can offer important insight into:
- A property manager’s past experience
- What prior clients think of a property manager
- Whether a property manager is worth your time and money
The more positive reviews a manager has, the better. It’s never a good idea to hire a property manager with subpar reviews or barely any experience in the industry. You should not take a chance on a new management company. Instead, it’s better to go with a tried-and-true, highly experienced company with many pleased clients in its past.
Step 5 – Look at a Manager’s Current Ads
You can determine whether a management company is a good choice by examining their current advertisements for other properties.
Specifically, look at factors like:
- How good are their listing photos?
- Descriptions of units – are they persuasive or inviting?
- Do the grounds look well maintained?
Current ads or property listings offer key insights into the kind of work a manager does. It can help you determine whether that manager might be a good fit for your own properties.
Step 6 – Interview a Property Manager Before Hiring
The interview is the most important part of the hiring process. Always hold at least one interview with a property manager or a management company’s owner, leader, or supervisor before hiring them.
In the interview, pay attention to how the property manager speaks, how they talk about their work, and how they’ll oversee and run the property in question. Property managers who are confident, professional, and organized may be excellent choices for your investment properties.
Should You Hold a Phone or In-Person Interview?
Both! If you don’t know a property manager, hold a phone interview first and ask some basic questions, such as what their experience is, what their rates are, etc. If a management company passes the phone interview, invite them for an in-person interview where you can ask detailed questions.
Holding a phone interview first allows you to screen property managers who are clearly not fit for your portfolio. It also saves you valuable time since you won’t need to schedule personal interviews with dozens of different managers or companies.
Key Questions to Ask a Property Manager
During the interview, you must ask prospective property managers key questions to determine what they do, how they operate, and whether they’ll be a good fit for your needs. For example, you should ask whether the property manager handles evictions, what their experience is, and how much they cost/whether they charge a flat rate or a percentage of monthly rental income.
The most important questions to ask include:
- How and when the property manager collects rent (as prompt rental collection is your right as a landlord)
- How much the property manager charges for their services – you should make sure this answer lines up with what you previously researched or discovered
- How the property manager handles the eviction process
- How the property manager handles marketing
- What the property manager thinks the property should be worth
- What the property manager’s past experience is
- Whether the property manager understands the Federal Fair Housing Rules and how to apply them
- What certifications the property manager has
There’s no limit to the questions you can ask before hiring a property manager. So you should take this opportunity to learn as much as you can about a potential hire – it’s more costly to find out that they’re not up to the job later on.
Step 7 – Investigate Licenses & Certifications
The best property managers will have several professional licenses and/or certifications. They should be able to fully back up technical expertise and their reputation with proper licensing documents. They should either bring these to the interview or be able to send them to you promptly when asked.
The most important licenses and certifications to look for include:
- National Association of Residential Property Managers certification – This designates a property manager as an expert for managing small residential or single-family properties
- Residential Management Professional or RMP designation – This is awarded to property managers who have completed an initial training and vetting process
- Master Property Manager or MPM designation – This is awarded to advanced property managers with extra experience and more completed classes
- Certified Residential Management Company designation – The CRMC designation is only awarded to companies that have high levels of professionalism and excellent reputations
Any of the above certifications or licenses are excellent signs that a property manager is worthwhile.
Furthermore, you should ask whether a property manager has a broker’s license. Depending on your state, this may be legally required for property managers – a manager without it is likely not worth your time.
Step 8 – Read the Property Management Agreement Carefully
Before hiring any property manager, read the property management agreement from front to back. For even better results, consider hiring an attorney to look over the document before signing anything. Reading the property management agreement ensures you aren’t taken by surprise by fees or any loopholes.
Even if a property manager seems like a great choice, you must read the property management agreement carefully. Look for:
- What services the management company will provide and what fees they will charge – This details what you can expect from the property manager and breaks down, in detail, what you get for your money.
- The owner’s (your) responsibilities – Be sure that the management company agrees to handle anything you don’t want to so you aren’t saddled with unsavory duties like eviction proceedings.
- The insurance the property manager has – Most property management companies need certain insurance coverage to work legally and protect themselves in the event of legal liabilities. It’s definitely a red flag if a property manager doesn’t declare their insurance coverage on a management contract!
- The duration of the contract and any termination fee clauses – Understanding the duration of the contract and termination clauses prevent you from facing early termination fees if you have to break up with a management company sooner rather than later. Furthermore, read through the termination process as stipulated by the contract – if canceling your agreement seems difficult or costly, look for a different property manager, as this one might be trying to trap you in a pricey partnership. It’s always best to demand – not request! – a month-to-month contract with no termination fees whatsoever. If a company refuses to offer this agreement, move on.
- The notice to terminate clause – This breaks down how many days’ notice you have to give the property manager before you can officially terminate your contract.
- The reason to terminate clause – When you hire a property manager, make sure the contract does not require you to give a reason to terminate them. Otherwise, you could be trapped in a bad contract until you prove that the management company is behaving contrary to their duties in some way.
- The fee structure for the property management company – Some companies, for instance, charge a flat fee, while others take a portion of your monthly rent. If it’s the latter case, make sure that the contract stipulates your property management company takes the fee from the rent amount collected, not the rent due amount. Otherwise, you may have to pay your property management company even if your tenants don’t make their rental payments on time!
- “Hidden” fees you may not think about – For example, if a property management contract includes a fee for vacancies or other miscellaneous items, read the red flag for what it is and move on to the next prospective candidate. No worthwhile property manager should charge you for not making money!
- The total for the escrow reserve – Most property management companies use an escrow reserve bank account to pay for possible expenses that they may require to take care of your property between rent collection (i.e., a tenant’s appliance breaks, so the property management company uses money in the escrow reserve to pay for the fix). Make sure the escrow reserve is for a reasonable amount, not something super high, which could be suspicious.
- When the property manager is required to deposit collected rent – This date should be the same every month. By knowing this, you can keep track of your property management company and make sure they deposit rental funds on time.
- Who is required to pay legal fees – The majority of property management companies require you, the owner-client, to pay any associated legal fees if a tenant has to be evicted, for example. But some property managers guarantee coverage of fees up to a certain amount, such as $1,000. Double-check what the legal fee payment agreement is so you know what you are on the hook for in the event of an unpleasant tenant event.
- Whether the company must be compensated for “special” services – Say that you need a property manager to represent you at a Homeowners Association meeting. Some companies may charge you a fee for this or may refuse to do it outright.
- Statement of support for Equal Opportunity Housing – A legal and fair the management company must state that they support this – it’s also a good legal protection if someone accuses your management company and/or you of discriminatory tenant interviews or housing practices.
- A “hold harmless” clause – A hold harmless clause limits liability for a property management company, provided that they are not negligent in their duties. This is an important part of the property management contract because it indicates the company will vet or carefully hire contractors, vendors, and other workers that may be associated with your property at some point.
- Mediation proceedings – If you and the property manager ever have a legal disagreement, the contract should explain the process for mediation and/or arbitration.
An attorney can help you look over a contract and make sure there aren’t any hidden fees or legal traps that can make further business tricky or difficult. Only after thoroughly examining the management contract should you sign and fully hire a management company.