If you’ve ever owned a piece of rental real estate, you know that properly managing the property is just as much (if not more) of a process than when you first purchased it. The margins for most types of real estate (residential being the most common) aren’t that big and all of the cashflow is made or lost in the management of it. If you and your property manager are able to quickly resolve issues, negotiate fair prices for work, and keep your tenants from moving, you’ll hit your numbers. If you let too many items slip, it can eat up your profit for an entire year.
The battle is won or lost in who is managing your property, their skill level and what systems they are using. Below are five key questions we recommend you ask your property manager:
1. How many units do you have under management?
-
- This basic question is often overlooked. It’s important to know what kind of workload the company is dealing with and if they are growing or shrinking. In our experience, a management company grows very quickly in the first few years of business and that can mean a HUGE difference from one month to another. You may be treated like their only spoiled child in the beginning but feel like the distant relative nobody wants to talk to six months into the relationship. If you cannot resolve issues because the property manager is unable to prioritize your business, you will lose out significantly.
2. What system do you have in place for maintenance?
-
-
- Be sure to drill down on this one. It’s not enough for them to tell you what software they are using. You should ask how many maintenance requests they receive on an average week, how much time it typically takes to resolve these issues, and how many maintenance members are on staff. It’s very important to know whether their maintenance is in-house or if they subcontract to another maintenance company (which may cost you more than you bargained for). If you have good maintenance staff you already know, you may want to ask if the property management company is able to reach out to your people instead of theirs.
-
3. How is your team set up?
-
- This one ties in with the first question. Some management companies have rather large operations and you need to know up front how they are set up. Who reports to who? If you have a problem with a certain member of the team, who should you contact? It’s common for management companies to only have one person that speaks with landlords but you should avoid that scenario if at all possible and make sure you can communicate with all of the staff members if something urgent comes up.
4. What extra fees do you charge (over/above the monthly percentage)?
-
- This is the biggest offender of all of them. You’ll generally sign an agreement with a management company stating a percentage of the monthly rent (which should be a percentage of the COLLECTED rents), but there are almost always other fees on the side that you need to know about up front. How much over and above the maintenance costs do they charge? What extra fees are there on tenant turnover? Will they charge you for paying your utility bills or for pulling rental licenses? What about trash removal and/or snow removal? It’s very common that a 6% management fee ends up costing 8-10% or more after everything is added up. Remember that you’re giving them the authority to spend YOUR money and there needs to be as much transparency as possible up front with how and what it’s being spent on. This level of transparency is often revealed in the property management company’s software system for landlords. If you can log in and easily see all maintenance requests, charges, and income reports, you’re set. If you cannot see your own rental account activity, then that needs to change.
5. Are you able to give references to other landlords?
-
- If they can’t or won’t give you references to other landlords, you shouldn’t be thinking very hard about why. A management company that is doing a great job and has a solid reputation should have no problem sharing their clients’ information and testimonials.
Here are a few other favorite bonus questions to ask:
1. What are your biggest challenges that you’re facing right now?
-
- This is one of our favorite questions to ask as business owners. Everyone has their own challenges they go through and we’re always curious to know what they think their greatest challenge is and if it’s different from what we’ve observed. We have worked with management companies in the past who either won’t or can’t admit what their weak link is which led to us cutting the cord. It’s very difficult to solve a problem you’re not even aware of.
2. What happens if a tenant has an emergency outside of your standard hours? Who will they be connected to?
-
- Many companies have maintenance under control during the day but it falls apart at night. If a lockout or plumbing leak happens outside of business hours and your tenants can’t reach anyone, it’s a big problem. Be sure to not only get this answer from the management company but test their systems by calling their emergency line yourself and/or asking one of your tenants to. You only need to do this once.
3. What is the most recent procedure you’ve implemented as a result of landlord/owner feedback?
-
- This is another great general business question that will give you some insight as to how much they are improving their systems – or if they’re not listening to client feedback.
Working with management companies is a lot of work up front but once you have your systems in place it can give you the freedom of not having to be physically present to take care of issues at your properties, whether you have one or hundreds. This is the best part about real estate – nearly everything can be handled virtually with the right people at your side. Of course, if you ever become a tired landlord and want to sell of everything…you know who to call!
Rodney Ross and Lia Martin
April 29, 2022