How to Select the Right Property Manager
When it comes to your most valuable asset, you want to ensure you’ve made a wise decision. Below you’ll find a couple dozen questions that will help you wean out the cons and crooks when looking for a reputable property management company. The questions below won’t cover everything but they should help you reveal enough information to determine if you want to take the next step with the PM company.
Even if you don’t use our services, my goal is this guide will serve you in evaluating other property management companies.
Before you even start asking the following questions to the PM Company, how is their website? Do they have any reviews?
A reputable company will have a professional website, with the necessary designations (more on this later) and numerous Google reviews. There should be enough reviews to know they’ve had previous clients and it’s not just their family and friends!
The last piece of the “pre-screening” should be how they responded to your inquiry - whether phone call or email. If the property management company does not respond to you quickly when you are a prospective client, how do you think they’ll respond when you or one of your tenants has a problem? Communication in this business is extremely important.
Questions to Ask:
1. How many units do you manage?
Some companies manage thousands of units nationwide while others manage just a few dozen properties locally. Finding out how many properties the company and the property manager oversee will tell you how important your business is to them. If you’re bringing 10 units to a company with 1,000 doors, you have a lot less leverage than a company with only 100 doors.
Unfortunately, there’s no right answer, just your preference. Some investors like the local touch of a smaller company while others like the comfort of working with a large national brand. Either way ensure the property manager isn’t managing hundreds of units him/herself. The general rule of thumb is ~100 doors per property manager to allow for adequate customer service and attention to the properties.
2. How long have you been a property manager?
There are some things in the property management business you just have to live through to understand. How many years your property manager has been in the business (in your area) is important.
You want your property manager to have lived through some horror story tenants and situations. That way he/she already knows how to handle them when dealing with your property and your tenants.
Be wary of the old property manager that has been in the business for so long (and they’re so comfortable in what they know) that they don’t keep up with local laws, marketing, etc.
You don’t want someone so new that they know nothing, but not so experienced that they think they know everything.
3. Will I have one specific property manager? Who will be my property manager?
Have you ever called a company and been transferred 5 or 6 times before you get to the right department? Ya, it’s no fun! Unfortunately, if you’re dealing with a large, national PM Company then this could be your reality every time you call. Which is why, if you can, finding out who's your point of contact from the beginning will improve efficiency and save you headaches.
This problem isn’t as rampant with the smaller companies but it’s still good practice to know who you’ll be dealing with upfront.
4. Do you or have you owned any properties?
You can read all about riding a horse but it’s nothing like actually getting in the saddle! I don’t know about you but I want to work with people that have been in the trenches, not just read about it!
Most management companies are built by agents, not investors, which makes it hard for them to see the investor perspective. It’s not totally necessary that your Property Manager owns any properties, but I’m not a big fan of the Chef that doesn’t eat his own cooking!
5. Do you belong to any professional organizations or hold any designations? Are you a member of NARPM?
Unfortunately the majority of property managers are realtors who do property management on the side - sometimes even unbeknownst to their broker.
Two of the easiest ways to find out if the property manager is legitimate is to check their designations and/or call their broker. If you ask to call a property managers broker, and they get defensive then that should be a big red flag.
Currently the most recognized property management organization is the National Association of Residential Property Managers (NARPM). Does he/she hold any NARPM designations? There are many reasons to select a NARPM property manager, one of which is NARPM property managers are held to a higher standard than regular property managers, or agents acting as property managers.
But don’t take my word for it! See Why Use a NARPM Property Manager from the NARPM website.
6. What are the services you provide & how much do you charge?
There are two main fees the property owner will receive from a property management company - monthly management and leasing. The other fees that are popular are the maintenance fees, realtor fees in the event you sell the property and any other miscellaneous or administrative fees.
Most management companies will charge either a percentage of rents or a flat monthly fee for management. Those that charge a monthly percentage of rents seem to make a significant portion of the owners money, especially for higher priced units. However, you can’t just jump right to a flat management fee either! Those companies that charge a flat monthly fee seem to lure landlords in with the low monthly fee then slap them with all sorts of other fees - kind of like a cable company!
We provide every owner an Itemized List of Owner Charges document so there’s never any discrepancy. Check to see if the property management company has a similar document with all their fees in one place.
7. Do you have an owner and resident portal?
As mentioned above, there are many folks who just dabble in property management. There’s nothing wrong with this but most of these people aren’t investing in their business. With how fast technology is changing, a company that doesn’t invest in the proper technology will be stuck gathering carbon-copy receipts instead of organizing reports with a click of a button.
Any 24hr portal will streamline things for you as the owner (communication, receiving payments, documentation, etc.) and your tenant (maintenance requests, making payments, organization, etc.). Many owners don’t live in the same city or near the property so having the right technology is imperative in today's world.
8. When do you make owner payments and how often?
I don’t know about you but the whole reason I started buying rental properties was for the cash flow! So, I want to know exactly when I should be expecting my monthly rent payment. If payments come in on the 1st one month and the 15th the next month, that creates unnecessary stress.
Finding out when your property management company makes payments can be a big stress reliever for you, and sets expectations upfront.
9. Do you have any guarantees?
Does the company have any guarantees? What happens if they do not live up to the guarantee? Are they trying to lock you into a contract that you can’t exit easily?
Most reputable companies will have guarantees that allow you to exit from the property management agreement if you are unhappy, but not all companies. Some companies even charge a termination fee!
We provide the following three guarantees.
100% owner satisfaction - If, for any reason, you are unsatisfied with our services, just notify us in writing and we’ll cancel the agreement the following month - no fees or strings attached!
Pet guarantee - The majority of residents have pets. Allowing pets in your property widens your tenant pool and increases your odds of quickly finding a quality tenant. Some owners are hesitant about allowing pets in their property, which is why we put our owners at ease by guaranteeing $2,500 over the security deposit for any pet damage that happens.
12-month tenant guarantee - Some management companies put just any tenant into the property and you end up dealing with an eviction or a broken lease, which are cash flow killers! If we place a screened and vetted Resident in the property, and for any reason that Resident leaves in the first twelve months, we will re-lease the property at our cost. That’s how confident we are in our screening process and delivering quality Residents for our owners.
The more guarantees the PM company can provide the better!
10. What do you expect from me as the owner?
Does the management company accept just any landlord? You’ll want to know what the company expects from you (if anything) upfront.
The only thing we ask of our owners is to cooperate with Emerson property standards:
to maintain the safety of the property and residents,
handle repairs efficiently and effectively to prevent future, more expensive issues, and
make necessary upgrades or repairs to protect the reputation of the owner and Emerson.
If a company doesn’t have similar standards, how do you think they’re going to maintain your property? And the tenants they place?
11. How often do you communicate with the homeowners and what’s your preferred communication method?
The reason you handed the property over to professional management is to reduce the number of times you’re bothered with property issues. But, if you’re like me, you want to have enough information to generally know what’s happening at the property. And setting expectations upfront is probably the most important part of a healthy relationship with your management company.
Discuss the management company’s preferred communication method - are they only phone calls? emails? texts? You don’t want to expect to reach your management company by phone but they only respond to email.
After you’ve determined how you’re going to communicate with your management company, how are they going to contact you? Do you want to be notified about each maintenance request? Or just the large repairs? Do you want to be notified each lease renewal or just when the property is vacant? Again, setting the expectations upfront are imperative to a healthy relationship with your management company.
Due to the nature of our business of meeting with prospective tenants, conducting inspections, and driving to the various properties, we have found email to be the most effective means of communication with our owners.
To prevent our owners from being inundated with information and emails, yet still have an idea what’s going on at their property, we communicate with our owners in the following situations:
Any maintenance incident (including emergencies) that is greater than $400
Tenant Eviction
Vacant Property
Lease renewal
12. How do you advertise my property?
Filling your property with a qualified tenant is one of the most important parts of property management. Without a tenant, there’s no need to have a manager!
One of the secret killers of a landlord's cash flow is vacancy. Every week of vacancy per year costs you 2% of your cash flow. Which means if you can’t find a tenant to move into your vacant property for 30 days, then you just lost 8% of your annual cash flow. If you (or your property manager) repeat this year after year, then you’re leaving thousands of dollars on the table.
Most companies will use the main marketing avenues - MLS, Zillow, Trulia, yard signs, etc. Anyone with MLS access will be able to post your ads to these sites. However, make sure the lease agent or property manager uses social media - especially if your target market is a younger demographic, like student rentals.
13. What is your renewal policy and how much do you charge?
It’s a great sign when tenants renew! Renewals reduce your vacancy, turnover costs, and repairs. You also get to continue a great relationship with a tenant you have known for months or years.
For these reasons, you want your property manager to make the renewal process as easy as possible for the tenants. An efficient renewal process for tenants contains a few elements:
Early communication - you (and your tenant) don’t want the management company saying they’re raising rent a week before the end of the lease. You want them communicating with your tenants as early as reasonably possible (we start the process 90 days prior to the lease expiration).
Fair rent increases - nothing is worse than the feeling of being taken advantage of. You want a company that performs a comparative market analysis (CMA) and raises rent based on the market - not on the tenants ability to move. There are some companies that will raise rent by $50-$100/mo because they know the tenant won’t move over the increase. If they do this long enough, you could get to where your rents are significantly higher than the market - which can damage the tenant-owner relationship and lead to a significant drop in rent at renewal.
Renewal Options - Why do you think McDonalds provides you three options - small, medium and large? There’s a lot of research behind providing clients options and you want your management company to follow suit. We always provide our clients month-to-month, six-month and year options at renewal. You’ll be surprised how many people will renew with this flexibility!
Incentives - If you’re in a hot market, maybe you don’t have to provide incentives but it’s always good practice to reward your best tenants for staying with you. Does the management company have a tenant retention or appreciation program? If so, who pays for it - the owner or the management company? You can see the details of our Resident Appreciation Program here.
14. Do you perform a market evaluation for every renewal?
As mentioned above, you want your management company to make educated rent increases, not just WAGs and SWAGs (wild ass guesses and scientific wild ass guesses). Arbitrarily raising or lowering rent can lead to increased vacancy and/or reduced cash flow, so you want to know how the management company is arriving at these numbers. Remember - CMA or SWAG?
Every renewal the PM company should perform a comparative market analysis (CMA) of the neighborhood to determine the renewal rent. We share our analysis with the owner and make our recommended renewal price so everyone has the data to make an informed, intelligent decision.
15. How do you determine to raise the rent or keep it the same?
As mentioned above, it’s important that the management company perform a CMA prior to each renewal to understand the fair market rent figure. After the management company determines the fair market rent, how do they decide to raise, keep the same or drop rents? It’s good for the owner and management to be on the same page with their philosophy on raising rent.
There are two schools of thought - keep the property rented by keeping rent just below market rent or raise rent as much as possible and deal with a little vacancy. Neither is correct, just a preference.
We use a the following equation to determine whether to raise rent:
If Market Rent is less than Current Rent, then we renew at the same current rent.
If Market Rent is greater than Current Rent, by less than or equal to 10% or $100, then we renew the lease at the market rent.
If Market Rent is greater than Current Rent, by greater than 10% or $100, we contact the owner to determine forward steps as raising the rent more than 10% or $100 can cause the resident to move.
The PM company should have a system for determining raising rent. Ensure you agree with, and understand it.
16. What are your application and screening processes?
Gathering the necessary information from prospective tenants through the application is the first step. Then the PM company must use that information to properly screen prospective tenants to ensure they are a good fit for the property.
If the PM company doesn’t have an application or standard process for screening prospective tenants, then run! If the PM company isn’t screening each applicant the same way, that could be a major Fair Housing issue waiting to happen. And you don’t want anything to do with a Fair Housing issue!
Most PM companies use an online property management software (we use Buildium), which allows the prospective tenants to complete everything online. The tenant completes the application, the PM processes the credit and background check, and sends the lease for signature - ideally all online.
If you’re interested in an example, you can check out our application.
17. What are the screening requirements?
You don’t let just anyone in your home do you? So why would you want to let just anyone in your investment property? You want the best, most qualified tenants who will take care of your property (your investment).
Again, to avoid Fair Housing, the PM company should have a clear set of guidelines on what they will and will not accept for their properties. If not, run!
Review the criteria carefully. You don’t want it so strict that no one will qualify, but so loose that you’re constantly processing evictions. A happy medium between the two yields the best results. Make sure you’re comfortable with the criteria - it’s your property!
Here’s some of our criteria.
Household Gross monthly income must be at least three times (3x) the monthly rent.
No Evictions/Broken Leases
No criminal records and convictions of murder, burglary, sexual assault, indecency with a child, prostitution, human trafficking, elder or child abuse, sex offenses, and similar offenses.
All bankruptcies MUST be dismissed or discharged.
Review the companies criteria and see if it makes sense for your area.
For a complete list of our screening criteria, visit our qualifications page.
18. How quickly does it take you to approve tenants and have a lease signed?
After you have put in the effort to get a qualified tenant, the last thing you want is to lose them because it took too long to get them approved. Time is of the essence when getting prospective tenants through your approval process to sign a lease.
The sooner you can get a tenant approved, the less likely they are to view other properties and more likely they are to sign your lease. You don’t want approving tenants to be like pulling teeth. It should be a seamless process that makes it easy for the tenant to complete the application, submit documents and sign paperwork. So how does the PM company approve tenants?
Most companies will have an electronic application along with credit and background checks. Be wary if the PM mentions doing a lot of the approval work him/herself. Paperwork is too easy to get lost or misplaced and most tenants don’t want to deal with signing and scanning paperwork, or driving with it across town.
We use Buildium, which allows the prospective tenants to complete everything online. The tenant completes the application, we process the credit and background check, and send the lease for signature - all online from Buildium. The approval from the credit and background check are completed almost instantaneously, so there’s no waiting. Then we send the lease for electronic signature. We can have a tenant approved with a lease for signature in hours.
Most reputable PM companies should have a similar system that allows quick and efficient approval and lease signing.
19. Do you have a trial period?
Even though the company may have guarantees (and especially if the company doesn’t), you want to ensure you know when you need to make the decision on whether to continue with the company, or find another. By simply asking for a risk-free (and in some cases free) trial period, you would be surprised at what you get.
20. Do I pay any fees when the place is empty?
This is another important question. Are your and your PMs interests aligned? You want your PM to fill the property as quickly as possible to reduce vacancy. If the PM is still collecting fees while your unit is vacant, is that an incentive to get the property leased quickly? If the PM only gets paid when you get paid, then they (like you) want to get the property leased ASAP!
21. What is your termination policy?
Be wary of the PM company that locks you into a contract and charges high fees when you aren’t satisfied. Knowing if (and when) you can terminate the agreement is imperative before entering into the property management agreement. Also, are there any fees associated with terminating?
We don’t like termination or cancellation fees anymore than anyone else, which is why we allow our clients to terminate without penalty - anytime. Be wary of companies that don’t provide you this benefit.
22. How do you handle the eviction process? Additional cost?
The eviction process can be extremely hard on an owner if they do not act within the laws outlined in the Texas Property Code. You don’t want what was supposed to be a six week eviction lasting six months. There are horror stories of tenants staying in properties for over a year!
Asking your property manager about their eviction process will tell you if they’re familiar with it or not, or whether they enlist some help from an attorney. Either way, you want to check they have a process for evicting a tenant and what it costs you as the owner.
23. How often do you do inspections during a tenant’s term?
If the property manager doesn’t enter the property until the tenants vacate, then (more often than not) you’re going to be in for a surprise - and an expensive turnover.
There are some PM companies that don’t go see tenants and don’t want to hear from them either. As long as the tenants are paying rent, there is no communication. This may work from time to time but overall this leads to minor, preventable issues becoming large, expensive problems.
If the tenants are slobs, and treating the property poorly, would you rather know in the first or last month? There may also be repairs that tenants don’t feel the need to report (sometimes for fear of being charged and sometimes just because they don’t know any better) that are noticed on the inspections and fixed before they become major issues. Examples range from small leaks under the bathroom sink to stains on the ceiling.
We recommend entering the property at minimum every six months.
There are some companies that visit the property every quarter or month. That may be overkill. If you don’t trust your tenants enough to leave them alone for more than a month, then you may need to improve your screening process.
24. Do you charge an additional fee for maintenance?
There are three main areas of concern for owners when it comes to the PM company charging (or not) for maintenance:
The PM company shouldn’t charge the owner a fee for maintenance because they will just do a bunch of unnecessary repairs to make more money.
If the PM company doesn’t charge a maintenance fee, are they getting kickbacks or other hidden incentives?
If the PM company doesn’t charge a maintenance fee, are they actually overseeing any of the repairs and maintenance?
I’m not sure which area is the biggest concern for you but being upfront with your management company about your expectations and concerns will lead to a much healthier relationship.
The most common PM maintenance fees in Houston are 10-20 percent. If you just can’t sleep at night knowing the management company has additional fees for maintenance, then select a company that doesn’t charge additional fees for maintenance.
25. Is your maintenance in-house or a vendor?
Some PM companies have found it easier to bring maintenance in-house rather than relying on outside vendors. It allows the PM company to maintain control (quality and timeline) and increase revenue.
There’s no right or wrong answer here. As long as repairs and maintenance are completed properly, timely, and for a fair price, it doesn’t matter whether maintenance is in-house or a vendor.
Some owners have an issue with in-house maintenance for the same reasons mentioned above regarding PM companies charging for maintenance. Similarly, if this is a major problem for you, then find a maintenance company that deals only with outside vendors.
26. How do you handle off-hour emergencies? Do you ask permission or just fix and bill?
Unfortunately, leaky pipes, ACs, furnaces, appliances, etc. don’t only break during business hours. While they are rare, there are circumstances that happen after hours that need immediate attention - like major water leaks.
How the PM company handles emergency maintenance could be the difference of something leaking for a few hours or a few days. Do they have a 24hr phone number to an automated message or selected vendors who handle off-hour emergencies? Important thing is that you, and the tenants, understand their process so they know how to get the issue resolved ASAP.
Once the company has identified the issue, how are they going to fix it? Do they require your approval or do they have your permission to complete the repair?
We have found it more beneficial (for everyone involved), for the PM to have the authority to handle emergency repairs. This prevents late night calls to the owner and (if the owner doesn’t answer) disgruntled tenants having to wait to resolve an emergency.
If you’re the type of owner that doesn’t mind off-hour calls to approve emergencies, make sure this is clear to the PM company. If the PM company won’t wait for your approval, then it’s probably better to find another management company that better fits your wants.
Property management is a critical part of your team.
Some say you make your money when you buy, but you can lose a helluva lot of money with poor management. I’ve had years of cash flow whipped out by a single problem tenant or expensive repair. If your management company doesn’t understand how to prevent and mitigate these risks then you’re not going to have much fun as a landlord.
I hope, with the questions above, you will select the right property manager who will help you reach your real estate goals. Everyone’s goals are different and, like dating, you want to make sure you and your property manager are a good fit, because the owner/property manager relationship is imperative to your long term success as a rental property investor.
If you’re looking for more information, I recommend checking out the following:
BiggerPockets guides, especially the following:
Buy and Hold: An Investor’s Guide to Purchasing Rental Property
How to Become a Landlord: Managing Rental Properties for Real Estate Investors
Happy investing!
- Cam
