How to Qualify A Property Manager – Guide for Investors
I received an email not too long ago from one of my viewers, and this person asked for a property manager, so I’m going to take a stab at it today. I compiled a list of 25 questions to potentially ask a property manager that you’re looking to hire.
Before we dive further, let’s talk about the type of property managers you can find in the market. The first one is the major companies that simultaneously manage hundreds and hundreds of properties. They have a mix of commercials, single families, buildings. They have teams that are specialized and manage your particular niche.
You also have the mom-and-pop shop where the property manager can be a single individual. It can be a couple, maybe a brother and a sister, or two brothers, and they manage a smaller rental portfolio. They typically manage somewhere around, let’s say, 25 to 50 properties simultaneously, and they usually are single families. They can manage one entire building with, let’s say, 17, 20, 25 units at the same time.
There’s also number three, yourself. You can be your property manager, and I will leave that up to your discretion. I will prefer not to if the property is too far away from you because you don’t want to get those calls at two, three o’clock in the morning, and then you’re going to have to drive an hour or two just to make sure you can open up the door for someone. We’re going to tackle that a little later.
Now, let’s take a look at the list that I’ve compiled together with 25 questions.
1. How long have you been in business?
Why do you want to ask that question? Typically, you will want a property manager to be in business for about five years. Why is that? It’s going to prove that they are seasoned, two, that they know enough about the industry, the market. If they’ve been around five years, that means they’re usually doing pretty good because you also want to make sure that they are a solvent company, whether small or large ones. Think about it. You have to pay staff turnover, pay for the technology that you’re leveraging to keep track of all the properties that are being managed, and things to that matter. I will say, the golden rule, at least five years in the business.
2. How has your business changed to keep up with technology?
Changes with tech, why do you care about that? As you know, we live in a world where everything is continuously changing, especially technology. If you’re using a large property manager and want to make sure how you get the opportunity to communicate, how will they send you invoices? How will they start marketing your rentals that they have a system in place that somewhat is up-to-date? That at least your property manager has the resources or at least understands that changes are happening in technology so they can better market your unit.
For example, I have the extreme of extremes. For instance, for one of my larger units, the 17 units that I’ve talked about in prior posts, I use a big property manager in the area. They manage multiple rental portfolios, and they have, I think, hundreds of properties in their portfolio. What they do is that they are continually upgrading their systems because they need that to keep track of the stuff better, the issues that are happening to be able to communicate with the multiple investors that they have.
They have tools to go in, put in a service request, and request specific things to be done on the property. When you’re managing hundreds and hundreds of stuff, it isn’t easy to keep on receiving emails back and forth. You could do that, but it’s not overly efficient if you receive hundreds of emails a day with multiple requests to have some repairs done and stuff like that.
Plus, you also need some expense report, a net income report, or something to that matter that’s going to tell you how much money you’re receiving monthly on your rentals when you have such a large portfolio. a
Also, how much you’re spending and getting a sense of how profitable your portfolio is. What’s the unit that’s giving you the most trouble.
Now, if you also have, or you’re looking to have, a mom-and-pop shop type of property manager because you only have one or two rentals, that’s fine. I have that, as well. My property manager doesn’t have anything overly fancy when it comes to technology. He uses an email. He only manages, I would say, maybe, I could be wrong, but on average, perhaps somewhat between 25 and 50 properties on his own, and he drives back and forth to them, he checks on them.
His system is fine. He uses Adobe to create invoices, emails me quarterly, communicates with me via email when it comes to items that need to be sent, copies of receipts, and stuff like that. He is only a phone call, a text message away. I don’t need him to be overly fancy because what he’s managing for me is only three properties, so I don’t need to require him to do something like that because he doesn’t necessitate that type of technology.
Either way, it’s okay, as long as you make sure that they’re keeping track of everything and how they leverage the technology to make things work for you. That is the same thing with marketing. Even with a small mom-and-pop shop, like the ones that I’m using, they leverage other tools like Zillow, and they use Facebook, use Craigslist. Just make sure they know what’s going on and that they know what they’re doing with the technology in a way that’s going to benefit you and it’s going to help them.
Typically, if the property manager has the experience, they will do their job and sell you their service and walk you through how they do it
3. Which property manager service do you currently offer?
That’s very important for you to ask because not every company offers the same services. Some property managers are strictly, solely property management in the sense that they’re going to go, they’re going to pick up the rent, they’re going to make sure you have a tenant, and that’s it. Some other property managers are a little bit more comprehensive in their services.
The ones that I have pretty much manage the entire process from end to end. They’re in charge of marketing your property for rentals. They are in charge of screening the tenant, doing any possible repairs, and their team. For example, the large firm I’m using has everything in-house. They have their contractors. They have their electricians, and they do everything on their own.
Then, at the end of the month or the end of the service, they will bill me for the provided services. Now, for the smaller property manager that I’m using in another state, he’s very handy, so for the little repairs, he can do that himself and bill me for it. That’s separate from the services. It’s not part of the whole 10% that they charge monthly. We’re going to get to fees later. Remember that you are aware of 10% or 12% covered as part of the property management services.
Typically, it shouldn’t be all-inclusive because just driving in itself to go and pick up the rent or helping you find the right contractor and the right electrician should be fine. Anything additional in their services shouldn’t be an item that should be included in the service because we all have to pay bills, so we have to be mindful as well on our end.
4. What’s the size of your rental property?
Again, it all depends on what you’re looking for. For a smaller property management company composed of two people, let’s say, you find out that they’re managing hundreds of properties at the same time. That’s a red flag because it probably makes you wonder does this person, “Is he, or she, or are they going to have enough time to manage my property itself? How are they going to collect rent on the 1st of the month?” You have to keep that in mind. Now, if it’s a much bigger company where they have separate teams that tackle different areas, then that’s okay. Use your logic.
As I said, if it’s a large company, hundreds of rentals, that’s fine, but if it’s a typical mom-and-pop shop where you have two people, the portfolio shouldn’t go over 50. Actually, during my interview, when I was trying to qualify for a property manager for one of my rentals, this person was completely honest with me, and he went ahead and said, “You know what? I’m managing 50 properties right now, and it’s just myself. It’s gotten to a point where I’m starting to shed some of the properties because I just don’t have the bandwidth. If I take one more or one more property into my portfolio, I might not give you the attention that you deserve.”
See? Now, that’s excellent customer service and business acumen. You want someone honest and upfront with you and not someone who’s just trying to get your paycheck, and that’s the end of the story, and then have poor property management. Not only that’s a headache on your back, you’re wasting money, but it’s also a source of liability if they’re not taking care of the property the way it’s supposed to be taken care of
5. Do you manage other rental properties in the area?
I just realized I forgot to write. I’m guessing you guys don’t need me to do that. If you do, I’m just going to keep writing for the sake of it. We skipped a couple of questions. We’re going to jump straight into number five. “Do you manage other properties in the area?” If they do, that’s a good sign because that means this person or this company will be very well-versed in what’s going on around the area. What are the local news or local regulations, local laws, how much is the market willing to pay for your rental because sometimes you have to think about it?
We want to charge as much as we can. If you raise the rent or bring up the rent to a specific price and the market, meaning the people looking to rent the property are not willing to pay for that premium. That’s because not what the market demands, or maybe you have the property sitting down in an area where that rent merely is outrageous, and they cannot afford it. You don’t want to bring in someone asking for a high rent, and then within two, three months, having them default because they simply cannot afford that.
It is a good thing to have. You can’t expect your property manager to manage just your property because everybody has their bills to pay. You want this person to have experience. You want this person to deal with multiple people. You can even use that and ask for their contact information if you like, ask for a reference, and get their thoughts, or what are the pros and cons of this person? What are the pros and cons about this one company that you utilize? What do you like most about this? What do you like or dislike the most about this company? And so on.
6. What areas does your company service?
Now, why do you want to know this? Think of it as the possibility of an expansion. If you buy a property in this area, you have good quality tenants living in the area, pretty stable, and the economy is doing all right. There’s a possibility that you might want to buy another property in that area or two or three or four and continue to expand.
If this property manager covers multiple areas, you are a one-stop-shop, and all you gotta do is just to ask this person, “Hey, can you take another property into your portfolio in the bandwidth?” Chances are they’re going to say, yes, because they’re already managing your own. You don’t want to have one property manager handle one property and then have another property manager take another one and so on just because they don’t cover specific areas. Then, managing the property managers itself will become your full-time job.
The whole purpose of outsourcing the services is to don’t have to carve time away from your schedule to manage those rentals. You need to streamline the entire process and have one property manager working that specific area, whether you decide to expand or not. The same thing applies to a mom-and-pop shop. If they cover multiple locations in a city, that’s great because you will deal with this one person individually. They’re going to take care of everything you need.
7. Which type of properties do you manage?
You might think, “Well, does it matter?” Yes, it does because depending on your niche, some people want to focus on single-family rentals in an up-and-coming neighborhood. Some other people want to focus on commercial real estate. Some people want to focus on, let’s say, rentals that are section 8 or rentals that are in a war zone and stuff like that.
You need this property manager to be very well-versed in your specific niche because, depending on the type of rentals you have, the rules and regulations will change. You don’t want someone who specializes in, let’s say, luxury rentals only. This person will not have to worry about other items that you will typically worry about, let’s say, in rentals in a low-income neighborhood because the requirements are not the same, luxury versus low-income.
You want to make sure that this property manager understands your property or what your portfolio consists of and just gets the best out of their service.
8. How do you set your rental rates?
Now, expect this property manager, this prospective property manager, to explain to you or walk you through the process of how they typically set up the rent.
I expect to hear it’s, I do a quick search of how much the market is willing to pay, the comparables around the area, or I go to Facebook. I check that as well or maybe onto Craigslist,” or something like, “Oh, well, I already manage a couple of properties around the area.” The rent that they typically charge goes around this range and this range.
On the lower range is because you don’t have a nice kitchen or the floor needs some work, whatever, or you can charge up to, say, $1,400 because you have a new kitchen new bathroom. It has to walk you through the entire process of doing that. If you don’t know how to check that out, I believe I made a video not so long ago on investing or looking for areas where you can invest.
That talks to you or walks you through how you can research the revenue you can make on your rental. I’m going to leave the link here or somewhere down below so you can check it out.
9. Which strategies do you use to fill vacant properties without sacrificing quality tenants quickly?
You want to start looking into, well, what this person wants to do because the number one thing that you want to make sure is that you always, always get quality tenants and try not to push for a deadline.
Suppose you miss a certain period because you have to cover some mortgage payments. In that case, I suggest you put some money aside and cover that because you do not want them to expedite the process and then just place it in any crappy tenants. Although I have made my property manager do that once for me because I have a partner in that deal, my partner was unwilling to wait for another week or another couple of days because we had a mortgage coming.
What this person did, instead of going to his usual source to do the marketing, he went to multiple sources, and he recommended us to lower rent by a little bit. So we can continue to get more volume and have more to choose from when it comes to qualifying the tenants. That worked out for us in the end. I’m not sure if that will work out in the long run.
Typically, your rental should not be in the market for over 30 days. That’s the standard turnaround, so keep that in mind. If it’s anything further than that, you might not want to continue to use that service. In our case, we only gave my property manager less than two weeks to turn around. I was very impressed because he did a pretty good job, and we wound up with a good tenant. It is something for you to keep in mind.
10. Can you explain housing laws?
That is very important because any property manager should know what the codes are in the area you’re investing in. If they can’t talk to you or can’t tell you, don’t know anything, or it’s the first time they’ve ever heard about the housing laws, run. He is not the right person to manage your property. Everything needs to be up to code, construction, size of the windows, smoke alarms, everything you need to consider, the number of rooms in a house, and the number of people allowed in a household.
Those are topics that you can talk about with him. Do not forget about protected classes. That means a family with children or maybe potential renters that might have a disability because we all want to set our standards. I wouldn’t say I like pets, don’t want this, don’t want that. You have to make sure that whatever your property manager plans to do to qualify the tenant does not violate any of those laws.
You can open up the conversation with him or her and then have him walk you through what the local laws are over there. Although protected classes, I think that’s at a federal level. You have to make sure, and you check that with him. Some states have additional protected types depending on religion and stuff like that. You have to make sure you cover that as well.
11. Does your team has specialized roles?
In other words, “Do you have a power team?” Local fair housing rules for number 10 and your power team. Now having a power team is very important. There are two ways that they can have a power team. One, they can have it all in-house. For major companies typically have their electrician, contractors, things like that. If you’re working with a smaller company, fear not, they don’t have to have everything in-house as long as they know where to go, “Oh yes, I’ve worked with this electrician for 20-something years. He has done work for me here and there. I already know this person.”
Ensure they have someone they can rely on to get the problem fixed promptly. The last thing you want is to have, let’s say, a ceiling with a problem, and it’s the rainy season, and the roof is sitting there with no repairs for a month or something. Some items need to be repaired right away. Ensure that your property manager has that power team set up and ready to help you fix anything that needs to be fixed.
12. What type of insurance do you carry?
That’s another question that you have to ask because liability is significant. As you know, we live in a very litigious country in the US, so you have to make sure you’re well protected. Typically they have to have at least 1 million in general liability, and they cover errors and omissions. Why do you want to do that? Because if they’re in the middle of a job, somebody falls, you get the picture. Ensure that they are covered just as well as you are covered in your property with insurance coverage.
Now, the item that typically gets into a lot of open discussions.
13. What are your Fees?
Typically property managers charge somewhere between 8% to 12%. Now, whether that’s eating into your profits or not, I find the best 8% or 12% that you can ever invest in anything; it can save you so much time. If something breaks, your property manager will be there to fix it, primarily if you’re investing in long distance.
You don’t have to worry about getting any calls at two or three o’clock in the morning because somebody got locked out of their premises. To me, it’s very well worth it, but I do understand that not all of us can afford a property manager. When I first started investing, I managed my properties, and I actually learned a lot, but again, I’m not going to deny that those phone calls were not so fun to receive whenever something happened.
Not only that, then I have to go ahead and call an electrician, call somebody to repair something that broke in the bathroom. Believe it or not, it doesn’t happen often, but things are bound to fail eventually because of wear and tear. Sometimes it is about the tenants, but the tenant is not breaking stuff in an ideal scenario. They want to live in the right place, and I think they deserve everything in good condition.
When you’re managing your properties yourself, it’s going to be a little bit more hands-on. If you don’t have the budget, or maybe you’re doing it like I did because you want to learn something so you can go ahead and interview future property managers to manage your portfolios, that’s entirely up to you. Still, these are usually the rates that they charge. I find them to be very well worth it.
14. Do you collect fees when the property is vacant?
If that property management company says yes, run away. Why would you charge fees if the property is vacant? It gives them no incentive whatsoever to go ahead and market your property and push it out, so it can be rented because they’re getting paid anyway. Keep that in mind. If they do that, that’s a big no-no. You do not want to hire that property manager.
15. Can I cancel my contract without penalty if I am unhappy?
Generally speaking, you should be able to. Your property manager does that they request that you give them a written notice in advance. I will say typically about a month or so, sometimes even less depending on the relationship you have with them, but companies shouldn’t give you a hard time terminating a contract. It should be the same the other way around. Property managers also have the right to terminate the agreement with you because their relationship is not working, or maybe the tenants are too much to deal with, and they don’t have the bandwidth, and then I want to do it, but you want to keep them in there.
Whatever the reason is, it goes both ways. You have the right to terminate the contract as long as you give them written notice, and they can choose to do that as well.
16. Are there any miscellaneous fees that I should be expecting?
If they don’t charge that as part of the 10%, they will charge that separately. Typically they do. That’s what the miscellaneous fees are about.
17. What is your vacancy rate?
Typically, the vacancy rate will be about 5%. Anything that’s above 5% is not good because there’s turnover. You have to understand that people terminate leases, buy a new place, maybe they changed jobs, but anything that’s above 5% is a sign that they’re not doing a good job or simply the area’s not good.
Suppose you did your proper research and knew that the area is a good investment. In that case, it’s on the property manager, so you just simply move on and just interview another person or another company.
18. How long does your property typically stay vacant?
Now we’re talking about how many days they typically sit in the market. I think I covered that previously. It is generally around 30 days. Anything more than 30 days is not good. It should not stay in the market this long.
19. What’s your process to qualify a tenant?
It is a subject that I’m going to cover more in deep in another episode because it’s quite lengthy, but for this video, I’m just going to give you a high-level overview of what you should expect to hear.
You should expect them to say something like, “Well, we do a credit check. We do a background check. We don’t tolerate any evictions.” To me, an eviction is a no-no because if it happened once, it could happen again. I’m more flexible when it comes to credit, because hey, not everyone has a distinction. You don’t know what their circumstances are. Maybe they got into a lot of debt. Perhaps they went through a nasty divorce.
Maybe they just moved to this country, and they have no credit history whatsoever. I wouldn’t let the whole credit thing deter me, but eviction is a big no-no. Expect them to walk you from beginning to end from the moment that the tenant starts filling up an application, all the way to the moment where this property manager decides that, “Hey, this is an excellent tenant. I think you should allow this person to rent.” They sit down, have a conversation with you, and ultimately, you will be the judge, and you will decide. That’s that.
20. How often would you provide me with an update?
Is it daily, is it every week, or is it just when something terrible happens? I will leave that entirely up to you. Some people are more micro managerial than others. Some people want to hear about the property manager every day. I’m not one of those because I have a pretty hefty schedule, so we have agreed that they will let me know only if there are items that require my attention and whenever they deposit the rent.
Not even, because with the large property management company, I get an email automatically telling me that the rent has been deposited into my account. With the other property manager, he is more personable, so he just sends me a text and a picture, “Hey, I already deposited your rent.” I’ll leave that entirely up to you, but I don’t expect to hear from them every day.
If I hear from them too often, I will be concerned because it’s either they don’t know what to do or the tenant they put in my rental. It’s causing a lot of trouble’s not a good sign. Sometimes no news is good news.
21. What is your preferred method of communication?
You want to have options. Typically, I just talk to my property manager via text or email. That’s to the extent of it.
I don’t need to get on the phone with them, but things are wrong. They need to give you a background of what’s going on, discuss the solutions and the cost of that particular solution. You will want to get on the phone with them because it’s just more challenging to communicate in writing. For other issues like invoicing, copies of your receipts, and stuff like that, you will want to do that by email because you need to have a record for your bookkeeping. You need that for liability purposes.
Just make sure that you’re getting options when it comes to methods of communication.
22. Do you have any relationship with local vendors?
This ties back into the whole power team concept, but it’s not entirely the same, and I’ll tell you why soon. Typically, you can negotiate pricing with local vendors. If they have a long-term relationship, you can naturally get a good discount on some of the materials you need to either make a repair or get the property rent ready. You definitely cannot do it when you go to a big store like Home Depot or Lowe’s. However, everything has its pros and cons.
If you go to Lowe’s or go to Home Depot, you can use their credit card as 0% interest. It’s a matter of preference, a matter of opinion. I know all of my property managers. They have those connections, those relationships, and know exactly where to get the best pricing possible. Their job is also to make sure that any repair is cost-friendly and not something that’s going to break the bank for you, like a significant upgrade because of something happening in the house.
Now the last two, they’re more of a cherry on top kind of questions. I don’t make them mandatory, but it’s nice to have.
23. Do you offer advice to help me grow my portfolio?
Why is it important? Because it is very nice to have a property manager who knows the same thinking lengths. For example, I’ve had my property managers come to me, all of them. “Hey, I know about this property that’s off the market. The agent is about to post it for sale online. Do you want to take a look at it? Do you want me to go by and take a video, or are you interested in this portfolio?”
It would be best to have them because they are already part of your power team. You might want to expand on those services and that relationship, not just part of your power team to manage that property, but also part of your power team who will help you expand your current portfolio. It is always nice to have. They all do it. I don’t even have to ask. If anything, they offer it to me, which never even crossed my mind, but it’s nice to have that. Lastly, do you personally invest in real estate?
Now, some people tend to think, “Well, if my property manager is an investor himself or herself, then they will probably know what I want or what I need,” but that’s not entirely true. For example, none of my property managers, in this case, are investors themselves because they just don’t want to have anything to do with it. They are pretty busy. They like what they’re doing. They just don’t see the need to invest in real estate. Although sometimes, you might wonder, “Hey, why not?” It is up to this person.
This is a free country. We all have the right to choose what works and doesn’t work out for us, but some people find that to be something essential to have, because of the alignment of ideas, I will say, but it’s not completely necessary.
Again, this is not a cookie-cutter list. You do not have to ask all of those questions, but I wanted to choose how to drive the conversation.
Typically, if the property manager has the experience, you would not even need to ask those questions. They will do their job and sell you their service and walk you through how they do it. It’s not so much about selling it. Let me just take a step back. They need to walk you through how they perform their services. If they can help you envision that, that’s a great property manager to have as part of your power team.
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