If you’re reading this, it’s very likely you’ve noticed that there are a lot of choices when it comes to hiring a property manager. If you’re new to the rental property game, you should know, this hasn’t always been the case. Thanks to the real estate mess in 2009, many would-be real estate sales professionals still had bills to pay, and with sales drying up and nothing in the pipeline, they added property management services to their repertoire.
This shouldn’t be a surprise though, as having an eclectic background is often in the nature of real estate salespeople and makes them good at what they do. Drawing upon knowledge as a Housing Inspector one minute, then switching gears and acting like a Marriage Counselor the next. “Sure, I can help you…” (I’ve noticed that many hate to say ‘No’ to clients). So when the obvious answer to a would-be seller was “I can’t sell this house right now, you should rent it”, the realtor often stepped in and did it themselves. This is where things started to get, well… let’s say “interesting”.
The biggest complaint I heard from these professionals was that it took the salesperson’s focus away from what they were truly good at and what they truly wanted to be doing — selling real estate.
Perhaps the biggest problem with this influx of people into the property management industry is that many real estate salespeople had to take a crash course in landlording, piecing together infrastructure and using downloaded leases from the internet as they scaled up their operations. To be fair, a good number of real estate agents do own rental properties so it’s not as if they were completely out of their element. However, the basic infrastructure for these new property management businesses focused primarily, and in most cases exclusively, on the tenants. Forgetting almost entirely how to service their original customers, the owners of the properties.
So if you’re in the market for shopping for a property manager, for whatever reason, here are some things that never seem to get asked that I think are far more important than simply “What are your management fees?” Some of the following questions will help you in being a more educated consumer.
12 Important Questions to Ask Your Potential Property Manager
1. When do I get paid?
Ok, so yes, asking what the management fees are is an obvious question that should be asked at some point, and the “When do I get paid” question matters and is significant because it’s one that is very seldom asked. Some PM’s process checks only once per month, and others seemingly whenever they get around to it. The last thing you would want is to have a tenant pay rent and you’re not prepared to wait until the end of the month before money is headed your way. So, ask the question so you can budget for it and avoid any hurt feelings early on in the process.
2. Are there any up front fees or out-of-pocket costs?
Some charge an amount up front when signing a new client, some do not. I used to think that tenants were the only ones who didn’t read the contracts they signed, but no; property owners are just as guilty of this. However, you shouldn’t have to wait to see a management agreement to know what the costs would be. Any PM you’re considering should be able to provide you a chart of costs that will also match what is on your Management Agreement. Something else to consider is that some PM’s operate out of cash flow, and others require Owners to deposit an amount up front to help cover costs that may be incurred in the future.
3. What other things could I be charged for?
Something else to consider is that some PM’s operate out of cash flow, and others require Owners to deposit an amount up front to help cover costs that may be incurred in the future. There are a lot of fees that can be charged that range from sublime to ridiculous, thus making the “What are your Management Fees?” question meaningless unless put in context to all the other possible charges. What is important here is to understand what the different fees pay for. For example, for most PM’s, the charge of “management fee” is either charged as a percentage of collected rents, or as a flat fee. In most cases, these fees are charged on a contingency basis, meaning that there is no fee if no rent is collected or if the property is vacant. However, some PM’s do charge a fee while the property is vacant. Here are some other examples of charges you may encounter, and should be considered in the total cost:
- Finder’s Fee – A charge for placing a tenant in your property
- Invoicing – There may be a charge for paying bills for the property
- Contractors – Charge for arranging for contractors or getting bids
- Financing – Charge for any balance due to the Property Manager
- Attorney – Charge for arranging and paying for an eviction attorney
4. What should I expect to get charged for?
I know this may seem a bit redundant, but the expected frequency of the charges should be considered as much as the rates. Your PM should have an average amount of costs for their management based on their past history and dealings with contractors or maintenance staff, if they have one.
5. Who is the Managing Broker?
This may seem like an odd question to ask, but the reason this is brought up here is because hardly anyone knows to ask it. In most states, there is a licensing requirement that Property Managers hold a Real Estate License in order to offer this service. Unfortunately, not only do few people know this, it seems that it is hardly ever enforced. I suspect that it will take a fair number of complaints to come across the desk of an Attorney’s General before anything like this changes, but having this in place up front will at least help avoid any problems in the future. If there are serious problems with your service, you would have some recourse with the State’s Attorney General or Real Estate Licensing Commission. A follow up to this question would also be how accessible the Broker is in case serious issues arise; say for example, you haven’t been paid in 3 months (unfortunately, this has happened with some Owner’s and less than scrupulous Property Managers). Nothing would be worse than having an absentee Managing Broker should things come up and to find out too late that the person is involved in title only.
6. What other services do you offer?
I think this is an important question to ask for several reasons. First, it gives you a good sense of what their core competencies are. Some PM’s will only do residential, some will only do commercial, and still others will only manage HOA’s (homeowner associations), and some will do a combination or all three. Some may offer maintenance as an in-house service, and some choose to hire subcontractors. Second, many PM’s will also sell properties and represent buyers just like you’d expect from a real estate brokerage. Not that there’s anything wrong or illegal with this, but I will tell you that there is an inherent problem. The infrastructure and systems needed to be effective between real estate sales and property management are completely different. Unless they are completely different departments handling these transactions, I just think it’s begging for problems. While this is just my opinion, I think the only thing that companies like this do well is make money for themselves. Companies that are more focused on a narrow area of management seem to be more effective and can be more responsive.
7. How much support staff do you have?
This question goes back to the presence of infrastructure and how you can expect not only your onboarding process once you sign on the bottom line, but who should you expect to talk to once the process is underway. It’s great that you may have the Broker’s personal cell phone number, but what good will that do you when you have a question about a line item on your bill and she’s in her car on her way to an appointment? If too many of the same questions will be answered by the same person, I would consider looking elsewhere. Relying on one or two key players is obviously dangerous. Instead, you should have a deep pool of people to work the system so there will be few hiccups if someone is out sick or decides to leave the company. Here are some basics to consider:
- Who should I talk to if I have a question about my statement?
- Who should I talk to if the tenant hasn’t paid rent?
- What if I have a question about maintenance on my property?
- Who should I talk to if I feel there is a lease violation?
- Do you drug test your staff? (You should ask for proof; it’s easy to just say yes)
- Will I hear from someone about lease renewals, and if so, who?
- If you have an Owner’s Portal, who enters that information?
8. How am I notified if something “bad” happens?
I refer to things like this as “events,” and you should know what will happen in the case of certain things. Make sure you get a clear understanding of what will happen if things, such as the items listed below, happen while your property is under management. Again, this will speak to how robust their system is. How am I notified if:
- The tenant doesn’t pay rent?
- If the tenant gets caught up on rent or is in a payment arrangement?
- There is a major maintenance issue, such as a fire or water leak?
- There are basic maintenance requests?
- The tenant is going to be evicted?
- There is a vacancy or expected vacancy?
9. Do I have any say in what maintenance is performed?
This dovetails with the previous question in a rather obvious way, assuming you are notified of maintenance requests in a timely manner. What input will you be allowed to have? This is such an important question because no other costs will have as much of an impact as that of the cost of maintenance. For many management companies, the management fees account for only 30% of their total revenues. So while you’re asking the “What are your management fees?” question, you may be missing a much more relevant liability to your investment. Not meaning to be redundant, but I hope this helps solidify why the management fee question is (almost) pointless, without putting it in proper context.
10. How is after-hours maintenance handled?
Until the tenant needs after-hours maintenance, you may not even consider how their system handles these calls. For those of you who were landlords and are now handing over your properties to a PM, you might just be happy that you can now shut your phone off at night! Some things to consider:
- Call the PM after-hours. Be wary of any phone systems that leave another phone number for their tenants to call for after-hours emergencies. Many times, these are tied to a single cell phone that (hopefully) is continually monitored and is never powered off.
- Look for redundancies built in after-hours calls. Some PM’s employ 24-hour call centers to eliminate the ‘single point of failure’ possibility with one single cell phone. If one person doesn’t answer, they often have other people they can call as backup.
- Ask when you’ll be notified of after-hours calls. Will they be calling you at 3am for a plugged-up toilet? If so, what’s the point of having a property manager? None really, unless that’s what you want. Most should be contacting you the next business day.
11. Do you own any of your properties?
Now that I’ve posed this question, you’ll probably agree that this is a good thing for you to know up front. The last thing you’ll want to have to worry about is that their vacancies will be filled at the expense of yours. Something else you should think about is if there are any property owners who are also part-owners of the management company, for the same reason.
12. What else should I be asking?
Don’t discount this powerful question to the PM. While most people on the other end of the PM’s phone would be mentally exhausted by the barrage of informed questions listed above, they may have their own thoughts that they want to convey so you can be sure you know what you’re getting.
This list isn’t meant to be all-encompassing, as you should of course come up with your questions based on your fears from your neighbor’s tenant horror stories and scenes from Pacific Heights. There’s a lot to know, and as much as you want to be able to sign over your problem to someone else, just make sure you’re not trading one problem for another by hiring a management company that doesn’t have a robust infrastructure.
Written by Mark Dolfini, Managing Broker of June Palms Property Management, LLC. He has written many articles including one posted on foxbusiness.com and has been a guest speaker on ‘The Takeaway,’ an internet-based radio station.