What Should You Know Before Hiring a Property Manager
Should You Hire a Property Manager?
Not every rental business require a property manager. That really depends on the multitude of factors: number of properties, experience in Real Estate, the remoteness of properties, etc. Nevertheless, the right property manager can be a game-changer and significantly increase the efficiency of your enterprise. In order to find the right person for the position you need to perform an extensive search, meticulously screen the candidates and figure out will they be a good fit for your property. Hiring a person to manage your investment is a profound decision, and you need to do thorough research on this area of expertise. Luckily, I am here to help. Let’s go through the main prerequisite of hiring the property manager.
Do you have experience managing property?
Real Estate investment requires expertise and broad connections in the industry. Property management is not the sector where you can pull yourself up by your bootstraps. If you are starting out as a landlord and don’t know a thing about property management, hiring an experienced administrator can alleviate much of the struggle.
An untrained property investor can make plenty of fatal mistakes in their first year. Hiring a wrong repairment crew can inflict structural damages to your property. Using wrong material and installing hip, but impractical amenities can increase the wear and tear. Lack of experience in real estate marketing can result in the longer vacancies and low quality of tenants. Cumulatively all those factors will eat into your income and return on investment.
Learning on the go is not a prudent choice in this highly competitive market. Even minor mistakes can cause serious legal conundrum. Insufficient legal knowledge could lead to lawsuits if you didn’t understand the Fair Housing laws. For instance, you can prohibit the consumption of marijuana on your property — a perfectly legitimate action in many jurisdictions. However, in certain states with legal medical marijuana laws, weed is considered a prescription drug. Therefore such a provision can be regarded as discriminatory.
Moreover, there are various state and municipal laws and tacit rules regarding maintenance and upkeep that a property manager should be aware. Violation of those rules can result in penalties or conflicts with homeownership association. For example, in New York City and Jersey City owners of property in the multi-unit buildings have to comply with 80% Carpet rule.
How many units do you own?
The more properties you own, the more responsibilities you have. If you manage several properties, you should be proficient in multitasking. You have to manage tenants, vacancies, complaints and maintenance issues of each property individually. For each property, you need to interview and screen tenants.
More importantly, you need to have time to mitigate landlord-tenant conflicts, since you may have to deal with evictions. Additionally, you will have to manage the cash flow and bookkeeping. If you have a couple of properties and have a full-time job, you simply won’t have sufficient time to give each property the required attention. Of course, you can quit your job and dedicate yourself fully to property management. However, you need to acknowledge that time is money, and hiring a good property manager can free your time for much more profitable activities.
How remote are your rental properties?
The more removed you and your investment properties from each other, the harder it is to maintain them. If your residence is in New York and your rental investments are in Arizona, it will be harder for you to handle the day-to-day operations. It is almost impossible to remotely screen tenants, quickly react to emergencies, resolve tenant complaints, handle maintenance issues, and control that rent is collected on time. The travel expenses will also significantly increase the cost of remote management. In those situations, it is actually prudent to hire an onsite property manager to cut the expenses. Property managers can take care of every significant issue from filing taxes for the property to collecting rent.
Can you pay for a property manager?
Before hiring a property manager, you need to realistically asses your budget and financial standing. You need to ask yourself a question, will your property generate enough income to pay property management fees, while still giving a good return on investment.
The good question to ask here is what is the average property management fee for rental properties. It really depends on the type of property and the property manager. You need to understand the property management fee structure. Managers usually charge a fee between 5% and 10% of the monthly income of the property. The fee for a single-family home is usually around 10%. The fee for the multi-unit property, with 8 or more units is typically between 4% to 8%.
The key here is to provide a reasonable incentive for the manager. A medium-size property with a gross income of $ 2,000 and a standard 10%, will generate only $20 monthly fee for the manager. A qualified professional will not take such a gig. In contrast, if you are renting out a big property that can generate $40,000, assuming the fee is 5%, the management fee will comprise $2000, which is more than enough to attract a skilled individual.
Certain property managers also charge a fee for tenant placement. It is a commission for finding a tenant. This fee can be from a few hundred dollars to one month’s rent.
How to choose a property manager?
Hiring someone to take care of your investment property is a consequential decision. You shouldn’t take it lightly. Perform thorough research before choosing one. Valuable qualities to consider include organization, knowledge, experience and integrity. Here are some hints to guide you through the selection process.
Get Recommendations and Referrals
The first thing you need to do is to utilize the network of informal connections. Talk to the real estate agents and landlords in your neighborhood; you may be able to find some interesting candidates. I suggest getting a list of the property management companies that your counterparts are currently using. It is important to inquire what they are happy about and what issues they encountered with those property managements.
Furthermore, most of the time a referral is partial. Therefore it is important to get advice and referrals from various sources. If you get multiple positive reviews of the same property managements, then you can be confident that there is some truth to that. Try to find some reasonable criticism to get a balanced picture.
Perform an Online Search
Besides talking to local professionals, you can use the unlimited resources of the internet. Do your own research and search online for property management companies in your area.
Websites like AllPropertyManagement allow you to sort property management by size, type of property they usually manage and the area they operate.
Before engaging in the conversation with the potential property management, check the reviews of their work on Yelp or their pages on the social networks. Look for the overall rating of the company, as well as specific complains from the customers. This way you can identify advantages and weak spots of every candidate.
Don’t forget to check companies that you got through referrals, this way you can verify the reviews and get a full picture.
Check Out The Ongoing Projects
First of all, you should assess the scope of the property management you are considering. Are they widely advertising their property? Do they produce high-quality ads? Do they have a following on social networks? This way you can make sure that the company cares about its public image and community outreach.
Second, you should check out the actual properties the company manages. Ask for a tour or show up at the open house. This way you can make sure that the property is clean and well cared. A good idea would be talking to current and former tenants. Property management is not only about extracting profits from the real estate investment, but also about keeping the tenants happy. That is why it is crucial to factor in tenants opinion. Ask the specific question about various aspects of renting. Is property management responsive? How quickly are complaints and maintenance issues addressed? Is the building warm in the winter? Is it quiet? Is it clean? Those questions provide a framework to access the KPI of the management.
Ask the property managers how do they communicate with the landlords. Do they provide feedback or reports on the current state of the property and cash flow? How often?
Interview Several Property Managers
You shouldn’t stick to the first decent option you find. Rather interview several prospective candidates to compare and contrast. At first, you may be completely clueless about how to measure the qualities of the candidates. Nonetheless, after interviewing a couple of them, you will acquire a taste and will be able to distinguish the good from the bad.
Moreover, a good property manager can formulate clear strategies regarding a particular property, know the target market and can research the competitors. Ask them about their experience, certification, specific cases of troubled rentals and how they managed them. Quiz them on specifics of tenant-landlord laws, municipal rules and regulations, taxes, and basics of accounting. Most importantly make sure that the candidate is reliable and honest since this is the person you entrust with your investment.
Majority of the states require the property manager to hold a broker’s license or a specific property management license to show vacant homes. Сheck with the state Real Estate Commision if your prospect has such a license.
Another important indicator of the good property manager is certification with a trade organization. Take notice of Community Associations Institute (CAI), Association of Residential Property Managers(NARPM), National Apartment Association (NAA) and Institute of Real Estate Management (IREM). Those organizations grant certification only after rigorous training and intricate exams. If the property managers went through continuing education courses, it clearly shows that they are willing to go an extra mile and committed to the quality of their service.
Nevertheless, don’t overestimate the impact of the coursework. For many property managers that knowledge can remain purely theoretical without putting into practice what they were taught. Instead, ask about specific instances, management techniques and methods. It is possible that the property manager lucks sufficient formal training, but compensate it with enthusiasm and self-education.
Conclusion: Don’t Trust Your Gut
Property management is a sophisticated field that requires financial, legal and management capabilities. This field is strictly regulated and constantly provoke fierce political debates. It can be quite complicated for the newcomer, and even minor mistakes can cause severe penalties. If you lack sufficient experience and training, you can inflict irreparable damages on your enterprise and business reputation. Therefore, if you are starting out, I would highly recommend hiring a property manager. You certainly can go through training and certification, but nothing can replace experience on the ground.
When searching for the property manager, be mean. Ask uncomfortable questions, check references and scrutinize manager’s experience. At the end of the day, you should be willing to delegate significant power and control to the property managers. They can make it or break it.