Since each real estate portfolio is different from the rest, it can be difficult to find a property management company that is the perfect fit. Certain management companies only service particular types of real estate, like single-family residential. Others only service certain areas and avoid specific zip codes. Once you find a property manager that you want to hire, it is important to still ask them questions about their service. You want to make sure you are getting a fair deal before officially working with them or signing a contract. Before you put on your detective hat and start interviewing companies, make sure that you have this information ready because they will most likely require it before giving you answers.
- Number of units owned that you want to be managed
- Property addresses
- Vacant or occupied
- Rent amount for each unit
- Timeline for when you want to start
Now it’s our turn! Here are several questions to ask when reviewing and hiring property management.
Property Management Cost
Cost is obviously a huge factor when deciding which property management company to select. Especially if you are used to saving money by managing your properties yourself, paying for this service can seem like a big expense. Before we dive into what you plan to Here are several important questions that you should consider when preparing to hire a property manager:
- Is there a startup administration fee to hire you? What is the amount?
- What is the monthly management fee per unit?
- What is the cost to fill a vacant unit?
- Do you charge a lease renewal fee? How much?
- What is the upcharge amount on maintenance visits?
Startup Admin Fee
Nearly every answer that you get to these questions could vary depending on which property management company you ask. Startup administration fees and lease renewal fees are common, but you may find some companies that do not charge anything for these. On average, these can range from $100 – $400 depending on your market.
The monthly management fee varies as well. This cost can is usually either a flat dollar amount fee per unit, or a percentage of the monthly rent. This cost can also differ depending on the amount of units that you are getting managed. For example, if you bring a portfolio of 12 units, the property management company may cut you a deal and only charge you 6% instead of 7% for the management fee of each unit. Be careful here if your units bring in low amounts of rent each month. Certain companies have a policy stating they will charge a certain percentage, or a flat dollar amount per unit per month, whichever is higher. This is where a low monthly management percentage charge doesn’t seem as good because you still have to pay up to that flat dollar amount if your rents are lower. Here’s an example:
- Your single-family home brings in $650 per month in rent. The property management company charges a 6% monthly management fee per unit, or an $80 flat fee, whichever is higher. For this example, $650 x 6% = $39 which is not bad! However, since it is not above $80, you still must pay an $80 management fee. That is equal to +12% of your monthly rent. Now the arrangement doesn’t seem as good as you initially thought.
Cost to Fill Vacancy
Similar to management fees, the cost to fill a vacancy can vary between a percentage of the monthly rent or a flat dollar amount. On average, you’ll find that most property managers require one month’s rent, or 100% of the rent, to fill a vacant unit. Before you hire a property management company, ask if they still charge a monthly management fee for a unit that is vacant. If there is no rental income coming in, then that fee would be coming straight from your pocket!
There is often an additional charge that comes along with a maintenance visit. You will find that typically 10 – 20% is added as a fee. This is also important to know before officially hiring property management.
When hiring a property management company, it will help decide exactly what you are getting for your money. Review these questions before you begin to vet companies:
- How do tenants contact you for a maintenance request?
- Is there someone available to speak to 24/7?
- What is the preferred mode of communication between you and the tenant? Texting, calling, emailing, or online portal submission?
- How soon do you respond to them?
- If a tenant is late on rent, how do you handle that?
- How do you attempt to gather late rent?
Managing the Property
- Do you provide your own in-house leases that we can use?
- What specifically do you do to fill a vacant unit?
- How involved, at all, am I in selecting or approving tenants?
- If you fill a unit and the tenant needs to immediately get evicted, is there any type of tenant warranty where I would not need to pay the fee to fill the unit again?
- Do you handle the eviction process if needed? Is there a charge for that?
- Do you do monthly or quarterly site visits to the property?
- What is the process like when a repair needs to get fixed?
- Do you contact me if the repair costs a certain amount? What is that amount?
- Do you use in-house contractors for repairs or work with preferred vendors?
- Can I use my own contractors?
- How do you bill me for repairs completed? How is this tracked?
- Do you provide any financial reports to show me how my property is doing?
- In what ways can tenants pay the rent? Is there a preferred method?
- What day of the month is rent collected? What day do I get paid?
- Do we need to sign a contract?
- How long is the contract?
- What if I need to cancel the contract? How much notice do you need?
- Is the contract cancel for any reason?
- Is there a cancellation fee if I cancel the contract?
There are even most questions that you can most likely think of to ask when preparing to outsource this service. Hiring property management is bittersweet. It is an expense that you may not be used to, but it can save you huge amounts of time by calling in the professionals and hiring it out. If you thought this was helpful, here is a free download of the 39 Question Checklist – Hiring Property Management. Utilize this checklist of questions to ask when you plan to hire a property management company for your real estate portfolio. If you are curious or have questions please feel free to reach out to us at Brotherly Love Real Estate.
Handling the day-to-day operations of your property management can have you frustrated, tired, and pressed for time. Even finding the right tenants for your property can be overwhelming. Fortunately, this is where property management companies jump in and save the day (or the whole year). Hiring a great property management company will not only save you time and give you peace of mind, it will also help keep your rental income steady. And these are just a few out of many important characteristics of a good property manager. After reviewing the questions above, check out these practical tips on hiring a property management company!
Where to start when hiring property management
More often than not, the best way to find the “best guy for the job” is by word of mouth. Reach out to people in your real estate investor network, friends, or colleagues who have worked with property management companies in the past. It’s also important to assess reviews and references that the company itself has. Try to find a company with some experience that is most relevant to your type of property or investment. As you probably already know, property management is very broad, so hiring a property management company with experience will save you a whole lot of stress (and money!).
Ask the Right Questions
In your search for the right property management company, it’s easy to get carried away with sales copies and ads, especially if you begin your search online. However, when you do select a few companies that catch your eye, be sure to ask the right questions. Be clear on the exact services offered – what is included and what is not. Ask questions such as how long the property management company has been in business. What is their commitment to your property in the event you hire them? How many other units do they manage? Ask about their licensing as well as insurance levels you will be required to maintain. Basically, know everything you need to know before going into any agreement with the company. Satisfy your doubts before moving ahead to work with them.
This is pretty straightforward. If you get the impression that the property management company is not right for you, then it’s probably not right for you. If you ask questions and don’t get answers, then it might not be a great idea to work with them as this might cause problems later as well. A good property management company should be open to attending to your needs and requirements, not dodging them. Trust your instincts.
Assess Agreement and Contract Terms
The importance of a transparent contract relationship cannot be overemphasized. You need to understand their contract terms so that surprises don’t spring upon you. In the agreement, you should be able to see factors such as services covered as well as a breakdown of fees. These services range from maintenance and repairs, handling tenants, documentation and daily operations, evictions and rental collection, marketing, and several other services the company should be taking off your hands.
Be Clear on Cost
This is where comparing and contrasting comes in handy. It may be difficult to determine if a property management company is affordable enough unless you check what other similar companies offer. Get a good breakdown of the cost for all services rendered, as well as any additional fees that may pop up later on, such as unforeseen repairs and damages.
In a nutshell, hiring property management all boils down to proper research and understanding the services involved. Remember, the responsibilities of a property manager are almost endless, be sure to select one that will make life much easier for you!