How To Pick A Property Manager
Property management… that 10% cost that you account for while analyzing properties.
Sure it’s only one line on your spreadsheet, but that 10% can become 15% real quick if you aren’t careful.
Property management companies are a business and they have ways to “upsell” services that you may not necessarily want or need. If you’re out of state this could be even more problematic.
I get it though, why do research on property management companies before you even know which property or even state you’ll be invested in?
Although I agree that it might be a waste of time to research individual property management companies that far out, I still think there are some basic things you should know.
In this post you will learn how to pick a property manager.
After an offer is accepted, start shopping ASAP
This one seems like it should be common sense but for me looking for property management happened way last minute.. like a week before the property was to close kind of last minute.
In the excitement of buying your first property it seems like everyone else in the world should be sharing the sentiment. They aren’t.
Property management companies won’t always get back to you rapid fast and you’ve got to remember that your property isn’t the focus of the rest of the world.
Get this: Two property management companies actually REJECTED my first 4-plex because the rents weren’t high enough/not the best neighborhood… I did NOT see that coming.
The next thing to remember is that until you’ve signed a contract, you aren’t officially a customer of theirs. I mean, a good company will obviously want your business, but acquiring you may not be the priority that day.
And let’s not forget about other normal life stuff happening like people calling out sick at the property management office. It happens.
The bottom line is, although not incredibly difficult, getting property management lined up isn’t as easy as one phone call.
Lease renewal fees
Let’s say you have a tenant that’s lived in one of your units for a year. Their lease is about to expire and they want to keep living there.
My initial thought: Fantastic. They’ll sign a new lease, I keep paying the 10% and we’re good to keep on rolling… Nope.
When a tenant renews their lease with you, even if nothing on the contract changed except the date, there will be a least renewal fee… and it can range.
The companies I had narrowed down (Company A and B) had lease renewals fees of A$149, or B$300.
In my opinion, lease renewal fees were something that I felt shouldn’t have a high cost since a renewal requires no marketing for the property management company. On principle, the idea of paying more than I had to for this irritated me.
You know what your 10% gets you? It’s gets you accounting services, your portal, and people to talk to your tenants when something goes wrong.
You know what it DOESN’T get you? Trips to your property.
Every time anybody has to go to your property, you will be charged. Nothing is free. Unless you pay them to, property management won’t be going out to your property all the time making sure people aren’t parking on the lawn or cooking drugs.
This idea you have in your head about them driving circles around your property daily to make sure everything is order is not what actually happens. Oh the optimism. lol
Company A was $75 per unit and Company B was $50 per unit. I have a 4-plex, so every 6 months that would be either $300 or $200 for a yearly total of $600 or $400.
There are two types that I found:
- Flat fee
- First Month’s Rent
You’re going to want whichever one works out to cost less obviously.
For my options, Company A had a flat fee of $595..
Company B wanted first month’s rent.
My rents averaged about $600 so either way I’d be paying close to the same amount. It may not always work out that way though so be mindful.
As mentioned earlier, property managers generally charge you every time they have to either make a trip to your property, or send someone over. Ask how much it costs.
This wasn’t a cost a had thought to consider until I was already under contract with my property management company.
The company I went with charges $25.. This doesn’t seem like a lot, but a couple of these in a month can add up.
I’m dreading the day when this happens… and it WILL happen.
If you’re like me and are just starting out your real estate investment venture, it’s likely you aren’t buying brand new properties in the best neighborhoods. Eviction is inevitable so ask about it.
For the company I am currently using, it costs me $825…
Now think about all that you lose if a tenant were to get evicted.
- $825 court fee
- $595 leasing fee
- $600 of rent
- + Damages…
Kind of scary right? Don’t worry, make sure that your property management company runs background checks for your tenants.
Read company reviews!
One of the most important aspects to the success of your real estate investment is going to be the treatment of your tenants.
Imagine if you felt like your landlord didn’t care about you or neglected you.. Would you respect the property? Would you care as much about cracking tiles, the quality of the carpet, or dents in the walls?
When your management treats the tenants well they are also much more likely to renew. Consider what it costs to get fill a vacant unit.
Property management would have to fill it ($595) and you wouldn’t get rent for a month ($600)…
Manage the managers
I actually first learned about this concept when I read Big Money in Small Apartments but never really put much thought into it. In my working experience I had never managed anybody and I wasn’t even really sure how to put this tip into action… or know when I needed to “manage.”
Then it happened.
I bought my first property at 75% occupancy and after owning the property for 2 months, the vacant unit was STILL vacant. That was almost $1,200 in missed rents.
I finally reached out to the main manager and asked what was going on and gave him a deadline to have it filled and politely expressed that this wasn’t something I would accept moving forward.
He then marketed harder and in less than 3 weeks we were able to get a tenant in with a move-in discount…
I didn’t care, at that point, it was a win.
Had I managed the managers sooner and not assumed they’d do their jobs to perfection, I’d be $1,200 – $1,800 richer.
Holding costs for vacant units
When a unit is vacant everything doesn’t get shut off. The fridge and thermostat stay on so that property management can show the property without it feeling or appearing unkept or “vacant.”
Who do you think pays that bill? YOU do.
Lesson: Vacant units are one of your worst enemies… worse than you probably imagine.
I hope this information helps. You want to be sure that pick the right property management that works for you. You’ll need to trust them with your investment after all!
If you have any questions at all regarding property management or anything else, leave me a comment or find me on social media and I’d be happy to help out.