Hiring a Property Manager?

Question

Generally I'm a flipper and have stayed productive during these awful economic times. Over the year I have really been considering purchasing 3 - 5 rental properties to generate a monthly return. With my time tied up in rehabbing properties hiring a property management company might be my best option. I would be involved with my rentals but think it might be best to have a experienced team handle that area of my business. Does anyone here use a property management company to oversee their investments? What's the going rate for residential rental properties? What are some things I should keep an eye out for?

Mike McKinzie · Answer

As someone who used to run a PM company and someone who currently has 4 different PM companies working FOR me, I think I can agree with everyone on this thread.  First off, I live in Colorado and have rental properties in California, Arizona, Texas, Oklahoma, Virginia and Colorado.  I have to have property managers.  But guess what, I am in control.  I have had to fire 3 property managers in the past 2 years, and I let the current one's know that they can be fired at any time, no matter what our agreement states.

I had a recent issue with my PM company in the Central Valley of California.  They were doing a good job with everything except getting me my statements in a timely manner.  So I sent them a Registered Letter, Signed/Return Receipt Requested stating that the reports had to be mailed in a timely manner.  They have not been late since.

J Scott wrote a blog about CONTROLLING your Real Estate Business.  That includes your Property Management Companies.  They can do a great job for you, but you are not OUT of the Landlord Business, you have just hired a layer between you and the tenants.  If you 'hire' correctly, it works great.  If you 'hire' wrong, be willing to 'fire' them and 'hire' a new PM.

Marcus LaGrone · Answer

Justin,
Some of the things that we put in place that our clients seem to enjoy are:

Lease Guarantee:
Ask if they offer a Lease Guarantee.  If the first months rent is going to your manager you should have a guarantee that the tenant will stay for their term or your money (or a portion thereof) will be refunded.

No Security Deposit Admin Fee:
This is a bogus charge.  Several companies say they are charging this to the tenant.
Example:  Security Deposit $1500 / Admin Fee charged to the tenant (from their deposit) $150. Applicable deposit = $1350.  Now technically it was charged to the tenant, but if the tenant damages the property, you only receive $1350 instead of the full $1500.

No Lease Renewal Fees:
Many companies will charge you a fee (as much as 1 months rent) when a tenant renews their lease.  A small admin. fee is acceptable, but anything more than that is rediculous.

Online Payment Options:
The check is in the mail just doesn't seem to work anymore.  Online payment options gives your tenants that procrastinate the ability to pay at the last minute at their convenience.

Make sure the Property Manager is not managing property part time.  This is a full time job.
Make sure they have their network in place...Accountants, attorneys, maintenace crews, etc.

The list can go on and on, but use your gut.

Here are a few things to get you started.

Account Closed · Answer

Most things are negotiable.

Find out what they charge for repairs. Do the have a have a repairman that works for them or do they hire it out. Repairs will be cheaper if they have their own repairman. If you can handle any of the repairs that come up, maybe you can work this into the agreement for a discount on the monthly percentage they charge.

They should give a discount for multiple units if you plan on having many.

You should also receive any late fees from the tenants. Some property managers like to keep these for themselves.

Chris

Trevor Brunckhorst · Answer

A lot of PM's are unprofessional.  There are several more that DO and WILL care for your property.  The same goes for landscapers, plumbers, or any other service provider.

The key is to ask questions, seek references, understand what's expected of the PM.  Communication is key.  In this day and age, nobody should wait longer than an hour for a return phone call.  The technology allows us to be efficient and provide value to your business.

Trevor Brunckhorst

Marc Freislinger · Answer

Ouch Dale. I think instead of bashing all property management companies, it might be better to offer advice on how to find one that will work hard to earn your money.

It's been a while since Justin posted this, I wonder if he'll come back and let us know what he's found.

Dale Osborn · Answer

My first advice would be to stay away from hiring a PM company. You lose 10%+ of your gross rents monthly. They usually hire their friends or family for repairwork so repairs are charged at the professional rates and you get amature workmanship. The repairs are so shoddy, that sometimes you pay for the same item to be repaired 2-3 times. You need to watch the vacancy fees. They will put a homeless person in and then you have court costs to evict them for nonpayment and then there are repairs every time between tenants along with additional fees to PM company for filling the vacancy. Secerity deposits are to be kept in separate accounts - they usually have one large trust account for the company - if they go bankrupt those funds are passed out to creditors. They do not have any ownership in the property so will put all kinds of individuals into the property - drug dealers, prostitutes, meth labs, etc. Drive around town and look at properties like yours that are managed by a professional mismanagement company and you can see from the outside how bad it is! It is best for you to retain the management of the properties yourself!

When first starting out - I also did not want to be involved in the management, but after 6 months and 4 tenants - we took over and it is not all that much to maintain. We ended up with 5 different tenants over the next 10 years.

Justin Ashley · Answer

Thanks for the feedback. That's about the same percentage I've been hearing around my area also. I'm inexperienced with property managers so does anyone have any advice or experiences they would like to share when searching for a reliable PM?

I'm sure I will just have to get out there and interview several companies to learn whether it will fit my investment strategy or not. I would really like to just get an idea of the pros and cons from investors who use this method to manage there rentals.

Jon Holdman · Answer

Varies by area.  Around here the typical rate is 10% of collected rents plus half to a full month's rent to fill a vacancy.

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