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Landlords: 8 Tips for Hiring the Best Property Manager

by Peter Giardini on February 25, 2011 · 38 comments

  
property manager for rent sign

In the past several weeks I have found myself in the position of providing guidance to several clients who were having tenant issues.  While I enjoy engaging their issues and helping them to formulate the best approach to their respective situations, the part I have a tough time with is that these clients have paid property managers who should know this stuff. Most importantly, these property managers should be ready, willing and able to act to the benefit of the property owner (my client) to resolve any issues without the client having to guide their actions, or in one case, demand specific actions be taken!

For many real estate investors the specter of using a property manager is like having to visit the dentist.  It is one of their least fun things to do.  And yet a good property manager can ensure your monthly cash-flow while a poor one will almost drive you to bankruptcy.

Back in September of last year I wrote an article titled, So, You Want To Be A Landlord.  As part of the article I provided several recommendations regarding those critical items I believe would help every investor to be successful as a landlord.  Item #5 provided this recommendation…

“Don’t ever forget this one: no one, and I mean no one will ever manage your properties and be more concerned about the monthly cashflow outcomes then you.  Where am I going with this?   If you have to use property managers, spend as much if not more time screening themas you would a prospective tenant.  It never ceases to amaze me how most property managers always seem to divert your monthly cashflow to their pockets.  It is almost like magic… but it isn’t!  Don’t assume anything with property managers and you should do OK.”

Well… that is about as direct a statement as could be made about your relationship with any property manager.  Wouldn’t you agree?

So, assuming there were at least a few decent property managers in this country, how would you find them and what criteria should you use to select them?

The obvious way to find those few property managers that really will take care of your portfolio is to find them based on the experience of others.  If you have been attending your local real estate investment association meetings you could get recommendations from other investors.   In many larger communities there are landlord specific associations called Property Owners Associations.  Obviously this is a group of property owners and they will have very strong opinions regarding who the good property managers are.  There most likely will be members of the association who are currently providing property management services.

If all else fails you can always do what I did.  Learn the property management business from the ground up and then when your are ready to turn management over to a property manager, find someone who is trying to get into that business and train them.   Once they are trained this approach provides you with the comfort that they will pretty much run their business just like you would — assuming you did it right — this approach works like a champ.

OK, lets say that your got a couple of recommendations for the proverbial “good” property manager and you now have to go through the selection process.  What should you be looking for?

8 Tips for Hiring the Best Property Manager for Your Real Estate Portfolio:

1.  The first thing I always want to know is how many properties (units is a better measure) are they managing.  This is followed up with how many employees are managing these units.  Here is what I have found based on our experience building our property management capability internally and then handing the entire portfolio over to property managers: a trained employee with the right tools and proven processes can manage between 30 and 40 units – assuming the accounting function is not included.  So, if you are qualifying a property manager and they have no employees and are currently managing 37 units and you want to hand them 7 more, how good do you think their service to your portfolio will be?

2.  Do they own any rental properties themselves?  For me this can be a deal breaker!  Here is what I have experienced: while it may seem like a benefit for a manager to own properties because they can better relate to what an investor experiences, I see it differently.  The way I see it is my properties and my tenants are in constant competition with the managers and their properties.  If the manager has a vacancy at the same time you do, how can you know that your property will be filled first?  You don’t!

3.  A critical component in managing both properties and tenants is getting into those properties on a routine basis.  As part of your discussions with prospective managers, you want to get a commitment from them how often they will conduct formal inspections of your properties.  In some cases, managers will be very accommodating. In most, however, they will balk at this requirement or use it as a way to increase the fee they will be charging.  I am not too impressed with property managers who believe that conducting routine property inspections is an extra – not part of their normal package of services.  I would be very leery of this type of property manager.

4.  During the discussions if you find that the property manager is constantly cutting you off, or trying to finish your sentences for you, you will be in trouble if you hire them.  Any time you have an issue or question about your investment you will get the same treatment.  The best managers are those who know who their clients are and are constantly looking for way to make sure those clients are happy.

5.  The number of automated tenant management systems on the market can be overwhelming.  The good news it that there are just a handful that really matter.  You want to make sure that the property manager you select is using a quality property/tenant management tool and that they can provide samples of output reports from this system during the interview.  If they don’t use software to improve efficiency or hesitate to share reports with you, your experience may be less then profitable.

6.  Most property managers charge between 7% and 10% of the rents for managing your properties.  Be sure that you know what that percentage is based on.  Some managers will require that you pay them the agreed percentage on the total rents that COULD be collected whether they are collected or not.  That is a non-starter for me.  It would be a darned cold day in you know where, before I ever paid someone for rents they didn’t collect.  It should be for you also.

7.  Be sure that you know how a property manager will address maintenance issues.  There are a variety of ways you as a property owner will pay for getting maintenance issues resolved.  You can expect that the property manage will want to make maintenance decisions (spend your cash-flow) up to a certain dollar value amount before they have to obtain your permission.  I never let that amount exceed $250.  You shouldn’t either.  Also, many property managers will add a 10% fee on top of the invoice, and while it is often times hard to find a manager who doesn’t make this a non-negotiable requirement, I would still negotiate to get that item waived.

8.  Regarding that software I mentioned in item #5 above, make sure that the property manager commits to providing reports to you no later then the 6th day of each month and that your portion of the rents are paid to you at that time as well.  And if you don’t receive those rents from the manager by the 6th, go camp out on their doorstep!  I’m not kidding!

Well, this is turning into a mini-course and I am sure there are several more items that could be added.  If you have additional items which you find critical to selecting a property manager please add them to the comments below.

Photo: Ellie

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{ 37 comments… read them below or add one }

Joshua Dorkin February 25, 2011 at 9:57 am

Incredible article, Peter! Since you linked to some articles that were the result of my property management strife, I know that you’re familiar with what I’ve been through. I think this article is an absolute must-read for anyone thinking about working with a property manager! Thank you for it!

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Peter Giardini February 25, 2011 at 11:01 am

Josh, thanx for the feedback.

As y0u know there is nothing like experience to help real estate investors learn how to do things the right way… and it is obvious our experiences with property managers has taught us much.

Pete

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Jason February 25, 2011 at 1:27 pm

Great article! Thanks for the post!

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Peter Giardini February 26, 2011 at 1:55 pm

Jason… thanx

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Kevin Kaczmarek February 25, 2011 at 4:42 pm

Peter, I can’t thank you enough for this article. I found #2 to be of great interest. Conventional thinking would say just the opposite, but your reasoning and experience is enough for me to add this to my pre-screening toolbox. Keep up the awesome work!

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Peter Giardini February 26, 2011 at 1:56 pm

Kevin… thanx for the feedback… and good luck in your endeavors.

Pete

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Tayo March 1, 2011 at 10:40 am

good comment here, i do agree with you.

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Pierce February 27, 2011 at 5:18 pm

Good Stuff.. I’m buying my first property & I thought I had the management side of things figured out, but as I read the 8 tips I realized that I have more interviewing to do…

Thanks

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Peter Giardini February 28, 2011 at 1:41 pm

Pierce, best of luck interviewing and selecting the property manager who will best support your agenda. Good property managers are out there… but just like frogs you have to kiss more then a few to find the prince.

Pete

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Peter Jorde February 27, 2011 at 10:40 pm

Hi Peter, truly exceptional advice, both relevant and accurate. I’ve been managing Multi-familiy proprty for 20 years and I think you covered all the critical areas, well done! My only contribution would be to say that depending on the size of the property being managed and perhaps the state you are in, a property owner must be flexible on the deadline for receiving management reports.

I have found that especially on larger properties, say 40 units or more, it is nearly impossible to have all the rents accounted for, the report reviewed, corrected, printed, assembled and delivered by the 6th. We have dozens of clients and over 20,000 units under management and none has a problem receiving their reports on the 15th because they know the report will be complete and fully accurate.

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Peter Giardini February 28, 2011 at 1:48 pm

Peter, great name by the way!

Your point is well taken regarding giving a large property management firm additional time to get the monthly reports and payments out the door.

I can tell you however that if a property manager is that large and that it takes that long to get the monthlys out… I probably would not be able to work with them. For me and many investors being too big is not a positive. For others as long as their portfolio is being taken care of they are happy regardless of the size of the property management firm. A lot depends on the individual investors goals.

Pete

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John Canchola February 27, 2011 at 11:08 pm

Thank You Peter,
This was such a refresher. I was reminded of the many redflags I went through myself. I am now on another apartment acquisition and this article will help me with the next screening of property managers. Thank You!

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Peter Giardini February 28, 2011 at 1:49 pm

John, thanx for the feedback… and best of luck on your next acquisition.

Pete

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Ron February 28, 2011 at 8:01 am

So let me get this right – a property manager making say 8% on rents collected who has no more than 40 units? Assuming the average rent were $1,000 – would result in $3,200 gross monthly income… After business expenses they would be lucky to be earning $2,500 a month in salary. You recommend hiring someone who would not qualify to rent the units he or she is managing? Your disrespect for the very profession you accuse of being unprofessional is glaring.

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Bilgefisher February 28, 2011 at 11:01 am

Ron,

Not to hijack the replies with an argument, but don’t PM’s get money from lease up fees, commissions and other income? Your 100% correct, it would be near impossible to survive on management fees alone, but that is not their sole income source. With 40 units and assuming average tenancy of 2 years, that’s 20 leases per year. Not to mention re-lease fees on a 6-month to annual basis for nearly every property. Assuming 25% re-lease on 20 properties that would be 5k. Plus 50% lease fee on 20 properties equaling 10k.

I’ve never been a pm of others properties, so please let me know if I am missing some key facts here.

Jason

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Peter Giardini February 28, 2011 at 2:05 pm

Jason, Thanx for pointing out an aspect of property management compensation that I missed… and that is how they are paid for placing tenants and under what circumstances they would get paid to place another tenant in the event the first tenant was evicted within one year of moving in.

I appreciate the assist and no you did not hijack the threat… you took it to an entirely new level.

Pete

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Peter Giardini February 28, 2011 at 2:01 pm

Ron… I will first be right up front… I have not yet found a property management firm who has been able to preform as they claim… except for the one property manager who I personally trained and he is doing great business, including my rentals, in Baltimore right now!

So… if it appears that I have a very strong negative opinion regarding the profession… you are absolutely correct.

Now with that out of the way, Jason’s response fills in a few more blanks regarding how property managers are compensated in total.

In fact Jason brings up yet another item that should be negotiated when a real estate investor is interviewing property managers… and that is their fees for placing tenants and how long they will guarentee that tenant.

Let me explain… again based on experience, mine and the experiences of my clients, I have seen property managers churn tenants, (placing tenants who maybe shouldn’t have been selected only to be evicted within a few months so that they could find a new tenant) and charge the landlord again for placing that new tenant.

So… bottom line for me is this… a property manager and all of my vendors for that matter are either totally signed on to my agenda or they don’t work with me. That approach has served me very well over the years and I will not be changing it anytime soon.

Thanx for the feedback and best of luck going forward.

Pete

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Rich Cederberg February 28, 2011 at 8:51 pm

This is great information. I dont manage properties because I believe that sort of thing should be left to the pros. Thank you.

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Peter Giardini March 1, 2011 at 12:59 pm

Rich… it sounds like you have found a property manager who is actually working for you… congratulations.

Pete

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Tayo March 1, 2011 at 10:35 am

thansk for this article. i totally agree with you. tenant some times are very tough to handle………………..

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Tayo March 1, 2011 at 10:37 am

keep it up, i really find this article knowlegdeabe for me and as well as others who have read it. thanks bros……

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Peter Giardini March 1, 2011 at 1:53 pm

Tayo… thanx for the feedback.

Pete

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Dustin McClure March 4, 2011 at 8:23 am

Peter –

Very well written blog post and very good advice for novice investors (for the most part). Although I think most of the points are VERY valid (and some of it surprised me that property managers do those things), I disagree with a few of them.

As for #1, as an experience property manager and owner of a property management company, I think with the right tools in place, one can manage more than 30-40 units. Our property managers can manage upwards of 75 units and still provide excellent customer service (which is the most important thing). I think the key is having a good team of contractors that you can trust to make sure any problem is taken care of.

As for #8, I would say move that date to the 15th. We still collect personal checks from some of our clients and to stay in compliance with certain state trust account guidelines, you have to make sure the check clears prior to issuing a check to the homeowner. If rent is paid on the 5th, and one of my clients came to my office demanding money on the 6th, I probably would cancel their contract with our firm on the spot.

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David March 6, 2011 at 7:50 pm

Peter —

Great stuff in the article!

My new property manager charges a flat 10% without additional charges for filling the units. This approach aligns my interests with his. I cannot understand why this model has not taken off. Naturally, he will not take war-zone and very low end rentals with high turnover, and I don’t want to own this stuff either, so that suits me fine.

I also question whether a PM’s personally-owned units compete with client units. Prospective tenants are normally responding to an ad for a particular unit in a particular area and price range. Also, a PM who is in the market on the buy sdie is in a great position to show you deals, provide excellent color on market dynamics, can advise on strategies for positioning certain of your properties for sale at times when it makese sense to do so. However, I truly can see both sides of this one.

I also aree that 75 units can be handled by a well-organized individual with the right tools and teams in place. At lower unit numbers, only very low-end staff can be employed, and this is not who I want handling my units. It’s a tradeoff, I know, but I want better-paid folks supported by excellent systems.

Thanks, David

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Nathan Gesner July 27, 2011 at 5:59 pm

I agree with others that #1 and #8 are incorrect.

First, I wouldn’t trust a PM that is maxed out at 40 units. If that’s all he can handle, he’s probably not very capable. I’m a competent manager, the kind you’ve apparently been unable to find, and I currently manage 135 units. Now, I’m the first to admit that it’s spread me too thin and I’m in the process of training two people to assist me and bring that level down to around 70 for me and 30 for each of them, which I think is the optimum number for a GOOD manager.

Second, claiming that the reports should be out to owners by the 6th doesn’t match reality and is a terrible measure of a competent manager. As someone else pointed out, the rent has to be collected (most states have grace periods up to the 4th or 5th of each month), then you have to use the rent money to pay invoices, collect management fees, build the report, cut the check and mail the report. Unless all the stars align on every single unit, it ain’t happening. For example, my apartment complexes have laundry rooms and the utility is billed to us for payment on the owner’s behalf. Some of those bills don’t arrive until as late as the tenth of each month and your stipulation to be paid by the 6th would require me to hold them for nearly a month before paying.

Finally, I definitely agree that the owner MUST consider every single fee and how each one is applied. I’ve researched PM companies around the country and it’s incredible how they can charge just 4% management fee, but then nickel and dime the owner for tenant screening, advertising, maintenance mark-ups, and much more. In the end, the owners actually pay closer to 10% or higher. I charge 10% of COLLECTED RENT, and that includes all my services from start to finish. I even reduce that rate based on the number of units they bring (e.g. more than 5 units at 9%, more than 10 units at 8%, etc.).

I don’t mean to hack on your list because it’s a great tool. I just think there are a couple things that could be used as tie-breakers but not primary screening tools. Great job!

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Giovanni Isaksen July 27, 2011 at 6:31 pm

Great article, thanks for sharing Peter!

Giovanni Isaksen, CEO
Ashworth Partners Ltd.

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Tiffany H. December 4, 2012 at 11:41 pm

Hi Peter,
With regard to records, how particular are you with receiving receipts in addition to reports to keep PMs honest?

In terms of lease up fees, have you found 50% of rent rate to be a reasonable amount?

How do you incentivize your PM to pay special attention to your units/how often are you in contact with them?

Do you require internal inspections or just drivebys? How often?

Thanks!

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Brittany Houghton March 24, 2013 at 11:46 am

Glad I came accross this article!! I am interested in becoming a property manager. Having years of management experience under my belt and having family members who do everything from remodeling-roofing-plumbing, I think property management is the right career path for me. Is there any tips you would give me in starting up my property management business? I am going this month to apply for my business liscense and want to be the best property manager possible. Any insight would be greatly appreciated!!! Also is there any training courses that will be beneficial?

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Gary Duvall June 3, 2013 at 6:48 pm

Great article. The only thing I would disagree with is the number of units a well trained manager can manage. The numbers don’t support a managers salary. It takes about 200 units to support the managers salary with benefits.

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Mia October 21, 2013 at 9:31 am

Well, I am in a difficult position: a beautiful house that I love and will be retiring to, that is across the country from where we live; it is rented out; good tenant; but boy oh boy; have I had trouble finding someone who will actually be a decent property manager. (Example:I found out that our tenant reported in early May that water leaked into the sunroom in the spring; we were not told about it, and the property manager didn’t even check it out until late June. Finally when we are told about it, we are alarmed and discuss a new roof and new skylights; we are told they are on it; weeks go by; we inquire; assured they are on it; time keeps passing; nothing happening ; they assure us all is in hand; finally in SEPTEMBER, I arrange for yet another new property manager and discover they had not even begun to organize the roofing job. Now we are into the end of October; the new manager organized things right away, but we are still waiting and winter is approaching. I am worried about damage to the house. If I had known I could have called roofers long distance and gotten things rolling myself way back in June. I was hesitant to appear as if I was ‘butting in’ on the PMs job and offend. Our house; we pay the bills; but I felt we couldn’t intervene. That’s why I waited and waited before with only polite frequent inquiries to the PM. Now I am going to call the roofers myself; I told the PM I was doing that; he suggested I should just let him do it. What do you think? I’m afraid I am not a landlord by choice, and can’t wait until I don’t have to do this anymore ( 2 more years). It’s my house; I’m concerned; surely I am not wrong to want to call the roofer directly and see what is going on and when this is going to get done?

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Steven Graham November 12, 2013 at 3:07 am

Mia, call the roofers, it is your property, your investment

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Harley Cronley January 30, 2014 at 7:32 pm

I hired a Dallas property management before and It was great. I just had to sell my properties. I am considering a new property and I am planning to hire them again after all my projects.

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Jaqueline March 21, 2014 at 10:18 pm

Peter,

I have a question – You talk about how PMs should make regular inspections, and how some will not do this, and sometimes even “churn” tenants. I have had that happen to me, and this not only cost me additional lease-up fees, but those tenants that stay less than a year are usually the ones that do the most damage to the home. If a tenant leaves a security deposit that won’t cover even half the cost of the damages he’s done to the home, should the PM be responsible for collecting the cost of the damages from the tenant, if not upon inspection, then after he moves out?

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Diane S April 20, 2014 at 6:15 pm

What great information, I am in the process of looking for a property manager for our condo. We live in a different state and, having not done this before, I did not have a clue how to go about finding someone. This article was perfect to help me begin the process. Thanks so much for down to earth, easy to understand, and simple advice. I am sure it will be helpful!
Diane

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Ben Staples May 10, 2014 at 8:52 pm

I really enjoyed this article. I did have a couple of questions:

A question on routine property inspections. While I understand this is a must, can you go into more detail on this? How often would you recommend a walk through? Do you go through each unit? How do you deal with privacy concerns and such?

Does anyone have any experience with being a tenant, and using that view to determine if you want to use a property manager for your own property? I am currently renting, looking to purchase my first property within a year. I have met the property manager who seems like a great guy. If you were in my position, is this a fair way to evaluate a property manager, at least from the tenant side? What are some “under cover” questions I could ask, and good signs I should look for?

As for actual rent collection, I understand there are late fee laws for collecting rent directly from tenants. Are there late fee strategies or laws for collecting rent from property managers?

Thanks
Ben

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Galen Whitley July 3, 2014 at 9:17 pm

Hello there I am looking for a property manager for my house. Thanks you for letting me post here :)

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Andrew Brown October 8, 2014 at 5:39 am

Great tips! Personally, I found the article helpful and informative. Thanks for sharing!

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