Vetting property management companies

[Damien C.]

Hello folks. I was interested to hear Jered Strurm, on his BP podcast interview, discuss his experiences vetting property management companies. He mentioned having reached out to local property management outfits in the role of a renter, rather than as an investor with a portfolio. And in that way, as I understand it, he was able to get some (grim) insights on how these companies handled their business with tenants and residents. I thought that was a clever, but very logical, strategy. 

Just curious if other investors here have some solid strategies, and/or out-of-the box strategies, for assessing/vetting property management companies.  

[Travis Beehler]

I found my property managers (plural), by asking hard questions.  My first guy I was a bit naive and didn't ask many questions.  He's turning out to not be that great.  The second one I have returns my calls on time, points me in the direction I want to go because he knows my goals, tells me what areas to avoid, and has been well worth the money I've paid him.

I'd say ask some questions that might be difficult for a shady person to answer, but easy for an honest one.  For example, I asked "If I have a problem after hours, who can I call"?  My not so great property manager said "Oh, there's an after hours number you can call that you can leave a message with and we'll get back to you".  I tried calling that one to see response times, and it was hours.  Not good if there's a leak.

The good one I asked the same question and he gave me the after hours number, which a live person answered, his cell number (which I will never call unless there's an absolute emergency that only he can fix), and a number of other ways.

The difference is night and day with property managers.  I don't expect them to fall all over themselves to kiss my ***, but at least be available within a reasonable amount of time.

Hope that helps!

[Damien C.]

Hi Travis--yes, that does help. Thanks!

[Aaron Smith]

I hired the wrong management company once. They stole about 10k from me when i was living out of the county. I didn't vet them at all, they were just the first listing to come up on google. Since then I've come up with this system to vet property managers:

1.irem.org

2.Search for CPMs (certified property manager - for multifamily more), or ARM (accredited residential manager).

Deal Breakers: 

1.Any clause giving the management company a commission at the sale of the property.

2.You must have signing authority on the bank accounts for the property. Both Checking (operating) and savings (deposits). If you find they are stealing from you or incompetent, you can simply take out all of your money, have your lawyer send them a cease and desist letter and change the locks. easy.

3.Must have the ability to cancel contract giving 30 days notice. Never sign a year contract.

Other Questions:

1.How long have you been in the business

i.Needs to be at least 5 years with apt buildings

2.Ask for a few addresses of buildings they manage

3.Ask, what is your tenant retension policy?

i.They should go on for 10 minutes about this, and say some good things.

4.How long is a typical unit made ready after a tenant moved out

i.Should be three days

5.How do they market for new tenants?

6.Will maintenance be done by their staff or by hiring out contractors?

i.Its better that they have a staff…cheaper

1.Ask what their hourly wages are

7.Ask for a few references and call them

8.Ask if they have been sued at any time in the past five years

i.Especially look to see if the prior owners filed suit

9.Are there managers provided with any special training? Either in house or courses at the Institute of real estate management or national apartment association.

10.Who would be directly in charge of managing my property?

11.Ask management fees. Should be 50-100% of one months rent for each new tenant they deliver (in properties up to 20 units). This will add up to about 10% of gross rents.

Record Keeping

1.Has to be computerized

2.Ask for a sample report and have them explain them to you.

Tenant Screening

1.ask who will be screening the tenants

2.Decide upon minimum income requirements (2.5 times rent), minimum credit score, and which crimes are ok.

[William F.]

Aaron Smith About the fees... you don't have management companies that take a set percentage of gross rents?

[Paul Timmins]

@Damien C.

Go to IREM.org search for ARM certified property managers. Call 5 ask them what they see expenses running per category per unit. What do they see them selling for per unit, what is the market occupancy rate. What are the market rents? Ask them if they know anything coming up for sale. Great way to pick up some good info and possibly a deal.

You can also search NARPM.org for the RMP (Residential Management Professional) and MPM (Master Property Manager) certified.

Paul

[Matt McGuire]

Hi I just saw this thread and I have a couple questions. @Aaron Smith, When you ask for a record keeping sample report, what report are you referring to and what are you looking for?

@Paul Timmins, when you ask what are expenses per category per unit, what category do you mean? Also, what are you looking for in a market occupancy rate?

After reading this, I went to the irem.org and narpm.org to search for property managers. Then I just googled a couple of them and the 2 I looked at both had terrible reviews on google and yelp. Do you guys think that the reviews online from the tenants should be taken into account when selecting a property manager?