Picking MF property management: What questions do you ask?

21 Replies

I am evaluating the multifamily market in Lexington, KY for value-add potential. I would like to set up in-person meetings on August 9 and August 12 with folks who are interested in working with large-scale investors. I am flying from out of state with the intention of moving to KY this winter.

My first call was to MLP Management Co and all I received was a nasty earful when I asked the name of the person that picked up the phone. (The man did not introduce himself except to say that he was "the guy" I needed to talk to.) I have no problem ditching that prospect in search of a courteous and professional agency, but it has me second guessing my approach since that went super well.... 

I have experience interviewing SF property managers, but MF is different.

How would you begin the conversation? 

What metrics would you suggest I use to 'grade' each property management company?

What did you overlook when you hired a property manager?

You should really consider speaking with Kentucky Life Property Management. We switched over our small multifamily portfolio (27 doors in 2,3 & 4plexes) over to them in May and have been very happy with them. Communication has been excellent. Josh Shepler & Heath Green have been great to work with, as has our assigned property manager, Truston Humphries. I can't post their phone number, but they have a webpage and a Facebook page, just Google search "Kentucky Life Property Management" and you find their contact information.

Hello Joe! I appreciate the recommendation. I will definitely call them - but I'm also curious about your opinion. How well do you think they would manage working with a group of investors to execute rehabs and tenant placement on 20+ unit properties?

I look forward to returning to life in the Bluegrass! Winters in Maine are getting a bit chilly. :)

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They will do excellent on the tenant placement portion. I've handled the two vacant turns myself on the only ones that have gone vacant since we switched over as I have a few people that work for me on the single family stuff and they were available.

@Frances Buerkens see that @Joe Marcum beat me to it lol. I also second KY Life PM. I think they would be fine for anything that doesn't require a full on-site staff. I think of those apartments as around 100 units or more. I use them as well for my smaller apartment and MFHs and it has been fine. Give them a call and tell them I and Joe recommended. You will see why they could be a good fit for you.

I wouldn't expect a PM company to do full rehabs though unless I had a good close relationship with them. Especially if they are guts with large rehab costs. The PM would have to carry a large bill or payments would have to be processed to them for the work upfront. IDK that is a tougher question and only one that a PM company would have to answer. It would see it as risky especially if there is no rental income coming in to help support the projects. 

Good property management just really comes down to how good are their processes, communication, and execution of those. KY Life excels at those things.

Here are my answer to your questions you asked though.

How would you begin the conversation?

  • I would introduce myself and lay out my goals and intentions for business with them. See if their goals can align and the company has what you are looking for. For PM I would find out what types of properties they manage, the rates for various portfolio sizes, vacancy rate, and when important dates happen (when checks are processed, tenant turnover process, reports generated, ect...)

What metrics would you suggest I use to 'grade' each property management company?

  • Response time to questions.
  • Willingness to talk to you and discuss your goals/their goals.
  • Management costs compared to others in the market.

What did you overlook when you hired a property manager?

  • Just things to watch out for that can add up are hidden costs like direct deposit fees, leasing fees, and maintenance call charges.

@Frances Buerkens great question! I don’t know if you have read “Best Ever Apartment Syndication Book” but the step by step process and the questions are included in it. Good luck!

@Frances Buerkens this is a relationship business. You want every connection you make to be 'warm' and not cold. If you have relationships with brokers, they should be giving you PM recommendations. None of the PMs listed in this thread specialize in 100+ communities, at lease i've never heard of them. I'm sure they are great for smaller stuff, but to get into large apartments requires a professional. Brokers will know who is the best and if you're working with the best brokers, you'll get good info. 

@Frances Buerkens You want to know what their experience is working in the market and on the type of property you are targeting. Questions to gauge that experience will be a good place to start. Also, since you’re looking in Lexington, reach out to Alltrade Property Management. Josh Lindley is the lead guy there. They’re based out of Louisville and manage lots of properties in Lexington. They have been great for us and really know their stuff.

@Frances Buerkens It is definitely important to find the right PM. We have been working with a group called Alltrade in KY and Southern IN. They have walked a number of properties with us even prior to LOI to assist us with expectations around CapX and management. In fact they just competed the physical DD, lease audit and Financial Pro-forma on a 30 unit deal we are buying in southern IN last week. They have the capacity to do and or manage the full rehab and turn including major renovations. They scoped out and quoted the addition of two units to the property we're acquiring. They can do small off site as well as site management. If you'd like to discuss further or contact information for them just PM me. Happy investing- Mike

@Frances Buerkens I think that's awesome. Frances although I'm a bit too far away to physically help you in KY, I can certainly try to help in how to vet a property manager and management company. I wrote an article in our blog and posted it to our BP blog and I'll cover some of that here.

1. The first thing is exactly what you already found out - how attentive are they in their response and interactions with you. Of course they can't be everywhere at one time but, a reasonable and timely response and professional courtesy is a must, especially considering that you are about to trust them with your investment. You need to be able to feel comfortable and trust them, so if they're talking down to you, that is a total no-no.

2. Do they currently invest in real estate themselves or do they have a division that does? This is super important and many will tell it's not because the reality is that most managers and management companies DO NOT. Why is this important?... They need to practice what they preach, how can you reasonably trust that they'll manage your investment property when they themselves have no experience on the investor side of things and are only focused on management. Your management company needs to be embedded within the market. Now there is a fine line between a management company having too many of their own properties and possibly neglecting yours, however in general your management company or property manager should have a portfolio of their own to truly know what they are doing and see aspects from your perspective. 

3. Look at their fees... I mean REALLY look at their fees... do they charge on rents collected? (good) do they charge a placement fee? how do they handle late fees? how do they handle maintenance? how do they handles evictions?

4. Vacancy. I'm putting this right here under fees because technically if your property manager is SLOW this is another hidden 'fee' that will eat away any profits you are projecting. If your property manager takes 2-3 weeks to get your unit rent ready again before they are able to show it again to applicants, this will eat into your return big time, likewise if your PM is not proactive and is listing your unit when the current tenant moves out instead of before, you'll loose here too. So look at how proactive they are. 

5. Do they offer any type of guarantees? This is a big one and many will also just shutter at the sound of it because really a guarantee is performance based, which is exactly why you are hiring a PM in the first place. Do they offer any guarantees on the quality of tenant? or How fast they are able to place a tenant? or some type of eviction protection? or something else? -- A guarantee speaks volumes about their confidence in managing your investments - although just remember to look at the fine print - but always look for 'performance based'

6. How do they market your property? Are they a mom and pop operation with paper flyers or do they have to multiple listing sites? Do they take pictures? Do they take video? How fast are they?

7. Do they conduct property inspections and how often? This is another huge one. Do they just do a yearly inspection or no inspection at all? Or are they actually proactive at enforcing your lease and maintaining eyes on your property? Remember though there is a fine line between not enough inspections and too many - not enough and your property and leases go down the drain, too many and you end up upsetting good tenants which expect reasonable privacy - I'd shot for quarterly inspections or bi-annual inspections so long as there are move-in and move-out inspections as well. 

8. How do they treat applicants and current tenants? This is often over looked but if they are charging $100 application fees before they show your unit to applicants, do you think that will increase your vacancy? Also, how do they treat their current tenants, are their fees and processes reasonable, if they are not then tenants will not want to stay in your property purely because they don't want to deal with your PM company and your vacancy will increase.

9. Maintenance and repairs. I know I covered a bit above. But how will they make it transparent for you? Will they give a heads up notice before conducting repairs? Will they provide you with pictures as proof of work completed? 

10. Technology. Are they technology savvy? i.e. can you access some type of owner account - can your tenants access some type of tenant account. This is important in the sense of keeping 'updated' on your investment and providing those capabilities to tenants for a higher class tenant pool. 

11. Cancellations. Are you able to cancel your contract and when? What happens if you go through all the vetting just to find the perfect manager only to find out 2 months later that it's not working out, will they allow you to cancel or are you stuck with them?

Frances, the last thing I would recommend is to look at what other capabilities do they have outside of property management. Will they be able to help you sell your investment when the time comes? Will they be able to help you purchase additional investment properties? Are they competent enough to be able to analyze a property from a management as well as an investment standpoint? 

I hope this helps.

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Possibly I overlooked in the thread but a key question is how they will keep your units at market value and keep retention high.  

Less turnover should = less cost but many times =s poor management of rent increases to keep pace with the market.  

Why wait until a tenant moves to consider an increase.  Sadly, many do.

2 cents

Rick

I recommend Mike and Beth Butler with Vista. The question I'd ask is what is your average tenant length. They average six years. 

@Lucas Miller That's partly the struggle! As I search for property management that operates medium/large MF assets, I have to filter through the myriad of smaller operators. Management companies don't tend to articulate their core competency on their websites. I do plan to work with a broker, but hoped to start my initial conversations with a property manager since a good broker may not be interested in someone new to the market. (Fair enough... I work on commission too.)

@Rob Bergeron Good addition to the list of questions! Thanks

@Ricardo R. Thanks for your thorough response! 

Do you have any examples of performance based metrics you've used with other property managers? Even if it's not something they already do, it's something I could negotiate based how badly they want my business and peer-based industry standards. 

Is there a representative rate for inspections? That's something I think about a lot since providing a quality and safe place to live is really important to us. 

Frances, I would focus on the reason why you need a PM. Some PM companies are a little more than just an online rent collection company. I would look at what is offered with your PM fee. I definitely wouldn't suggest having them so something that is too far outside of what they already offer. Shopping around is great but, really PM has slim margins and few companies will ever compete with their rates for the idea of winning over a customer especially if their time is better spent on other easier to manage properties. If you ask a company to do something outside of their scope, they will either just say no or they will do it but won't be able to fully give your property the attention you want it to get because again it is outside of their scope, area, or capability. 

So, take a look at the services that come with your PM fee and what is included and then what it is an extra charge to you but to be honest... many PM's are a little more that just glorified online rent collectors - which of-course you can do that for free now a days - a lot of companies, charge for inspections, placement, notices, and really anything other than just collecting rent (and some charge for that as well).... so you need to look at what you're getting included in your management plan. Inspections are a big one, if you can find a company that offers standard inspections as part of your plan WITHOUT charging you for them, you're going the right direction although expect that if you want more than bi-annual or quarterly inspections most companies will charge a fee for additional inspections and that is reasonable, although if a company does not offer any inspections as part of your plan, how in the world would they ever be able to keep control of your property and leases? 

A good PM company will actually come close to paying for itself if not pay for itself entirely... allow me to explain... 1) Your PM company should be able to find you tenant's faster than you could reasonably find them yourself because they already have a large applicant pool to pick from, from other properties they manage which decreases your vacancy and increases our cashflow; 2) Your PM should be able to provide you with basic vendor services i.e. mowing, snow removal cheaper than you could reasonable find yourself because they should have trusted vendors which provide cheaper services in return for volume and continued service from the PM; 3) Your PM should be able to market your property at no cost to you and on a bigger scale, which is of course cheaper than you could market yourself ---- Number 1 is a BIG one..... VACANCY is going to be your BIGGEST hidden cost while using a PM if your PM is not on top of it, they should be listing your unit before it goes vacant, they should have a fast make ready time of days not weeks, they should be striving for long term leases, the should be building rent escalation clauses, etc.

These are all important and that is why I say negotiating with your PM is a bad idea because you could pay 6%/mo. on management fees and lose because your vacancy jumps to 15% through evictions, property destruction and other items that your PM should mitigate or you could pay 12%/mo. for a PM that is able truly take the stress out of your investment and make it cash-flow beautifully --- So it really has to do with what services are included in your program and what GUARANTEES they offer. Guarantees ensure that they perform but must be weighed.... for instance if a company is promising you that they can find you a tenant in 7 days, well that's great! but really I can find you a tenant in 24 hours too..... the concern is not only speed but the quality of the tenant they place.... so I would expect a company that makes that promise or offers a speed guarantee to have another guarantee that focuses on the quality of tenants they place such as a placement guarantee or eviction protection, etc.

In our opinion when hiring a PM you should be looking for 3 things, 1) the speed at which they can find you a tenant (turnover, marketing, etc), 2) the quality of tenant selection (criteria, screening, etc.) and 3) control and oversight of your investments (inspections, leases, vendors, tenant relations, etc.) ---- and these should be STANDARD in some form or another within your PM program, of course they can charge for additional items above the standard that is fine but a reasonable package that includes all of the above should be included within your program. 

Originally posted by @Frances Buerkens:

@Lucas Miller That's partly the struggle! As I search for property management that operates medium/large MF assets, I have to filter through the myriad of smaller operators. Management companies don't tend to articulate their core competency on their websites. I do plan to work with a broker, but hoped to start my initial conversations with a property manager since a good broker may not be interested in someone new to the market. (Fair enough... I work on commission too.)

@Rob Bergeron Good addition to the list of questions! Thanks

 Here's a trick that might narrow down your list of property managers. Go to Apartments.com and search for listings in your target area and you can filter by size. Find properties that are operating well (higher rents, cleaner, better reviews) and look up those property managers. Also, look for deals that aren't doing so well and those could be potential leads down the road. 

Feel free to email me if you need some more help.