Help on hiring a property manager

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Help on hiring a property manager

John Matarazzo
Member since 2020 · 27 posts · 9 votes
Hi all,

I am a rookie investor, have been managing my duplex for 1.5 yrs. However, recently have been assigned out of the US for work and I'm not able to keep up with managing it while out of country.

Other investors in my area have recommended a PM company, since I am new just wondering what questions I should be asking that I may not be?

Fees they would charge
- 8% on monthly rent collected....if a late fee they keep the late fee
- $400 for placing a new tenant with 6 month guarantee in case tenant breaks lease within first 6 months
- From their contract: "In-house maintenance staff is provided to you at double the hourly wage with all materials billed at cost and no trip charge; this includes maintenance at cost, company vehicles and vehicle maintenance, vehicle insurance and gas, tools, worker’s comp, GPS tracking, 24- hour maintenance call center, around the clock in-house emergency services"

Please let me know thoughts and advice on the above. Thanks.

John
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Will Fraser
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
3y

I generally disagree with PM companies keeping 100% of the late fee unless they are providing some sort of "On Time Every Time" gaurantee to you where you receive your distribution regardless of collection, which is a tricky thing altogether.

Assuming that's not the case then a split of the late fee seems more equitable.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    Regarding maintenance, what is a "double the hourly wage" rate? If the hourly wage is $40 and they charge you $80 to paint or change a doorknob, how does that compare with other contractors? I don't see any red flags here. Just do your due diligence and ensure their fees are fair and justified.

    Remember: cheaper doesn't mean you'll make more money.

    Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

    1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

    2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

    3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

    4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

    5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

    6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

    7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

    This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

    The DIY Landlord Book4.7247 Reviews
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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    The fee to put a new tenant is high, ask for examples of work orders they have completed with pricing. 

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @John Matarazzo

    Even if someone give you a referral, don’t make the mistake of assuming that PMC will meet your expectations, just because they met the expectations of the referral source.

    We also can’t believe how many owners hire the first PMC they speak with!

    Then they complain their expectations aren’t being met!

    In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

    It's often a case of not doing enough research, as they don't know what they don't know!

    Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator – and they often select the first PMC they call!

    So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

    EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

    This also leads owners to ASSUME simpler is better when it comes to management contracts.

    The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

    We have a 14-page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord. Beyond the Monthly Management, Placement & Maintenance fees, all other fees in our contract are IF EVENT -> THEN fees.

    We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:

    https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

    We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

    EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

    P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

    Please send us any feedback via email, as we do not use the DM feature here.
    Also, if you like our response, please don’t be shy about giving us a vote😊

    [email protected]248-209-6824
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  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    @John Matarazzo I wrote this BP article a couple years and fast forward to today the theories remain true.  Look today for indicators that these issues could come up and drill down into it.  
    https://www.biggerpockets.com/... 

    [email protected]630-781-6744Podcast Guest on Show #72
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  • Will Fraser
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    3y

    I generally disagree with PM companies keeping 100% of the late fee unless they are providing some sort of "On Time Every Time" gaurantee to you where you receive your distribution regardless of collection, which is a tricky thing altogether.

    Assuming that's not the case then a split of the late fee seems more equitable.

    2Reply
  • John Matarazzo
    OP
    Member since 2020 · 27 posts · 9 votes
    3y
    Quote from @Mark Ainley:

    @John Matarazzo I wrote this BP article a couple years and fast forward to today the theories remain true.  Look today for indicators that these issues could come up and drill down into it.  
    https://www.biggerpockets.com/... 


    Thanks for the resources all! I have my homework to do now.
    0Reply
  • Will Fraser
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    3y
    Quote from @Eliott Elias:

    The fee to put a new tenant is high, ask for examples of work orders they have completed with pricing. 


     Compared to what?

    0Reply
  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
    3y

    Hello @John Matarazzo,

    Finding a good property manager can be challenging. In my experience working with property managers over the last 15 years, most of them are only rent collectors. You need more than just a rent collector.

    How to find a Good Property Manager

    List Your Requirements

    Create a list of the capabilities and services that the property manager must possess. For instance, if you intend to purchase residential properties on the southwest side of the city, exclude property managers that specialize in commercial properties or do not serve the southwest.

    Find Candidates

    How will you find property manager candidates?

    • Look on rental property websites for properties similar to what you are considering and record the names of the management companies.
    • Search engines.
    • Ask realtors for referrals.
    • Ask other investors.
    • Real estate websites.

    Once you have a pool of candidates, look at their web pages.

    • Does their webpage look old?
    • What do they state their business is? You may discover that their focus does not match your property profile.
    • How long have they been in business?
    • How many properties are they managing?

    After some web work, you should have a short list of candidates. The next step is to email candidates and request a time to talk. If I do not hear back within two business days, I eliminate them from consideration.

    Below is a sample list of questions. You will not be able to ask every question; choose no more than ten and rewrite them for your specific situation. Start by telling them that you own a property and you're looking for a property manager.

    • How long have you been exclusively managing properties? (No part-timers.)
    • Tell me about your staff and how many are full-time?
    • How many properties are you currently managing?
    • What is your process for screening tenants? [The most important skill for a property manager is the ability to select a reliable tenant. It is important to understand their process for screening prospective tenants. Some property managers choose tenants based on FICO scores. However, a FICO score does not indicate how long they are likely to stay or if they will take care of the property. Additionally, a high FICO score may mean they will be buying a home soon and will leave your property after only a short stay.]
    • Where/how do you market properties? [This should be segment specific. For example, a good place to market low-end properties is flyers at mass transit stops.]
    • Tell me about your fee structure.
      • Do you have a startup fee?
      • What percentage of collected rent do you charge?
      • Is there an annual fee?
      • Do you charge a lease renewal fee?
      • Are there other fees?
      • Do you expect any increase in your fees?
    • When do you collect the rent, and when do I get paid?
    • Do you have an in-house repair department? [Avoid property managers that have an in-house repair staff. Property managers make more money through their repair department than by collecting rent. You don't want your unplanned expenses to be their primary source of income. The property managers we work with use trusted third-party service providers for repairs, they do not have their own repair staff.]
    • Do you add a fee to the contractor's bill? [Adding a fee like $25 to manage the repair is reasonable. What is not reasonable is adding a percentage of the total cost as a fee.]
    • Do I receive a copy of the actual bill from the contractor?
    • How do tenants request repairs? Do you have a 24 x 7 emergency phone number? Does a member of your staff answer this line? [If there is a burst pipe in your property, you don't want to wait until Monday afternoon to have someone start sorting it out. Tenants have to have a way to contact the property manager 24 hours a day seven days a week for emergency repairs.]
    • Under what conditions do you contact me for prior approval for repairs? [Usually, there's a dollar threshold like $200 or $300.]
    • If there are significant repairs, do you get more than one quote?
    • What is your process when a tenant is late with rent?
    • How much does an eviction cost and how long does it take?
    • How many evictions have you had in the last 12 months?

    The above is a good start. Record the answers from each property manager. Comparing answers will tell you a lot about the market and whether they have the skills you need.

    Additional considerations

    • Few property managers excel at selecting tenants, which is the most important skill they offer.
    • Many people mistakenly believe that all property managers are equal and thus choose the cheapest option available. However, this approach can be the most costly in the long run. A single bad tenant can cost more than a year or two of property manager fees. Instead, focus on the value provided rather than on minimizing costs.
    • Avoid property managers with an in-house repair staff, as they often make more money from their service department than from rent collection. You don't want your unplanned expenses to become their profit center.
    • I prefer medium-sized property managers. The big property managers don’t have time for individual owners. Mid-sized property managers have all the needed software and process but will still have time to work with individuals.
    • Get a copy of the following documents and review them.
      • Property management agreement
      • Rental agreement
      • Sample monthly statement

    If you have questions, let me know.

    [email protected]702-358-8884
    FERNWOOD Team, KW VIP Realty520 Reviews
    WebsiteView Page
    1Reply
  • John Matarazzo
    OP
    Member since 2020 · 27 posts · 9 votes
    3y
    Quote from @Eric Fernwood:

    Hello @John Matarazzo,

    Finding a good property manager can be challenging. In my experience working with property managers over the last 15 years, most of them are only rent collectors. You need more than just a rent collector.

    How to find a Good Property Manager

    List Your Requirements

    Create a list of the capabilities and services that the property manager must possess. For instance, if you intend to purchase residential properties on the southwest side of the city, exclude property managers that specialize in commercial properties or do not serve the southwest.

    Find Candidates

    How will you find property manager candidates?

    • Look on rental property websites for properties similar to what you are considering and record the names of the management companies.
    • Search engines.
    • Ask realtors for referrals.
    • Ask other investors.
    • Real estate websites.

    Once you have a pool of candidates, look at their web pages.

    • Does their webpage look old?
    • What do they state their business is? You may discover that their focus does not match your property profile.
    • How long have they been in business?
    • How many properties are they managing?

    After some web work, you should have a short list of candidates. The next step is to email candidates and request a time to talk. If I do not hear back within two business days, I eliminate them from consideration.

    Below is a sample list of questions. You will not be able to ask every question; choose no more than ten and rewrite them for your specific situation. Start by telling them that you own a property and you're looking for a property manager.

    • How long have you been exclusively managing properties? (No part-timers.)
    • Tell me about your staff and how many are full-time?
    • How many properties are you currently managing?
    • What is your process for screening tenants? [The most important skill for a property manager is the ability to select a reliable tenant. It is important to understand their process for screening prospective tenants. Some property managers choose tenants based on FICO scores. However, a FICO score does not indicate how long they are likely to stay or if they will take care of the property. Additionally, a high FICO score may mean they will be buying a home soon and will leave your property after only a short stay.]
    • Where/how do you market properties? [This should be segment specific. For example, a good place to market low-end properties is flyers at mass transit stops.]
    • Tell me about your fee structure.
      • Do you have a startup fee?
      • What percentage of collected rent do you charge?
      • Is there an annual fee?
      • Do you charge a lease renewal fee?
      • Are there other fees?
      • Do you expect any increase in your fees?
    • When do you collect the rent, and when do I get paid?
    • Do you have an in-house repair department? [Avoid property managers that have an in-house repair staff. Property managers make more money through their repair department than by collecting rent. You don't want your unplanned expenses to be their primary source of income. The property managers we work with use trusted third-party service providers for repairs, they do not have their own repair staff.]
    • Do you add a fee to the contractor's bill? [Adding a fee like $25 to manage the repair is reasonable. What is not reasonable is adding a percentage of the total cost as a fee.]
    • Do I receive a copy of the actual bill from the contractor?
    • How do tenants request repairs? Do you have a 24 x 7 emergency phone number? Does a member of your staff answer this line? [If there is a burst pipe in your property, you don't want to wait until Monday afternoon to have someone start sorting it out. Tenants have to have a way to contact the property manager 24 hours a day seven days a week for emergency repairs.]
    • Under what conditions do you contact me for prior approval for repairs? [Usually, there's a dollar threshold like $200 or $300.]
    • If there are significant repairs, do you get more than one quote?
    • What is your process when a tenant is late with rent?
    • How much does an eviction cost and how long does it take?
    • How many evictions have you had in the last 12 months?

    The above is a good start. Record the answers from each property manager. Comparing answers will tell you a lot about the market and whether they have the skills you need.

    Additional considerations

    • Few property managers excel at selecting tenants, which is the most important skill they offer.
    • Many people mistakenly believe that all property managers are equal and thus choose the cheapest option available. However, this approach can be the most costly in the long run. A single bad tenant can cost more than a year or two of property manager fees. Instead, focus on the value provided rather than on minimizing costs.
    • Avoid property managers with an in-house repair staff, as they often make more money from their service department than from rent collection. You don't want your unplanned expenses to become their profit center.
    • I prefer medium-sized property managers. The big property managers don’t have time for individual owners. Mid-sized property managers have all the needed software and process but will still have time to work with individuals.
    • Get a copy of the following documents and review them.
      • Property management agreement
      • Rental agreement
      • Sample monthly statement

    If you have questions, let me know.


     Thanks for the feedback this is great. I am in the process of checking out multiple companies. I've mostly been talking to one...they have their own maintenance team and yes they are asking for 20% above contractor's prices for 3rd party repairs. That is the part of the agreement that irks me most. The other stuff is fine but I'll keep looking around.

    0Reply
  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
    3y

    Hello @John Matarazzo,

    A 20% markup is one of the highest I've heard. For me, charging a percentage of the repair cost is a fatal flaw. It's not just the cost of the markup; it's also an inherent conflict of interest. I believe property managers have a fiduciary responsibility to maximize their client's return. By adding a percentage of the repair cost, I believe they're violating that trust.

    I don't have an issue with the property management company charging a flat fee ($25?) per maintenance call. There is a cost for them to contact the service provider and arrange access with the tenant. However, I don't believe that scheduling a garbage disposal replacement ($150) or a new water heater installation ($950) takes any more time or effort on the part of the property management company.

    I never want to work with a property management company where my financial loss is their major profit center.

    [email protected]702-358-8884
    FERNWOOD Team, KW VIP Realty520 Reviews
    WebsiteView Page
    1Reply
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