I've always managed rental properties in-house, and recently hired a PM for the first time to fill a new rental. I got notification today that they found a tenant, ran all the checks (eviction, credit, criminal background, etc), called the previous landlords and employer, etc. And then they approved the tenant to move in next week.
When I heard that they had already approved the tenant, I was a little surprised. While we didn't discuss it specifically, I had just assumed that the standard arrangement was that the owner makes the final approval. Clearly not the standard with this company.
Ultimately, I talked to the owner of the company, and he said he's happy to do that, but that they typically don't unless the owner requests it (he said that because they manage 1600 units, it's cumbersome to get owner approval on every placement). He mentioned their eviction rate was less than 1%, which is a good thing, but would still have preferred to make the final approval myself.
Just curious what the standard is here? Does PM make the final tenant decision? Or do you?
In my experience, 3rd party managers are allowed to approve new tenants. I'm sure it varies on size of deal though.
Yeah, I'd be surprised too if our PM called and said they had filled a vacancy without contacting us first. I don't know if there's a true standard but every PM we have used has always called us to give us an update and confirm our approval for the applicant.
I talked to quite a few PMs for our rentals in AZ and CO. Some said they don't talk to the owner about approving a tenant, some said they do, some said they're ok with either option.
For our AZ PM, he doesn't have a hard set of screening criteria, he leaves it up to each owner. He likes our screening criteria, though, and said he encourages his other owners to use it as well. He still runs apps by us before approving, but he knows what we're looking for. It's not something I asked him specifically when interviewing him (it was our first time using a PM so I didn't know what all to ask), but things have worked out well.
For our CO PM, I asked a lot more questions of all the companies I interviewed. For the one we went with, they have all the same screening criteria as us, so that was good. We haven't had a unit for rent with them yet (just bought the place a couple months ago), but we will soon, and we'll see how it goes with them.
I've talked with 2 just to get an idea of how they run things (still haven't used on yet) but both of them managed hundred of properties and there default policy was they had the authority to approve new tenants but would work with me if I wanted to be the final approval authority
In my property management company we make the final decision. I used to let the owners make the decision and it was always a hassle to do so. And, they would pick the tenants with no kids, etc. I didn't want problems with the fair housing laws, so I stopped letting them decide.
I do have some owners that like to be involved in everything, so I run it by them. But, we have already done all the checks at that point and made a decision.
Our PM has a set criteria. If it falls below that or any other issues involved (consideration of a pet, for example), then they contact me and I decide. Otherwise, I usually find out it's rented when my landlord account for gas company converts to "tenant" instead of me.
If the tenant is a rockstar our PM just moves forward without running it by us. If we get applicants that are on the fringe of what we look for then we just have a quick discussion on the specifics of the applicant.
Keep in mind though that our PMs do not manage anywhere close to 1600 units though.
We have set criteria and we (the PM company) approve the tenants if they meet the threshold. If the tenant is borderline because of a specific issue (rental history, criminal record), we may ask the owner for a go/no go on the specific issue.
Just something to keep in mind: if you, as the owner, are the approval authority, it is highly likely that you would get named, along with the property manager, in a fair housing lawsuit. Fair housing law is a complex and constantly evolving body of law. Are you keeping up with it?
In my mind, the less contact you as the owner have with a (prospective) tenant, the better for your sake. Take your time finding a good property manager, then let them do their job and take on the risk.
Thanks folks! Great information for everyone and I really appreciate it...
I feel better knowing that I was the one who was being (a little bit) unreasonable... :-)
@J Scott In thinking more about this, I think it's totally legit for the owner to want to approve tenants on single family homes. Or even small multifamily. On larger deals, let's say 50+ units where you have a PM, obviously you don't want to be approving every lease. Not a good use of your time at that point.
@J Scott on my single family homes my property mgmt company always gives me final approval - I think I need to do that for tax purposes as well. Something you might want to ask you accountant about
I have had property managers for 12 years and have been very happy with tenant choices. They only call me if the prospective tenant has a specific request, if they are close to the income requirements (new job) or this is their first rental.
I set parameters when I started with them and they have adhered to them quite well. They have had a much better track record then I had when I managed them all myself.
Personally I would be uncomfortable with that even it they had a 1% eviction rate. Simply because "I" the landlord have the burden of eviction costs. Therefore I want everything run by me for my approval. That being said, there is a reason I self-manage! I am a little bit of a control freak ;)
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