How to evaluate a property manager for a duplex?

Question

I just bought a duplex in Kent, Washington. I'm a first time landlord and aspire to own potential 10+ in the near future. What are the criteria in evaluating a property management company?

I have 1 company who operates in the area (South King County in Washington State) and she charges $50 per door / month for a duplex (normally she charges $99 for SFH). Finding a tenant is 1 Month's rent. Renewing lease is half month's rent.

I haven't gotten any other quotes yet but besides cost, how do you go about evaluating the effectiveness of a property manager?

Does anyone have recommendations for a property manager in this area?

Thanks

Account Closed · Answer

Hi Kevin,

Great question! Here are 25 important questions we recommend you ask any property management company you are screening.  I personally had a horrible experience with 3 different management companies which led me to start my own company.

http://www.jmbgrouppm.com/blog/item/23-questions-to-ask-a-property-manager.html

Steven J. · Answer

I recently read in Donald Trumps "The Art of the Deal" that negotiation is the key to getting deals. Everything can be negotiated. I really do like Joel Owens idea of dropping the rate you pay the PM every time the property is vacated. Find something to sweeten the deal for them and they may take you up on the.

Joel Owens · Answer

It all comes down to screening and landing the best tenant. Usually you want to be slightly below market on your rate to attract the most tenants then you can be pickier about who to accept.

The good tenants want to land a deal even if a small one just like home buyers do. The tenants that say they can move in quick or do not care what the rent is there is a reason usually behind that. So when paying for a property a strategy is to base the cash flow going in off of slightly lower rents. Also having a PM with a generous performance bonus.

If you build all this in when buying investors tend to do much better. It's when they overpay and then try to "wheel and deal" for a PM to help their bottom line. They usually ending up getting a crap PM, crap tenants, and more losses than they could have imagined.

Maybe you could have each time a property is released in a year the payout incentive to the PM goes way, way down. This would not make it worth the PM's while to keep turning the units and would make them care way more about what tenant they put in there. You could also hold back a portion of the lease up fee and it is given to the PM after the tenant stays there xx number of months with full on time payments etc.

Kevin Chan · Answer

Thanks. The incentive approach makes sense. Examples of how to structure the incentive?

Steven J. · Answer

Although I've got no experience with landlords I've come across this tip that I think makes  good sense. When picking out property managers don't go with the folks who offer a flat fee per door. To them they have no reason to find good tenants nor do they have any reason to drive by the property and make sure it looks good, is in decent shape, and are going to do repairs in a timely manner. All they care is that one door equals $50 bucks.

I had a pm approach investors at a group and people all perked up about the flat fee, but I think I'd prefer the incentive approach instead because they will work to make that money.

Kevin Chan · Answer

Thanks for the input so far. Can you explain further on 'incentivizing performance' - is this beyond the typical standard arrangement with a property manager? Can you provide examples? Thanks

Bryan R. · Answer

Agree with Joel. I always try to incentivize performance. Having the manager incentivized to turn the units is no good for you. Especially if they are collecting $1200/year, turning the units could easily double or triple their pay and kill your bottom line. Instead offer a benefit for renewals, or "good tenant" bonuses or something of that nature.

Joel Owens · Answer

I certainly wouldn't go by the cheapest. I also would have the most incentive on performance with the current tenants if the tenants are worth keeping.

You do not want the property manager motivated to turn units for fat checks and make almost nothing off keeping a good tenant. That gives the PM the wrong motivation. Turning over units costs you the most money but it makes the PM the most.

Biggest thing with the PM is if they have handled evictions before, late payments, damage to the property, etc. and how they dealt with it. You will get a sense of how they operate answering these questions.

For many PM's your property is file 123 among many but to you the investor it could be your life savings or the jumping off point to grow your retirement. Ask the PM if they sell also or are they committed to PM work full time?? Do they enjoy PM work or is it something they are just doing for a little necessary coin to get by?? You do not want someone mediocre who doesn't give a crap.

What kind of systems have they developed to highly effectively manage properties??

Remember do not go for something just because it is a cheap price.