How to feel comfortable with prop mng when out of state investing

Question

Hi,

Me and my business partner are purchasing our first property and will be doing so from out of state. We have some concerns about property managers incentives, responsibility, and due diligence. It seems like there are so many potential problems that could occur without our knowledge that will destroy our cashflow and cause bigger issues or even liability down the road. Can anyone offer advice on how they feel comfortable investing from out of state, in terms of how they find trustworthy property managers, how often their properties are inspected, and how they try to be aware of maintenance problems that arise? Thanks!

Nathan Gesner · Answer

Property Managers can be bad or good, just like tenants. How do you find the good ones? The same way you find good tenants! Educate yourself on what a good Property Manager looks like, then screen some until you find a good one. Nothing is guaranteed, but you can certainly improve your odds dramatically by doing some homework.

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!

Avi London-Wynne · Answer

Thanks Theresa. By incentives I mean, what is their incentive to tell me if there are issues with the property, what is their incentive to keep tabs on the properties physical condition?

Theresa Harris · Answer

With any property manager you need to feel comfortable with them.  Know the terms of the agreement.  I don't know what you mean by incentives. You pay them a fee to find a good tenant and a monthly fee to collect the rent and make sure there are no problems with the property.  They take any calls from tenants and arrange to have repairs done (over a certain amount, you have to approve).  They bill you for those repairs, normally it comes out of the rent they collect from the tenant.

Find a reputable company that has been around for a while and interview them.  Look at their ratings, how they advertize, how many properties they manage and what kind (some specialize).  At the end of the day no one is going to look after your property like you would, including tenants.  Buy a good property that will attract good tenants and that should help.