weighing property management

7 Replies

I am about to close on my second house. This means my first house will become my first official rental. I am a little underwhelmed with my knowledge of what I want out of a property manager. I know I definitely want a manager because I am moving out of state. Here are the three options. 

Option 1: Property management with a rate of 10%. No lease up fee. In house maintenance because they manage primarily appartmanet units in the area. Biggest downside for me is the lack of software programs. I would receive my check via snail mail every month. Also means the tenant has to snail mail a handwritten check. This to me is an important enough issue that I really don't want the headache of that but I think their in house maintenance is a huge plus. I want to say they manage around 250 units but its been awhile since I interviewed them. 

Option 2: Property management charging 9% no lease up fee. No in house maintenance. Appears to be a well run portal for tenant and landlord. Biggest concern with them is they have quite a few properties I believe they were nearing 700 units. 

Option 3: Property management company charging 8% with 450 lease up fee. No in house maintenence. They are new and have approximately 55 units that they manage and quite a few of them are their own. Terrific automation in place at all phases. I just really hate lease up fees because its like your bleeding already during turnover and they stick the knife in and twist a little bit. Biggest concern is lease up fee and and very new company with in my estimation not as much experience. 

Would love to hear any input specific or generic. I did find David Greenes book a great resource on talking to out of state property managers but after asking the questions I never felt like there was one that stood out as a home run. Currently leaning towards option 2. 

@Trent V. Leasing takes a lot of time, energy and money. If they are not charging a leasing fee they are making it up elsewhere. #2 has to have great systems in place to manage that many units. #3 is young and hungry. May make promises they cannot keep once they scale up. Would not consider an apartment PM for my SFR Properties if that is their primary focus.

Tracy, are there ways I could mitigate them getting their money elsewhere? I assume they would uncharge repairs in some form or fashion. I also know they keep any late fees collected. 

We agree with Tracy Streich. Especially, stay away from an apartment PMC that hasn't invested in technology!

Question, what logical reason do you have against Tenant Placement Fees? We'd be concerned about a PMC that DIDN"T charge extra for this service as we'd be worried they'd be lame at it. How are they going to incentivize other agents to show your rental for free?

Here are the basic steps, from our website, to do it WELL:

Innovative Rental Marketing

We write unique, descriptive rental ads and publish them on 20+ websites. In secure markets we offer cutting-edge Self-Showings for prospect instant gratification – which leads to more showings and less vacancy time. All inquiries, showings and applications are tracked to generate bi-weekly Marketing Reports.

Below are the activities handled by our Marketing Department to get as much exposure for your advertised rentals as possible.

  1. Verify Property Showable
    Many owners think we should just throw up any old ad as soon as possible to get their property rented quickly. It’s been shown by many experts that this gives a property a “bad reputation” as everything on the internet stays on the internet. While your property doesn’t have to be 100% Rent-Ready, we make sure it’s in acceptable showable condition before marketing it.
  2. Take Pics
    We want your property to look it’s best when a prospect is searching online. Also, in today’s market, ads without pics are rarely looked at, so we must have decent pics before we can advertise your property.
  3. Write Ad
    Once we have enough information about your property, a descriptive ad is written about your property. We include room sizes and other pertinent facts about the property to attract the right prospects.
  4. Touchup Pics
    To avoid crooks copying our pics and running fake ads, we watermark all our pics with our log and phone number. We also adjust rotation, brightness, intensity and other aspects of pics to make them as attractive as possible.
  5. Rent Analysis
    Since there is no single source of reliable rental data, we check multiple sources for rental comparables to determine market rent for your property.
  6. Owner Approval
    The ad and rental analysis are presented to you for your final approval before it is published.
  7. Ad Published
    Once an ad and price are approved, the ad is published and syndicated to numerous websites. Click here for the list of websites you can find your property on.
  8. Schedule Showings
    Consumers shopping for a rental home today expect immediate gratification, so we use an online system that allows prospects to self-schedule showings and where possible, schedule self-showings. This maximizes the number of showings for your properties, getting your property rented faster.
  9. Obtain Applications
    To meet the expectations of as many prospects as possible, we offer several methods of applying for your property.
  10. Monitor Activity
    Unfortunately, not every vacant property rents out as fast as the owner expects. So, we monitor the number of web views, inquiries, scheduled showings, completed showings, submitted applications and approved applications – and analyze this data to recommend ad edits, ad reboots, price drops or property improvements.
Robust Tenant Screening

A bad tenant can lead to thousands of dollars of losses via unpaid rents, legal fees and property damages. We’re one of the few property managers that require W-2’s and a bank statement and we go way beyond the traditional, “income must = 3x rent” qualifier.

Below is more information about what our Applications Department does to screen applicants and find the best tenants possible for your property.

  1. Required Info
    We require the following from each applicant over the age of 18, that is not a dependent of another applicant (as evidenced on a tax return):

    • Copy of acceptable state picture ID
    • Recent YTD paystub
    • Recent W-2
    • Recent Bank Statement, all pages, no info blacked out
    • Recent tax return if self-employed

    Applicants are often slow about turning this information in, asking us why we need it and then taking several days to submit. Then they complain that our process takes too long!

  2. Credit History
    Many companies use credit summaries, but we find these rarely tell the whole credit story. So, we obtain a full credit report and review collections, chargeoffs, age of credit accounts, active accounts, etc. to build an overall credit evaluation.
  3. Public Records
    We also obtain data from national databases about evictions, convictions and sex-offender histories. These all require applicants to submit an acceptable Letter of Explanation addressing each specific issue and occurrence.
  4. Rental History
    Because a current landlord may say anything to get rid of a bad tenant out of desperation, we also require information for the previous landlord of all applicants. Verifying rental history often takes a long time to complete due to applicants not giving us correct landlord contact information, landlords not returning our calls or refusing to give us any details.We also deal with applicants trying to have family or friends pose as their landlords. To address this, we verify the property owner per government records and use this information to vet imposters.

    Anything that seems suspicious will lead to us requesting an acceptable Letter of Explanation to address.

  5. Analyze Income
    Many landlords require a month of paystubs from applicants and just use these to calculate a monthly qualifying income. In our opinion, this doesn’t result in a viable income amount or analyze income stability. We use a YTD paystub and last year’s W-2(s) to calculate income several different ways:

    • Hourly or salary income calculated to a monthly amount
    • YTD income divided by number of YTD months
    • YTD + W-2(s) income divided by the corresponding number of months

    If these numbers vary too much, then we investigate and require an acceptable Letter of Explanation.

  6. Employment Stability
    Unless an applicant has exceptional credit, we strive to determine their stability of employment to make sure they’ll always be able to pay the rent on time. So, we require a detailed employment history for the last two years and verify as much of it as reasonably possible.
  7. Assets
    We are one of the few management companies that requires a bank statement as part of our application process. We think it’s important as it allows us to check for Non-Sufficient Funds (NSF) issues and to determine if an applicant is living paycheck-to-paycheck. Bouncing payments or only being an illness or accident away from not being able to pay the rent, are issues considered by our underwriting.
  8. Letter Of Explanation
    Any time there are credit issues or we discover an inconsistency, we require a written letter of explanation (LOX). Many applicants just want to tell us their excuses over the phone, but if they won’t take the time to put it in writing, we find they rarely end up being good tenants.
  9. Underwriting
    Traditionally, landlords have only looked at the income of applicants and approved those having income equal to three times the property rent. This crude method ignores all the other debt payments tenants have. Given that many tenants will make their car payment before their rent payment, we've copied the mortgage industry's method of debt-to-income (DTI) ratios. We calculate rent plus all debt payments as a percentage of gross monthly income.Our underwriters strive to analyze and balance all the information above to determine the statistical likelihood of a tenant paying their rent on time.
  10. Approval
    Once an applicant is approved, we require a nonrefundable Holding Fee to make sure they are serious and don’t change their minds. We actually keep marketing your property and accepting back up applicants until your property is actually occupied.

@Drew Sygit I understand that there is a lot going on with a tenant placement especially if it is requiring quite a bit of advertising. My logical reasons for not wanting to pay it are because I think there could be a bit of a conflict of interest. If a manager gets 500 dollars for a placing a new tenant. I can just see how it would make sense for them to decide to not resign current tenant. Probably not going to happen most of the time but it could.

Then once again just the fact that you have a vacancy now you have to make repairs do cleaning etc. it’s just another cost at the worst timing. I will say I’ve alway understood why there is a lease up fee I just thought it stinks for a vacancy. At the end of the day I wouldn’t want to trip over penny’s to lose dimes. If that was what was the cost of earning Hands off passive income I would definitely be open to it.

Trent, we get it.

Unfortuantely, we haven't been able to think of a way to to make PMC work 100% "fool-proof" nor perfectly align owner & PMC best interests:(

Besides replacing versus renewing tenants, another one is Maintenance. To make sure they're getting a good price, every owner would prefer 3 bids for EVERYTHING, but under a certain dollar amount and for several specific issues (i.e. snaking a sewer line) it just doesn't make sense. Getting bids takes time and getting bids for small jobs is almost impossible.

So, when you hire a PMC you do have to trust them to a certain extent. Also, because no one is perfect 100% of the time, just as we've seen owners make mistakes, you will see PMC's make mistakes. So, when an owner hires a PMC they will also have to learn to live with a few minor mistakes. 

Option 1 sounds like an old school company that has been in business for a while.  There is nothing wrong with that if it works and my guess is it does or they wouldn't be in business.  Bigger isn't always better and experience and a good team counts for a lot.

Ask them how they advertize the rentals, how long it takes them to rent, what type of rentals they have (do they specialize in condos, student rentals, etc) and what their turnover is like.  Also how long does it take for you to get the rent.  I have one place that is managed by a PM and I get my rent within 2 weeks. Others on BP have mentioned it can take months for the PM to transfer the money (and this is electronically).

I value experience and don't need fancy, so I'd be fine with option 1.  Option 2 has a lot of units and option 3, I'd do the math on turnover vs saving 1-2% on the fee.