Vetting a Property Manager
A property manager is one of the most important parts of your team, so it is crucial that you do your due diligence and work with a solid property manager.
A property manager is your boots on the ground, and can identify issues – whether that be problem tenants or property issues – before they become larger problems. Additionally, a property manager will be the one executing part of your business plan. A solid property manager is, thus, particularly key for value add deals where rent appreciation, and expense optimization, is sought.
Here are some key points to consider when doing your due diligence on property managers:
Do they manage many other properties in this asset class?
Whether it is small residential properties or larger multifamily, a property manager with specific experience in the asset class is integral. A property manager that typically manages single family properties should not be tasked with managing a 40-unit apartment complex. The scale is different, the business plan is different, and attention required is different.
Are they familiar with your strategy?
It is best to have a property manager that is familiar with the specific strategy. For example, your deal is a heavy lift value add apartment complex, find a property manager that has done this before. If it is a new build luxury apartment complex, find a property manager that has done that.
Are they local?
You may not be local, so it is important that your property manager is local. Your property manager will likely be on-site quite a bit, particularly during the ownership transition process. The property manager can get to know the property and the tenants.
If your property manager has in-house maintenance, rather than subcontracting it out, that could save you money on repairs and maintenance. Some property managers have hourly maintenance folks on staff, further reducing not only your maintenance costs, but your costs to turn units.
Property acquisition/due diligence
Some property managers will run due diligence on commercial transactions. For example, they will conduct lease audits and handle property inspections and contractor walkthroughs. If your team is not experience in conducting due diligence, it is important that your property manager is able to handle this aspect of the project.
Most property managers will charge a flat percentage of monthly gross income. Other fees, however, should be audited, include a new tenant placement fee, tenant renewal fees, and maintenance project management upcharges.
We prefer to work with mid-sized property managers because we get the economies of scale described above, while also being able to contact our property manager directly. Regardless of your preference, doing the proper due diligence is key before choosing a property manager. What are your thoughts on property manager due diligence?