All Forum Posts by: Stephen Glover

@Reece Register Exactly. More of this information needs to be out there to help investors be prepared. On the same team in the long run.

@Kenny Dahill Great additions. One reason folks might have a poor experience with a PM is due to the PM's unwillingness to share these details and the landlord's lack of knowledge to ask the right questions.  Thank you for adding some important insight.

Far too often landlords seeking residential property management services are asking one question for the initial vetting of the service. “What is your management rate?” Unfortunately, sometimes this is the only question they are concerned with.

Imagine that you are shopping for a new car. You arrive to a dealership and find a salesperson. On the showroom floor, there are 5 gigantic boxes that are wrapped, each with a different car inside. You have the option to choose one of these 5 boxes. After pointing to Box 3, you ask the salesperson, “How much does the car inside of that box cost?” The salesman explains the cost, but it’s more than you expected. You decide not to ask any additional questions.

Turns out that Box 3 cost more than the others, but had incredible gas mileage, free oil changes, extended warranties, a reputable brand, and looks great! Since you didn’t ask the right questions, you chose Box 1, which had a lower purchase price, but had none of the above mentioned traits. Over time, which is the better investment?

Management Rates

Management rates are certainly important, but it is just the tip of the iceberg when searching for a professional property manager. The management rate (or fee) is the amount of money that the property manager is going to collect each month to compensate them for their services. This is usually considered a base fee, or the standard amount per month plus any fees for additional services completed. This can be structured to be a flat rate or based on a percentage of the monthly rent.

Maintenance Fees

Property managers might charge administrative fees to both an owner and/or tenants when coordinating maintenance or repairs. This fee can be a percentage of the maintenance or repair cost. With the right questions, a landlord seeking property management help might conclude that a property manager charging a lower management rate plus maintenance administrative costs will be more expensive than a company asking for a slightly higher management fee with zero maintenance administration costs.

Accounting Fees

Having accurate and detailed financial statements are critical for a successful business. Property managers usually offer monthly owner statements, detailing money in and money out. Some property managers will offer year end business health reports which will likely save your CPA time preparing taxes, saving you money. There might be additional accounting services that you can purchase, or that may be included in your management package.

Leasing Fees

Simply put, professional property management companies might charge a leasing fee when they place a tenant in your property. This accounts for marketing, showings, inspections, turn labor, and more. While this likely only happens one time a year or less, this fee could make a big impact on your returns. A company may charge one month’s rent for a leasing fee. Another company might charge a flat rate. At the end of the year, one month worth of rent going toward a leasing fee could spike your management costs over the seemingly more expensive management company that charges a flat rate and has a higher fee. BONUS: “How long are your typical residential lease terms?” A manager that strives to get multi-year leases has your best interest in mind.

Optional Fees

Want the peace of mind to have options? Maintenance packages, eviction assurances, tenant engagement packages, benefit packages, inspection packages, and more. These options might give you added confidence that your business is going the extra mile to be successful.

In the end, the management rate should be considered, but only as a part of the larger picture. When searching for management help, landlords should look at the overall, all-in cost of property management including the management rate. If a manager seems hesitant to share additional information, walk away! Look for a management company that is proud of their rates and fees and works in the landlord’s best interest. 

*Please note that this is simply a general guideline based off my experience as a property manager in Richmond, VA. This list excludes many other fees that can be charged by a property manager.  This information is intended for smaller residential investments and pertains less to large multifamily or commercial management.

@Rafiq Islam Happy to be a resource as a local PM in Richmond.  @Jon Deavers and @Ben Sears hit the nail on the head though.

@Ryan Rominger  Thank you Ryan.  Investors and PM's are on the same team!  Glad you operate with that mindset as well.

@Anatole Doak Thank you!

Here are some basic questions to ask property managers during the sales process that I feel are invaluable. I'm a property manager in Richmond, VA and these questions have come from well-versed investors during the sales-process. I compiled them hoping to help some BP folks. The questions are in no particular order of importance.

Q: What is the typical timeline/turnaround from rental collection to owner disbursement?

Some management companies pay the owners in as little as 5-6 days after receiving payment, and some wait 3 weeks to a full month to transfer the money to the owner. Make sure you know when the transfers happen, and how they are made. Should you expect a check in the mail or is the money auto-drafted into your account monthly?

Q: At what dollar amount does the property manager notify the owner of a maintenance issue?

Q: What is your average vacancy rate?

This figure will vary by type of residence and location within the manager’s portfolio, however it is a great question to ask regarding the manager’s overall portfolio and also the portfolio of their assets that match your’s. If you have a Single Family Rental, you might ask what their average vacancy rate is for Single Family Rentals. Another figure is what’s known as an “occupancy” rate, which is the opposite of the vacancy rate. A low vacancy or high occupancy rate is what you want to look for. Once you receive a percentage, dig into how the manager plans to market your property.

Q: What is your average number of maintenance calls annually for a residential property?

In other words, what do you have the capacity to handle as far as maintenance is concerned, and what types of properties do you typically manage? A small portfolio with high maintenance is alarming either due to poorly managed properties or the manager being a glorified maintenance company. A small portfolio with low maintenance could also be alarming if you are significantly increasing that manager’s portfolio and they may not be able to handle the additional maintenance affecting their level of service. All worth discussing.

Q: Do you charge extra when coordinating maintenance or receive a mark-up on repairs?

This is a tricky question. Some property managers have an agreement with vendors to mark the repairs up by X%, paid for by the owner, then invoice the vendor as a “rebate." The owner sees a normal receipt for repairs. Other managers might charge fees per maintenance call, and even more on weekends or after hours. As a property owner, you’ll likely want to find a property manager that charges more up front in the management fee but doesn't charge extra to receive and dispatch maintenance calls.

Q: What data providers do you use to determine rental rates?

Having more than one resource is better in most cases. Guessing rental rates may be okay with years of experience, but chances are you’ll want your manager to have some sort of technology to back up their instinct with many comparable units being studied.

Q: Do you provide financial statements, how often, and what does the financial statement include?

This could save you money with your CPA at the end of the year. Some management companies provide more detail than others. The more transparent the numbers are, the more efficient you can operate your business.

Q: How many properties do your currently manage?

See what capacity the company has to onboard your properties. Get a feel for how they will treat you- like an account number, or a part of their team? Will they be focused on your best interest, or will you be a part of their cookie-cutter system? Even if they manage thousands of units, you can still get an idea of the management structure under that particular branch or property manager within the company.

Q: What is your management fee?

An important question, but not the only pricing-related question you should ask. Look for management companies with a non-discounted fee due to their level of service, transparency, and absence of hidden fees elsewhere. Easier to budget, less surprises, and often better returns. 

Q: What services are included under this management fee?

Do these services encompass what is important for you? If not, how much will it cost to incorporate other services, and are those services offered?

Q: What fees do you charge other than the management fee?

How slim is the property management company outside of the management fees? A 10% company that is transparent and has no hidden or stacked fees will likely provide much better returns than a 6% company with fees hidden in every service.

Q: What standard tenant fees do you charge the tenant during leasing or recurring?

Certainly there are some necessary and standard tenant fees throughout the lifespan of a tenant. With that said, make sure to review all recurring or standard tenant charges. Tenants won’t want to lease these properties or stay or very long if they are being charged unreasonable fees outside of the rent.

Q: Who will I be working with if I chose your management services?

In a larger property management company, chances are your relationship will not be with the sales person. It will be with a property manager, a maintenance coordinator, and a leasing coordinator. It’s a good idea to meet these folks and test their responsiveness and enthusiasm. In a smaller company, it’s likely that the person you are speaking with during the sales process is also the person who you’ll work with throughout.

In addition:  Don’t be afraid to ask for a copy of the lease to verify the property manager’s statements during the sales process. You’ll also find that asking for a copy of the management agreement up front is useful so you have plenty of time to review before the salesman wants to close.

These questions will open doors to other questions in order to dig deeper into your prospective property manager’s operation. When trusting someone with your biggest asset, it’s a good idea to ask the right questions!

As a PM, we make sure to develop a relationship with incoming tenants and communicate these things to them.  Seems like a very poor job of communicating was done between the PM and the tenant before placing the tenant.  We make sure the tenant understands the condition that the rental is in and what they will be liable for, etc.  and the lease they sign states that they understand.  At the same time, we rent it to them 100% confident that it is in good and safe condition and if we make a mistake then we eat it.

In this situation, I would definitely give the tenant the option to move out in 30 or 60-days penalty free, and if they push back you can even offer a free month or pay for movers.  It might be worth it in the long run.  THEN, have a talk with your PM about their tenant on boarding process, or find a new one.  This is on them with a big communication issue.

Of course, my opinion only. 

@Jon Deavers I'm reaching out to local banks now, searching forums and saw your response.  I'll try Xenith.  Do you have anyone in particular I should ask for?  1-4 unit rentals, portfolio loans.  Trying to build a relationship! (Have some great connections with Hometown too!  My Wife is an agent there, great friends with D. Cheatham, etc.) Thank you.