Choosing a Property Manager: Nobody Watches Your Money Like You Do

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Before you put your money down on that can’t-miss out of area real estate deal, watch your wallet.

Lots of rich California real estate investors lost their money big time during this last down turn because of inept property management. You are at a disadvantage owning a building you can’t see, having tenants you can’t screen and managed by people you don’t know well.

I know because I’ve done it.  I have houses in Las Vegas and Phoenix that were supposed to cash flow. At least that was what I was promised. After deducting their fees and frequent overpriced repairs, profits were hard to find. I’ve had property managers not call me back, steal from me, over charge for repairs and not chase delinquent tenants that owed me money. The tenants that many of these “professionals” put in my properties never seemed to stay long and trashed the place every time.

Now these properties cash flow very well because I rent them myself.

Don’t get me wrong; I’ve had some good managers. Not all property mangers are incompetent or lazy. In my opinion, most are adequate, a smaller percentage is excellent and the others are just plain bad. However, do you really want to trust your multi-hundred thousand dollar investment to the barely adequate?

If you insist on taking that risk, I present to you my top ten questions (there are actually about 50 of them, but we are limited on space) to ask a prospective property manager BEFORE you put your money down. They should be happy to answer them.

Ten Property Manager Interview Questions

1. Do you have any investments of your own? If they are successful, they should have their own investments.  Actually, I’ve known some property over seers that have done very well in the property investment game. A long term history of holding their own property in your area is preferable
2. How long have you been in the business? Besides having their own money in the area, they need to have a long and successful history of dealing with investors like you.
3. How do you work with investors? Walk me through the process. They should have an action plan on how they market each property, how long it will take to get your property rented, when you receive your statements and who in their office is directly in charge of your account.
4. What types of properties/areas of town do you specialize in? If you have a house for rent, you don’t want an office that manages primarily apartments. And you want somebody close by; some property managers won’t turn down any business even if your property is not close to their office. You want a manager who is local, can drop by for a quick showing and can drive by and keep an eye on things.
5. What kind of market are you experiencing? What kind of market have you experienced over the last five years? (Describe rent changes, rent list price to actual rent ratios, house for rent inventory changes, etc.). Every manager should be up on his town’s economic trends. The local real estate board, business groups and trade associations are continually posting numbers and trying to predict trends. Your agent should be on top of these numbers and know the economic vitality in his town.
6. What is the average vacancy rate for the area? What is your vacancy rate? Needless to say, you want your manager to beat the averages. Your prospective manager should know the baseline vacancy rate put out by the local apartment association, know his vacancy rate AND take pride in his performance. Sadly, some managers don’t even know how they are doing compared to their competition.
7. How long do your tenants stay? Very important because, like the vacancy rate, this directly impacts your bottom line. Ideally, the manager can give you a specific average on the average length of tenancy, say two years, three and half years etc. My tenants stay an average of about six and half years. The answer should be at least a couple of years, but some managers can’t do that. Your positive cash flow goes out the window with short term tenants
8. What are best areas for rentals? Every town has its areas of high renter demand where the rents are higher and vacancies are few.  You should endeavor to have rentals in these regions of high performance, but these areas of town tend to be more expensive. Still your property manager should know where they are. Maybe he can help you procure property somewhat close to these safer areas
9. What types of amenities will tenants pay extra for? Garage door openers? Enclosed yard? Pets? If it’s customary for tenants to furnish their own refrigerator, stove or washer/dryer, you can make extra money if you lease it to them. I’ve leased refrigerators or washer/dryers for an extra 10 to 40 dollars a month. A good manger should be looking for ways to increase your income.
10. What kind of maintenance and other costs should I expect? Here there is a profit center for most property management companies. Costs that investors don’t see that adds to a management firm’s bottom line?
    1. For every repair call there may be a 10% override. Sometimes all repairs are done by their in-house contractors (possibly overpriced )
    2. Inspection fees to see if the repairs are done
    3. They will keep the late fees when the tenant pays late
    4. Gas surcharges when the price of gas goes up
    5. Stiff re-lease fees when the tenant re-ups
    6. Rent raises are un-common; they just want to keep the tenant s so they y keep the rents woefully below market
    7. Evictions can be very expensive. You may have to pay your manager just to show up in court

I’ve been charged all of these fees. So if you really want to add to your monthly cash flow, I have a suggestion for you. Do it yourself. I can show you how to manage all your rentals from afar. If I could show you how to do this without much hassle or effort, would you want me to write about that?

I look forward to your comments.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.