How to Find a Solid Property Management Company for Your Investments

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Today we’re talking about the crappiest of real estate investing—property management and dealing with tenants and toilets. I reluctantly started my own property management company when I established my turnkey company because I didn’t think I could have a successful turnkey company without in-house property management. Now my thoughts have changed, so I’m going to be somewhat of a hypocrite and share a different viewpoint with you guys.

In all honesty, we have done a great job over the years from an external viewpoint. Everyone has had tremendous success, but from an internal standpoint, it has been tough. It’s a tough gig dealing with tenants. It’s a tough gig dealing with toilets. You’re kind of spread thin, especially when you start a property management company. In the early days, you’re running around like a headless chicken trying to put out all of these fires. When things start to get better and more consistent, you start hitting that critical, massive scale. If you want to run a property management company in a legitimate way, you’re not going to make money until you get 300 or more units under management. We have always tried to stay honest and do it the right way, unlike many other property managers out there.  

With that being said, property management is not a sexy business. It’s a tough business. It’s customer service. The toughest part is to keep your employees happy, motivated, inspired, and satisfied because they’re constantly dealing with problems. There is always something going wrong, and it is tough working day-to-day in that department. We’ve been through the tough times and have gotten to a point now where we’ve mastered the craft when it comes to property management.

First, I want to say this: I think anyone who believes they can successfully manage properties from out-of-state or the country is in for a disaster. I strongly urge you not to do that because you’re going to be dealing with the tenants and toilets. They’re going to be calling you and asking for you to do all kinds of maintenance and complaining about it. You are going to have to coordinate maintenance items to be repaired and access with the tenants—and then they’re not going to be at the property and you have to give a 24 hours’ notice. Guys, you do not want to manage real estate from afar. You do not even want to manage real estate in your own backyard because that is not passive income, in my opinion. That is not financial freedom; that is a job. You should invest in real estate and pass on property management to the experts. You should not self-manage. That is just my opinion. I’m not saying that I am right or wrong.

Related: 6 Advantages to Hiring a Property Manager (& Why I Wish I Did Sooner)

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So, How Do You Find a Good Property Manager?

That is the magic question, right? Look, it’s tough because a lot of them are shady operators, and a lot of them are not doing the right thing. Make sure to ask the right questions when interviewing a property management company.

  • How long have you been in business?
  • What is your fee structure?
  • What do you charge every single month?
  • What is your tenant placement fee?
  • Do you have a leasing renewal fee?
  • Do you have administrative fees?
  • Do you up-charge maintenance?

Now, don’t get too caught up in these fees because property management is a tough business and they do a lot of work and don’t get much money for doing all of that work. So don’t crucify them if they charge all of these fees. They have to eat and pay the bills. What you don’t want is property management taking advantage of you by up-charging maintenance too much or making up non-existent maintenance charges just to charge you. That is fraud and stealing and not someone you want to do business with.

One thing that we haven’t done for many years is not charge at all and that was not a smart idea. I thought since we had a company that buys and sells houses, we would make money doing that and would manage the properties as a complimentary business to that. But that was a bad idea because businesses have to be profitable to offer a service of value to its customers. So we have changed our policy and introduced different fee structures.

Another way you can see if a company is good or not is to go online and check out their reviews, even though a lot of property management companies have bad reviews. This is generally because you can’t make tenants happy. Sometimes, no matter what you do, you can’t make them happy. They are irrational and get pissed off and frustrated, and then they go online and post bad reviews. Still, I think checking reviews is a good place to get your finger on the pulse of the business and where the property management company stands, but I don’t think it’s a legitimate guide to who is a good operator and who isn’t.

What I think is very important is communication. I just had an investor at our office say they reached out to a lot of companies who did not even reply. They said they emailed them and inquired but never got a response. I thought that was weird because that is new business. So, if these guys aren’t replying promptly to someone who is interested in their services, just imagine when it comes to dealing with you and your properties. It’s just not a good sign.

Related: Why I Fired Property Management—And Began to Manage My Own Investments

Another question you could ask is what property management software they use. I think all legitimate property management companies have to have a software like Buildium (to learn more about Buildium, click here), AppFolio, etc. We used Buildium and moved over to AppFolio. They are kind of the same. Regardless, I think all companies should use software where they can onboard you and give you access to your account so you can go on there and see what is going on.

Last but not least, ask for a referral to someone who has had their properties under the property management company for an extended period. I think the referral is going to be your most honest critic and tell you how the company really operates. The proof is in the pudding. A company’s track record is where you can get the best insight about how that property management company will do.

Any property management nightmares out there?

If you have any suggestions, questions, or tips, please comment below.

About Author

Engelo Rumora

Engelo Rumora, the Real Estate Dingo and your favorite Australian, quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He is currently in the process of launching an ICO that will “Decentralize The Real Estate Industry.” He’s also known for giving houses away to people in need and his crazy videos on YouTube. His life’s mission is to be remembered as someone who gave it his all and gave it all away.

6 Comments

  1. William Morrison

    Nice read.
    I’d add a couple questions.
    1. Do they require a reserve and how much?

    2. I’d ask for a copy/sample of an annual recap, not their tax form but the break out of expenses.
    The itemized list for you to fill out your schedule E.
    What seems simple. is not when it does not match what’s required by your schedule E.
    And Safe Harbor (think that’s the term) should be the owner’s choice not the choice of the property manager’s software.

    No way to tell if the numbers are accurate in an interview/investigation though, need to ask references for that.
    For one that my wife likes, don’t know why 🙂 , the numbers are wrong often. I’ve had to supply an explanation when tax time comes around several times.
    Yes the IRS was happy with my explanation, but irritating to have to do it.

    3. Is the monthly fee structure different with more that one property and how many before it changes?

    4. I’d ask for references. And I’d expect them on the spot. If they are not expecting that, it tells me about their awareness and preparation.

    It’s best if its a relationship, you and them over time. I have properties in multiple states, some are better at it than others. And it makes a difference if the property is commercial, single family/town houses, apartments, etc. Can the good individuals in your market make a living comparable to the natural aptitudes and personality traits you are hoping for. In a high tech area the wages my be low compared to alternative job shortages (not tech) that causes young people to avoid property management as career path.

    In one area the better property managers (not the company but the individuals) that are really good at multitasking, respond quickly and efficiently don’t stay long in the single family arena. The high rise multifamily or commercial big boys grab them up. They are worth more than what they can earn based on transactions.
    In another area the comparable wages for that same level of individual are similar and the drive to move up is less and/or there are less alternative opportunities available ie not much in the way of high rise apartments and commercial properties or non-real estate jobs paying more.

    All that said, I’d still like to network with other landlords that use property managers first to get recommendations. Then take your great questions and start the interview process. Takes time, I know but worth it. I have several locations with what appear to have great property candidates but I have not interred those markets because I couldn’t find any property managers recommended by others. And yes I mean none. And that the landlords I checked with and continue to check with is not a short list. Some areas I’ve kept an eye on or ear open for years. And I’m not looking for a new business or occupation like yours.

    Again, nice list of questions.

  2. Christopher Smith

    A lot of really good observations and insights on this subject matter.

    I’ve had professional property management for almost 20 years in two locations, one PM on the West Coast (Bay Area) where I live currently, and another PM in the Midwest (Ohio) where I use to live. My PM results have been overall outstanding, and I have the same two companies I started out with many years ago. My PMs charge a flat 8% on Gross Rents, nothing else, no fees of any other kind including no tenant placement fee.

    I just updated a calculation I did a couple of months ago because my underlying property appreciation this year was much more than anticipated. My PM fee amounted to 11% of my bottom line net cash rent (before the fee), and 4% of my total bottom line when you add in the underlying property appreciation to the net cash rent. Not only do my PMs do 95% of all the work, they also serve as a HUGE RISK MITIGATION TOOL which is almost as valuable to me as all the other services that they perform, given 2/3 of my properties are in potentially very highly litigious jurisdictions.

    With regard to prcing fairness, I have found a flat 8% of Gross Rents (with NO placement fee) to be more than fair for what they do. Its as you aptly note, a really tough and dirty job at times, and fraught with numerous headaches and potential risks that I personally want absolutely nothing to do with.

    Can’t understate all the headaches I have avoided over the years, and probably more importantly than that the reduction in RISK incurred of employing PROFESSIONAL PM. I don’t need an additional $1,000 a year PER EACH LLC in additional overhead and all the filing, maintenance and administrative hassles for a cumbersome multi tiered LLC structure. Standard insurance coverage, top shelf properties and most importantly Highly Professional Property Management serve as my more than adequate RISK BUFFERs.

    With regard to identifying PMs, I have had other PMs aggressively attempt to lure me a way with rates as low as a flat 5% fee because I have multiple B+ properties that are all less than 10 year old in various really nice B+ neighborhoods. I was initially interested in their bait because it “seemed” like a really easy way to cut costs, but when I went to the reviews you note above the picture became crystal clear.

    My PMs scored at least 4 of 5 in most reviews which is really great when you know how very easy it is for a disgruntled tenant to go on to those rating services and vent, often misrepresent and sometimes just flat out lie. The PMs trying to lure me away all had ratings between 1 and 2 with a tenat base that seem to be in full tilt revolt. I don’t need that in my world, I have very satisfied tenants with low turnover and I plan to keep that way, no suits and very few complaints.

  3. Nathan G.

    Good article. There are many things to consider and it would be too long for a full checklist but here’s what I share with people that are in need of help.

    Start by going to http://www.narpm.org and 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.

    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 different 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 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. 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!

    4. Review their lease agreement and addendums. 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 or problem tenants. 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 it is 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 they are 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.

  4. Katie Rogers

    I suggest reviewing not only their contract with you but also the lease they expect tenants to sign. Sometimes their leases include provisions you would never have in your own lease. When tenants object to the worst of these, the property management company says it is not their policy, but the owner’s policy. Nine times out of ten the owner has no idea.

  5. Georgie Sampang

    Unfortunately I have had only bad experiences with PM. Due to military moves, We too had collected a few rentals in 3 different cities/states. We can not do toilets etc and working as professionals, we relied on PMs and also managed some that are nearby our residence.
    Since we had kept these rentals long enough, some are paid off and others are left with 2-5 years to go. Needless to say, we have equities sitting unused.
    We started selling by owner and financing those with clear titles to reduce maintenance headaches..
    My question is, should we tap into our equity by refinancing? We had been receiving offers to put 3 or more properties in 1 mortgage. Is that safe or should we just keep FSBO since we get positive cash flow. We can retire now but plan to extend in our professions for another 4-5 years .

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