7 Questions to Ask (& 7 Fees to Watch Out for) When Vetting Property Managers

by | BiggerPockets.com

There are many reasons to hire—or not hire—a property manager.

You might want to hire a professional manager if:

  • You’re just getting started and not comfortable “diving in the deep end”; you prefer someone to handle the details, like storing security deposits and 24/7 phone calls, while you learn from their experience
  • You have acquired so many units that you don’t have enough time to manage them anymore and don’t want to hire your own employees.
  • Like me, you prefer to acquire properties that cash flow enough that you can afford to hire a property manager, saving you time to find your next property.

There are plenty of people who choose to manage their own properties and for good reasons. Property managers are expensive, and you still need to keep an eye on what they’re doing. Why pay someone else to mark up maintenance bills when all they did was answer the phone and call a contractor?

These are all valid arguments, and ultimately, the decision to hire a property manager will be unique to your situation. If you do choose to hire a professional, you want to maximize the chances they’ll take care of your property the way you want.

Finding Your Property Manager Match

Here’s some practical advice for selecting the “right” person or company.

First, get in contact with the right people. Referrals are usually best. Otherwise, check with your local real estate group or BiggerPockets. If you decide to look online, check how long the company has been in business and read reviews. If reviews are mostly from tenants, take that into consideration (a tenant who got evicted may say something negative about the property manager, but that may be the property manager you want).

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Related: 80 Smart Questions to Ask BEFORE Hiring Your Next Property Management Company

7 Questions to Ask a Potential Property Manager

When you do talk with a potential property manager, there are some things to look out for:

  1. Are they familiar with the area your property is in?
  2. Do they have experience managing your type of tenants? (Low income or Section 8 will have challenges unique to other property and tenant types.)
  3. How will they collect rent? If it’s just through mail, that may be a problem. Will they send someone to the property on the first of each month? Can tenants pay online?
  4. Do they sound friendly and personable? There will no doubt be conflicts between tenants and managers, and the person you’re talking to should have some soft skills.
  5. Do they have a “one size fits all” contract, or are they flexible?
  6. If the relationship isn’t working out for some reason, what options are there?
  7. Do they have their own in-house maintenance? (Bigger companies usually do, and this is often more cost-beneficial to the owner.)

Watch Out for These 7 Common Fees

Take a look at a sample contract. Look out for language about cancellation policies and how much control you’ll have over decisions on major maintenance and other costs. Only agree to what you’re comfortable with. You should have access to monthly statements or an online owner’s portal, and property managers should be accountable for what they spend.

Professional property managers have a reputation for charging too many fees. They do, of course, deserve to be compensated for their time and expertise. But those fees are negotiable. Know what fee structure you’ll accept before talking with any prospects.

Companies could charge any combination of these fees:

  1. Percent of gross monthly rent collected (usually 10% in the Northeast, but varies)—or a flat monthly fee
  2. Marketing charges—actual marketing charges, perhaps with a markup
  3. Fees for moving in a new tenant—usually one month’s rent
  4. Tenant turnover fee—changing locks, rekeying an apartment, etc.
  5. Lease renewal fee—a few hundred dollars to a month’s rent for renewing a lease
  6. Maintenance charges—if in-house, it’s likely an hourly rate plus parts; if outsourced, the contractor’s bill plus a markup
  7. Eviction fees to compensate for the manager’s time and energy to file on a tenant, plus third party fees

Actual amounts will vary depending on what part of the country you’re in. Obviously, not all of the above are likely to be found in a single contract, but know what you want going in and be prepared to negotiate. As the owner, you want to maximize monthly rent and minimize turnover and other charges.

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Related: 9 Sneaky Fees to Watch for When Hiring a Property Manager

Align Your Interests

In my experience, aligning the interest of the property manager with your interest as the owner is a great way to avoid future problems. For example, if you agree to only two fees, it keeps things simple:

  • 10% of monthly gross rent
  • Maintenance charges

The property manager is incentivized to retain tenants and keep rent in line with market rates to maximize income.

On the other hand, if a contract was structured with some additional fees, the interests of both parties aren’t aligned:

  • 8% of monthly gross rent
  • One month’s rent for moving in a new tenant
  • Marketing fees
  • Maintenance charges

One month’s rent is obviously a lot more profitable for a property manager to charge than 8% of one month’s rent. The majority of property managers out there are ethical and want to do a good job. However, it’s best not to leave any room for potential conflict between the manager and owner.

In the second scenario above, the property manager is incentivized to turn over units. When a unit turns over, there is usually at least one month of lost rent while the vacant unit is cleaned, re-painted, and marketed. There would also be an additional month’s rent paid to the property manager for moving in a new tenant—good for the manager; at least two month’s lost rent for the owner.

Wrapping Up

There are plenty of reasons to hire a professional property manager. Do your homework, hire the best fit for you, and don’t sign anything that works against your goals.

How do you vet property managers?

Let me know with a comment!

About Author

Jamie Turner

Jamie Turner is an entrepreneur, real estate investor, and holds an International MBA. He’s also a licensed salesperson based in Philadelphia & NYC. He blogs at: jturner.ca

6 Comments

  1. Kelly Arthur

    Thanks Jamie. I’m looking to invest in Philadelphia. This article is timely since I have a call with a property manager/broker hoping to find a small multi-unit in Philly for me and a partner to invest in. He would like to manage it for us. He runs a turnkey real estate management company but I need to make sure that our goals are aligned. You have provided me with good points to bring up during our meeting. Thanks again.

  2. Devon Hicks

    Great article, Jaime! I think another thing that is important to ask about is the staff size and experience. It’s critical to ensure that whatever company you choose is fully staffed to meet your needs. For example, if the PM you are considering has more than a 50:1 ratio (50 properties for every employee), you should probably continue your search. Along with that, inexperienced staff can be just as dangerous. You should not only ask how long the company has been in business but also ask for the average experience of its employees. And like you said, understanding all the fees and ensuring your interests are aligned is vital as well.
    Again, thanks for the content, Jaime!

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