20 Questions to Ask Potential Property Managers
Most people want to own rental property as a way to provide them with passive income. But with tenant screenings, lease agreements, marketing property, fair housing regulations, repair requests, evictions… being a landlord doesn’t sound all that passive! Whether your portfolio is expanding, you’re investing out-of-state, or you simply don’t want to deal with the day-to-day headaches, finding a good property manager can put a lot more PASSIVE back into your real estate investing life. But how do you find a good property manager? And what makes them better than some other company? I recently found myself asking these questions as Kristen and I are taking the plunge on our first out-of-state investment and will need a property manager for the first time. So, I combined my experience managing my own property with an internet full of suggested questions. The result of my efforts is a “meta-analysis” of sorts that boils down to 20 questions you can use to vet a potential property manager. While not an exhaustive list, it should get you started on the right track.
1. Tell me a little bit about your company? How did you get into property management and what keeps you coming back in every day?
This is a great ice breaker question. It’s open-ended enough to allow the PM to ‘sell’ you on what they offer and for you to take in the highlights. It also tells you a little about their motivations. Every person I talk to that isn’t interested in becoming a landlord or owning rental property cites this notorious 2 am phone call that apparently all owners get about a broken toilet. I’ve still never gotten that call but I agree, being a landlord is not for everyone. So why in the world did this person sign up to handle potentially hundreds of “2-am-broken-toilet” calls? Making money is not necessarily a bad motivator, it just shouldn’t be the only thing that gets your PM out of bed in the morning.
2. How many properties are you managing? Do you manage both short-term and long-term rentals?
The goal here is a company that manages enough rentals to know what they’re doing but not so many that your property gets lost in the shuffle. 100-600 is total properties under management is probably a good sweet spot. Also, short-term rentals can take a lot of time to manage. Smaller companies with a lot of short-term rentals may find it hard to respond to tenant requests in a timely fashion. This doesn’t mean that a busy PM is bad, but it might be good to speak with one or two of their current long-term tenants to ask about response times.
3. How many people work for your company, and what are their roles? Who would I be dealing with during the regular course of business?
Larger PMs will probably have multiple employees and often their own maintenance personnel on staff. Find out who you would interact for each aspect of management and make sure you get a good feeling from them as well.
4. What are your fees? Do you charge a flat fee or a percent of rent? Is there a fee for placing a new tenant? Other fees? (Maintenance, lease renewal, inspections, etc.)
Property management fees can vary by location but you’ll typically pay 50-100% of the first month’s rent to place a tenant and then 8-12% of the monthly rent each month. Some PMs will offer a flat fee that might seem lower but then add in other costs and fees. Make sure this is all laid out in the management agreement.
Pro Tip: Ask if the monthly fee is based on expected rent or actual collected rent. You obviously want the latter. Your PM should not be getting paid for vacancy issues or placing a bad tenant who isn’t paying rent.
5. Do you have electronic and automated systems set up?
Ideally, your PM will have online payment systems and direct deposit for both you and your tenants. This ensures you get paid promptly and makes it less likely for your tenant to miss a payment. Having your tenants on automated billing each month fixes both of these issues. Also, it’s 2020…who sends paper checks anymore?
6. How often do you check in on tenants and properties? Do you do an annual walk-through?
Your PM needs to be doing regular walkthroughs of the property to look for safety issues and items that might be in need of repair. This will ensure you catch problems before they become more serious.
7. How do you handle late fees?
This should be clearly laid out in their lease agreement and can vary drastically from state to state on what is allowed. Also, I’ve seen PMs that keep a small chunk of this late fee for themselves. Not a deal-breaker but their portion should be very small. Again, they put the late-paying tenant in your property.
8. What percentage of your expiring leases renew?
Renewed leases mean less vacancy and more money in your pocket. Look for a property manager that knows the answer to this question and takes pride in it.
9. Are you personally an investor in the area you manage?
They really should be. The best way for your PM to understand the market and to help you succeed over the long-term is to have their own skin in the game.
10. How long does it typically take to fill a vacancy?
This can give you a good idea of how they turnover and should take no more than 2-4 weeks. Longer and they may not be marketing the property very well or is struggling to find tenants. Shorter, and they may be undercharging on market rent just to fill a vacancy.
11. What is your screening process like for prospective tenants? Do you conduct credit and criminal background checks?
The answers to these questions should both be yes and they should have an established standard process. This ensures quality tenants are placed in your property and limits the chances for missed payments or evictions. They should also be getting references for the tenant’s employer and any past landlords.
12. Do you take photos of the property before and after move in and out?
Again, the obvious answer here is yes. You want to make sure you have an accurate condition report as each tenant moves in and out. This not only affects the security deposit but is another opportunity to find problem areas before they become major headaches.
13. Do you offer a tenant placement guarantee?
One of the biggest expenses with using a property management company is tenant placement. If the tenant is evicted or moves out before the lease term is up, will the property manager find a new tenant for free? If there’s no guarantee, make sure there is some incentive for the PM to keep long-term renters in place.
14. How can I withdraw from our management agreement
Even with these fantastic screening questions, you might find that your property management relationship isn’t really working after a few months together. Be sure to check the duration of your agreement and what exit clauses you have at your disposal. A good PM will rely on the quality of their work to keep you around, not a shady line of legalese.
15. Tell me a little about your tenant eviction history? How many have you had? What strategies do you use to mitigate them?
Evictions are easily the worst part of being a landlord. It’s bad for you, bad for your tenant, and usually bad for your property. You want a property manager who knows their way through the eviction process but not someone who is spending every day in court. Ask if they participate in any eviction prevention programs. Many communities have these programs and they can help to keep people in their homes with grants and assistance from social services.
16. Are the separate fees if a tenant is evicted?
Responsibility for things like court fees and eviction costs vary by county and state but ideally, your PM shouldn’t be up-charging you for handling the eviction process. Remember, they are the one who screened and placed the tenant. Why should they get rewarded for losing your money?
17. How do you handle tenant calls for repairs? Do you try to solve the problem before sending out a repair person? Who do you use for repairs?
This should be a clearly defined process from initial request to issue resolution. Find out when they escalate things from general handyman to skilled contractor. If they are using their own maintenance people, check to be sure they aren’t marking-up on labor or materials.
18. Do you establish a threshold dollar amount on repairs above which you always call the owner? If so, what is that dollar amount?
I don’t really want to be bothered for small repair issues with my property. (See 2 am toilet phone call) So in most cases, I’m okay with anything under $250 simply showing up on the invoice at the end of the month. Of course, larger repairs or problems need to be brought up right away – especially if the issues have multiple potential solutions. This is also a good time to ask about their general philosophy on repairs: do they try to find the least expensive solution, or do they prefer a mix of value and quality so the repair or replacement will last?
19. Can you share any references?
References are a great way to vet a property manager from a different perspective. Keep in mind, these references don’t just have to be current clients. Attorneys, real estate agents, and contractors will all provide different insights into how the company does business.
20. Can you provide me with a copy of your typical lease agreement and management agreement?
This should really be your last question and will serve as a way to compare your notes from the interview to the actual agreement you would be signing. It’s also a great way to end the conversation without making a decision on the spot. Take a few days to review the agreement while you interview other potential property managers.