Hiring a property manager can be one of the most important decisions you make as a real estate investor, especially if you’re international or out of state. So, there are certain questions that you should be asking each prospective manager and comparing the results between applicants.
In my opinion these are the questions I want answered by a potential property manager. They are more focused towards PM’s who manage over 50+ units but the principles should apply to all PM’s (both SFH and large multi family).
1. What size portfolios are they currently managing?
Tip: You obviously don’t want a property manager who only manages SFH managing your 100 unit deal, and vice versa.
2. Ask for client references:
I encourage you to call all the references provided by the property manager. Even if you’re not keen on hiring them you should call the references and use it as a networking opportunity. Ask the references about the responsiveness of the property manager, how quickly do they respond? Are they transparent and forthcoming to share quotes from general contractor/s who complete work on your property? How do they deal with evictions? What is their eviction process? Do they encourage tenant retention?
Tip: By asking these questions of the reference you will be able to gauge the sophistication of property manager. If the reference responds by saying “I am not sure…” or “I don’t know..” to any of the questions above then ask the property manager directly, and/or ask for another reference.
3. Experience with repositioning multi family properties (this question is more suited to MF property managers). If property manager has repositioned other properties in the area ask to walk those properties. You will want to get a feel for two things 1) The property managers ability to handle a reposition, and 2) what finishes and amenities do these properties have as they may be your competition and a comp for your rehab budget and analysis.
4. Does the property manager have a general contractor on staff? or do they outsource to 3rd party subs?
If they do have a GC on staff, do they have a license and insurance? Or are they using a handy man/trick-of-all-trades? Note: the larger the property management company is, the more likely they will have a GC on staff (this applies for PM’s who manager both SFH and MF portfolios).
If they don’t, ask about the vetting and hiring process of sub-contractors? Do they obtain 3 quotes for each major trade (ie: HVAC, Roofing, electrical etc.) or do they hire a trick-of-all-trades to complete the work? Do they have their favorite subs they use on all their projects?
Do they impose a schedule? Do they make the subs sign contracts?
The take away from these questions is that you want to be comfortable with the quality of work they will do, that they complete the work on schedule, and that subs are willing to sign contracts. Furthermore, you want to see if the property manager can advise you, as an investor, on the right type of unit rehab you need to executive to achieve premium rents for the submarket.
5. Material Specifications:
A good property manager, who is worth their weight in gold, will be able to advise you on the types of finishes that will achieve premium rents and the associated cost or cost/sf for individual items (ie: countertops). You will want to ask them for a “spec” (aka specifications). This is a list of the types of finishes, flooring, light fixtures, countertops etc. required in order to maximize rents and be competitive in your sub market.
NOTE: You will want to document the different specifications you use for different finishes and keep track of these specifications as you do more and more deals. Over time you will develop a “spec book” and you will understand the exact $/sf, or $/item to install. Having this knowledge is vital when you walk new deals as you will establish a “good feel” for what is costs to renovate an apartment and thus develop a more accurate construction budget for your new deals.
6. Ask the property manager to check your assumptions in your analysis:
A good property manager will be able to review your analysis and let you know if any of your assumptions are wrong and need to be changed. I always send them my spreadsheet analysis of the a potential deal to get their feedback on:
– Rental increases for the area
– Expense ratio
– Utility charges
– Bill back systems
– Additional income expenses; will tenants pay those fees (ie: carport rent, storage rent, vending machines)
– and much much more…
Get in the habit of getting feedback on any underwriting from a seasoned property manager. This is a real litmus test for me. If they provide me with great feedback and quality advice they get ALOT of brownie points in my book.
7. Tenant screening process:
Ask the property manager about their tenant screening process. You want to hear that they do the following as a minimum:
– Complete background checks
– Credit history check, or employment verification;
– Only accept tenants with employment history (with the one employer) for longer than 6 months – NOTE: Every situation is different, however a 6 month min. employment term is a good starting point.
– Rental references from past landlords
8. Application and rental agreements:
You want to ask the property manger for a copy of their rental agreements with tenants. For all the newbies out there you want to review this with a lawyer, or a mentor, who knows what to look for.
Key items (this will vary state-to-state) for me:
– Eviction and default clauses (Tenant(s) fails to comply with any of the financial or material provisions of the agreement)
– Deposit requirements
– Sub leasing clauses (no sub leasing)
– Tenant liability clauses: “Each Tenant(s) is jointly and individually liable for all Lease Agreement obligations…”
– Renewal Clauses and notices
– Use of premise clause: The Premises shall be used and occupied by Tenant(s), for no more than FOUR (4) persons exclusively, as a private individual dwelling, and no part of the Premises shall be used at any time during the term of this Agreement…”
– Move out clauses, or “Surrender of premise” clause: This is a clause that requires the tenant to leave the unit in “Tenant(s) shall surrender the Premise in better or equal condition as it were at the commencement of this Agreement, reasonable use, wear and tear thereof, and damages by the elements excepted…”
9. Property management technology:
The final important check is to ask about the different technologies they are using, or implementing, to make the tenant experience easier to pay rents and get in contact for maintenance request. It is 2016, and some will argue that not all tenants are “online”, and I agree, however I do like to see an effort from a property manager to get tenants to pay online, or provide a systems which makes payment easier.
You want your property managers to be always learning and implementing new technology or systems that makes rent collection/eviction/late notices as easy as possible.
Check out my video below:
Thanks for reading. I am based in the LA area but I invest in TX (DFW, Houston and I am interested in San Antonio), I also like Kansas City market (large multi family). Get in contact with me if anyone comes through LA and you want to grab a beer or a coffee. I love meeting up with other MF investors to talk shop. Or shoot me an email, firstname.lastname@example.org.