As a successful investor, you have probably already given thought to hiring a property manager (PM) to take care of your investments. If you have not or are thinking about making a change, this article will give you some tips and tools that you can use to help make a successful decision. Property managers exist for the management of all investment properties from homes through large apartment properties and commercial properties. Some property managers are better than others. As a property owner it’s your job to find the manager that will keep your property full, prepare accurate and consistent financial reports and will communicate with you and your tenants in an effective manner.
The current drive to efficiency has changed many things in property management. These changes include more automation and less client and tenant contact. Additionally, increasing taxes, wages and operational costs have put property managers under financial pressure. As a result, they are passing more expenses on to property owners, which may affect property success. This may motivate you to seek another property manager, and we will help you think through that process.
How to Pick the Good from the Bad?
Usually asking others for referrals is the best way to find a property manager. You may want to consider asking:
- Friends
- Attorneys
- CPA
- Vendors
- Call a real estate broker who has experience dealing with the type of property you own
It helps if you understand the needs of your property/ies, and the direction you want to take. Once you have assembled a list of property management companies, you need to decide what your goals are for your property and your expectations for the property management company. Your goals might read something like this:
- Keep property rented.
- Manage roof installation project.
- Prepare an annual budget.
- Annually inspect the property and send you a report.
- Send you a monthly financial report.
- Help you lease your property.
Once you have established your goals, you should start your interview process by viewing the websites of the possible managers and pre-screen them over the phone or video conference.
The property manager will need the following information in order to better respond to your pre-interview questions.
- The kind of property you own, commercial or residential.
- The number of units you need managed.
- The unit mix.
- The per unit monthly rental income.
- The annual gross income of the property.
- Your effective vacancy rate.
- The address of the property/properties.
- Problems you are having that you want the property manager to
solve for you.
For houses and small apartment complexes most property managers will typically quote a rate over the phone. With apartments and commercial property, property managers may want to look at the property before they make a proposal or meet with a potential client.
There are market norms for pricing, but every property manager has a different overhead structure and may charge you more or less depending on if the property falls into their sweet spot.
Negative Cash Flow
As a result of Covid 19, overbuilding, high interest rates or employees working from home, some buildings may not be full or generate adequate cash flow. If you have a property that has a
continual negative cash flow, don’t expect a property manager to be able to turn that around for you without additional investment of capital or a change in the economic environment. You need
to divulge that you have a troubled property upfront and help the PM develop a strategy to turn your property around. Some options include a different leasing approach, lowering the rents or
developing a property upgrade plan.
Questions to Ask Property Managers to Screen Them
Before you dial the phone, you need to consider what questions you are going to ask. For a copy of the questions we recommend you can visit the website of Cliff Hockley Consulting at https://www.chockleyconsulting.com/.
Price: Most important to the property owner is usually the price. So careful listening and an inspection of a few of the property manager’s existing management assignments will help you better understand how the property manager works. Typically, a property manager will quote
a price tied to the cash flow of the property.
Usually this looks like a percentage of the income collected with added fees for special items
like leasing, advertising, and special projects. With a challenging property a property manager may agree to a fixed price scheme (with a set monthly minimum) rather than the typical percentage of the rent approach. Asking about the cost of management typically leads to a discussion about the property and the property manager.
Once you have decided that this manager could work for you, you may want to arrange a meeting to discuss details. Remember that the cheapest price does not always equal the best service.
Personality fit is very important between the owner of the property, the owner of the property management company and the actual person that will be doing the day-to-day property management.
I have assembled a list of many of the most important questions you should ask the property manager on my website. Once you have those answers and you are comfortable with the property manager, you will want to read and review the contract carefully. Some managers will negotiate terms on their contracts; you should always ask. They will tell you where they are inflexible.
Once you have answers to the questions you should have a good idea of how the company is run and how well your property will be taken care of. You might ask or try to get a feel for the company’s key operating philosophies and focus on tenant and customer service.
Who is Responsible for What?
Regardless of your decision to hire a property manager, you will need to continue to be involved. You cannot walk away from your responsibility as a property owner. A successful property owner is one who keeps their eye on their investment.
You must read your monthly financial reports. You must inspect the property. You must make sure that, at least annually, you are on the same page as your property manager, by virtue of approving a management plan and budget. You need to invest enough money into the property
to make and keep it competitive in the marketplace. No property will operate well without supervision and continued reinvestment. If you do this, you will likely have an opportunity to preserve and grow a very successful investment.
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021 to Establish Bluestone Real Estate Services.
He is the author of two books – 21 Fables and Successful Real Estate Investing; Invest Wisely, Avoid Costly Mistakes and Make Money – books that help investors navigate the rough shoals of real estate ownership. Cliff can be reached at 503-267-1909 or [email protected].