Tips on Hiring a Property Management Firm
Investors in residential rental properties must seriously consider the matter of management of the investment property. That is true for existing investors as well as those who contemplate becoming landlords. While the decision is more complex than the solution-description, your options boil down to two: 1) hire a professional property management firm, or 2) DIY (do it yourself).
Before making a snap judgment of your choice, a bit of soul-searching is in order. Consider answers to the following five questions as each applies to you.
- What experience do you have in managing residential rental property?
- Do you prefer to be a passive investor or a hands-on landlord?
- How far away are your investment properties from your residence?
- Assuming you are considering DIY, can you effectively service all of your properties?
- Are your rental payments sufficient to pay a property manager?
What experience do you have in managing residential rental property?
DIY and “learn as you go” is a perfect formula for disaster in protecting and enhancing your investment. If your know-how is limited to paying your own rent or mortgage each month, score yourself as a 1 on this issue.
Do you prefer to be a passive investor or a hands-on landlord?
There are several issues to consider in this regard.- Do you have a great need to remain in control of all aspects of your investment?
- A hands-on landlord also becomes heir to the stress factors of tenant-management. How willing or emotionally able are you to deal with complaints, maintenance and non-compliance with lease obligations? These are often face-to-face and confrontational.
- Hands-on management means dealing with internal or contract resources for maintenance and repairs. Do you want to take on the people-supervision?
How far away are your investment properties from your residence?
DIY and distance are deadly housemates. Responding to emergencies, maintenance, rent collection and vacancies is severely impacted and often impaired.Assuming you are considering DIY, can you effectively service all of your properties?
Do you have time to effectively manage your properties? Lack of time to devote to the needs of your tenants and property maintenance will have a severe adverse effect on the success of your investment.Are your rental payments sufficient to pay a property manager?
Property managers do not work for free. Are your rent receipts sufficient to pay a property manager, cover other overheads and yield a profit … or at least render your venture break-even?- Let’s say you add up your scores and your decision is to seek assistance by a professional property manager … or at least evaluate that route as a possibility. Here’s a bit of education of what to look for and the questions to ask of property management candidates.
Property Managers- Your Performance Expectations
Property managers’ primary responsibilities are to keep residential rental investors and their tenants happy. That means satisfaction by both parties in the condition of the rental unit, the grounds and maintenance services. While the manager works for the owner, the needs of the tenant are paramount to retain quality, long-term, profitable renters. Additional services often provided by property management firms include advertising, leases, tenant disputes, collection of rents and evictions.How to Find a Good Property Management Company
Owners/investors that decide to hire a property management company are advised to consider the following avenues.- Seek advice and recommendations from your social and business networks.
- Visit the National Association of Residential Property Managers' (NARPM) website at www.narpm.org. Click on Search for a Member.
Regulatory Requirements
Most states http://www.allpropertymanagement.com/propertylaw/ require property management companies to be licensed real estate brokers. A few states either have no such requirement or qualify under a property management license. Virginia requires both a real estate broker license as well as a Common Interest Community Management license. That offers an extra measure of security to Virginia residential rental investors that choose to contract with a property management firm. Ask to see currently valid licenses.Full Service Property Management
Let’s view the profile of a full-service property management company. Full service will include the following:- Leasing & Marketing
- Maintenance
- Operations
- Accounting
Leasing & Marketing
Properly conducted, leasing and marketing generates cash flow, raises property values and increases profits for owners. That means that the dreaded word “vacancy” is significantly eliminated. Vacancy can be more expensive than repairs, maintenance, and upgrades combined, so minimizing that exposure is particularly valuable. Maintaining occupancy rates at a high level protects investors’ revenue streams. Ask for details of times to fill vacancies; seven day availability to show rental units; media used to attract tenants.Maintenance
Most properties require at least some sort of maintenance over the course of a year. Full-service property managers typically have an in-house maintenance team specializing in smaller repairs. That keeps costs low for owners. Large-scale repairs are generally turned over to licensed subcontractors with whom the manager has established trusted relationships, as well as preferred pricing. Ask what preventative maintenance is performed and frequency.Operations
The main objective of the operations team at a full-service property management company is to safeguard the owner’s investment by ensuring full contractual compliance by tenants. A well managed operations department is respectful and considerate of tenants when financial difficulties, illness and other factors impair their ability to meet all of their commitments. However, if all else fails, the property manager will pursue any and all legal avenues to obtain fair compensation for a breach of contract and further safeguard the owner’s investment. Ask to meet operations personnel. Here “chemistry” is important to effective tenant relations.
Accounting
The accounting function at a full-service property management firm is to properly manage the owners’ rental investments. That means employing critical checks and balances to protect the owner’s assets, ensure accurate entry of financial data and provide needed documentation at tax time. A competent management firm will process transactions, identify accounting events plus prepare and update documents and reports. To carry out these critical responsibilities, the accounting team will perform in three distinct roles:- Accounts Receivable: collects rents to maintain a steady stream of income.
- Accounts Payable: pays invoices.
- Accounting Management: oversees all financial reporting, making sure financial transactions are properly authorized and recorded.
Compensation
The most common compensation model for property management firms serving the single family and multi-home units market is a percent of rent. The property management company will collect rents, retain 10-15% and remit the balance to the property owner. Ask what services are included in the management fee. Validate that the fee is based on rents collected, not on rent due. Are there additional fees and if so, for what services?Summary
The above does not exhaust the homework you must do prior to hiring a property manager. Some additional areas to investigate include:- Seeking referrals from property management clients and tenants.
- Google resources for local property management firms.
- Review current properties under management.
- Certainly, read and understand the management agreement.
- Identify years in business and knowledge of landlord-tenant laws in your state.