How to Vet Property Managers for Your Rentals
For some property owners, particularly beginners, property management may seem like a very simple undertaking, which just entails meeting tenants, handing over keys, and collecting rent. The reality however, is that property management is far more complicated than that. There is a reason why property managers are considered great assets, second only to the actual properties they steward on behalf of their respective owners. And that has seen the industry grow to more than $40 billion, at least going by statistics presented during the 2016 NARPM Broker/Owner Retreat.
Since there are many property managers working for a wide range of firms, owners often find themselves in a dilemma when it comes to vetting suitable individuals to safeguard their investments. If you rush through the process, you might end up with a disreputable firm that would attract losses. The biggest responsibility you have towards your property therefore, is establishing a long term relationship with property managers who guarantee the best possible returns on investment. And that, of course, can only be achieved through a rigorous vetting and qualification process.
Here are a couple of pointers on essential factors you should assess:
A good property management company is expected to have a solid reputation. This should be the first vetting step before proceeding to the finer details.
Now that the internet has grown tremendously, and the bulk, if not all property management firms have an online presence, a quick search through various forums should reveal some of the most reputable property management firms in your locality. Look up various companies and individuals on review sites to establish their respective ratings, and corresponding professionalism, based on experiences by past clients. You could also run a search through local or state governing agencies. Since people talk, and they are particularly inclined to share bad experiences, you’ll definitely notice a couple of red flags on disreputable firms.
The last thing you need, especially for multiple rental units, is having an inexperienced manager coordinating the entire business. Fortunately, 51% of property managers have been around for more than 10 years. That translates to a very huge pool of prospects in both residential and commercial property spaces.
In case you’re tempted to proceed with a rather inexperienced professional, you might want to work with one being inducted and closely supervised by an experienced senior property manager. That’s your best bet to avoiding errors that could gradually affect your returns.
Tenant Retention and Turnover Rate
Although property managers arguably spend most of their time handling maintenance, tenancy is the most critical aspect of the business. A firm’s ability to retain tenants, and their corresponding turnover rates, immensely determines the ultimate property ROI.
While sometimes tenant turnover is beyond an agency’s control, it is, in most cases, dictated by the firm’s professionalism in choosing and handling its tenants. Property managers who conduct comprehensive tenant screening processes for instance, focus only on creditworthy prospects interested in long leases. That’s how 72% of property managers have managed to maintain eviction rates of about 1%.
To establish a firm’s tenant retention and turnover rates, search through properties they’ve managed. Seek information from current and past tenants, plus review screening procedures used by respective firms.
How do the respective property managers run their firms? What elements do they consider most essential when drafting lease agreements? How do they handle their eviction processes? How do they coordinate property maintenance? Are they leveraging property management software?
These are just some of the issues you should highlight when reviewing a company’s management policies. How they handle their businesses affects your business and ultimate ROI. A good firm should be open about its policies and internal protocols. To countercheck and verify, ask to see a couple of their lease agreements and records. How they manage their records alone should help you discern a well-organized group of property managers. Reputable firms, for instance, rely on advanced record management systems integrated in property management software.
Ensure that their policies are in line with your needs, and you’re good to go.
Property Management Fees
And finally, of course, the elephant in the room- property management fees. A firm’s property management fees should be reflective of its services. So cheap is not always better. What you should rather be focusing on are firms whose fees are a derivative of your returns. That translates to low rates when your returns go down, and correspondingly higher rates when your returns improve. A convenient model for such an arrangement would be one that generates management fees from a constant percentage of the net rental income. Some firms however, prefer charging their fees per unit of property. But that is arguably beneficial to property owners with large units, as opposed to investors with smaller units.
Another factor you should consider before making up your mind on management fees is flexibility. A firm should be flexible enough to proportionally adjust its rates according to rise or drop of units and/or net income. That’s why; again, some investors prefer working with the percentage model.
You may also want to pay close attention to their payment policies- do they deduct their fees after they’ve followed up on full rent payments? Or do they prefer deducting from every rent payment made? These two may not seem so different on paper, but wait till you start receiving those payment checks.
To help make up your mind through all these assessment factors, prepare a checklist of things you’d want in an ideal property management firm beforehand. Since property managers are in for the long haul, you’ll want to have a team that has your best interests at heart.