Hey everyone – I’ve been wanting to find someone to do a guest post for a while now and recently I’ve been talking with Caleb Malik from Active Renter.  He’s put together an article that’s an excellent complement to my post Is a Property Manager Worth the Money? so I thought it would be a great opportunity to bring him in to share with you. So please enjoy!!

— Jim


 

linkedinpicAbout the Author: Caleb Malik is a digital marketing coordinator for a property management company in Phoenix, Arizona. In his free time, he enjoys reading about the most recent real estate investing trends and blogging about property management. He also teaches communication courses at a community college and is on an unending quest to find the best pie place in Phoenix.

This is a guest blog, the information originally appeared in an article titled 74 Questions to Ask Before Hiring a Property Manager.


73 Questions to Use When Interviewing Property Managers

73 Questions to Use When Interviewing Property ManagersSo you bought a rental property… good for you! Residential real estate can be a fantastic investment. When managed properly, rental property has the ability to create excellent cash flow for investors. That cash flow can then be used to purchase more and more property. All the while, your tenants are paying the bank on your behalf.

Furthermore, once the property is fully owned, you greatly increase your income from your properties every month. Some people have retired in their early thirties and lived off of the income from their rental properties! Others have stashed that extra income for retirement and, when they were ready, sold the properties and used the profits as the majority of their retirement fund.

However, rental properties aren’t perfect and, like any investment, they carry risk. For example, if a rental property sits on the market or if there is damage to the property, you can get stuck paying from your pocket.

One way to mitigate this risk is to work with a property manager. As rental property experts, they can help you manage your investment wisely. The trick, however, is finding the right property manager.

With a good property manager, you can find better tenants, retain them for a longer period of time, and take better care of your property. Not only that, but they take over many of the day-to-day responsibilities. This allows you to spend more time with family, work at a full-time job, focus on growing your portfolio, or even take an early retirement.

So how do you find a good property manager? By executing a top-notch interview process. These properties are your business, so hiring a property manager is like hiring an employee. You wouldn’t hire someone without an in-depth interview process, so you shouldn’t hire a property management company without doing the same. To help you conduct the best interview possible, we have assembled an extensive list of questions to ask when hiring a property manager. Of course, you don’t need to ask them all, but these should help guide your research during the hiring process.

These questions were written with input from a team of property managers. Some of these questions would never have come to mind if they didn’t have experience in the role of a property manager (#61 is a good example.) So take this insider information, learn it, and use it to find the best property manager for your investments. Doing so will help you ensure profitability, which will help you achieve a more comfortable retirement.

For an easier read, they’re split into the following 8 sections. The list of sections below is hyperlinked so that you can explore them by topic.

  1. Questionsget to know your property manager.
  2. Feesnever get blind-sided by fees again.
  3. Servicesget the best treatment for you and your property.
  4. Statisticsbecause the numbers don’t lie.
  5. Communicationdon’t ever feel left in the dark.
  6. Tenantsknow exactly how they will interact with your tenants.
  7. Maintenancemake sure your property is protected.
  8. The Extraswhile not necessary, these are the icing on the cake.

General Property Management Questions

1) How long has your company been in business?

This question will help you understand this property manager’s level of experience. You don’t want a property manager who has only been in business for 1 year. They will still be struggling to figure out how to effectively run their business. Look for someone who has been in business for at least 3 years, at this point they will know what they’re doing.

2) How many rental units do you manage?

This will help you understand their size. Too few rental units and they are either inexperienced or have lost clients due to poor service. Too many rental units and you will get lost in the shuffle. Look for a property manager with 200 to 600 rental units. That’s when you’ve found your goldilocks level of “just right.”

3) How many staff members do you have and what are their job functions?

If it is only one or two people running the show, then you are likely to get poor service. If they employ 75 people you are likely to get lost in their sea of clients. Look for a company with enough employees to support the diverse responsibilities of a property management company, but make sure they haven’t become too large.

4) Where are most of your properties located?

This will help you answer two important questions. One, do they understand the area with your rental property? Two, do they cover area outside of where your property is located? This second question is important because you may want to grow your portfolio. What if you find the perfect property in a nearby suburb, but the property manager you chose can’t help manage it? Find a manager that can grow with you.

5) Do you manage any other properties in my neighborhood/area?

This is a good follow-up to question 4. Just because a company doesn’t primarily manage in your city doesn’t mean that they don’t have several properties in the neighborhood where your rental is located.

6) What professional organizations do you belong to or participate in?

Do they belong to the National Association of Residential Property Managers (NARPM)? Do they belong to their local association for Realtors? Make sure they are actively involved in the property management community. This is typically a good sign of professionalism.

7) How do you determine rent amount?

A property manager should be able to complete a comparable market analysis of all the other available listings near your property. They should use properties that just went off the market and properties that are currently on the market to determine the highest possible rent. They should also have the expertise and experience needed to factor in the unique aspects of your rental property, like a pool or a new kitchen.

8) What steps have you taken to cut costs so that you can pass savings on to your owners?

Property managers should be making an effort to cut costs for their owners. This will improve your return on investment. Sometimes this is a change in the pricing model, other times companies have even written proprietary computer programs to save time and money.

9) Do your employees have specialized roles or do some of them fill multiple roles?

You should make sure that employees are not filling multiple roles. Why would you want someone managing your online rental listings when they were hired for their accounting abilities? You wouldn’t. This is why employees should have specialized roles. This way, each employee has responsibilities for which they are highly trained. Leasing agents do leasing and property managers manage. Their responsibilities are like the proton packs in Ghostbusters, they are never meant to cross.

10) What types of properties do you manage?

If they don’t typically manage your property type, don’t let them start now. The challenges will be different and you really don’t want to take that risk.

11) Do I have to sell my property with you if I want to list it?

Some property managers will ask you to sign a contract that forces you to sell the property with them. Don’t fall for this. They will end up owning you and you don’t want to lose that much control.

12) Are you currently an active real estate investor in your market?

The company’s leadership should be investing in the real estate market themselves. Period. If they don’t invest in your market, then they lack the understanding they need to help you excel.

13) What qualifications do your staff members have?

The majority of a property management company’s staff should be extensively trained and they should also have their real estate sales agent or broker licenses.

14) Can you explain the federal fair housing laws to me?

So this is a bit of a “gotcha” question, but these laws are incredibly important and your property manager should know them. If they can’t explain them then they clearly aren’t knowledgeable enough to be managing your property.

15) What experience does your company owner have in managing rentals?

Some company owners have never even managed a property. If the company owner has never managed a rental, what is the chance that he or she runs a company that can effectively help you with your investment property?

16) How wide of a geographic area does your company cover?

This will help you identify if this is a property manager with which you can grow. If they only manage in your city, it might hinder the growth of your portfolio in the future. Growth of your portfolio means more passive income. Enough passive income means you can sit on a beach in Tahiti drinking Mai Tais while still earning money, which is pretty much everyone’s dream job.

17) Could you provide a few references to me?

Any good property management firm will have references – a really good one will have references specifically for your property type.

18) Do you work with out-of-state owners?

This is an especially important question if you are an out-of-state owner, but it still important if you are local. If you are an out-of-state owner, then you need to make sure that this property manager can accommodate your specific needs. If you’re local this will indicate that the company is skilled and experienced.

19) Do you work with international owners?

Again, this is crucial if you are an international investor. It is also helpful for local owners because it indicates expertise. For example, we’d love to get coffee with all of our owners, but for some of them this would require a 16-hour flight. This distance is a challenge that has pushed us to be better property managers.

20) Is your company privately owned or is it part of a franchise?

A franchise will have different concerns and be less flexible than privately owned companies. They are also more frequently concerned about their bottom line and less concerned about service. Think about the difference in quality between your local burger joint and McDonald’s…can you see the difference?

21) Can I cancel my contract without a fee if I am unhappy?

Never get locked into a contract you can’t escape. Some companies will try to hold you captive with a contract and others will keep your business with great service. If a company is offering you an inescapable contract, it’s time to look elsewhere.

22) What type of insurance do you carry?

Your property management company should carry insurance that will help to keep you covered. For example, as a licensed real estate brokerage we carry a large general liability policy along with an errors and omissions policy (which protects you from any clerical mistakes).

 

Property Management Fees

23) What are your leasing fees and do they include any marketing costs?

You need to ensure that you aren’t being price gouged through leasing fees. You should also ask about the cost of the leasing fee when a tenant re-signs for a property. If they want to charge you the same amount as when the tenant first signed you should really question the ethics of this company. In addition, make sure the marketing is included. Sometimes companies will tell you their lease fee is low, but then they will hit you with a large marketing charge.

24) What are the management fees when the property is being rented?

This question will help you understand your average monthly fee.

25) Are there fees when the property has no tenants?

This is a very important question to ask for two reasons. One, many companies will offer a “flat rate,” which sounds great until your property is empty…and they still continue to charge you. This is why we charge a percentage of collected rents. This way, we don’t make money unless you make money. Unlike some other companies, we aren’t happy taking a fee if we haven’t done our job to keep the property filled. Two, if a company is taking money with the property empty, how motivated do you think they are to fill the vacancy?

26) What miscellaneous fees could I be charged for the management of my property?

Again, some companies will try to get you to sign because they offer a low rate. As the saying goes, if it is too good to be true, it probably is. Once you’ve signed, a company that seemed inexpensive will now charge you lots of extra fees. Remember, a property management company has to make money, so if they aren’t making money from the low monthly fee they will find another way to do it (See #68 for an example).

27) Are there any fees if I want to change to another property management company?

Not only will property management companies try to lock you in with contracts, but they will also try to prevent you from leaving with fees. Although it is a nasty practice, it is not uncommon. Leaving a company with poor service shouldn’t be reminiscent of the jailbreak scene at the end of The Shawshank Redemption. If they aren’t serving you, you should be able to walk.

28) What are your pricing options?

Some companies will offer a flat rate and others will offer a rate based on the rent amount. For example, we even offer 3 levels of pricing, which includes a lease only plan, standard plan, and a premium plan. Again, you’re best off looking for a percentage of collected rents. This motivates your property manager to fill vacancies because they don’t get paid if you don’t have a tenant. It also motivates them to fight for higher rent amounts because this helps their bottom line too. Flat rate companies will get the same pay no matter what, so why would they be motivated to get you a higher rent?

 

Property Management Services

29) What are the various services that you offer to your clients?

You want to make sure that you find a property management company that can market, lease, manage, and sell your property. It is also important to make sure that this company can provide top-notch maintenance, conduct inspections, and administer in-depth background checks.

30) Do you offer direct deposit for your owners?

Unless you’re living in Back to the Future and you’ve traveled to the 1800’s, your property manager should be able to deposit your check in your account. This saves you time and effort, which is the whole reason you hired them.

31) How do you collect rent from tenants?

Asking tenants to bring checks to an office is a lot like wearing acid washed jeans, it might have been okay in the 80’s, but the times have changed. If your property manager isn’t having your tenants pay online that is a red flag for two reasons. One, it slows down the speed at which you can get paid. Two, it makes it easier for tenants to miss paying the rent. If payment is online, tenants can automate their payment and these two problems are avoided.

32) Do you conduct property inspections and, if you do, what charge is associated with them?

Remember Home Alone? Kevin McCallister did whatever he wanted in that house because he didn’t own the property and he was left without supervision. Don’t make this mistake with your tenants. Your property is at risk if your property manager doesn’t conduct inspections. This should require a small fee and it will be one of the best investments you can make. It ensures you catch problems before they spiral out of control.

33) Do you offer eviction warranty?

Some companies, such as ourselves, will offer eviction warranty. It is only a small fee, but it will give you major coverage should you need to evict a tenant.

34) Do you guarantee tenants for any amount of time?

Your company should guarantee that the tenant will stay in the property for a certain amount of time without needing an eviction. If they don’t, then they aren’t confident in their tenant selection process and you shouldn’t be either. At Active Renter we guarantee tenants for 6 months.

35) When do you begin paying your owners following rent collection?

You need to get your money quick, but some property managers just don’t understand that. It’s like waiting a month after your birthday to give you your presents – unacceptable. As a reference point, we start paying owners on the 10th of the month, which is right after the 95 percent of tenant’s payments clear the bank. Other PMs will hold on to your money until the following month.

36) What steps do you take to market properties?

Your property manager should be advertising properties through a variety of channels. If they are still just placing newspaper ads and hoping for the best, then you should steer clear.

37) Do you work with Home Owner’s Associations?

Understanding each and every HOA’s rules can be difficult and if a company hasn’t worked with an HOA before, or is unwilling to work with yours, then you need to be looking for a different property manager.

38) Do you provide payment statements, and if so, how often?

You should watch your payment statements like a movie on a lazy Friday night – on demand. Your property manager is doing you a disservice if you can’t get payment statements when you want them. We offer online payment statements 24/7 through our online Owner’s Portal.

 

Key Success Statistics

39) What percentage of your rentals is usually vacant?

This is also known as vacancy rate and it should never be above 4 or 5 percent.

40) What percentage of tenants renew their leases?

This is also known as lease renewal rate and a good property manager will have a lease renewal rate above 80 percent.

41) What percentage of rents do you collect per month?

This number should be near 100 percent. If it isn’t, you need to question why this property manager would have so many tenants not paying their rent on time.

42) What percentage of owners do you retain as clients?

This is also known as owner retention rate. Some property managers have found financial success by bringing in new owners, charging them with fees for a while, and then cycling in new owners. You want to avoid a property manager if their level of service can’t retain close to 100 percent of owners.

43) How long are your properties typically vacant?

The average vacancy time after a property is ready should be about 2-4 weeks. Any longer than this suggests the property manager is struggling to find tenants, any shorter than this suggests that your asking rent amount is too low and you might be leaving money on the table. Either of these scenarios is bad for you and your rental property.

44) What percentage of tenants do you need to evict?

Any good property manager will have a low eviction rate. Otherwise they are failing to conduct an appropriate background check. However, beware if a property manager says they never have to evict tenants. They aren’t tough enough on tenants who violate lease agreements, it’s like your bouncer is on the dance floor and no one is watching the door.

45) What is your average occupancy length for tenants?

A long average occupancy length is a good sign. This means that the property manager is keeping tenants in properties, which subsequently gives you cash flow that makes Niagara Falls look like a peaceful spring.

46) What percentage of the billed rent is paid to owners by the last day of the month?

Property managers should be getting the paid rent to their owners by the end of the month at the very latest. If they are not, then that is a major red flag.

47) What percentage of the security deposit is usually refunded to tenants?

This statistic is very similar to eviction rates. If very little is ever refunded, then the property manager is doing a poor job of screening tenants (or excessively penalizing them at move-out). However, if this number is close to 100 percent then the property manager is doing a poor job of holding tenants accountable.

 

Communication

48) How many property managers will I interact with (or, will I have an assigned property manager?)

This question will help you determine the type of interactions you will have on a regular basis. We don’t assign a specific property manager to your rental. Our property managers don’t work 24/7 and neither do our competitor’s. If someone wants to assign you to a specific property manager, then they are okay with making you wait until that person is back on the clock.

49) How often will I get updates on my portfolio?

Just like payment statements, you should be able to get updates on your portfolio as often as you need them. Your properties are your business and to not offer updates as often as you want would be the equivalent of telling your property manager that they can’t check their email for a week. It is a situation that would guarantee failure.

50) How do your tenants contact you?

A good property manager should have an effective system for communicating with tenants. Imagine if they didn’t. What would happen if your rental had a flood and the tenant couldn’t contact the property management company? Yeah, we wouldn’t want that either.

51) How do your owners contact you?

Owners keep a property management company alive and that’s how they should be treated. If you can’t easily contact someone about your rental property you need to move on.

52) Can tenants directly contact the owner?

Our advice to owners is that you should always let property managers be the barrier in between. This is why you hired us and a tenant would have to pry your contact information from our cold, dead iPhones before we would give it away. However, if for some reason you wanted a tenant to have your information we wouldn’t stop you.

53) How quick is your average response time to owners and tenants?

If you interview a property management company and their response to this question isn’t, “lightning quick,” then you need to continue your search. You and your tenants deserve better than a slow response.

 

Tenants

54) What steps do you take to ensure that I am getting quality tenants?

Every property manager should have a plan in place that strategically works to obtain the best tenants for you and your property. This should include marketing the property in a variety of ways, setting certain income requirements (usually 3x the month’s rent), and executing a background check that examines credit history, criminal history, and prior evictions.

55) What are your income requirements for tenants?

If they don’t set a standard, then how can they be sure this tenant will make rent? It should go without saying that a tenant needs to have enough income to pay the rent.

56) What is your timeline for evictions?

This process should begin as soon as it is legally possible to start the eviction. If your property manager is willing to sit around waiting for late rent money, then they are doing you a disservice. This process should take between 20 and 45 days depending on the court calendar and the constable’s schedule.

57) Can prospective tenants conduct self-guided tours of the property?

We firmly believe that self-guided tours are in the best interest of the property owner. This allows for more tenants to tour the property, which reduces the length of vacancy. We have a system in place that protects the property by validating the prospects identity with a credit card and we have never had a problem with self-guided tours. That said, some property investors feel uncomfortable letting tenants tour a property and we always leave it up to their choice.

58) Is there a grace period for tenants to pay their rent?

Tenants have had about 30 days since they paid the previous month’s rent, right? Well, we like to think THAT is their grace period. Some companies will offer a grace period of 5 days. However, this makes the 5th of the month their new due date. Grace periods leave tenants less motivated to pay on the 1st, which results in a longer period of time until you get your money.

59) What control do I have over the tenant lease agreement?

Your property manager should give you some input into the lease agreement if there are one or two issues that are important to you. However, if you are putting in lots of additions, you should have just written it yourself. Make sure your prospective property manager is confident in the leases that they have written for tenants by asking this question.

60) What steps are taken to ensure that your website is easy to use for tenants?

Tenants will apply for rentals on their website and should be paying rent on the site as well. If a property manager isn’t taking steps to make the website easier to use for tenants it could be hurting your business.

61) Do you require tenants to have renter’s insurance?

Lots of property managers don’t require renter’s insurance and this is a huge mistake. Make sure you find a property manager who does. This will cost you nothing, but it will protect you in case something goes wrong like a fire, flood, explosion or the tenant’s dog biting the neighbor kid.

62) Do you select my tenant or do I get to approve them?

It should be the property management company’s job to find tenants, but you should get the final say in who is selected.

 

Maintenance Policies

63) Is there a maintenance reserve requirement?

This question will help you understand how much will be in the reserve and this should tell you how often you’ll be involved in decisions. If the property manager wants a $1000 reserve, they want too much freedom with your finances. However, if they only want $100 then they will be calling you often for approval. You hired them to manage, not to call you every time a doorknob needs replaced. Make sure it is a reasonable maintenance reserve.

64) Who is responsible for yard maintenance?

Typically this falls on the tenant, but you will want to check with any property management company you think about hiring.

65) What is your relationship with your maintenance vendors?

This will tell you if they have strong relationships with vendors who can offer them discounts or if they even use vendors at all.

66) How do you go about notifying me if there is a cost for maintenance?

You wouldn’t want to receive large maintenance bills without a conversation first. That is why our policy is to call you for approval any time costs exceed the maintenance reserve. This should be the policy of any good property manager.

67) How do you handle maintenance requests?

There should be a clear and effective way to handle maintenance requests. For example, we use a ticket system that ensures that any maintenance request receives an immediate response. Then, these requests are completed in the most efficient and effective way possible to keep your tenants happy.

68) Do you mark-up maintenance and repairs?

You need to make sure that a prospective property management company doesn’t make a profit any time they do maintenance. If they are willing to charge you for maintenance, then your profits could greatly diminish.

 

The Extras

69) How much advice can you give me to help with growing my property portfolio?

Some people start investing in real estate to grow a portfolio. Others stumble into it because they had a home left to them by a relative or because they couldn’t sell their own house. Regardless, property investments can be very lucrative, and it is helpful to have a property manager who will help you grow. We have even coached clients with buying their first investment property.

70) What discounts can I receive on maintenance, etc. if I have you as my property manager?

A good property manager will take advantage of their size. Companies like us will use their quantity of rental doors to negotiate lower costs from maintenance vendors and insurance companies, which helps make you more profitable.

71) Do you have a move-in checklist?

Your property manager should have this list to let new tenants know exactly what to do during move in.

72) Do you have a move-out checklist?

For you and us, it seems obvious that tenants should clean a rental and take all the necessary steps to return a property back to its original condition (or close to it). To tenants, this is not so clear. A move-out checklist will set clear expectations for tenants about what they should do during move-out.

73) What market updates and education can you offer?

Albert Einstein argued that if someone can’t teach a topic simply, they probably don’t know it well enough. If your property manager can’t keep you updated and educated, then they probably are not experts themselves. This is why we develop a market update for Maricopa County every financial quarter and write articles discussing strategies for landlords.

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73 Questions to Use When Interviewing Property Managers

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