How to Evaluate a Property Manager: Deal-Breakers

Some things you can brush off. These you can’t.

An oddly charming man with piercing blue eyes.Property management is one of many industries that operate on what market analysts call “asymmetry of information.” In other words, you as a client don’t know much about how a property management office actually functions — all you can do is look at what information you can get and make the best call you can based on what those numbers seem to say. Every property manager will tell you what they think you want to hear so that they can add your properties to their portfolio, so how do you know which PMs are right?

There Is No Universally ‘Right’ Property Manager
The first thing you should be aware of is that there is no such thing as a ‘right’ property manager for every client. There are a few different factors that need to line up for a PM and a client to match up.

  • Your properties need to be similar to properties they are already managing. If you have high-class, million-dollar-plus McMansions, you don’t want to deal with a property manager that manages mostly low-value former-foreclosures. If you have far-flung rural cabins that run on septic systems and have to worry about flooding from the nearby river, you don’t want a PM that specializes in suburban sprawl.
  • Your goals for the properties you own need to line up with their management techniques. If you plan to move into the home when Uncle Paul passes away, but the manager’s style is to skimp on maintenance until they can ‘renovate upward,’ those two goals aren’t going to work together without a lot of good luck.
  • Your personality needs to mesh well with the personality of the manager. Quite frankly, if you and the PM dread talking to each other, there’s no level of skill or service on the manager’s part that will make the relationship worth enduring.

If your properties, your goals, and your personalities align, you have a potentially good property manager. Now, you just need to make sure that nothing is obviously wrong with their business. How? Keep reading.

There Are Definitely Universally ‘Wrong’ Property Managers
That said, there are absolutely hard facts that you can use to determine that a property manager isn’t one that you want to hire on to.

  • If the PM isn’t licensed — not just to do business, but licensed as a Property Manager — they’re not legitimate. Oftentimes, a single PM business will have multiple licensed managers working there, which is important because…
  • If they have more than 65 properties in their portfolio per licensed manager, chances are very good that the level of service they offer isn’t going to suffice for your needs.
  • If the PM won’t have eyes on the outside at least once a season and the inside at least once a year, find a new one. (Once a month/once a season is more comfortable.)
  • If their eviction rate exceeds 5%, it’s indicative of a problem with their tenant screening process, which is a problem you don’t want to have to deal with. (That assumes they deal with a decent amount of low-income properties — if the PM in question is strictly middle-class suburbia, aim for 2%.)
  • If they refund over 90% of their security deposits, it means they’re not doing an adequate job of holding their tenants accountable for repairs. If they refund less than 10%, it means that they either (again) have serious tenant screening problems or, quite frankly, they’re niggling jerks.
  • Finally, if adding your property to their management portfolio locks you into using their service to sell your property (once it comes time to sell), don’t do it. There are too many subtle conflicts of interest and ways that a company in that kind of position can profit at your expense without you having any say in the matter.

Those are the universal deal-breakers — if you have a company that overcomes all of those and matches the first three points above, you have a property manager that you can work with. Now it’s up to you to investigate all of the myriad of other details and figure out of that ‘can’ is capable of turning into ‘want to.’ Good luck!

Posted in: 1. Property Owner Blog Posts, Hiring Property Manager, Investing Strategy

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Comments:

  1. I like your advice to choose a property management company who is already managing properties similar to ours. My husband and I are currently looking for a property management service. I want to end up with someone well-suited for any potential issues, so thanks for sharing the tip to choose a company who has experience with similar properties.

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