Questions to Ask a Potential Property Manager, Part 3

“How many licks does it take to get to the center of a Tootsie Pop?” — Sample Question not appearing on this list.

A formal-ish interview taking place.If you’ve been following along, you know the drill by now — we’re talking about questions that you should be asking a potential property manager before you sign them on to manage your property. Part 1 was about how they treat tenants; Part 2 about how they treat property. Today, we’re going over questions about how they treat their clients — meaning you.

 

How Do You Pay Me?
Property managers are responsible for collecting rent, but it would be horribly inefficient for them to pay you those proceeds piecemeal as it’s collected. Most of them will tell tenants ‘rent is due on the 1st with a 5-day grace period’ or something similar. Then they’ll tell you your portion will be paid later that month or the next. Some will still pay with paper checks, hopefully most will pay electronically. What you want to look for is a payment method that is inexpensive, quick, and reliable.

Do I Have to Keep a Reserve?
Some PMs will require you to hold a certain amount per property as a ‘reserve’ to cover emergency bills, repairs, or other expenses. Others have sufficient assets to cover a certain level of costs out-of-pocket, and will then take the money out of the next months’ rental income. Generally speaking, the latter group is more financially secure and it’s safer to bet that they’re going to be around for years to come.

What Information Do You Provide, and How?
Good property managers will provide you with easy-to-access information about maintenance requests, rental income, expenses, and receipts. Excellent property managers will have similar information about any police calls, complaints (about the property/tenant or from them), and other non-financial events. The only PMs you should walk away from are those who don’t understand, when asked, why you would want access to this information — or tell you that they don’t track those things themselves.

Do You Charge Markups?
Markups are when the PM takes a contractor’s or vendor’s invoice and adds their own fees to it (usually in the vicinity of 10%-20% of the nominal amount) before they send it to you. There’s nothing inherently wrong with mark-ups, so long as the PM charges less than their peers for their typical monthly service. If they’re charging you premium prices and charging mark-ups, you have to question whether or not they have your investment goals in mind, or if they’re just there to ride your gravy train for a bit until you get smart and move on.

What Happens If I Want to Terminate Your Services?
Property management contracts are like leases — some companies will lock you into a 12-24 month commitment; others will allow you to terminate the agreement with as little as 60 days’ notice. The advantage to the latter scenario is that it keeps the PM on their toes, trying to keep you from becoming dissatisfied. The advantage of the former is that you know that your costs are going to remain more-or-less predictable over a longer period of time, even if the market shifts around you.

Do You Sell Real Estate as Well as Managing It?
Many property management companies are also in the business of buying and selling property. Worst-case scenario, the management contract obligates you to use that company to sell the property if you decide to do so while it’s under their management. This can create a conflict of interest, especially if they get the agent’s fees for the sale. Similarly, buying a property from a property management company is a dangerous bet, especially if it comes with a locked-in management agreement. The best property managers will understand the market and will have real estate agents on staff who could buy and sell properties if asked, but won’t ever contractually obligate you to choose their realtors should the need to buy or sell arise.

Do I Have to Put You On My Insurance as an ‘Added Insured’?
One of the things that many modern PMs ask of every client is that those clients add the management company (and sometimes the manager as an individual) to all insurance policies related to the property as an ‘added insured.’ This might seem like an unnecessary added expense — but it’s not; on the contrary, if a PM doesn’t ask this of you, you should choose a different PM. Simply put, if the management company gets sued over something to do with the property and they’re not covered by your policy, they could sue you for your part of the liability and you’ll end up paying a lot more than you would have if you had added them to your policy up front. A lot more. It’s a nominal cost, and any smart PM will ask you to absorb it as part of doing business.

 

Finally! If you got all the way through those three posts, congratulations! You’ve got a solid background on what you need to know from a property manager before you hire them. Now, go get the manager you need!

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

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Comments:

  1. These are all really great questions to ask. I think it is important that you really understand the way the company will manage you property. Like if they charge markups. I think that is something you should be aware of. If they are going to make a profit of off having to hire a contractor to do work, you should be aware of that.

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