I will give you my 5 secrets to finding the best property management companies.
Maybe you think you can manage the property yourself?
But if you use my tips to find the best property management companies, they’ll save you more money than the fee you’re paying them.
The five secrets to finding the best property management company are:
1. Read the Fine Print in the Contracts
2. Check their Fee Structure
3. Confirm You Can Trust Them
4. Meet them Face-to-Face
5. Give Them Constant Feedback
The perfect property management companies earn their management fee and more. They do things better than you could if you did it yourself.
They have more experience:
- Finding tenants
- Dealing with dead-beat tenants
- Collecting late rent
- Doing evictions
- Finding fair prices and getting discounts from contractors
- Knowing what repairs are necessary (and unnecessary) for rentals
- Knowing which locations are best for rentals
- Pricing rentals
- And much, much more…
To reiterate, these property management companies end up being worth far more than their fees just through their contacts, expertise, and understanding of the rental market.
Again, this is only true if you find the right property management. There are also plenty of bad ones that will cost more money and be as much work as doing it yourself.
That’s where following these tips come in!
There are plenty of books and blog posts about managing rental properties yourself.
What a headache!
You are paying a property management company for specialization and expertise that you cannot duplicate by reading books and blogs yourself.
This will sound salesman-y, but it’s true. It is working great for me, and it can work for you, or anyone you know that needs it.
I own twenty single-family homes and they are all being managed by the same rental property management company.
I’ve developed a system and built a team over the past few years that is really working for me (literally and figuratively).
The most important part of this system is the rental property management team.
Here are my secrets for finding the perfect one.
1. Read the Fine Print in the Contracts
When you hire property management, they make you sign a contract. You want to read this contract carefully. There is something specific I want you to watch for.
Make sure they don’t make it hard to fire them.
What do I mean by this?
The contract will have something in it that determines under what conditions you can terminate the rental property management contract with them.
If you terminate the contract, you may need to pay a few more month of their management fees. It may even say you have to pay the rest of the year.
Understand this language. If you feel they are performing badly, and want to stop using them, make sure you understand how much it will cost to walk away. You need to also understand what action you need to take to legally cancel the contract. You may need to do something in writing or by registered mail.
I negotiated having this portion of the contract taken out of my contract. If I was unhappy with the management company’s service, I was able to terminate without paying any additional months of management fees.
Let’s see what happened next…
A few months later, Monica from the property management company told me the metal railing on the concrete stairs to the front door was loose and needed to be replaced. She said she would get three quotes for the job.
- Quote #1: $3000
- Quote #2: $2500
- Quote #3: $2000
It seemed a little steep for stairs (no pun intended).
(No, not the stairs in question)
I asked a handyman in the neighborhood to go take a look at the stairs and let me know what he would charge to fix it.
He emailed me the next day and told me he fixed it. I owe him $50.
I emailed Monica to say I was terminating the management contract.
It seemed like having a management company was just as much work as not having one. This wasn’t the first time I had questioned the decisions she had made
I had to follow up and scrutinize everything she did!
Make sure you have the option to get rid of the property management company if necessary, and make sure it doesn’t cost you too much.
2. Check their Fee Structure
Start off by looking at their property management contract, and understanding their fee structure.
The most basic charge to understand is how do they charge management. Most commonly it is a percentage of rent. 10% of rent is quite common, but I’ve seen many places charge less. 8% is not uncommon.
It’s just like any other fee structure in life, however. When a company charges 8% instead of 10%, you may notice that in some other part of the fee structure, they may be more expensive than a competitor. They find somewhere else to make up for it.
A good example of this is illustrated with my current rental property management company. They charge 10%, which some might say is high, but they do not charge a fee for finding tenants and signing a lease. They also do not charge a fee for resigning a lease once it expires. A lot of other property management companies do.
Many companies charge a month’s rent, or maybe half a month’s rent for signing a lease. This can be very important in calculating your expenses.
My turnover rates in Montgomery, Alabama are quite high. The average turnover is between 1 ½ to 2 years. It would cost me a fortune to pay a month’s rent each time that happens, so having this included in my 10% fee is golden.
If you were in an area where turnover was lower, maybe a fee of one month’s rent wouldn’t work out as being too bad for you. Some people rent the same house for five or ten years.
Understand how your management company will charge you for using outside contractors. They may charge you the cost of the contractor plus a percentage markup. They may also have their own contractors that they have their own fee system with. Make sure you understand it and compare it to other property management companies in the area.
The process of eviction is different state-to-state so how long it takes and how much it costs can vary greatly. The cost of court and fees that need to be paid also vary in the same way.
Ask them to explain the process of eviction clearly to you. You need to understand how long it takes normally and worst-case scenario. You also need to understand how much it will cost you in both cases to get someone out of the house. Ask how often it happens and what their screening process is to try to avoid it.
3. Confirm You Can Trust Them
The first place to look is checking with online sources.
Check the better business bureau. You’ll be able to see if they are registered and if there are any complaints against them and how these complaints were resolved.
Next, do lots of googling (I’m not sure if googling is a word yet). Check for reviews on them and/or complaints about them. Beware of a company that seems to have no online presence of any kind. That’s a warning sign. They are too new, or hiding something.
You need to check the better business bureau, google their company name, and use every other online resource you can think of to see what people are saying about them.
Next, ask for references. Tell them you would like permission to talk to other investors who use their management services. Ideally you can talk to at least three. Speak to some of their renters as well. See how they are treated by the management company.
These are reference that the property management company is providing you, and these only have limited usefulness. There is a bias. They know you are calling and why, and they feel obliged to say nice things. They may even be “friends” of the management company or investors or renters that get treated much better than other customers.
Why does that matter?
Because you want a sample of what the average investor or renter is being treated like.
Ideally, you will find a way to develop your own references. You do this by asking the reference that you were given if they know anyone else you can talk to. This may be someone who will give a more honest or unbiased opinion.
The references you develop yourself are more effective than the ones given to you from the company.
If the company is reluctant to give references, this is called a clue. You may want to reconsider. Also, if the management company doesn’t work with any investors, this may also be of concern. You’ll be the first. That doesn’t mean it’s a no-go, but it means they don’t have much experience and you won’t have the benefit of speaking to other investors who can vouch for already being pleased with their service.
Now it’s time to approach the management company from the renter’s perspective. At this point, I go to their webpage and Facebook page and any other online presence they have and look around. I see how easy it is to navigate. I see how good a job they do describing the properties and taking pictures of the houses. I see professional they appear. Look at the bottom of the page. Is the year at the bottom of the page up to date?
I’ll call the phone number posing as a renter and I try to make an appointment to see a property. Then, I ask a bunch of questions about the property and see what questions they ask me about my income and situation. Next, I may act difficult and see how they handle it. Maybe I explain that I have bad credit or that I’ve been evicted in the past. Maybe I own two bulldogs and I’m in a rock band. I just like to hear how professionally they deal with interesting situations like this.
At some in the phone call, I tell them politely I’m not interested and hang up. I don’t take it so far as to set up and appointment and meet them at the house. That might be taking this undercover thing too far.
I’m concerned about how easy and fast it is to get an actual human person on the phone. If I get voice mail, how quickly do they call me back (if ever)? If I send an email, how quickly do they respond (if ever)?
How polite are they? How professional are they with my inquiries? These are what I’m determining from these phone calls.
A big problem would be never getting answers by email and not getting through to a person by phone. Another would be rude or unprofessional answers to questions. I would also be concerned if they seemed fine with renting to people with really bad credit or no income.
Once I’ve satisfied that test, I move on to talking to the owners of the property management company.
4. Meet Them Face-to-Face
You want to do this in person. Personally assessing their trustworthiness is something you can’t put a price on. If you are doing this from afar, then Skype or video is your last resort, but I would argue you would fly or drive out and make this happen in person. Don’t do it by phone, you want to be able to look each other in the eye and get to know them on a personal level.
It’s time to play twenty questions. I’m not limiting you to twenty, that’s just the name of that game you sometimes play in the car on long road trips. Prepare a long list of questions that you want to ask about how they will handle every conceivable situation you can think of. Everything you are worried about as a landlord, you will ask how will they handle it for you. Pets, bad credit, late fees, someone who trashes the house, someone who won’t move out, lawsuits, nuclear war, what happens if this company goes bankrupt, anything you can think of.
Here’s a list of questions I came up with to start you off.
- How old is your company?
- How did you get started in managing real estate?
- How much experience do each of you have in the real estate business? Property management business? Give me details.
- How many rental properties do you own yourselves?
- How many rental properties do you manage for investors?
- How many different real estate investors are you managing for?
- Will you let me speak to some of these investors about their experience working with you?
- How do evictions work in this state and city? How long does it take normally and worst case? How do you handle evictions and how will I be charged for it normally and worst case?
- What are your vacancy rates?
- Do you have your own contractors that work for you exclusively? How many and how do you charge me to use them?
- What is your criteria and income requirements for screening tenants?
- What is your pet policy?
- Can I see a sample rental report that you send investors each month?
- Will you let me speak to some of your tenants about their experience working with you?
- Do you have a plan for my properties if you decide to stop managing rentals?
You want and expect honest answers to all these questions. If there is evasiveness or reluctance to answer, not a good sign. In my opinion, you don’t want a property management company that is brand new and doesn’t have any experience. You also don’t want a management company that is so big, they are not willing to meet with you and answer these questions. If you are just another number to them, you’ll probably get poor service.
They should be willing to meet with you and answer questions like this to get your business as an investor.
At this point, hopefully you have enough information about property management to realize you could hire them. So do it. There is another important step that is only possible once they are hired and actively managing it for you. It is ensuring they delivering high quality service.
5. Give Them Constant Feedback
You have done all your homework and hired what you believe to be a quality company. The work doesn’t end there. You are going to find they do things that you don’t like. This may be their business practices, bad decisions, accounting issues, slow in handling vacancies, or any number of problems
The important thing is that you clearly communicate what you are unhappy with, and get them to fix that behavior. Remember, you are paying them a fee to receive a service, and you expect certain things for that fee.These kind of course corrections should be expected. Essentially, you are training them to be the perfect property managers.
In working with our property management company, we sometimes find that things are not clear from the financial statement each month how money was spent. We immediately speak with the owners and clarify why there is confusion over where money went last month. This always results in a more improved financial report the following month. This makes filing taxes and understanding our profits and losses much easier.
Another good example is the handling of vacancies. If you notice that it is taking the management company longer than it should to fill a vacancy, call them and ask them about it. Check and see how they have it advertised. Ask them about the price and if you should maybe offer a move in special or some type of incentive to get it rented out.
This should result in improved handling in vacancies over the long run. If it doesn’t, then you’ve got to have more serious conversations with them. Vacancies can be a very serious issue for you, especially if you have a mortgage to pay.
Do you remember my example from early where I fired a property management company because they quoted me several thousand dollars to fix the stairs, and when I send a handyman over, he fixed it for $50? I would recommend from time to time doing something similar just to keep everybody honest.
If there is some type of large bid going on, you should get a few quotes from the management company. You would then openly tell the management company that you are also sending over a contractor that a friend recommended to get a bid as well. You need only do this from time to time as a way of making sure their bids are fair. It’s called “trust, but verify”.
Trust but verify essentially means I don’t trust you yet, so I want to verify. There is nothing wrong with that. People that look and seem honest do shady stuff and sometimes disappoint us. Don’t forget to trust, but verify. I think if you get burned by your management company in this way, it’s a bad sign. A cheat is a cheat. You have to fire them.
Some people will decide to manage properties themselves. As I mentioned earlier, an outstanding property management company has so much experience and contacts, that they more than make up for the fees you pay them. You make money in the long run by leveraging that knowledge and experience.
By following my tips, you will weed out the bad apples, and find great management companies that will become partners in your real estate business. You will make money for them, and they will generate significant passive income for you.
It is a true win-win partnership.
What experiences do you have with property management companies? Any additional tips or advice? Comment below. This is a living page that I’ll be updating constantly.