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What you will learn from this article:
The benefits of a structured property manager interview process
Evaluating a property manager's tenant screening process
Ways property managers communicate with landlords
does a property manager need insurance?
how a professional property manager can help you scale your real estate business
This spring Real Life Planning welcomed our first real estate financial planning intern: April Masse. Check out our interesting discussion about finding the right property manager for her rental property. --Cynthia
When I decided to hire a property manager for the rental property my husband and I own, I was unsure how to go about deciding which property management company would be the best choice for us. Your property management company will handle rental income, reserve funds, security deposits, and make payments on your behalf; so this relationship requires trust, transparency, and accountability. Here are the 20 questions I asked before making my choice.
1. Are you a licensed property manager?
A property management license allows property managers to work in real estate and engage in business related to leasing and managing rental properties. All but 3 states (Idaho, Maine, and Vermont) require a property management or real estate broker’s license for anyone involved in property management activities.
Having a license demonstrates education, understanding of the industry, trustworthiness, and experience. To find out more about their level of experience you could also ask:
- How long have you been working as a property manager?
- How many units/properties have you managed?
- How many properties do you currently manage?
- What is the average occupancy rate of your properties?
2. Do you have a list of services you can provide me?
There are many responsibilities associated with managing a rental property, and you want to be sure the company can handle many different functions.
Some standard services include:
- Collecting rent
- Administering background checks
- Finding tenants
- Handling lease renewal or turnover process
- Communicating with tenants
- Providing maintenance
- Initiating evictions if necessary
This information is often available on the company’s website so that’s always a good place to start.
3. What are the fees for managing properties?
Monthly management fees are typically percentage-based, flat, or billed per project with amounts ranging from 7-10% of collected rent on a property. The company will have other fees as well that it’s important to be aware of. Common fees include but are not limited to:
- Initial setup fee
- Tenant placement fee
- Vacancy fee
- Maintenance fee
- Eviction fee
- Early termination fee
It is important to ask specific questions about the company’s fee structure and the services included as this will help you decide if you’re paying for the services you want or if perhaps another company might be a better fit for you.
4. How do you determine rent?
An experienced property manager should know how to calculate the highest rent amount for your rental by taking into consideration variables including:
- Comparable rentals in the area
- Local amenities
- Property amenities
- Property value
Rents that are too high create the risk of lengthy vacancies while rent that is too low may not cover the costs associated with owning and maintaining the property.
Your property manager should also recommend when to raise the rent, and by how much. How will they communicate to you about what is needed? Will you have a workflow for consistently raising rents (assuming the market and local regulations allow it) by a set percentage?
What if you have a good tenant who pays on time, but cannot afford the proposed increase? Ask a prospective property manager what they would do in this situation. Would they negotiate a longer-term lease with gradual increases, or recommend terminating the lease, and in what circumstances?
5. How do you screen tenants?
Having a thorough and consistent screening process in place is one of the most important steps you can take to help avoid or decrease the chance of issues such as non-payment, late payments, property damage, and evictions. A thorough screening process typically includes:
- Background check
- Credit check
- Proof of income
- Employment and eviction history
Some property managers may also set up an interview with prospective tenants. This gives them a chance to ask questions like how long they’ve lived in their current home and their reason for moving.
A property manager may hold an open house for a vacant property or unit. If so, do they limit the number of applications they will take? What is their workflow for processing them?
6. How do you handle maintenance?
There’s no question your property will need maintenance, so it is important to understand how the management company handles and charges for maintenance before entering into an agreement with them as it could really affect your bottom line.
Most property management companies will use one of three options for handling maintenance:
- In-house maintenance team
- Maintenance mark-up - an agreement where the management company receives a portion of the profit margin earned by the third party
Knowing how the maintenance of your property will be handled provides peace of mind not only that it will be well-maintained but also that you’re safe from surprise maintenance fees and expenses.
7. Please provide references
A qualified and successful property management company will have satisfied clients. Will the property manager offer you names of other clients who are willing to discuss their services? Referrals and reviews/testimonials on Google and the company’s website are also good indicators of whether the property management company is the right fit for you.
8. How do you handle damages to the property?
How damage to the property is handled will depend upon the general reason why the property damage occurred and what is written in the lease agreement. Two primary reasons for property damage are:
- Accidental damage It isn’t fair to always assume the worst of tenants, as sometimes things happen and damages occur accidentally. Choosing tenants you know will uphold the rental lease agreement and keeping open communication with them are the two things you can do to increase the likelihood of being informed of any problems in a timely manner so they can be addressed before greater damage occurs.
- Damage from irresponsible tenants I am referring to tenants who do not maintain the property in a proper way. They may not notify you of damages and/or purposefully cause damage to the property.
Any damage to the property will need to be evaluated to determine whether it is normal wear and tear or actual rental property damage by the tenant. It is important to know what’s written in the property management company’s lease regarding property damage and who pays for it. Is it taken out of the security deposit? What if the tenant refuses to pay for the damages? You want to be sure there are policies and procedures for assessing and addressing property damage.
9. Do you run a tenant by me before approving or rejecting their application?
Every property owner should look for a property management company with a thorough, fair, and effective screening process for all potential tenants. A professional management company will have workflows in place to keep the screening process fair and equitable to avoid breaching any Fair Housing Laws.
A “first qualified applicant” is a best practice to avoid discrimination of any kind.
However, your property manager can share information about an applicant who has met the screening requirements so long as the information provided doesn’t include specifics such as race, color, religion, national origin, or any other personal information that could bring into question the clarity and transparency of the decision-making process. This is a way to make sure your property manager is effectively implementing the screening requirements for tenant credit score and financial ability to pay.
10. How are evictions handled?
Eviction is an official legal procedure property owners or management companies must follow in order to have a tenant move out of the property. Laws surrounding eviction vary from state to state as well as from city to city within a state; so it is important to make sure any potential property management company has procedures in place that strictly adhere to the lease and align with local laws and regulations as well.
11. What is your late policy?
When a tenant doesn’t pay the full amount of rent by the due date, most landlords charge a late fee. A late payment policy is important because it incentivizes the tenant to pay rent on time. At the same time, the city and state you live in has regulations regarding when you can charge a late fee and the amount you can charge. It’s important to know that the management company is familiar with and is strictly adhering to the state and local laws.
Some property managers may offer a grace period of a few days beyond the due date to provide tenants with a little extra time to pay rent before the late fee is charged.
12. How long will it take to rent out the property on average?
The time it takes to turn over a property to a new tenant will depend upon whether it’s a single-family home or unit in a multifamily home. Turnover time is important as well as turnover management plans.
A professional property management company should be able to find a renter for a multifamily unit in as short as 1-2 weeks, whereas for a larger residence like a single-family home it is more likely to take 2-4 weeks, depending on how many repairs are needed. Anything longer or shorter could be a reason for concern as it could indicate that the company’s process and criteria for finding tenants may not be consistent with the local housing market. If you are concerned about their turnaround time you may want to ask some follow-up questions such as:
- Do you schedule maintenance workers in advance?
- Do you have in-house service vendors or do you contract that out?
- How do you advertise the unit?
13. How often do you disburse money?
Most property management companies pay out to the property manager monthly, somewhere around the 8th-10th of the month, with some waiting until as late as the 15th.
It is important to know not only when but how you will be receiving payments. The management company may choose to pay you electronically or via a physical check. You’ll want to know how you’ll be receiving payment so you can plan for the money to be available for expenses like mortgage payments, utilities, insurance, and other bills associated with the property.
14. How will we handle expenses?
One of the major perks of having a property manager is having someone else to handle and coordinate repairs; however, it’ll be important to know who is responsible for what expenses beforehand to avoid any surprises after the fact.
Some specific questions to ask might be:
- Is there an amount above which no money is spent without my approval?
- Does money for expenses come from rent?
- Do I write a separate check?
- Is there a markup on services?
There is no right and wrong way to handle expenses so long as you and your management company are in agreement. It’s always best to ask questions rather than assuming anything.
15. What control do I have over the lease agreement?
Any professional, qualified property management company will have their own lease agreement. If you’re hiring them mid-lease they will, of course, have to wait until the current lease ends before enacting theirs. Some property management companies may be open to negotiating some details of their lease but should have their own general lease agreement. It’s important to let any management company know if there are things you feel strongly about keeping in the lease agreement.
16. What type of insurance do you carry?
There are a lot of risks associated with owning and managing a rental property regardless of who manages it. A property management company may have:
- General liability insurance
- Errors and omissions insurance and/or
- Tenant discrimination insurance
These insurance policies protect the property management professionals from allegations that may be brought against them by clients. It is important to understand that this does not mean you, the landlord, do not need landlord insurance as you are not immune from liability associated with decisions and actions of the property manager under “Agency Law.”
17. Do you require tenants to have renter's insurance?
Requiring a tenant to have renter’s insurance protects them should their property become damaged or stolen while at the same time reducing the landlord’s risk of a lawsuit should something happen to a tenant’s belongings.
Other possible benefits of requiring renter’s insurance include:
- Lowering the chance of an increase in insurance premiums
- Allowing you to be pet-friendly (if you so choose)
- Helping with relocation costs in the event of fire or natural disaster
- Protecting you in the event of any other type of property damage
The average renter’s insurance premium is only $168/year or $14/month so this requirement should not be a deterrent of any kind for tenants.
18. How will you communicate with me?
Management companies differ in the methods they choose for communication with the owner. You’ll want to know how to reach them for:
- General questions or concerns
- Monthly management reports
Ask if they use software. If so, will I have an owner’s login I can use to access information regarding property management?
19. What is the turnaround time on phone calls and emails?
One of the most common complaints of property owners is not hearing back from the property management company in a timely manner. Knowing the best way to get in touch with them, as mentioned in the previous question, is the first step, but you’ll want to make sure you’ll get a prompt response.“Within 24 hours” is a common and appropriate expectation and response.
20. What do you offer that sets you apart from other companies?
This gives a potential property manager the opportunity to sell themselves to you rather than answering questions. You may find they offer something you wouldn’t have thought to ask about.
The task of searching for a property manager was daunting and overwhelming to me in the beginning and having a list of leading questions took a great deal of the stress and anxiety out of it. Are these all the questions to ask a potential property manager? No, these are the 20 questions I thought were most important to ask in my situation, but you’ll surely have other questions you’ll want to ask. Regardless of how many questions you may have, the goal is to find a property management company that is best for you and your specific needs. If you’re unsure whether to make the leap and hire a property manager, check out Real Life Planning’s Podcast, Rental Property Cafe, Episodes 9 and 10 for “Seven Reasons to Hire a Property Manager.”
This blog is for general financial education purposes. Information contained in this blog should not be construed as financial, tax, real estate, legal or investment advice. For educational purposes, blog posts may contain links to other websites which are not under the control or and are not maintained by Real Life Planning. Real Life Planning has provided those links for your convenience but does not necessarily endorse all the material on those sites. Please consult your financial, real estate, legal, or tax advisor for advice specific to your situation.