Property Management

Below is a list of what I have determined are the more common reasons for hiring a professional.  Additionally, what you should look for in a property manager if you make that decision down the landlord road.  

Time Value Being a landlord sounds great until you get the late night call about a busted pipe, clogged toilet or even a blown bulb.  Worst of all, the call while on 
vacation regarding the HVAC that totally disrupts your sunbathing or martinis by the pool.  These scenarios, along with the fact that as a novice landlord it is likely you will still have a “day job” while building your portfolio, add up to not enough hours in the day.  Thusly, the number one reason to hire a professional management company, is time.  By hiring a manger, you are giving yourself additional time to do the things you love and enjoy outside of your rental property.

  
Negotiating Skills  As the owner you have a goal to meet your best interests, sometimes contrary to best business practices.  It can be a bit cumbersome when trying to negotiate with tenants, vendors, contractors, insurance agents and HOA representatives, when you are fully aware of your own needs, processes, procedures and desires for your investment and your non-refundable tickets to Maui. Hiring a professional with strong negotiating skills is an irreplaceable benefit to owners.  It is their job to make sure your property is maintained on a daily basis.  In doing so, we may need to negotiate on your behalf with contractors, vendors, homeowners’ associations, banks and even directly with the tenant.  Negotiating skills are extremely important because it allows you to get the best deals on contract work and eliminates the need for communication between you and the tenant.  This communication can carry over to addressing HOA concerns, city violations and even legal matters.  

Legal Knowledge Another great reason to use a property manager is for their knowledge of tenant and landlord laws. Each state has specific guidelines in place that dictate what a landlord can and cannot do in respect to tenants.  A professional property manager will know the laws. Being a professional, means it is their job to ensure those laws and regulations are followed to the fullest and to remain abreast of challenges to the laws that may impact your investment and residents.  

Rental Rates Hiring a property manager allows you to set and maintain the best rental rates.  Property managers understand the market, the location and the demographics of the tenants who will be renting your home. They constantly study the market to be able to advise you on what will be the best rent, to ensure the best chances to keep your property occupied.  

Costs of hiring a PM

One of the most important questions you should ask a potential Property Manager is regarding their fee structure.  There is an array of fees a PM may charge, however here a few to reference:  

an administrative fee or set-up fee, a monthly property management fee and a tenant marketing fee.

There could be other fees, so this list is not meant to be all-inclusive.  Remember that each PM/PM Firm has their own guidelines and experiences that determine their pricing strategy.  The fees I below are simply essentials to know and a good place to begin searching for and hiring a property manager.  

Set-Up Fee The set-up fee is paid upon contract and it may cover your initial marketing, the initial move in inspection and getting you set-up in all of the office’s software. This fee also covers getting your future tenant set-up in a database or property management system. This fee may also include initial marketing and validating data you provide of the home such of square footage.     
Management Fee The monthly management fee can be a flat fee or percentage based.  Every company varies thus it is important to do your research and ensure you fully understand the fee structure of your elected property manager.   
Marketing Fee A marketing fee may be charged per tenant. It is imperative as the landlord you know this and that their caveats to each PM’s assessment of this fee.    
     These are very basic fees however the list can go on.  Your property management agreement should spell out any fee that will be assessed. Always review your agreement prior to signing.  If there is any area where you are unsure, ask the Property Manager you are interviewing to explain and preferably show you, in writing, what she/he has stated.  

 Essential Property Management Attributes

Here is a list of the top attributes every property manager should have:  
1. Trustworthiness Your investment properties may be your largest asset outside of your personal residence and a major part of your overall wealth strategy.  Ask yourself if you would trust that person with your retirement.  Your children’s education. You cannot afford to overlook or glaze over the element of trust in any business strategy.  Real estate is no different.   
2. Experience Experience with your type of property is paramount.  You want to hire a professional who has experience with the type of property you acquired.  Whether you invest commercial, residential, multi-family there are going to be elements that are specific to each which required specialized expertise.  Commercial properties and tenants have different 
nuances than residential.  Think about it in another realm.  Would you hire a tax attorney to handle your divorce, with the same level of confidence as a divorce attorney?  An individual with experience will be able to identify opportunities to add, better and maximize your investment, by recognizing value-add opportunities and help increase your NOI due to their knowledge of rent and expense benchmarks for this type of property.  
3. Financial and Accounting Acumen It is now common, in many commercial real estate companies, to separate accounting and property management responsibilities.  Unfortunately, this means there is a large pool of professionals with little to no understanding of financial statements and accounting.  Investors should carefully interview potential companies and, if needed, engage the assistance of their CPA in selecting a firm.   
4. Their Tenant Screening Process The best property managers are ones who screen tenants by conducting background, credit and reference checks.  There was a reason I stressed this for you.  A professional PM is no different.  It is vital to find property managers who are professional, reputable and well-established to keep both the landlords and tenants satisfied with the arrangement, for the long-term.  
5. Their Turnover Rates and Cost of Vacancy Investors often focus too much on the PM fee.  That is a valid part of your weeding process but should not be the sole focus.  A primary focus, while choosing a PM, should be their turnover process.  If your rent is $1,000 and PM is 10%, you pay $100 per month.  At 9%, you only save $10 per month. Consider the cost of vacancy.  The same unit cost $30 in lost income per day when vacant. Immerse yourself in the process. Schedule a viewing of the property and see what their process looks like.  In so doing, you will see what your potential renters experience.  Are you impressed?  If not, that’s something to consider.  
6. Their Technology  Even pre-pandemic, more and more PMs are using technology, to varying levels.  However, you not only want to look for use of technology but a company or individual that offers a full package of services integrated with technology.  You want a property manager who knows how to leverage the data about your property to make precise and proactive recommendations.  Additionally, analyze whether they are integrating on-site services.  Those PMs are better able to leverage that technology and execute to maintain and protect your investment.  
7. Local Knowledge Be careful to not get hypnotized by “I have 500 customers.”  Logic says that level of business means must mean they are the best.  How effectively are they handling each of those 100.500/1000 properties?  Despite advances in 
technology and premium integrated technology suites, only so much can be done in office.  It is vital that Property Manager you choose has a “boots on the ground” strategy integrated into their services and can check on the property in-person.  Data coming in through a computer program cannot replace someone that can and will regularly drive or stop by.  It is that part of their management strategy that could catch any issues with the building or community before they become problems.  
8. Ability to Communicate There are some things that cannot be taught.  You either have it or you don’t.  Learned competencies are essential but for a property management professional, you need a communicator.  Communication or people skills is the one of the first things I, personally, look for in absolutely everyone representing and of my business interests.    
9. Billing Transparency This should really be #1!  A rate schedule on managing a property is not the only financial consideration when hiring a property manager.  It is just as important to know the company’s policies for other charges including maintenance, leasing and other activities.  Additional financial considerations are: Do they send you the bill directly or do they markup maintenance or other orders?  Do they take a fee or percentage for leasing units?  Their transparency, forced or uncovered through your due diligence, will alleviate common misunderstandings later.  
10. Availability and Responsiveness Believe it or not, investment real estate can be a 24/7 commitment.  Therefore, hire a Property Manager.  Remember, though, that simply hiring a PM does not alleviate your responsibilities to your investment, unless they have systems in place to answer and handle issues that arise, 24/7.  You will need a PM that dedicates their time or designates someone with the time to ensure your tenants are happy and your property is being cared for.  Longterm occupancy depends on it.  
11. Values Cost-Effectiveness There are things involved in managing investment real estate that HAVE TO be handled so much differently than your personal property.  There are uncontrollable costs like insurance, mortgage payment and taxes. They are what they are and changing them generally means a dramatic change to your investment.   There are also controllable costs like turn times, marketing and maintenance or property upkeep. So instead of choosing to change things like how often you mow the lawn—which can cause issues from the tenant satisfaction standpoint—it is better to find a more cost-effective strategy.  Perhaps, finding another vendor.  Sometimes it is not about eliminating a cost but controlling it. PMs who get that make the best choices that keep the bottom-line foremost in their management 
strategy while always keeping tenant happiness in mind, as well.  
12. A Long-Term Mindset Real estate is like a marriage. When you make that decision to forge ahead, you do so for the long haul.  So, make sure to surround yourself with individuals, agents, property managers and accountants—your team—that all have that marriage minded way of thinking.  It is in all parties’ best interests to remember your goals as the investor and the roles they each play to achieve those goals, to the benefit of each member of the team.