Finding a top-notch property manager will be the difference between a pleasant investing experience and staying up at night with a knot in your stomach, worried about your investment.
We’re going to dig deep on the most important things you need to look for in a Property Management Company to make sure that your investment is protected and your blood pressure stays down!
Rather than give you a set of rigid rules, I want to share versatile principles that you can adapt to your search, regardless of your experience or level of investment.
We’ll look at several pillars of the Property Management search process:
- Conflict Management
- Maintaining the Power Dynamic
Who You Can Trust
We can agree that most people, and businesses, will put on their best show during the “courting” phase. Because of that, it can be tough to distinguish between candidates. This can go two ways. Preferably, you want to reach out to any friends or acquaintances that have investment properties. Find out who manages their properties, and how they’ve performed up to this point. These people should give you an unbiased idea of what it’s REALLY like to work with this company, once the honeymoon period is over.
You want their take on a few things, including…
A History of Problems
Hold on a second, aren’t we trying to avoid problems?
Yes, but we know that bad things can happen that are out of your control. So you want to make sure you have a property manager that’s cool under pressure. See, everything’s sunshine and rainbows when your properties are filled and the money’s coming in without much effort. But what about when tenant complaints happen? Or maintenance issues?
You need to know how your property manager will react.
Don’t Hire ANYONE until you ask these questions!
Of course, the company line will be that they strive for “clear communication with tenants and clients”…but sometimes the reality is much different. So that’s why, when you’re getting references from friends, you want to ask them if they’ve dealt with any challenges with their PM. If so, how did they rate the resolution process? Were they happy with the communication? Did the PM take full responsibility and ownership for fixing the issue? Did he or she come up with a cost-effective solution?
You’ll learn a whole lot more about a property manager by talking to one person who worked through a challenge with them than you will from talking to five people who’ve been on Easy Street the whole time.
A few years ago, I had a client who made this mistake and it cost her dearly. She went the normal route of asking some of her investor-friends for references. She was able to get a solid recommendation on a particular company, which she felt really good about. But she neglected to ask whether they had ever dealt with any major issues with this PM. It turns out her friend had only been with the company for 8 months and hadn’t had any problems come up in that time. So, the friend didn’t really know the true colors of the company. Well, fast-forward about 10 months, and my client had contracted with this Property Management company. Everything was going fine until it wasn’t.
A slew of maintenance issues hit one of her properties. And then an extended vacancy.
The property management company had always been easy to get a hold of until these issues came up. She started having trouble getting through to anyone on the phone or via email. The contractors they brought in ended up doing really poor quality work that needed to be re-done, costing my client $1,200 on top of what the repair costs should have been. Accountability went out the window and it cost her a lot of time and money- and that’s not even counting the stress of the situation. In the end, she was able to get out of her contract and switch to a different company, but it was a lesson she had to learn the hard way.
Let’s make sure you save yourself from the school of hard knocks!
“Wearing the Pants” in the Relationship
This is a crucial step in establishing control over the negotiation process.After you’ve gathered a list from referrals and online, decide on 3-4 companies that you will pursue. It’s really important not to make a snap decision based on limited information, especially if you don’t have a lot of experience with hiring property managers. Instead, make these companies WORK FOR your business. Let them know that you’re talking to several companies and you’re looking for the one that stands out from the pack- in terms service and reputation. Ask them to articulate what makes them different from Company A, B and C.
What are you actually paying for?
I don’t think your property manager should be paid each month unless you get paid. That means your property is occupied and the rent is being collected. I mean, that’s only fair, right?
Be careful about the PM companies that charge a fixed monthly fee, regardless of whether your property is generating income or not. We need them to have “skin in the game”. They need to be motivated to perform! And the best way to do that is with a compensation set-up that rewards them for good performance like:
- Maximizing income potential
- Keep properties filled
- Managing maintenance and repair in a timely and cost-effective manner
And penalizes them for poor performance:
- Taking tenants at below market rent
- Inconsistent collections
- Inefficient processes
- Extended vacancies
Jack-of-all-trades, master of none…
Here’s the harsh truth- even the most well-meaning property manager can get in over their head if they’re managing a property outside of their area of expertise. You may get a recommendation for an awesome PM who fits all the criteria laid out above.
But if you have a condo in the city and they specialize in single-family houses in the suburbs, it probably won’t be a good fit.
So a crucial component to consider is how closely their experience line up with your needs?
For example, if you’ve got Section 8 properties, make sure your PM is a Section 8 specialist who knows the ins-and-outs of the system.This will save you countless headaches and precious cash flow.
Can You Say That One More Time?
You need to be aware of the glue that holds the whole system together…
Now you may expect me to say that your property manager better be a great communicator. And you’re right.But don’t forget that your communication skills play an important role here, too. You need to collaborate with your PM to anticipate problems and best practices in advance so that you don’t have to do it in the heat of the moment. This greatly reduces the risk of surprises later on in your relationship.So, get really clear with your PM on what level of communication you expect. Ask them what you can do to ensure their duties are fulfilled without a hitch. When you set the tone for clear communication, it’s evident throughout the entire process- and positions you as someone who knows how to do business the right way.
Putting it to Paper
This is THE MOST IMPORTANT part of the process. Everything you talk about on the phone and in interviews is meaningless unless it’s in the contract. If you only do one of the things that I laid out in this post, please read through the contract with a fine-toothed comb. If you’re not comfortable doing the review yourself, then pay an attorney to look over the documents and provide feedback. Don’t think of it as an expense, but rather as an investment in a long-term business relationship. You’ll prevent misunderstandings, hurt feelings and lost money by looking closely at your property management contracts before signing them.
…Even if you’ve gotten a personal referral.
…Even if you’re comfortable with this company.
…Even if you’re certain they operate with integrity.
Hitting the Streets
You’re now armed with an actionable guide to finding a great property manager.
A steady relationship with a property manager is a godsend for any investor looking for a passive investment vehicle.
After all, we invest for the passive income- NOT so that we can take on another full-time job fixing toilets and coddling tenants!
Now it’s time to hear from you…
How have you used these ideas in the past to hire PMs?
What’s the biggest change you’ll make now that you’ve got guidance on the hiring process?
Post your comments and ideas below!