What I learned the hard way about property managers | Think Realty | A Real Estate of Mind

What I learned the hard way about property managers

Larry Arth's real estate investor insightsWhen I moved my real estate investing business from Minnesota to Florida I found myself in need of a property manager.

Up until this point I had been managing my own properties, a mistake I will never make again, but more on that later. I set out to find a property manager and simply asked the questions that popped into my mind at the time.

I cannot even remember what I asked, but it quickly became obvious what I did not ask. I started out asking some good questions, but then he took over and started telling me how great he was and what he would charge me.

After about 10 to 15 minutes I was satisfied.  I hired him and gave him a portfolio of 18 properties with an average monthly income of almost $20,000.  I never asked him for references, he came recommended by a mutual friend, who by the way did not invest in real estate. I put too much stock in that mutual friend’s referral and failed to ensure I was giving my $20,000 monthly portfolio to a reputable person.

The short story is….

As tenants vacated he charged for painting, cleaning and occasionally some carpet replacement.

However, it soon became clear that some of the units were sitting vacant for long periods of time.

New study says more Americans favor renting over buying homesI was puzzled why he had such a hard time renting the units again after the vacancies, so I did a little digging and discovered he billed me without doing any of the work.

As a result, I ended up with vacant units which had not been cleaned and painted or had the carpet replaced.  It took a lot of time to rent these dirty units and higher rents were not sustainable for dirty units. So with dirty units, we were forced to lower the monthly fees to get them rented.

I also had trouble getting monthly statements. These only showed up when he was in need of money. Plus there were a number of small additional issues that continued to bother me as well, so I decided it was time for a change.

So as I planned to switch to another property manager, I decided to be much more purposeful about it.  I wanted to sit down in advance and think of every obstacle I encountered. I also attended a local real estate investment club meeting and had many discussions with other landlords to learn the challenges they had. From this list of challenges, I created questions for each challenge to ensure the company I was going to hire had systems in place to address my issues.

More self discovery

Malcolm Gladwell in his book, “Outliers,”  illustrates it takes 10,000 hours of work and learning and practice to be a success at anything.  Understanding Gladwell’s point, I asked myself “Why did I ever manage my own properties in the first place?”

Why would anyone who invests try to manage their own properties?  I discovered the reason we have so many bad tenant stories is answered in this discovery. If it takes 10,000 hours of diligence and passion invested in a discipline to be successful, it is then imperative to have a professional who has the credentials of these 10,000 hours of practice behind him to successfully manage tenants and the landlord business.

As I have had my share of property management issues, allow me to share some diligence that I have uncovered over the years on asking and interviewing property managers.

The Property Management Questionnaire

Property Management Questionnaire – Experience

You want managers who know the local real estate world inside and out.

  • How long have you been a property manager?
  • Do you have any certifications?
  • Does your locality require landlords to have a license or permit to operate a rental, and if so what are those fees?
  • Do you understand the local rules and ordinances to accommodate things such as local licensure requirements and or Section 8 requirements?
  • Do you personally invest in real estate in this area?

The next set of questions has to do with finding good tenants. A building with good tenants tends to have fewer maintenance and other issues.

Property Management Questionnaire – Tenant Questions

  • How many vacancies do you have right now? Out of how many total units that you manage?
  • What is the average length of time it takes to fill a vacancy?
  • Is that average time getting longer or shorter?
  • How do you market your rental units?
  • Do you use the website to attract new tenants and to keep prospects informed?
  • What factors would make you reject a prospect?
  • Would you accept a tenant who met your qualifications in some areas, but not others?  Which qualifications are most important to you?
  • What screening methods do you use?

Property Management Questionnaire – Tenant Management

The next questions relate to tenant management. It’s just as important to keep good tenants as it is to find them.

  • How do you collect rents?
  • What is your late rent policy?
  •  What other rules do you set for tenants?
  • What percentage of tenants do you have to evict?
  • How does the eviction process work here?
  •  How do your tenants contact you?

Property Management Questionnaire – Maintenance

  • Which kinds of maintenance jobs are handled in-house?
  • Which ones do you use an outside handyman for?
  •  Which ones do you use professional contractors for?
  • How many quotes do you get for jobs?
  •  How expensive does a job have to be for you to contact me before doing it?
  • What are your rules for contractors being inside occupied rental units?

Finally, you need to understand your arrangement with the property manager

  • What is your fee structure?
  • Are your reports web-based? If not how do we get them?
  •  Do you require an exclusive arrangement to broker the property?
  • How much notice will you give before terminating a contract?

Additionally you can always  watch out for the easy tell-tale signs of expertise:

  • A manager with a messy office.
  •  Managers who are hard to connect with by phone or email.

I always believe that how you do anything is how you do everything.

Visit Larry’s website here.

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