Buy & Hold 101: How to Find a Good Property Manager
We’re continuing our awesome series on all things Buy & Hold basics. If you missed my previous post in this series, make sure you check it out. You want all the goodies I’ve been offering about Buy & Holds, I assure you.
But, let’s going with today’s helpful info…
For many of us investors, finding and using a property manager is about as enjoyable as having a root canal, sans Novocain. Am I right?
It may be one of the least favorable tasks that come with the investment territory, but let’s face it; it’s a necessary evil. A novice property manager can drive you to bankruptcy, but a legit one can help secure monthly cash flow.
The latter (obviously) is what we’re shooting for, and I’m here today to share with you some tips on how to find a rock solid property manager… and how to siphon the good from the bad.
Back to Basics: What Makes a “Good” Property Manager
It goes without saying (but I’m gonna say it anyway) that it’s kind of hard to search for someone or something when you don’t know who or what you’re looking for. So before you start searching for good property managers, you’ve got to know more about the who’s and what’s.
So let’s talk about the basic duties of a property manager, which will help identify the desired qualifications of a “good” property manager.
Let me bring it all into focus. A quality property manager should:
- Be knowledgeable about rental agreements
- Have relationships with people who are knowledgeable about rental agreements (if he or she is not)
- Be familiar with tenant screenings
- Be marketing savvy
These are the basic traits that your property manager – a good property manager – should possess, but you also want someone who is connected to the resources you will (inevitably) need to tap into at some point in the buy and hold game.
You need to be working with a property manager who knows and has quick access to maintenance and repair professionals; people who understand tenant/landlord rights; eviction and rent collection processes; and local laws.
Remember, too, that the best property managers are backed by a software system. You, as the investor, should be able to log in to that system and download accounting reports at any time, giving you regular access to monthly property management fees.
Finding Property Managers
Now that you know what to look for in a property manager, it’s time to go out and find them. I recommend 3 resources:
Google: Ahhh, the omnipotent, boundless Google. It’s a great starting point for sure, but remember this – just because someone’s website ranks high doesn’t mean he or she is a rock star property manager. It may just mean that they’ve paid lots of money for prime search engine real estate.
Referrals: Listen to me now, hear me now... Referrals are without a doubt the best way to quickly find quality key players who have proven track records. So talk with your fellow investors and your friends. Find out who they recommend, and then start interviewing (sit tight, we’re about to get into the interview process.)
REIA Meetings: Attend your local REIA meetings. It’s that simple. Go. Ask. Call. That’s your game plan.
Go to the meeting. Ask who the preferred vendor is and call that person. Here’s the deal... If you’re working with the preferred REIA vendor and something goes wrong, that vendor will go the extra mile to right a wrong. Why? Because they don’t want to lose their “preferred” status with the REIA. Tap into that resource and use it to your advantage.
Understanding the Interview Process
So, you know what you’re looking for and where to find it. Now let’s talk about the screening process, the process of weeding out the “good” property managers from the mediocre.
Before we talk details, let’s talk interviewing essentials. Below are the key components you should always consider - including when you interview prospective property managers.
Review the Contract
Always ask to review the contract, first and foremost. Get the paperwork out in the open, no matter how painful it may be (and sometimes it stings, big time). But you’ve got to power through it and ensure that fees and expectations are clearly defined. Knowing up front what the actual, true bottom line number will be is key.
Don’t Get Nickel & Dimed
One thing I’ve learned from dealing with property managers is that they are experts at hiding fees. They can be sneaky, no doubt about it. So beware and be aware. Look for things like eviction costs, hidden marketing costs, tenant screening costs and judgment collection fees. Don’t learn the hard way like I did. Be prepared, so you don’t get fooled by hidden fees.
You Have the Final Say with Repairs
Make sure you have the final approval – in writing – for any property repairs, and if you’ve got a great contractor be sure you can use him whenever you wish. It’s not easy to find a good handyman, so if you got one, don’t let him go!
Marketing the Property Yourself
If you want to market the property yourself and then turn over the already-rented property for ongoing management, that’s your call. Just be sure to get that on the table during the interview process, so everyone is on the same page. Let’s call this the hybrid approach. You put out bandit signs. You post Craigslist ads. You screen and qualify tenants. You run background checks…
And in the end, you’re the one who signs the rental agreement and turns it over to the property manager. You are in control. Period.
What About Multi-Door Discounts?
I always ask property manager if they offer a multi-door discount. If they don't, you'd better negotiate one because a lot of times – especially if you have multi-family units or you're giving the manager multiple rental properties at once – they could (and should!) definitely be coming down in price.
Don’t Forget about Lease Options
Keep this option on the table as well. Here, both you and the tenant agree that, at the end of a specified rental, the renter will have the option to buy the property. This leaves the door open for more profitable possibilities, so be sure to cover it in the interview process.
Just Say NO to Cancellation Fees!
This one’s super important – I always negotiate with property managers that there will not be any cancellation fees if I dislike their service or if I decide to sell the property to either a tenant or somebody else.
Cancellation fees are one of those hidden fees that are typically built into the property manager contract between the investor and the property management firm that you don't even realize or don't pay attention to… until it presents itself – in a bad way. This can creep up when you're trying to sell the property to, perhaps, the tenant. So, like I said, this is something you must talk about up front.
Sometimes Counter-Intuitive Is Key
It may go against the grain, but here’s the thing about property managers…
The more negative comments you discover about the property manager from tenants (who aren’t paying, btw), the better the property manager is.
Eh? You read right…
Fact is, if investors are less than happy (which is a nice way of saying they’re pissed off) with a property manager, guess who you better start talking to?
If non-paying tenants are up in arms about your property manager, that means your property manager is doing the job and doing it well, so pay attention.
Bottom line, friends, is this…
No one will be more concerned about your monthly cash flow than you. So if you need to use a property manager – and you probably will – I encourage you to spend as much time interviewing him or her as you would a potential tenant. You want a manager who will look out for your best interests, not his or her own. And that’s not easy to find. So take your time, be thorough, be selective and assume nothing.
Until the next Buy and Hold 101 post - and yes, there are more coming your way soon (the crowd roars) – keep it classy.
Talk the Talk
Know about Property Managers? Your comments and ideas can benefit all of us, so share away in the comment section below.