Anyone who owns a property management business or is in a business development role for a management company spends a lot of time answering questions from property owners interviewing potential management companies. We get all kinds of questions and I love answering them. Some have pre-printed lists that they go through while others start asking questions and want more of a conversation. Either way, you should ask questions.
Someone with a substantial portfolio recently hit me with one of my favorite questions yet. She asked, “What questions would you ask if you were looking for a property management company?” Funny how we can get so busy answering questions that we might not take the time to think about what are the right questions to ask. She made me think. Here is the list we came up with what to ask before hiring a management company.
13 Questions to Ask Before Hiring a Property Management Company
How and what do they charge? – Most management companies charge a percentage of rent collected while there are a few that charge a flat fee. Most also have a tenant placement fee. Some charge for vacant properties while others do not. More and more management companies charge several ancillary fees too. In some cases, they can exceed the base management fee. There is not a specific “best” way for a company to charge. You just want to understand how they make their money. If the fee seems low, they will most likely be making it up somewhere else. If you go with the absolute least expensive you will, no doubt, be giving up service, expertise, or both.
What is the company size? - It is good to know how many “doors they manage” but you should also dig a little deeper and ask roughly how many properties that include. A couple of 60-unit apartment buildings are a lot different than 120 single-family homes with different owners and locations. Company size is really how many employees they have, including if they are local in person, remote, or “on-site” resident managers. There is no one right size. There are both advantages and disadvantages to bigger and smaller-sized companies. This information will help you understand what you are getting.
How long have they been in business? - There are a couple of reasons to ask this. The first reason is that property management is a hard business with a steep learning curve. This includes managing the properties and running a business. Part of what you are paying for is expertise. That is a hard thing to get without experience. The second reason is that a management company handles a lot of money. Working with an established business gives you some peace of mind. This is true for your tenants as well.
What kind of properties do they manage? - Some management companies only handle single-family residences while others handle large apartment communities. Many others focus on HOAs or commercial properties. Most will do some kind of mix of various types of properties. They might have started with one kind of property and slowly moved into others. You should know what they manage and if they have the expertise and resources to handle your property.
What is their market area? – Some companies keep a very tight circle, and others will go far. It is easy to understand why closer is preferable but if the systems are there then they can go further. A lot of this will come down to maintenance, leasing, and the type of properties they handle. When the infrastructure is there, they can go further and still do a good job. You need to have the conversation to make sure they are equipped to service your property’s location.
What insurance do they have and require? The property manager, property owner, vendors, and tenants should all have insurance. Property managers carry many kinds of insurance. They should at least have general liability, workers comp, errors & omissions, and employee theft. Property owners will need general liability and expect the management company to be named as additionally insured on their policy. Vendors should have workers comp and general liability. Tenants should carry renters insurance naming the property management company as an additional interest. You should ask your manager how they track the insurance coverage.
Who does the maintenance? – Some companies use outside vendors while others use “in-house” people or “affiliated companies” to perform maintenance tasks. Many will do a blend of both. A good in-house team or affiliated maintenance company is hard to beat. Many companies that use outside vendors will still charge a “coordination fee”. Property owners would be shocked as to how difficult it is to get vendors to come out and bid on work in today’s economy. There are a lot of acceptable ways to handle maintenance. You just want to understand how it works.
How are after-hour emergencies handled? - There are occasional after-hour maintenance issues that occur. Is there a number and or some kind of system set up for after-hours and weekend calls? The personal number for a maintenance person or plumber might be fine for a smaller company. Just realize that at some point in time, there will be a Sunday afternoon or 2:00 AM call to take and you should know how it is covered.
How are vacancies filled? – This includes everything from whether they use professional photography to when properties go on the market and how they are advertised. How are inquiries handled? What about after hours? Who, if anyone shows the property? Do they use outside agents? Do they do self-showings and or open houses? Some have systems that prescreen prospective tenants, aggregate leads and automate the scheduling process. Good systems can cut down on vacancy time and save you money.
What is their screening process? – Screening is one of the most important parts of property management in today’s post-COVID era. It starts with pre-screening from when calls first come in until an application is filled out and either accepted or declined. What are they looking for? Do they have minimum credit and income requirements? How do they check credit, background, and income? What, if anything, is verified? Many property managers are starting to use advanced income verification and even facial recognition systems. A bad tenant is more expensive than a vacancy.
Who signs leases and decides on tenants? – Some management companies sign the leases and some have the property owner sign. Some management companies set the rent amount and choose the tenant. Others consult the property owner. There are pros and cons to both models and fair housing laws must always be obeyed. This is something you need to know upfront.
When does the property owner receive rent? – In California, there are very specific rules governing how trust funds – your money – are collected, held, and disbursed. Adhering to these rules, along with general systems and procedures a company may practice, might have you waiting until the end of the month when the funds hit your bank account. Of course, you will want your property management company to follow the law, have accurate accounting, and that everything is on the up and up. Find out the timing.
How do they keep up with changing laws and best practices? This is becoming more and more important as new laws and technologies come into play. Do they have a compliance manager or are they involved with a trade association like the Nation Association of Residential Property Management (NARPM) or the National Apartment Association (NAA). There are other associations, depending on the kinds of properties you manage. This is too dynamic of an industry to operate on an island. I would like to see that they have been actively involved in the industry.
After hearing answers to these questions, you should have a good understanding of the management company and if you are a good fit. There is not a perfect or ideal company out there. You will just want to make sure you have clarity about who you are dealing with and if they are right for you.
Asking the right questions is just part of your due diligence. You will also want to check them out separately. We have another blog called How to Screen a Property Management Company.
Bottom Line
You should ask questions before hiring a property management company to help you with your rental properties. Here are thirteen we recommend asking:
- How and what do they charge?
- What is the company size?
- How long have they been in business?
- What kind of properties do they manage?
- What is their market area?
- What insurance do they have and require?
- Who does the maintenance?
- How are after-hours emergencies handled?
- How are vacancies filled?
- What is their screening process?
- Who signs leases and decides on tenants?
- When does the property owner receive rent?
- How do they keep up with changing laws and best practices?
Having a conversation and asking questions is a big part of your due diligence. You will also want to check with other sources to verify and screen a prospective property management company.
Of course, please feel free to ask us these same questions and screen us as well. We hope that you like what you find.
If you are looking for a reliable property management company or real estate broker in Long Beach, Los Angeles, or Orange County, California or you are just considering it and have a few questions about real estate contact the Mike Dunfee Group today! We are happy to help.
Dunfee Real Estate Services, Inc. DRE # 02026232
