Discover how to choose a property management company with our step-by-step guide, covering research, questions to ask, fee comparisons and more.
Picking a property management company can be an unfamiliar process, but it’s essential for the success of your investment property. The goal of this article is to give you a solid understanding of how to choose a property management company that will meet your specific needs whether you may a first-time property owner or more experienced.
We’ll take a look at your unique requirements and research how to find a local property management company. We’ll also discuss the importance of asking pointed questions to prospective residential property managers and verifying their credentials through references.
Additionally, we’ll guide you on comparing management fees, reading contracts (meticulously), checking for real estate licenses, and confirming insurance coverages. Lastly, we’ll discuss the importance of monitoring performance to ensure ongoing value from your property-management firm.
By the end of this post, you should feel confident in selecting a property manager who can effectively handle rent collection, tenant relations, leasing, property maintenance, accounting, and regular property inspections as part of their contracted services.
Table Of Contents:
- 1. Understand Your Needs
- 2. Research Companies
- 3. Ask Questions
- 4. Check References
- 5. Compare Fees
- 6. Read Contracts Carefully
- 7. Check for licenses and insurance
- 8. Monitor Performance
- 9. FAQs about How to Choose a Property Management Company
1. Understand Your Needs
The first step in choosing a property management company is understanding your needs as an investment property owner. What services are important for your property and operations? For example, are you interested in full-service management or do you only need help with certain tasks like leasing or tenant screening and rent collection?
Don’t forget about your budget. What’s your spending plan for these services? It’s important to know your financial limits before starting the search.
- Full-Service Management: They do it all – marketing, tenant screening, maintenance, rent collection, and even evictions.
- Tenant Placement Only: They’ll find you tenants, but after that, you’re on your own.
- Maintenance Services Only: If you like to DIY most things but need help with property upkeep and emergency repairs, these companies are your go-to.
Check out this article for more info on different property management options.
Also, consider how many rental units you own or plan to own. The more properties, the more support you might need. It’s like juggling flaming torches – the more torches, the higher the chance of burning yourself.
2. Research Companies
Before trusting your investment property to a management company, do your homework on potential candidates. Look for local companies that specialize in managing properties like yours.
Start by checking out online directories or real estate websites. Websites like All Property Management and Zillow Rental Manager Resources provide comprehensive lists of property management firms across the country, complete with reviews and ratings from other landlords.
- Online Reviews: Check out multiple review sites like Google, Yelp, and Better Business Bureau (BBB) for unbiased opinions from previous clients.
- Social Media Presence: A strong social media presence shows that the company is up-to-date with current trends and technology in property management. Plus, you can read comments and feedback from tenants.
- Websites & Blogs: Visit the company’s website to learn more about their services, fees, team members’ qualifications, and more. Blogs may also give insight into their industry knowledge.
Aside from these resources, reach out to other real estate investors or landlords who have used these companies before. They might offer valuable insights based on firsthand experience.
In addition to researching each firm’s reputation among its clientele, check if they’re accredited by professional organizations like The Institute of Real Estate Management (IREM) or the National Association of Residential Property Managers (NARPM). These accreditations signify adherence to high standards and ethical business practices within the industry.
Above all, remember: No matter the situation, it’s essential to select an option that meets your requirements and objectives. Take your time and make an informed decision that will bring the most benefit to you both in the present and future.
3. Ask Questions
Finding the right property management company for your investment properties requires understanding their services, fees, and approach. Be prepared to ask questions and you should expect that a reputable property management company will welcome your inquiries.
Create a list of the top 10 questions to evaluate potential companies effectively. Here are some examples:
- What types of properties do you manage?
- How many units do you currently manage?
- What’s your average vacancy rate?
- How do you handle maintenance requests and emergencies?
- Can I see a sample monthly report?
Their answers will reveal if they align with your needs as an investor.
Evaluating Their Responses
Analyze their responses carefully. Are they detailed? Do they show experience in handling similar situations? Find someone who understands real estate investing and has strategies for maximizing returns.
Inquiring About Fees
Understanding their fee structure is crucial. Some charge a flat rate, others work on percentage-based fees. Know what these costs cover – routine inspections? Maintenance calls? Marketing efforts for vacancies? Get it all laid out.
Digging Deeper: The Unseen Aspects
It’s not just about what’s upfront, but also the hidden aspects that come up in certain scenarios – like tenant eviction or major repairs at odd hours. Ask how they handle such matters to gauge their preparedness and efficiency.
Taking Note Of Communication Style And Promptness
A good property manager should be easy to reach during business hours and respond promptly, even outside regular working times for emergencies. Observe their response time during the interview – it might indicate how they’ll communicate once hired.
4. Check References
Choosing a property management company is a big deal. Don’t just wing it. Do your homework and check those references.
Reputable companies will gladly provide references. Talk to past and current clients to get the inside scoop on how the company operates. Are they professional? Are they responsive? Are they top-notch? Are they indispensable (this is a good one to focus on!)?
When you reach out to references, ask them important questions like:
- How long have they worked with this company?
- Are they happy with the services provided?
- How quick is the company to fix problems?
- If any difficulties occurred, were they managed to everyone’s satisfaction?
Gleaning an understanding of what it is like to partner with the property management business requires gathering multiple points of view so make sure to set the time aside to do your research.
Don’t just rely on one source. Get feedback from multiple sources to get a well-rounded view of the company’s performance. This will help you get an idea of important views from different perspectives that may unearth things that resonate with you and the specific needs of your rental properties.
Don’t stop at talking to clients. Do some online searching as well. Check out reviews on platforms like Yelp, and Google Maps, or industry-specific sites like All Property Management. Remember, not all negative reviews are deal-breakers, but if you spot consistent patterns, listen carefully.
Remember, testimonials can be biased. Cross-reference across diverse sources to get accurate info.
5. Compare Fees
When choosing a property management company, don’t just focus on their services – it goes without being said that you will want to know how much they charge (in detail!). Some companies have simple approaches while others may be a bit more complicated. It is essential to be aware of the various fee structures before signing up with a property management company.
Know what fees are common in the industry. Most property management companies charge a percentage of the monthly rental rate, usually between 8% and 12%. Some may also have setup fees for new tenants or vacancy fees for unoccupied units.
Remember, cheaper doesn’t always mean better. A company charging less might be cutting corners or offering fewer services.
- Rental Collection Fee: Covers rent collection and banking activities.
- Maintenance Fee: For repairs and maintenance work on your properties.
- Leasing Fee: A flat or percentage fee based on the monthly or annual rent for new tenants found for your property. Pay careful attention here as the expenses can be very large and perhaps explain a lower monthly management fee.
- Vacancy Fee: Compensation if a property remains vacant for too long.
Make sure all potential costs are clearly laid out before signing any contract with a property management company. Transparency in pricing helps you avoid unexpected expenses and budget effectively for your investment properties.
Fees vs Services: Finding Balance
Don’t just compare prices – consider the quality of service too. Cheaper isn’t always better if it means sacrificing important features like prompt maintenance or thorough tenant screening. Look for value for money – high-quality service at reasonable rates.
Negotiating Property Management Fees
If you’re uncomfortable with certain charges, negotiate them down. Everything is potentially negotiable within reason, especially if you own multiple rental units.
6. Read Contracts Carefully
Before signing a contract with a property management company t is imperative to carefully review the services provided, fees charged, limitation of liability, insurance, and termination clauses (among others). Don’t neglect this step as it sets the foundation for a long-term relationship.
Top 10 Most Important Contract Provisions
- Rental Pricing: Find out how they determine rental prices.
- Fees: Make sure all charges are clearly explained. Don’t let hidden fees alter your expectations and budgets.
- Maintenance Responsibilities: Who’s in charge of fixing things? You or them?
- Tenant Selection Process: How do they choose tenants? Confirm that they operate in compliance with all laws and regulations.
- Rent Collection Methodology: How do they collect rent? Make sure it’s efficient.
- Eviction Procedures: What happens if a tenant doesn’t pay rent? Understand what role they play, what third parties they may enlist, and how the overall process works. Again, understand their procedures to ensure compliance with applicable laws.
- Property Inspections: How often do they check on your place? Do they have a formal program or simply as-needed spot checks?
- Termination Clause: Can you end the agreement if things aren’t working out? Know your options so that you are not forced to pay a large termination fee to end your relationship.
- Dispute Resolution: What if you disagree? Avoid an unnecessary legal conflict; ensure that all verbal agreements are documented.
- Written Promises: Make sure everything they promised is in writing.
It’s always important to consult with your own real estate or business attorney to review the contract and all other matters surrounding the hiring of your property management company. It’s worth the legal fees to get things started on the right path (treat this as a critical step!).
7. Check for licenses and insurance
Make sure they’re licensed and insured. Protect your investment and have peace of mind knowing your properties are in professional hands.
A reputable property management company should have all the necessary licenses to operate legally. This may include real estate brokerage licenses or specific property management certifications.
- Real Estate Brokerage License: Most states require property managers to hold a real estate broker license or work under a licensed broker.
- Certified Property Manager (CPM): Offered by the Institute of Real Estate Management (IREM), this certification shows advanced competency in managing residential and commercial properties.
Along with licensing, a property management company must have adequate insurance coverage. This includes general liability insurance, professional liability (errors & omissions) insurance, workers’ compensation insurance (if they have employees), and fidelity bond coverage to protect against dishonest acts by employees.
- General Liability Insurance: Protects against financial loss from claims of injury or damage caused by the company’s operations.
- Errors & Omissions Insurance: Covers certain losses such as legal fees and settlements if the firm makes mistakes or omits information during their work.
- Fidelity Bond Coverage: Ensures protection against potential employee misconduct like fraud or theft.
Add Landlord as Additional Insured
Don’t forget to add yourself as an additional insured on the property management company’s insurance policy. This reduces your financial exposure in case of incidents related to their services. It can also save you money by tapping into their policy first for claims, reducing expenses on your policy. In fact, in today’s challenging insurance markets, taking this step could potentially determine whether your insurance policy gets renewed at a favorable rate or if it will not be renewed at all.
8. Monitor Performance
Once you’ve picked a property management company, keep an eye on their performance. Be sure to stay on top of how your property management firm is doing, making certain they meet your expectations and provide the best possible service for managing your investment properties.
The Importance of Regular Monitoring
Regular monitoring lets you see how well the property management company handles tenant complaints, maintenance requests, and rent collection. It also helps you evaluate their marketing efforts and how well they keep your properties occupied.
Evaluating Key Performance Indicators (KPIs)
Use Key Performance Indicators (or KPIs) to measure the effectiveness of the property management company. While this may be a bit technical it can provide some great benefits to your successful oversight of your management company. For example, look at vacancy rates, time taken to fill vacancies, rent collection rates, and response times for maintenance requests or tenant complaints. Get in the routine of being data-driven as it will not only help you get more out of your property management company but it may positively impact your net operating income (or NOI).
Maintaining Open Communication
Keep the lines of communication open with your property manager. Get regular reports on financial statements and updates on any important issues or developments. Make sure that efficient online tools are offered if this is something that you are comfortable with — it can be a real time saver.
Scheduling Regular Meetings
- Schedule regular meetings with the property manager, whether in person or via video conferencing if distance is an issue.
- If you have concerns about their services, bring them up during these discussions.
- Your feedback can help them improve their services – a win-win situation.
Taking Action If Necessary
If things aren’t going as expected – slow rent collection, long vacancies, or inadequate maintenance – it might be time to consider switching companies. Remember, you want optimal returns and minimal rental property headaches.
9. FAQs about How to Choose a Property Management Company
What are the signs of a good property management company?
A reputable property management company demonstrates clear communication, offers comprehensive services, has proven experience, positive client reviews, and holds relevant licenses and insurance.
Why is it important to be efficient when managing a property?
Efficiency in managing properties reduces costs, improves tenant satisfaction leading to longer tenancies, and ultimately increases return on investment for the owner.
When it comes to choosing a property management company, do your homework!
Understand your needs, research companies, ask questions, check references, compare fees, read contracts carefully, and make sure they have the necessary licenses and insurance. And don’t forget to keep an eye on their performance!
IMPORTANT NOTE: The information contained in this blog article and herein is for general educational purposes only and shall not be relied upon by any person, or any party, for any purpose. Further, the information is not updated in any manner. Neither the blog article nor any information contained herein (whether express or implied) shall be deemed to be legal, financial, health or any other advice, opinion, or the like. You must consult your own legal, tax, financial, accounting, health or other advisors for any and all advice that you require with respect to any topics identified, directly or indirectly, in this blog article or herein. Notable Risk LLC and its owners, members, managers, directors, officers, partners, consultants, and the like (the “Notable Parties”) do not provide any representation, warranty, promise, guarantee, or the like, that any information contained in this blog article or herein is accurate or complete in any respect.
We hope that you find this article helpful! If you work with Notable Risk, you can count on us to dig into the details that matter to landlords and property managers (our specialty business focus!). Notable Risk leverages 20+ years of expert risk-management experience (and lots of real estate know-how) that is not often found at independent insurance agencies. Hopefully, we will have an opportunity to help you with your real estate insurance needs!
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