What to Look for In A Property Manager Real Estate Investing Business
To have a successful rental property business, you must find a good property manager to run your business. After 15 years of investing in rental properties, I figured out what to look for in a good property manager real estate for your rental properties.
A property manager real estate in almost worth their weight in gold. This is because they do all the work for my rental property business and I make all the money! 🙂
Finding a Good Property Manager Real Estate
I love my property managers, because they do all of the work, and I reap all of the benefits. Basically, I can be on a six-week vacation, like I am now, where I am sitting in the Republic of Ireland, just hanging out on the coast.
We just watched a sunset and went to a lighthouse that had a huge ocean break of waves. It was fantastic! My property managers work hard so I don’t have to work at all.
They make me money, whether I am sleeping or on vacation!
I am on this six-week vacation, because I don’t have to work a job. My property managers will call me if there are any decisions I need to make, but I don’t need to do anything on a day-to-day basis, because they do all of the work.
Listen to the Podcast
We are going to talk about how you can have a business that runs automatically and all you do is receive money.
It is amazing!
My Two Favorite Expenses
There are two types of people in this world that I absolutely love to pay — and I hate paying money to anybody!
The first person I love to pay is my accountant. I love paying my accountant, because he does work in three hours that would take me three years to do. I hate accounting and working with numbers — I am not good at them! The second person I love to pay is my property manager.
All of my property managers do all of the work and I do none of it. They give me a statement at the end of the month and I verify it to make sure the income and expenses are correct. It takes me about an hour per property manager — that’s it for the entire month! My property managers do the worrying for me.
As you are building your business, the number one person, or persons, that you will want to hire, and hire right, is a property manager. If you buy a property and you don’t have a property manager, you are either going to manage it yourself or figure out a way to have somebody else manage it.
I personally love having a property manager, because I don’t have to work. Really! I don’t have to worry about getting tenants in there or evicting them.
Also, I have the type of personality where if I was near the property and I got a call about a leaky toilet, it is in me where I would just go over there and fix it.
What if it was at 2:00 am? What if I was on vacation? If I don’t have someone watching over my properties, I can’t do it myself, and my properties will not be taken care of very well.
Trust vs. Risk
Depending on your level of risk or trust with other people, I strongly recommend that you get a property manager. Even if you are in the same area as your property! The cost is typically 10 percent of monthly rent. I would get property managers on every single property that I own.
I have learned the hard way how to find good property managers and we are going to talk about that. What happens is sometimes you find a bad property manager and we are going to learn what you can do about that as well as what happens if you need to find a new property manager.
How to Start Building Your Business with Property Managers
Find the Right Property Manager and Ask the Right Questions
Think of this person as an employee, as someone you are going to hire and someone who will work with you for a very long time. It is expensive to hire an employee, train them, and then keep them on as an employee. If you have turnover and need to hire another person, it is a lot of work!
I had a retail business once where I had to hire employees to work the cash register and make pizzas. It cost a lot of money to train them. It took about two weeks of training.
You do not want to get stuck with a property manager that you will need to fire. You want to hire right.
Get a List of Several Property Managers in Your Area
Don’t do what I did! I contacted one property manager and went with her. She worked out really well for the first year, but then she started a sub sandwich business. There were some yellow flags that popped up in the form of expenses… and then the red flags started popping up.
All yellow flags lead to red flags! My first property manager started losing money on her business and then started stealing from me! She started creating phantom expenses like changing out an entire main drain for $1,000. Instead of getting a $3,000 check, I was getting a $200 check each month.
Get at least four to six property managers to interview. Interview them as if you were hiring an employee. Ask them questions!
Hire Slow and Fire Fast
Find the right person the right way. Interview the potential property manager and talk to them a number of times, check their references, work with them a little to see if you want to work with them. If it ever comes to the point where they are not making you any money, fire them fast!
Cut ties quickly and move on, especially if you suspect they are stealing from you. It will not get better! Just tell them you are moving on.
What to Look for in a Good Property Manager
A Good Communicator in the Manner You Want Them to Communicate
You want a property manager real estate who is going to call you and talk to you about certain things —especially about large expenses.
The one property manager replaced a whole main drain for $1,000 without telling me! It might have been done, it might not have. I tell all of my property managers to let me know of any expenses above $200, but if it is below $200, just get it done.
Set your criteria and then have your property manager to talk to you! Sometimes you can come up with a cheaper alternative. In one house I replaced half of a roof for half of the cost.
It is your money and you need to have a say.
This could be through email, text, or phone calls. It is up to you.
A 24-Hour Turnaround Time
A property manager needs to be responsive, because this is how I feed my family. If they don’t get back to me within 24 hours, they start to get on my bad side and I start getting on them.
When interviewing, I ask all of my property managers if a 24-hour response time is something they can do, and if they can’t do that, I need to move on.
Communication is huge. I am far away and I need to trust them to get me the most accurate information as quickly as possible.
Someone Who is Trustworthy
If you don’t have someone who is trustworthy, you don’t have a business. I messed up when I hired my first property manager, because I only interviewed one person — now I’ve learned!
I weed out property managers that I don’t like working with or that my personality doesn’t work with. You want someone you can rely on for 10 or more years and that you enjoy working with.
On top of that, can you trust them? Are they giving you accurate information on the quotes and how the property is looking?
Someone Who is Accountable to You
Your property manager is not accountable to the tenant, because you are the customer. If you are not making money, the property manager should not be making money.
If there is a $300 water heater or a $2,000 furnace, they need to go through you first. They are beholden to you, because you can fire them at any time. If you start feeling like you need to bow down to what the property manager is saying, that is not the case.
You need to put your foot down as the landlord and tell them to do it your way or you will find someone else. You are paying them to do a service. If they are not doing it right, you need to move on. They need to adequately answer your questions. I’ve had to do this several times.
In one instance, a tenant wasn’t paying their rent and two months in, I thought an eviction was in the process.
After the third month of non-payment, I asked the property manager when the court date would be held, and I found out they didn’t file the paperwork! I don’t like calling people out, but I do it when it is necessary and I did in this circumstance.
This property was renting for $500 a month, and I lost $1,500 before we even had the eviction process started. I then lost another month and a half, so over $2,000 that I lost because of their screw up. I didn’t fire them for that mistake, but I would if it happened again.
How to Tell if the Property Manager is Not Giving the Quality of Work
Check the Market Comparables
See how the rent you are receiving from your properties is compared to the local rental market.
If the market is $1,000 and your property manager is only able to rent your property for $800, maybe there is something wrong with the quality of work. Maybe they are telling you the property looks great, but it doesn’t.
Maybe the carpets are stained, or their is a broken staircase, or there is chipping paint — they should be telling you! That should be a sign that you need to look at the property manager. If the property manager has the property adequately priced and adequately maintained and clean, it should rent pretty quickly.
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Talk to other investors about their experience with the property manager. I want to know what other landlords or customers are saying.
You look at reviews on Amazon when you buy things, and you need to look at reviews on the property managers. If they have a Yelp page online, always look at landlord reviews, not tenant reviews.
I had a potential property manager who told me he would not give me references, because his landlords didn’t want to be bothered. I told him I was not going to go with him. If a property manager is secretive and won’t give me references, I am going to assume there is something wrong.
They may not have any customers or maybe their landlords don’t like them! I want to work with someone who is open and trustworthy, and I can’t have my property managers hiding anything.
Watch Out for Fees!
A commission is what you are going to be paying the property manager on a month-to-month basis to manage the property. This fee could be anywhere from 8 to 12 percent of rent, or it could be a flat fee every month. It all depends on the area.
In Houston, it is a flat fee, but in Ohio and Arizona, it is more of a percentage.
Property managers compete with one another, because they want your business, so they usually try to match what each other is doing. What I’ve found is if you are doing a higher-income property that rents for $1,500 to $2,000 a month, you can sometimes get companies that charge a flat fee. In Houston, I am charged a $95 flat fee per month, instead of 10 percent.
My property is renting for $2,000, and that would be $200 if they charged 10 percent. In another area, it is 10 percent, and is $80 on my $800 property. That is an average, but I have paid as high as 12 percent because the property manager was really good and that was the going rate for the area.
You want to hire someone and pay them well to do the job for you.
Some fees are a non-starter for me, like a minimum monthly fee if the property is not rented. I will not stand for that! What is the incentive for them to rent out the property if they normally get $60 from a $600 property and they get $50 if it is not rented?
If I like the company or the person, I’ve negotiated that fee out. If you can’t negotiate this fee out, scratch that company or person off your list.
This fee is okay, because the property manager needs to find the tenant, show the property, and pay any marketing costs and materials. This pays for their time. A finder’s fee can be negotiated, and I’ve paid as little as $100 and as high as one month of rent.
I’ve negotiated the finder’s fee to three-quarters of the first month’s rent, because I really liked the property manager.
If the tenant stays for a year and signs another lease, there is also a re-leasing fee you will need to pay. It is less than a finder’s fee, but it is still something you need to watch for. Everything is negotiable!
Upcharges for Maintenance
When you get a list of fees, look out for upcharges for contractors and repairs. This means every time a contractor or handyman is called out the property manager adds an extra 10 percent of the bill for their time.
Negotiate this out — this is why you pay them! You should not be paying the property manager for somebody else’s work.
Marketing fees should be a part of the finder’s fee. This should not be a separate fee.
Property Visit Fees
Another fee is a charge to visit the property. You should not pay for this one, as this is part of their job. Find someone who will work with you on these fees.
PRO TIP: Interpersonal Skills
Work with someone that you get along with. You are going to be working with them for hopefully a few years, if not five or ten years. You don’t need to be buddy-buddy with them, but when you get off the phone with them you shouldn’t feel bad.
How to Weed Out a Bad Property Manager
Imagine you are selling computers and a customer comes to you and and says they want to buy one. If you don’t get back to them for two days, the customer has probably moved on.
You want to put your best foot forward, look the best, and perform the best so customers buy through you. It is the same thing with a property manager.
Property managers need to earn your business. If they seem impatient or distant before they have your business, imagine what they will be like after they have your business. If they are not getting back with you in a timely manner and if they are not answering your questions, move on and find another company to work with.
PRO TIP: Get Rid of Bad
Do not put up with a bad property manager. If you have a property manager who doesn’t communicate well, who isn’t taking care of your tenants well, who you don’t trust, who isn’t providing you accurate receipts, get rid of them as quick as possible!
That day, start interviewing property managers as quickly as possible and hire a new one. You can have your new property manager pick up the lease and keys from the bad one and take over management.
PRO TIP: Business Rules
Tell your property manager it is your business rule that rent is due on the first, it is late after the third and there is a late fee, after the fifth the tenant gets a three-day notice, and after the three days the eviction process begins.
If the tenant has been in the property over a year, I may be more lenient, but if they have been there less than a year and they start being late with, I follow those rules.
There is so much more to talk about when it comes to property managers, like what questions to ask and how to manage them.
Hopefully this gave you a good idea of what to look for when hiring a property manager. Don’t do what I did and hire the first person you talk to. Make a good decision by hiring slow and firing fast.
Get out there and start investing!
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