How to Properly Interview and Hire Your Property Manager | PREI 086
Real estate property management is an essential component of maintaining a property and its value in the market, not to mention attracting good tenants. Owners and landlords who are busy, own several properties or who own out-of-state investments will certainly benefit from hiring a professional property management company. Finding a reliable management company that can efficiently handle the running and maintenance of your property is absolutely essential, not only for peace of mind but also to ensure the maximum market value of the property. A property management company takes care of all the details so you can focus on growing your investments, which is exactly what we want you to do. Having a good property management company on your side goes a long way to ensuring easy, profitable, and stress-free investing. It can bring you hassle-free rentals and maintenance while optimizing your cashflow and your return on investment. It’s important that the manager, the company, and the overall business ethics inspire confidence and trust in you so you’re completely comfortable in assigning the property over to them. I often refer to property managers as asset managers because if you stop and think about it, it’s not just the property that they’re managing, it’s really your assets. My guest and I will talk about some of the things that you should look for when you’re interviewing or hiring your property manager.
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How to Properly Interview and Hire Your Property Manager
It’s my pleasure to introduce Linda Liberatore. Linda is the Founder and President of My Landlord Helper and Secure Pay One, a unique virtual assistant solution for do-it-yourself real estate investors. Linda is a motivational speaker and author of two books, Daily Inspirations to Achieve Your Real Estate Investment Goals and My Landlord Helper, a new book. Linda, welcome to the show.
Thank you, Marco. I’m so pleased to be here.
I’m glad to have you on. I remember first meeting you when you were a host to a panel discussion that I was on back in February. I got talking to you and learning a little bit about your business and your book and then you came out with another book called My Landlord Helper, which is self-titled to the website you have, which I took a look at and it was great. You have me intrigued with what you do. I have come to learn that you are very knowledgeable about property management and how to interview and hire and screen your property manager. I thought that is a great topic for our audience. Before we get into a discussion about property management, tell us a little bit about yourself and how you got into this space and about My Landlord Helper at a high level.
I’ve been working with technology solutions and real estate investors for years. My Landlord Helper, Secure Pay One, we’re the combination, the marriage of the two. I’ve always worked with productivity tools and training and worked for a development team. I’ve always worked for people that were buying real estate investment properties. It’s always been a passion of mine to make those work together. With that, I’m involved with a lot of different real estate investment groups. I go to probably, more than my fair share, between national and locally. I’m in and out of the Chicago area where we probably have ten local groups that are real groups that are people that are investing in real estate with real challenges. We have a pretty unique perspective on the property management piece and how important that is.
I often say that with property management, you live and die by your property manager. I know that sounds a little extreme but they’re such a critical team player on your team that you can’t overlook it and you can’t take it too lightly.
Whenever I hear you say that, there are no truer words.
I’m going to ask you the most obvious of questions here but I want to hear it from you. Why is it so important to screen or interview your property manager?
There’s probably a number of reasons but the first is you’re putting a lot of faith and trust and your whole cashflow, it depends on that part of the wheel working as it planned. When you sit down with a spreadsheet and some type of analysis tool and you decide what the right property is for you, it’s all dependent on all those numbers fitting in there as they should. Now you’re giving the keys over to somebody else to actually drive that vehicle and get it to your destination. That’s a key role in making sure those numbers are coming in. What fluctuates, of course, in any budget is the month-to-month numbers; repairs, etc. You can certainly be proactive but some of that you can’t plan for. When it comes to the collections and stuff, you’ll want to know that everything’s happening as planned and lots of pieces that go along with that.
This question is really just high level, not so much what specifically should we be asking in an interview or discussion. What should we be looking for when we are talking to property managers and we’re going through this screening or this interview process? What is it we want to look for in a property manager?
One of the things that is important is it’s easy for me to list what I would look for but that’s the part people forget. We each have a different level of comfort and expectations. You may have somebody that truly would find it annoying to hear from their property manager once a week. Due to whatever they have going on, they would find that way beyond acceptable. Then I’m sure you can share with me stories of people that would say if they hear from them once a week that’s not enough. In other words, it’s a relationship. It’s totally a relationship built on your expectations and can they fulfill those expectations as you define them. Sometimes just having that first part of the conversation is important, to know there’s a match in your personality. We all go to these conferences we’re talking about, there are people we just click with. We’re not sure why but we just gel with them. Of course you can’t just gel with them, you have to know that their references are going to back up hopefully the good feeling you have on the one that you do think is right for you.
It’s pretty amazing that so many property management companies are different amongst each other. In other words, there’s very few that are the same, unless you’re dealing with a nationwide company that’s more of a franchise or a chain. There are a few of them now but they’re still not completely nationwide. They all operate so independently of each other. I know that one management company that I’m familiar with, they will literally call every single one of their clients every single month. They have two people on staff that do nothing but follow-up and customer service. They’re proactive about it. They reach out to the person, the landlord, their client. That might be aggressive, that might be annoying, like you said. But then I know investors on the flip side that have said, “I never want to hear from my property manager. I just want to get that monthly email with my statement showing me what’s been deposited.” They don’t want a phone call. They don’t want follow-up. They don’t want anything. They just don’t want to hear from anybody. These are two extremes.
I definitely work with a lot of different landlords. I would tell you that sure enough, if we have 50, 75 landlords, we may have 75 different set of expectations. We definitely try to personalize how we respond to it. That’s what they need to look for in a property manager. As you said, that one that’s truly aggressive and doing it once a week, for me that would be ideal because that’s my investment property and I just want to know it’s on track. There are going to be weeks I might be too busy for the call and I’ll ask for a recap or email. That’s great too. The point is that they know that I’m expecting a check-in and that’s what I would feel comfortable with.
Does it make a difference how many units a manager or a management company manages? Does that play in? Are too many units a bad thing? Is too few a bad thing? What do you think?
I don’t think so because I would probably gauge it more by the average number of units. Let’s just use example numbers. Let’s just say I’m building my portfolio and I have five units and everybody in their portfolio has 100 and more. Then I might be concerned because then I might say, “I don’t meet the average size portfolio they’re used to dealing with. I would guess that I’m going to fall to the bottom of the barrel.” That being said, during that interview process, I could get a feel for that. If weekly calls are going to be done, whether I have five or a hundred, I’d certainly still be fine. I’d be more concerned not with their total number of units, I’d be more concerned with the average size of the portfolio that mine fits in to their band wheel, what they’re most comfortable dealing with.
If you have a portfolio of single-family homes, you want to work with management companies that manage predominantly single-family homes, maybe some duplexes.
Again, I would be okay with the fact that they have multi-family. I would be more concerned about their operational systems and how well they’re responding. One of the things we do that is key is when we give out a reference to somebody we’re onboarding, somebody that’s interested in our services. I will specifically look for a name of somebody that I feel has a portfolio that most closely aligns to the person that’s interested in our services. Like the last example, if you came to me with a portfolio of seven to ten units and I give you a number of somebody that has a hundred, that’s great but that doesn’t mean that I necessarily am going to fit in there. I always try to match that up. That would be something I’d tell them. First, I’d be looking for a personality type, communication style as we just spoke of. The third would be that the references I hear from are aligned with the same portfolio that you have.
I heard somewhere, I don’t remember where I heard this, but as a general rule of thumb, you want to have a management company that has one property manager for every hundred units. I don’t know if you’ve ever heard of this or if that’s a rule of thumb in the industry. Is there any truth to that?
I’ve certainly heard the number. I don’t think that that’s a firm number but I certainly have heard the number. One of the added dimensions from my personal standpoint, just my viewpoint, it depends how they break out the tasks. I’ve seen property managers where the person in the office is the same person that is answering your calls, posting, doing what I would consider office work, admin work, maybe answering leasing calls. Is that the same person that’s going to be going out to show the unit? Is it the same person that’s going to be doing the inspections? They almost have a field person and it might fall under maintenance to be doing those inspections. Even though there might be the fieldwork inspection, if they have a strong maintenance man, he can be looking over the property at the same time as he’s speaking to the tenants. Let’s say it’s a proactive quarterly inspection. If he’s the right person, he might be doing a lot of good will through that as well. It’s hard to judge it by just one person for a hundred just depending on how they divide up their tasks.
This is a hypothetical. Let’s just say we’re working with a property manager and we are no longer happy with them. We want to change to a new management company. There’s a tenant in the property. How disruptive is it to the tenant in changing from one manager to another? Is it best to wait until a lease expires or comes up for renewal before changing? Or is it okay to change in the middle of a lease?
First of all, that’s a really, really good question. Certainly one I would put on your list of questions you ask prior to going to a manager. Somebody that is unhappy with you leaving, I would hope that they rise to the professionalism of their position and make sure that happens smoothly for you. No, I don’t think it should be dependent at all upon the lease. It should be dependent on both parties working together. I would think that the person that’s exiting, the property management company that’s exiting, I would set my expectations that I’d want them to send out some form of communication whether it be an email or a hard copy letter, depending on the community. I would expect something where they’re introducing the fact that a new company’s coming in and then the new company should do that.
We do try to follow a general guideline that by this time of the month, let’s say by the nineteenth of the month, no later than the mid month, that type of thing should happen. Even on onboarding a new client, I always say you want to onboard about ten, twelve days out from the first of the month. You almost don’t want it too soon. If they’re supposed to be paying a new company and checks are getting written to a different place, a different address, you always want to give people at least ten to twelve days’ notice because there’s going to be some that might be slow in responding to that. You want that time so that if they want to vet it out, they meaning the tenant, and they want to place a call to be sure. Nowadays everybody’s leery of scam letters, scam emails. It’s probably going to take a little bit of a personal touch either on the tenant’s part or the manager’s part where they’re going to want to be following up the new manager to be sure everybody knows it’s all legit.
I’m just thinking, in your experience, what do you hear are the biggest challenges that landlords end up facing when dealing with their property managers? What are the problems and challenges that come up in working with property managers? I can name one right off the top of my head that is probably the most common thing I hear, which doesn’t happen often but whenever I hear it, it often comes down to slow or poor communication. In your experience, what are those?
That’s ironic because I was just waiting to hear what you were going to say because I would tell you the number one reason we hear is definitely communication, not enough response. I had one most recently brought that up to me, “I was with a full manager. I was paying regular standard rate” which I’ll define that as typically 10%. She said, “I just couldn’t get answers back.” In dealing with the property manager, that’s the first thing you do want to know. When I did vet her little bit, to be sure were her expectations correct, it sounded like they definitely weren’t. We do have to be tolerant. We are in a 24/7 society. I know even with our tenants as opposed to our managers, we tell a tenant that we have a 24/7 phone line for them to use to call in any issues. We talk to the landlords about that. They don’t necessarily have maintenance staff that’s available 24/7. I try to explain that it’s probably more so that not necessarily that they think they’re going to get a response, we’re just in an instant age where somebody wants to call in an issue.
Let’s say we have a nurse coming off a night shift and she happens to look at her cabinet door, etc., something’s wrong. She just wants to download that information to her manager. She’s not expecting that somebody’s going to come on out at a Saturday night and fix her cabinet door. The point is the same should be true of expectations with a landlord to a manager. If they want to get a hold of them for any reason, they should at least expect some email back and say, “Thank you for the email. I’ll certainly get that information to you. I’m going to talk to the team tomorrow and I should have an answer for you tomorrow.” While you may not have received the answer that moment, you receive something acknowledging your request and letting you know a good time frame. If you’re not getting that, if you’re just sending things off whether they be calls or emails, text and they’re just going to a black hole, and I hate to say this unfairly because you don’t know the circumstances, but either you hired the wrong property manager or you need to sit down and reset expectations.
Things come up from time to time. You just have to find out what’s going on. Maybe there is a personal situation going on with the manager you’re dealing with on a regular basis, maybe they were traveling. Things happen. We’re human, life happens. If it’s an ongoing problem, that’s when you really need to call things into question and pose the hard questions and see if this is an ongoing problem that can’t be fixed or will not likely be fixed. That’s when you make a decision to move on.
I would 100% agree. We’re really helping describe what the interview process should include. These are good topics. Sometimes people get caught up with a checklist of what are the fees and what’s this. As you said, it’s the most important, relationship. I’d be evaluating the relationship. This is whether it be someone that’s dating or somebody that’s hiring a property manager. You need to know what those communication expectations are going to be and making sure you’re aligned.
Assuming that you’re going to conduct the interview over the phone, because odds are you’re not going to be meeting face-to-face and it’s just too slow and clunky to do it via email, although email could be a way to conduct the “interview.” I look at these questions that you would want to ask a potential or even a current property manager in about seven categories. I’ve broken them down and maybe we can just skim through them and you can share what are the most important or most common questions in each of these seven areas. Is that okay?
Sure, that sounds perfect.
Ultimately, this is what people are wanting to know or hear. The first is about their experience, whether as an individual or company. What questions would you ask in that interview process, a property manager or a management company, about their experience?
I’d ask them to share some stories of experiences that I might have concern with. Assuming you’re brand new, there might be a different set of questions that you may have after so many years in the industry. There are so many variables: Where’s the property at? What type of tenants are you going to have? Maybe just going through some of those experiences and asking them to share, what are some of your most difficult, most challenging experiences been in placing the tenants? I’d want a couple of stories that I would know might relate most closely to what I was looking for, whether it be on the screening end. The screening one is a big one. They’re going to play the role of your releasing agent, we can’t say enough about this screening process. I’d want to know a little bit about what they do during the screening process.
Like you said before, the types of properties are important and maybe how many properties they’re currently managing. For me, that would play in. If it was a management company, they had 700 properties under management or 700 doors, I wouldn’t want there to just be two leasing agents or two managers in that company. That might be overkill for them. You need to keep the size of the company in terms of the number of units in perspective.
To add to that, Marco, I’d also want to know, do they get seasonal help? We all know no matter how large the company, you’re not going to staff for the highest volume but what do you do during your high volume times? Let’s say these lease expirations are so common during these summer months prior to school starting and people settling in, how do you handle that high volume period? What do you do? You’re pretty confident if they’re a good property manager and they’re going to be in business a long time, they’re not going to hire and then have people doing nothing all winter. What are they doing to alleviate that stress during the high-peak month?
All in all, we want to consider how long they’ve been doing management, the types of properties they’re managing, how many properties they’re managing in terms of the number of doors. For me, that would be relative to the number of managers they actually have. Then you’re talking about time and resources because it may be seasonal where they’re going to be busier in the summer than in the wintertime. Can they scale and ramp up to address that growth in volume?
Do they know how to do a good job? It’s like anything else. Some very large companies have learned how to reallocate resources as needed during peak periods. They were able to scale back on the number of good solid full-time expenses. That’s a key factor in knowing a good company that can deliver their customer service. Again, those relationships, asking those questions that set you up to know how well they handle that.
The next area that is important is related to education. Questions about education, there’s probably not too many questions in this area but first and foremost, I know that certain jurisdictions or states require either a real estate broker’s license or they have a specific property management license. I assume that’s the first question you said you should ask about education, right?
I think so, but I actually would go beyond that. This is for me personally. I am very, very involved locally with real estate investment associations, as well as nationally. I know you are as well. What it does is speak to, I’ll call it your personal commitment, to staying relevant in this industry. This goes for every field, I don’t want to single out property management, but unfortunately you can have somebody with 25 years experience but they may not stay relevant at all. Staying relevant includes a lot of different education. In other words, I’ve heard firsthand from sheriffs on eviction. I’ve spoken to specific departments that go out there to meet with and what the changing trends have been and in the Chicago area, how they alleviated some of the wait time and just what they did. Those are relationships that I developed. Not only was I able to educate myself more on the process, on the pros and cons, but those are also phone numbers of people now that I can contact if something wasn’t going correctly. You sometimes unfortunately get somebody that’s just been a property manager for X amount of years but they’re operating almost in a silo. Yes, they’re continuing ed and they’re licensed as a real estate agent but that’s book knowledge compared to real street knowledge of what’s going on, what’s happening in 2017, where our trend is moving toward. You really have to stay relevant in those areas.
What about certifications? How important is it to have certifications? There are many trade organizations in the property management space.
The larger associations definitely offer certifications. They’re definitely relevant but we see those more used at the higher level, more of the national property management companies that do those certifications. At a smaller level if you’re talking about portfolios more with a hundred or less, you probably won’t hear as much as a certification but you should hear them being involved with their local associations.
Having these certifications often is what you’re saying are not critically important. You don’t have to be an NAA member or NARPM member or something like that.
They’re definitely important and they’re definitely valuable. What I’m saying is people that are handling portfolio sizes a hundred or smaller may not hear this much. It really depends on your listeners and what types of portfolios they have. In many of the multi-family class A properties, that’s where you’re going to hear of those the most. I happen to be a member of NAA and CAA under the Chicago area but that’s really more aimed towards the multi-family. One of the reasons I keep that is they do a great job of lobbying and keeping their members abreast of what’s going on with the lobby, both at the state and federal level. It’s not always 100% relevant to my single-family owners and not necessarily my smaller multi-family. But it’s just good acknowledge and it allows me to consult with them better on trends I see but it’s not necessarily directly relevant to their portfolio.
Let’s talk about some questions about their knowledge of landlord tenant laws, because this is obviously something that’s pretty important but most landlords don’t wrap their heads around it because it’s not something they necessarily need to know or really want to know. What, if anything, should a landlord ask the property manager or prospective property manager if they are interviewing them about this category or this area of landlord tenant laws?
Like you say, it might be something they don’t want to wrap their arms around, yet it is important. As you and I both know and I know you’re very astute with that as you select different areas to invest in, that’s one of the first things they should think about for certain. When you’re looking at a property manager in a specific area, they should be able to quite frankly provide you the paperwork because all that is generally downloadable from the municipality’s website when there’s very specific ones, especially in the areas that are a little bit more difficult and a little bit more tenant-friendly. Sometimes they say the property manager, it can also be if they’re working with an attorney, those are things just to be aware of because it really does make a difference. You really do need to know that your property manager is on top of the specifics to a county, etc. I drill it down to a county. Sometimes we even see maybe what seems irrelevant to some people but even at the municipality level, small things like annual inspections and fees that people aren’t aware of. That could be in the same county but a specific city has a little bit of a difference. It is important that they at least discuss that with them and realize it could have repercussions for them.
Is it fair to assume that they understand city, state, and federal laws when it comes to property management and how to deal with tenants? Is that a fair assessment?
When you say they, you mean the property managers?
Yeah. If it was me, I would assume that they know and you don’t really have to quiz or question them on whether they’re familiar with Federal Fair Housing laws and federal laws, state laws, city laws related to management. Am I oversimplifying this?
I definitely would agree that they should be aware of that. The way you’re referencing it or the way most people think of it is more on the screening end. Obviously, we know the laws, but when it comes to the actual eviction and/or the lease ending, people aren’t aware of. Let’s say in specific cities, it has to be [11:59]. In other cities they do allow you to put the lease to an end at 6 PM. You’d say, “What’s the difference?” In the really hot communities, if you can have someone leave at [6:00] and have cleaning teams go through there, let’s say, a student housing or trending housing for millennials, the new people are going to be in there. They’re actually used to the drill that they’re putting their furniture with a truck overnight until they can get into their new place. We have people that get in those types of communities. They get it down to a zero day turnaround and re-renting that place. Is that relevant what time that lease can expire? Yup, it’s certainly relevant in those cases.
Just real brief, how do you feel about having pets and a pet policy? What should the property management company have in place for a pet policy if you’re going to allow pets in your property?
So much of it is dependent on your community. I’m seeing more and more people be pet-friendly. As a society, we’re more pet-friendly. I’ve always had a pet but I was not a renter. At one time I would say that I certainly saw more landlords object to it. Flooring, people are making different flooring changes to accommodate that. They’re decorating units differently. Certainly, we, as a society, are much more pet-friendly. I definitely see it trending that way. I would say with it should come strong pet policy, whether it be neighbors or others. Where I see a lot of people handling that is rules and regulations. They have in their lease subject to the rules and regulations in the handbook and then they cover a lot of nitpicky things that are really relevant. They’re able to cover them more thoroughly in a separate policy guide.
The next set of questions or the next area that’s very important to me is the whole thing about filling the vacancies and retaining tenants because at the end of the day, you want to keep your property occupied for as long as possible and have as few turnovers as possible. If you or I or anyone else was interviewing a property management company, what would you want to know or what would you want to ask them related to filling vacancies and retaining tenants?
I would ask first and foremost about the retention policy because even if you were to get a brand new three-unit property, more than likely there’s going to be people in that property. If it’s a single-family home, if you just finished the rehab, you’ll be bringing them in. Let’s just start with retention from that perspective. They should have a good strong policy, strong operations manual of how they’re handling the retention. What’s probably most important is we can go through all types of incentives people give on their renewals, how to handle it more like a renewal so that we are definitely seeing people stay in the same place. When you really walk through it from both perspectives, the tenant doesn’t want to leave any more than you want them to leave. It’s inconvenient for everybody to go through that move process annually. I find the people that are more successful with it are on top of it early, the earlier the better. That being said, that’s all relative. You can’t really ask them at the sixth month point.
Doing your inspection certainly at the sixth month and nine month point, if it is an annual lease, to make sure that you proactively know what the place looks like so that you can be zero-day ready. Getting out whatever letters, whatever incentives you could to have the resident stay. When I say that, that’s relative to not giving away things but making sure that you’re keeping the rent at a rate that’s affordable for them to choose and select to stay. We know rents are going up. I don’t say that you shouldn’t increase it but by all means you should make it a reasonable rate so that they’re aware of what the current rates are, but they know that you’re giving them an incentive to stay. Expediting that process, not falling asleep, I see a lot of property managers fall asleep during that process. You have to get those signatures early. As soon as you get agreement, get them locked into a new lease, get all of that ready. From the new resident perspective; screen, screen, screen should be to property managers what location, location, location is to a real estate agent. You can’t do enough to make sure that you’re picking the right person.
Some people will advise that you ask a property manager how long it takes them to fill a vacancy. I’m not so sure that’s a really relevant question because a lot of that has to do with the location, the neighborhood that you’re in. Second, if you’re changing the target rent that the property management company wants to ask, then you can speed that up or you can delay it by increasing or decreasing that. I don’t think it’s a fair question to ask how long does it take to fill a vacancy.
Marco, that goes back to that checklist. I don’t think hiring a property manager can be just done by that checklist. If you’re just going to sit and put that spreadsheet together and say, “This guy said 31 days. Over here he said he could do it in fifteen.” You better know something about that person. As you said, too many factors involved to say that.
Plus they could tell you anything they want because at the end of the day they might be trying to “buy” your business. That’s just not the way it works. What about the flipside of that? Is there any value in asking how many tenants they’ve evicted over the past year? Does that go to show how strict or on the ball a manager is? Or is that really just showing a manager that had just a lot of bad tenants because they didn’t know how to screen the tenant’s property in the first place?
That’s a tough one to answer because eviction is also a really gray area. If they’ve had a lot of evictions, I’d want to know a little bit about those stories because generally that is the last step. I use the term smaller landlords. The ones who are a hundred or below, they’re growing a portfolio, they’re single-family homes. That’s generally the last resort. A property manager could tell you, “I’ve never had an eviction,” that doesn’t mean they haven’t removed a lot of bad tenants. They’ve just never gone to court with it. In some of our areas, going to court on an eviction, that can run thousands of dollars and I mean close to $10,000 depending on which types of cities. A landlord generally, while there may be a bad tenant that was placed in it, will find every way to get them out, and a property manager together, to get them out before they’re going to spend that money on the eviction. They could show zero evictions but they could still have had plenty of problems. To me, it’s all about going in on the right foot, screening the right person. Does that mean it never gets done? No. There are certainly obviously life changes.
Even with life changes, one of the things we discuss is there are plenty of charitable organizations out there. I have had people with really what I would consider good stable jobs have life events that have caused them reason to get behind on the rent. We refer them to charitable organizations. We always give that list out at the time they move in. We always suggest as best business practice so that way it’s a topic that’s already been discussed. If they have the proper legal notices from you, organizations will give them temporary relief of rent. We’re not talking about applying for some type of housing. It’s a fairly quick process. But we always make it known from the beginning this is definitely a tenant issue not a landlord issue. If they have to go through the legal process, that’s the route it’s going.
Let’s talk about services provided and fees charged, because this is what a lot of people think of when they think about property management. What fees do you charge? How much do you charge a month? Do you mark things up, etc.? What should someone be looking at, looking for or asking about when it comes to services and fees?
When you’re talking about the actual fees, you mentioned probably the majority of them. One of the things I would be looking for is what’s your rate. As we know, depending on what type of property your listeners are invested in, it could run as low as 5%, depending on if it’s a large multi-family, to as high as probably 12%. It’s probably mostly the norm at 10%. As we talked about, there’s generally a separate leasing fee for placing the tenant generally not included with their monthly management fee. That, as a rule, appears to run at a one month’s rent. That’s pretty much nationwide as a standard. You could probably get somebody to discount it depending on the number of units you give them, stuff like that. I’d be looking probably more if you could get them to put you into longer term leases as opposed to trying to cut them on that fee. I would probably look for longer term leases. It’s common to try to ask now for two years or three years. With a savvy leasing agent, they would realize that that could be certainly delivered in a very professional way because it’s to the tenant’s advantage as well. You talked about that certainly you see the upcharge vary on maintenance. Sometimes they upcharge depending on what type of maintenance it is. Where I’d be looking for when it comes to the fees is getting a better idea of that relationship. When you start to get into a transactional type of relationship, it’s all about the fee. If it’s just all about the fee then to me it removes that personal relationship from the management. I’d want to feel like I’m with a company that has a sense that I’m an investor that’s out there and up and growing and I’m not looking to be just a transaction.
I would draw the analogy of choosing a bank. We all know that banks have fees and we all have come to accept that each bank has specific fees. But we also understand that when we get into a relationship style banking, we’re not just going to get set with a fee for every single thing, that they understand the value of our relationship. I’d be more into that. They should be able to provide that to you as part of the agreement you signed. It wouldn’t hurt to ask. Let’s just use an example. They may have an eviction fee for instance. You’re going to be paying attorney’s cost. If you think of it, I’ll call it reasonably like a business person, there’s going to be a lot of effort that’s going to be placed on the property management company as well when it comes to resources to go through and be going back and forth. There’s going to be a lot of extra time involved with the eviction. It’s not unreasonable for them to ask for some kind of compensation for that time. While you may be frustrated, if everybody agreed going in on the tenant and something did go wrong, there can be an expectation of fees when it comes to that. When it comes to return check fees, things like that that are specific to tenant behavior, those should be passed on to the tenant and they should be kept and collected by the management company.
When it comes to actual late fees, I’ve seen that as a source of controversy. We’ve never made a practice of keeping those fees but I know there are management companies that do keep them. They feel that they’ve earned those. You do put extra effort into collecting those late fees when you have a real problem. It’s important that it’s collected and then you can work with your manager on opening that discussion. Any time there’s extra duties, you may find that they come to you with discussing fees.
The bottom line is, read the management agreement. Get a copy of it and comb through it. From my perspective, there are three main categories of fees. There’s the regular monthly management fees, there are the lease-up fees, and then there may be maintenance fees that are related to repairs and maintenance. They may be marking it up because they have to outsource the bids, manage the contractors, maybe they have their own in-house team. That could be 5% to 10%. Your lease-up fee could be up to one month’s rent. I’ve seen some companies do half a month rent on the lease-up. Management fees on a monthly basis, I typically see between 8% to 10%. That’s typically what I see. I’ve never seen anything as low as 5% or 6% and it’s pretty rare to see anything as high as 12%, at least from my experience.
5% though is really common in your larger multi-families, 10 or 20 units and above. That is definitely a different beast as the normal single-family investor would be dealing with. Some of the twelves, in some of the areas, they are definitely starting to ask for a little bit more. I would agree with you, 10% is definitely the norm.
Anything else you want to add about fees and services? Should there be a minimum expectation as far as what they’re delivering on their monthly service for the fee?
Honestly, that’s pretty standard. Take a look at their agreement just to be sure. It’s like bidding out a contract for a rehab of a job. You should find that they all fall in line with pretty much all the same services that we’ve discussed. If you find somebody that has an abnormality to that agreement, I would question it and see why. If they have a good reason, I’d probably be open to hearing it.
One thing that should be mentioned is rent collected. The fee should be based on the rent collected not on the rent due, because I know that some property management companies have tried to pass this along where they expect to be paid whether the rent is collected or not. It really should be based on rent collected. What do you think?
Let’s put it this way. If you’re talking about bacon units, I would be 100% in agreement with you. If you’re talking about people that are difficult paying, I’d probably say if they’re a good company, they’re doubling down and probably giving you twice the effort as normal. I don’t know that I could make an argument for the fact that they shouldn’t be paid. You may come to some agreement on that.
I never thought of it that way. That’s a good point. I guess read the agreement and see what is being charged and what you’re getting in return for it. Moving along here, questions about how money is handled and where the funds are held. The first question that I think about here and what I would want to ask is, how do you collect rent? Not you specifically but a property management company. Because some are very much in the times and they use direct deposit, they set them up on autopay, others will still accept money orders or certified check. That could be a function of the demographic of the tenant that you’re working with. What should investors learn about property management companies when it comes to funds and handling money?
It’s an area that I’m probably acutely in tuned to. You just described that perfectly. First off, they definitely need to be up on the times and have the availability for ACH and direct deposit and Chase Quick Pay and all the various options for certainly most demographics. I would include most demographics that want that convenience. They want the ability to pay electronically and they don’t want to write a check. That being said, there are communities that you described that I refer to as a non-banking demographic that have gone to currency exchanges for years, have always purchased the money order and they’re not opening a bank account anytime soon. It’s very important that the property manager handle that as need be. In other words, you cannot force that situation if you’re in those types of demographics. You need to have a process that accommodates that. If that’s old fashioned paper and that’s what it takes to get that collected, a stamped envelope and a return envelope, then it’s important, that’s what’s going to keep their collection rates. There’s no sense in playing an arrogance game, “We don’t do that.” Your collections will suffer for that. There are still communities that need that and you have to provide that. Of course vice versa, if they’re doing it paper-based and they were to wave a wand, “I don’t need the ACH. I don’t need the direct deposit,” I would say the same for that.
Let’s just say the average millennial, I make a joke of it and it’s not really funny but it’s true, they don’t know a check register the way you and I do. To actually reconcile a checkbook to what was written in a checkbook versus what was taken out of the bank, they would truly just log in and say, “This is my balance.” They don’t know how to reconcile the fact that something still might have not appeared and cleared your bank because they’re not writing a paper check so they don’t have anything that didn’t clear. They don’t even necessarily understand that terminology. You need to be in tune with the fact that there are certainly many different styles happening right now. I used to have those stats on the Federal Reserve, just a number of checks that they processed at one time compared to what’s down well-over 50% within a ten-year period, of how many written paper checks come through the Federal Reserve now. Certainly paper checks are not part of the equation to the extent they were. They still are but not like they once were. Even your seniors and your direct deposits, all the social security checks, all that’s going direct deposit, they’re no longer doing checks. That’s a reasonable expectation that the property manager needs to be able to offer you all those services.
Does it matter where they keep the tenant security deposit? This may be affected by state laws. Is that worth asking to find out if it’s held in trust or if it’s in a group account? Does it matter?
Yes, it definitely does matter. As you just said, it’s probably more specific to state and city, municipality laws. Of course, they should be able to explain to you why it’s going to be held in a certain type of account. In the city of Chicago there’s a requirement that that account number is listed right on the lease. It is considered a tenant disclosure that they have to be told where that money is being held, what account number and they have to be given a disclosure annually with how much interest is being credited to their account even though it’s 0.001. The actual disclosure has to be given out each year in addition to the credit of that interest. It’s definitely important that they’re aware of what the laws are.
What about payments as far as the landlord? I know this does differ from property management company to management company and even state to state, because there are different laws as far as when or how long a management company can hold on to collected funds. What’s the expectation here as far as when I should receive my collected rents?
I don’t want to set everybody’s expectations. I’ve certainly heard of a couple difficult cases. Again, let’s just speak to the audience of the investor that’s just getting started, just out there or maybe has their first five properties. They more than likely have taken on five more just to go with them and they’re just starting to get their cashflow moving in the right direction. Setting their expectations of having some extra reserves so they’re not waiting for those payments that desperately, but the reality is some of the new investors are out there risking it. They don’t have a pool of money to protect themselves when they first get started. Knowing what that is, is important.
From the Federal Reserve perspective, third business day is a reasonable time period after the rent has been deposited with the property manager that they should distribute it. I hear more and more stories of property managers that have specific dates. That makes some sense from a business perspective. Maybe they’ll give all funds out on the tenth of the month. It will speak more to when you’re interviewing them, the clientele that they’re used to dealing with. If they’re used to dealing with larger investors and the tenth is just fine for that distribution date and they may have three distribution dates in the month, you just then, depending on where you’re at, have to know if that’s a level of comfort that you can work with. Knowing what those expectations are is definitely important and reviewing that so you can align yourself as the investor with what your expectations should be.
You just need to ask. I know there are management companies out there that will collect rent on this month but they won’t make those funds available until the end of the month, the beginning of the month or sometime around the tenth of the following month. I won’t say they’re sitting on those funds, but they have up to a 30-day lag time or period of time before they release those funds to the landlord. Why? I’m not exactly sure, because they do have a reserve of $250 or $500 at any point in time as a float in case there are minor maintenance and repair issues that come up. Again, ask, read the contract and see what you’re comfortable with. I don’t think that is negotiable but it could be.
It could be depending on the average size of the portfolio of the clients they’re dealing with. Sometimes they’ll make an exception.
The more properties you have with that management company, probably the better you’re able to negotiate both on rates and terms. Lastly, questions about property maintenance. What should we be asking as landlords about how they handle anything related to maintenance? What should we be looking for?
I would just be looking for the fact that they’re responsive to their phone call. I would be looking for them to be documenting the sequence of events so that nothing slips through the cracks. Everyone can make a mistake. But if the process is well-documented, images of what went wrong when it gets called in, images of once it’s rectified, all that should be part of the file. That helps the property manager and yourself have a good understanding of that property. At your end, to be able to do an analysis of maybe something that they really had referred you to, I’m going to use an example of a new roof, but that was just not something that you could do at this time. You know it’s something that needs to be done. If you can analyze at the end of the year through the documentation that, “We’re fixing this and we’re fixing that and we’re fixing this, maybe we’d better just go ahead and get this roof fixed.”
If everything is well-documented on that process, it helps you make good decisions too as the investor as to when it is the time to make certain things, to change certain things, or upgrade them, etc. I’d want a well-documented process. I’d want them to be responsive to the needs and again responsive within your budget limitations. I’d want them to refer to the lease when there are requests outside the boundaries especially with single-family. Many of the single-family agreements might not include repairs for all items. It’s important that the property manager realizes just what type of agreement that you’re looking to have and what type of expectations you have on what you’ll cover and what you consider beyond normal wear and tear.
I find that many management companies will have $500 on reserve. If there are maintenance requests or repairs that come up, you pre-authorize them through the management agreement to go out and deal with the issue if it’s under $500 or sometimes maybe under $250. If it’s over that, they will contact you for authorization to spend more. Is that standard practice? Or is there a standard practice out there when it comes to maintenance issues?
That is standard practice. That’s certainly common to hear that they’re authorized to spend. Maybe I should have led it by saying that I’m okay with that, that’s acceptable. But I still think that the threshold has to be, first of all, a threshold you’re comfortable with, like you just said, $250, $350. It depends on that investor, very much dependent on how they feel. Just as importantly, I still want that process documented because it could signal a couple of things. It could signal poor quality of the maintenance person if the same thing is getting addressed all the time, or it symbolizes somebody that’s beyond normal wear and tear. We often laugh because there are certain things that as a homeowner I probably never experience and yet from a tenant perspective it’s this common call all the time. What’s the difference? It is the difference in how we’re caring for that particular household feature. I recently saw one with cabinet doors that were misaligned. The tenant just didn’t understand, “What was the problem?” That’s not normal wear and tear that cabinet doors are coming off. Maybe there are small children in the house that aren’t being told that, “If you can’t get into the drawer, you don’t just yank it until it opens.” It’s important to document. While the funds might be there to fix that drawer, is somebody addressing the cause of why would it be that this drawer keeps doing this?
What about performing preventive maintenance or property inspections? I know some companies will go once every X number of months, it could be twice a year, to do a scheduled or even a surprise visit when it comes to preventative inspection. What do you think of that? Should there be a regular inspection?
I think that’s really good, I really do. Quarterly, if not, semi-annual is probably acceptable. It’s a good habit. I don’t know if surprises, with all the disclosures required in today’s world, are probably as common as maybe they once were. Between all the different various notices that’s going into a unit, etc., you probably can’t do it quite the surprise. If you have somebody that’s really not taking care of things, they probably are not aware of the proper way to take care of it. Surprise or not surprised, they don’t think it’s a problem. It becomes a good education piece for the maintenance man. I think those are key.
One of the things I’m really, really fond of is taking advantage of these YouTube channels to setup preventative maintenance, just very short one-minute, two-minute videos. I really think it’s a great proactive manager that requires that kiosk style move in that you have to sit at this computer. Again, keep them short. I wouldn’t want any 30-minute lecture. You just want a couple of videos on how to turn off the water to the toilet if there were to be an emergency, a couple things like that, how to change an air filter. Single-family homes, they should know how to change it, they should know what your expectations are. The inspections are good. They give you the opportunity. Those pre-videos give you the opportunity to say, “You remember when we showed you that this filter had to be changed every month? It doesn’t appear it’s changed.”
I want your opinion on something. I hear arguments for and against this. To me, I’m completely indifferent because at the end of the day it doesn’t matter whether contractors are outsourced, in other words the handy man, or if they are part of the in-house team with the property management company. How do you feel about the handyman and the maintenance crew, whether they’re employees of the property management company or they’re contractors that are brought in and outsourced? Any opinion?
Again, it’s painting with a broad brush. There’s bad and good of both. For me, the most important thing if I was hiring for an internal team or external, and this is one of the most common problems, is they need to keep in mind that it’s the property manager/real estate investor/owner/landlord, whatever you want to refer to them that’s paying their salary. When they go out to the job, they need to remain professional and not be explaining things to the tenant of what they’re doing that can most definitely come back misquoted. “This guy said that I should have had a new air condition.” Let’s just say in the perfect world, the service man might feel that it’s beyond its use. In a perfect world, they’d love to see them replace the air condition. But I have an investor that doesn’t have the funds to replace the air condition at this time. I don’t expect to get a call from my tenant telling me that the maintenance man just told him that it’s supposed to be replaced. They set up a really negative situation when that comes up. I will have a long talk with that maintenance person, that that’s not the person that you give your assessment to. That’s not the person that’s paying your bill. You need to remain most professional there and that involves not a lot of talking. I’m here to do my job, and then write up a good assessment of what you think.
It’s really up to the property manager to set the proper expectations with the contractor before he goes out there and ends up talking to the tenant.
We’ve had outside professional companies come in. In fact one in particular that I can think of was a couple of years ago, was an HVAC man and did just that, just shared too much information. Again, just information that was misinterpreted to mean, “I should have a new one.” You can’t quite answer, we’re in a the professional situation, I’m to going to say anything to the tenant. We could all wish the things were new and easier but sometimes the investor owner has to make the best decision for the cashflow in that property and for where they’re at in the lifecycle.
How long should it take a property manager to respond to a tenant complaint or a repair request that’s not an emergency? Short answer is what’s reasonable, but what is reasonable?
When you say a non-emergency, the best thing to do is to set the expectations of the tenant. Let’s just say there was an exceptional rain and it came down and there’s flooding involved. Your maintenance man will be stretched in to be checking different properties and doing different things. As long as you set reasonable expectations, you share with them, “We’ve just had what’s considered 100-year rain,” whatever it is sometimes, “There will be a delay. You’re not going to get that immediate response.” As long as you set expectations, you keep in contact with the tenants. I’m not really sure I can put a number to that because there would be so many factors there on just what it is that needs to be done.
I’m going to throw one last question out at you because all of these seven categories that we’re talking about here, everything can be turned into a question. This is all good discussion. A lot of it comes down to just common sense and having a good chemistry and feeling about the manager or the management company. I’m going to throw one more question out at you regarding property maintenance. If the property manager calls you up and says something’s broke, needs to be fixed and maybe they have an in-house guy, maybe they don’t. But they come back to you with a price estimate or even a quote. Should you, as a landlord, shop it around and have the property manager get one or two more quotes or maybe you go outside of that relationship with the property manager and have one or two other independent people come in and provide you a quote as well just to make sure that whatever price the property manager is giving you is competitive or better than what is out there for market rate?
That to me is more based on that relationship. I would not think that you should need to go outside if you have a good relationship. Whatever that project is, you feel like you’d like to, it’s a discussion you need to have with them. I think you could cause some harm to the relationship. If you were just offering to assist them and say, “I have a couple of others,” I would get a sense of there’s almost a breakdown of the relationship happening that you’d want to go outside. Otherwise to me, I would go right to them and say, “I’d like to get a couple more bids. I might be able to beat that bid and I don’t want to move forward with that.” You should be able to have that conversation. I’m not sure how every property manager would take that.
I agree with you. You should keep it within the relationship and just have them give you one or two other bids or quotes. If you’re doing work on your house and you’re going to get new flooring put in, as an example, you would probably want to get quotes from two or three, maybe four different installation companies or contractors and then go with the ones that you like the best and feel are most competent and provide you competitive pricing. It doesn’t matter if it’s my rental property, I would want to do the same thing.
I agree. The fact that you have some competitive bids is probably just a good practice anyway, especially when you’re getting into outside of what’s the $250 or under, that $350 or under threshold. You’re starting to talk about different projects, by all means a competitive bid they should be offering you to start with.
Linda, tell us about your new book and tell our listeners how they can find you and get more information about the services you provide and what you do.
My new book is My Landlord Helper. The first book you talked about was the Daily Inspirations. I thank you for that. Managing rental property is not easy when you decide to get into it if you are going to self-manage your property. The My Landlord Helper is just on the same theme, but this one is just more the actual operations and different thoughts about ACH, different methods in operations, especially for the small landlords who are getting started. Like any entrepreneurial endeavor, we are just in an age with so many different software available to us, web-based applications that make it so easy to really professionalize your real estate investments from day one and treat it like a business. That’s what that book focuses on in today’s discussion. Just making sure you’re putting everything in place as a business so that there are documentations, whether it be payments, security deposits, leasing, all the different things you talked about. You did such a great job of making sure you cover all that.
That’s what the book does. It’s just giving them an idea of looking at it. It’s called My Landlord Helper and that’s what we do. We’re in a little bit different of a role. We assist people that do want to manage their own properties. It’s probably more like them having a virtual assistant but not the type they think of where they offshore a project to them. We really are like them wanting to hire staff for the office but not feeling like they really have a need for having somebody in their office full-time. We turn out to be their partner to help them successfully grow their portfolio.
Maybe what we can do is have you come on again in a future episode to talk about the pros and cons of self-managing your property and the tools you would use to use it and how you would go about doing that. How’s that sound?
Absolutely, that sounds great. I’m sure that either way, I know that they’re in good hands. If they’re listening to you, they’re getting lots of great ideas. Really Marco, you provide a lot of value. I’m sure your audience thanks you, but I’ll make it official.
Thank you, Linda. I appreciate it.
Thank you. Have a great day.
Thank you for your time. We’ll talk soon. Thanks, Linda.
Thank you. Bye.
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