Questions must be asked to a property management company before you hire one. Building your real estate career takes more than just smart investments. If you plan to own one or more rental properties, locating and hiring the best property manager is essential. There are a lot of things that can go wrong when renting out your houses for passive income. Knowing which questions to ask a property management company will help prevent costly mistakes.
Top Property Management Questions
1. Who is the actual owner and how long has the business been around?
It is very common for property management companies to own more than one branch in several states. The real owner of the company might not be in touch with the branch owners all the time. The management policies of the company might differ from place to place.
Knowing how long the company has been in business will help you judge their experience. It takes a lot of experience to correctly manage a group of residences in your investing area. A company that understands how to fix issues quickly, and correctly, without costing you a lot of money is a great company to hire.
2. How much are the management fees for each property?
A lot of new investors find out the their CAP rate prediction was incorrect once they realize how much property management can cost. The management fee, sometimes called a ‘lease fee’ is typically per property, and it is based on the actual monthly rent collected.
For example, if you currently rent a house for $1,000 per month, and the management fee is 15%, this money comes off the top. So, $150 per property would be the minimum fee paid to the property management company.
Not all companies have just one service like rent collection. In many cases, a separate fee will be charged for accounting, marketing, maintenance, tenant screening and repairs. Knowing which fees are charged, and how much they are will give you a better understanding of the real cost per property that is serviced.
3. What is your exact vacancy rate?
There is a difference between average rates and exact rates. A company can have an average rate of 5% or less for the fiscal year, but have a 15% vacancy rate in any quarter of the year. Your rental homes must be filled in order to earn a profit. A company that has a high vacancy rate might be a sign that poor management is affecting renters.
It is a good sign if a company has less than 5% vacancy from month to month. This shows that the marketing of available properties is actually working, and tenant screenings are helping to find the most qualified renters. This helps to reduce turnover and increase profits.
4. How many renters do you evict each year?
The answer to this question may surprise you. If a company evicts hundreds of people, it means that someone is not paying attention to renter qualifications prior to signing a lease agreement. The answer will also tell you how much an eviction might cost you in terms of cash needed remove them, court fees and any repairs that must be completed before the residence is rent-ready again.
5. How fast do you respond to issues and tenant requests?
Broken water pipes, holes in walls, domestic issues and other things can and do happen frequently. How fast a property manager responds to issues is important. Not only do repairs and things need to be handled swiftly to keep the home up to housing law standards, but tenants have special rights in all 50 states too.
A good response time is 24 hours or less.
6. Do you manage commercial or residential properties?
Some companies excel in the residential area and others do better with commercial units. Hiring a company that can effectively and professionally manage the type of property that you own is important. A highly-trained manager will be able to spot opportunities, fix issues and market vacancies in your exact investment type.
7. Who pays for property insurance and E/O insurance?
There are companies that offer their own insurance and others that may require you to pay a small percentage of the insurance. All companies are required to have a specific liability insurance policy according to state housing laws. The E/O (errors and omissions) insurance can protect you from problems that are not included in a regular policy.
It is quite common to have at least one-million dollars in coverage.
Advertising mistakes, discrimination against renters, fire damage and other issues can happen. Therefore, it’s best to be protected against as many issues as possible through your property management team. Some savvy investors also carry their own policies for extra protection.
8. When is the rent collected and distributed to the owners?
Collecting the money is essential, but also paying it out is essential. Not every company pays on time to owners. It is generally accepted for renters to pay the rent price on the first of the month. Managers typically pay out once all the checks and cash have been collected and cleared the bank. The 10th of the month, 15th and 21st are common distribution days for owner profits.
9. Do you call me first if repair costs are more than I expect?
The idea is to earn as much as you can from renting out your property. Repairs can easily eat up the profits quickly. Not every company is worried about your bottom line. A discussion should take place, prior to completing any repair, over a specific dollar amount. Requesting certain verbiage in the management contract is a good idea to ensure that repairs do not end up costing too much money.
Some managers have agreements with local contractors, and they pay less for remedial repairs, but pass on the full cost to you. Ask in advance if there is such an agreement, and do your best to negotiate a lower repair cost if you can.
10. Can I review your contract in advance?
It always helps to review a current contract prior to signing one. There are a lot of terms and conditions located in most service contracts. Always get a qualified real estate attorney to review the agreement. He or she will make recommendations, and help keep you legal, and free of potential problems with the management of your single-family, duplex or commercial units.
The cost of a qualified attorney for contract review is minimal compared to not being able to get out of a bad contract.
As a newbie investor or experienced one, learning these important questions to ask a property management company will save you a lot of time and hassle.