You don’t need to own a huge portfolio of investment properties to realize that trying to manage them on your own is difficult and time consuming. A professional property manager can help ensure that your tenants are properly cared for and still allow you to build profitable predictable income. Many real-estate investors chose to handle landlord responsibilities themselves to maximize profits and you will ultimately have to decide what makes the most sense for you and how much time and energy you want to commit. Make no mistake about it – if you buy an income property for the right price and market it appropriately, you can hire a property manager and still generate positive cash flow from your property. Property management fees will vary pretty considerably depending on the market, property type and management company but a general guideline is expect to pay 6-12% of the monthly rent and up to the equivalent of 1 months rent every time you turn the over tenants and the property has to be re-rented.
So how do you know who to trust with your property? Before you ask the nice agent at the coffee shop, here are 10 tips to help you identify and hire the right professional property manager.
- Hire A Licensed Property Manager
Not every real estate agent is qualified to manage rental property. A licensed property manager has taken approved classes and often passed a state licensing exam. Often you will see property management offered through a real estate company or real estate agent, but there is also a growing number of companies who solely focus on property management like Renters Warehouse.
- Visit Some of Their Current Properties
Ask to do a couple site visits. Check for signs of neglect and evidence that maintenance is not being done on a regular basis. Ask yourself if you’d be proud to own the properties. Its also a good idea to view the proprieties for rent on a companies website to make sure your property would fit well into the companies overall portfolio. Some companies will specialize in only certain types of properties and you want to make sure you are reaching your intended target audience most effectively.
- Are the Fees Reasonable?
Compare the cost of the property manager with others in the area. While you should be willing to pay for quality, there is no reason to overpay. You really want to make sure that you are getting good value for the services being provided and if the services are comparable, then you want to make sure you fees are as low as possible to maximize cash flow and profit.
- How Often Will They Inspect the Properties?
Will the property manager perform regular inspections? A good property manager should be familiar with the property and inspect inside and out at least once a year and with every tenant change. Inspection frequency is even more important if you have a out-of-state rental or any property that its not easy for you to see on a regular basis. Its great if you can get long term tenants, but you want to make sure that your property manager isn’t only checking on the property when you have tenant turnover.
- What is Their Availability?
Will the property manager be available to you or your tenants if needed? What are their working hours and what is the plan for after-hour emergencies? Remember that the water heater never leaks from 8-5 and the property manager needs to provide for these unexpected issues.
- What are Their Eviction Policies and Procedures?
Question the potential property manager about how they handle evictions. Make sure you ask what their eviction rate is as well. A high eviction rate could reflect either a poor screening process or a combative attitude with tenants.
- How are Repair and Maintenance Issues Handled?
Find out how they handle routine repair and maintenance costs. Will they hold a portion of the rent in reserves for these costs or bill you for the actual amount each month. In some cases you can agree to allow the property manager to handle any unexpected expense up to a certain threshold and then contact you for any expense above the threshold. Make sure you understand what the peroperty manager is authorized to spend and how they will account for the costs.
- Clarify How You Will Receive Rental Income
One of the most important questions needs to be when you get your rental income. Today, this process should be fairly straightforward where the company can direct deposit the amount into your account after they have deducted their fees from the rent collected. You should also clarify how and when they do an accounting. Are the books reconciled each month with an annual report or do you want a more regular report. All property mangers are required to provide owners with a 1099-MISC tax form which shows rent collected and fees paid, but the good news is the fees are tax deductible.
- Carefully Review The Contract
Read and ask questions regarding the contract. As with most contracts, consider hiring an attorney to review all documents and make sure you are in agreement with all the terms. In real estate, all contracts must be in writing, so if you don’t see it written down, it doesn’t exist.
- Include a Termination Clause
Make sure you have a written termination clause. There should be pre-defined performance standards and a policy for cancellation if conflicts cannot be resolved. Typically either party should be able to cancel for any reason with 30-days notice.
Hiring the right property manager for your investment portfolio can mean the difference between a profitable investment and a money pit. If you do not have the time or inclination to spend time managing your properties yourself, finding a licensed, experienced property manager is critical. A properly managed property will benefit you and your tenants and ensure you achieve profitable and predictable passive income.