6 things to avoid when hiring a property management company!

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Hiring Property Management Companies is scary!

Hiring a property management company will make or break your career as a real estate investor. I say this because of the many people I have met that have tried real estate investing, but didn’t enjoy cleaning toilets.

I don’t like cleaning toilets either! Hiring a great property manager meant that I no longer had to answer late night phone calls, or deal with tenants.

My property management company took the burden of cleaning and managing my rentals, and made my life easier. This is especially important in the military because it is much harder to clean toilets from an overseas duty station!

I hire a property management company by first doing some thorough google research. After I narrow the local companies down to three or four (through online reviews, and better business bureau ratings) I set up appointments to meet these property managers.

The important thing to remember is that you are interviewing them and not the other way around. You will be hiring them and need to be asking a lot of questions in order to ensure you find the right company for your operation!

1. Inexperience

The first question I ask the representative is how long they have been in business. I don’t want to hand a large portfolio of rental properties over to a rookie. A company that has been in business for a few years will have weathered a few storms and had a chance to test their management systems.

The key is to ensure they have systems already in place and your properties will not become their guinea pig for new strategies.

The next thing I want to know is how many properties (and what type) their company manages. I don’t want to turn a 120-unit apartment complex over to a real estate management company that has only handled single-family homes.

The management company must have adequate systems and experience in order to keep an eye on your properties and understand the intricate differences.

2. Litigation

Make sure you see proof that the property management company is properly licensed and insured. The last thing you need is a lawsuit on your hands because of something that could have been avoided.

Make sure they keep your money in a separate account from the rest of their clients! There are several reasons for keeping money separated but my main concern is to avoid unnecessary headaches. If another client of my property management company gets sued and our money is pooled together it could be difficult to separate.

In a worst-case scenario, this could lead to my money getting lost in a lawsuit that didn’t even involve my property. Make sure your money isn’t kept in the same account like anyone else because (as with anything in life) nobody cares about your real estate more than you do!

3. Expensive Fees

The next thing I want to scrutinize are the fees they will charge me. To do this I will ask several questions and then make sure I take home a copy of the contract I would be signing to hire them. Review this contract in detail to verify the answer they gave you were 100% accurate.

I almost went with a property management company that had a great office, and atmosphere at work. Luckily I read through their contract in detail because I would have gotten stuck with some undesirable fees.

The first thing you want to find out is what percentage of your gross monthly rent is their fee. My current property manager charges 7% but some companies can charge up to 10-12%.

The next question I want to confirm is that they only get paid that fee when the unit is rented! Some rental property management companies will continue to charge that 10% rate even when the unit is vacant.

That is a deal breaker for me, if they get paid whether my place is rented or vacant, where is their incentive to rent the place out? I want them to be as motivated as I am to have 100% occupancy rates!

I ask what their marketing fees look like, and whether I will be paying them a percentage of the first months’ rent. Some companies take half of the first months rent for their marketing fee, and others charge a flat fee for marketing. I was lucky enough to get a property management company that doesn’t charge either of these fees and does a great job filling vacancies!

property management companies alleviate these headaches!

4. Excessive Phone Calls

I don’t want to clean toilets for a living!

For some reason, people think that owning rental property means you have to deal with all this dirty work. I have never cleaned a toilet or changed a lightbulb in one of my rentals. That is what I pay my property manager for!

I have an agreement with my property management company in which they will not even notify me about anything that costs less than $250 to fix. I trust them to handle all of these little repairs without needing my input or approval. This has made my life much simpler because I only receive phone calls about appliances breaking or large repairs. I want to know about these items regardless because it is an opportunity to upgrade-hack (more to follow).

The company I hired has general contractors that work for them at a good rate for my area! I reserve the right to fix items myself or hire friends to repair items when desired. For the most part, my property management company does handle all of the maintenance and repairs for me!

5. Evictions

You need to ask how the screening process is conducted for new tenants. I cannot stress enough how critical this is for you! Poor screening leads to poor tenants, and poor tenants lead to evictions, repairs, and headaches! Being proactive about screening out bad tenants will save you time, energy, and money!

I believe that people deserve a second chance, but I don’t believe in rolling the dice on my tenants. If they have evictions in their history I don’t want them in my apartments. If they are sex offenders I don’t want them in my apartment. Safeguard your investment by finding higher quality tenants to rent to!

6. Dragged Out Evictions

Due to our diligent screening process, we haven’t evicted anyone yet *Knock on wood*. I know that it is inevitable in this line of work and that is why I asked my property management company about their eviction process. You need to get a warm and fuzzy that they have experience in handling evictions because they are complex and expensive events.

You will be relying on your property manager to handle this painful process, and you definitely will not want to be their first eviction. I wanted to know they were capable of handling an eviction while mitigating the headache I would get from it!

Update: here everything you want to know about property managers.

Summary

Real Estate Management can be a complex beast.

I would rather hire a professional to handle this aspect of my rental business so that I can focus my energy on finding and analyzing new deals! Don’t waste time managing rentals unless you live near them and enjoy the process.

I would rather focus my energy elsewhere and budget the property management fees into my analysis!

Having my current property manager on my team has made my life so much easier!

Tell us about your best and worst property management experiences!

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David Pere

David Pere

David is an active duty Marine, who devotes his free time to teaching personal finance and real estate investing for service members, and the working class!

Leave a comment trooper!

6 Responses

  1. That’s a good point that you could reduce a lot of stress from not having to worry about evictions or anything. My brother is considering building a rental house and I could see that aspect of it being hard for him. I should consider talking to him about getting a property manager to take care of the more complex stuff.

  2. My brother and I have recently gotten into rental properties to aid in our retirement plan but we are getting tired of managing the properties ourselves. I think that hiring some managers will alleviate a lot of the stress that’s been placed on us. I appreciate your tip on getting proof that the managers are properly licensed and trained before you hire them so that they will do a good job.

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