You need to decide if you want to self-manage rental properties or hire a property manager. In order to help you decide I want to walk you through a property manager job description, how to use them, the pros/cons of hiring one, and how to find a good one!
Property Management can make (or break) real estate investing. A lot of people hate being a landlord. A common excuse people use for not investing is “I don’t want to fix toilets.” Well, I’ve been investing for over three years, and never fixed a toilet…and I will never have to.
What is a property manager? According to Investopedia: “A property manager is an individual or company that is hired to oversee the day-to-day operations of a unit of real estate. Property owners and real estate investors typically hire property managers when they are unwilling or unable to manage the properties themselves.” (source)
Hiring a professional property manager is the obvious solution to this problem. The problem is that finding a good property manager is not always easy. Like every job, there are great managers and not-so-great managers. This article will help you dodge the bad property managers, and streamline your business model all at the same time!
First, let’s answer your question: “what does a property manager do?”
Is a Property Manager the Same As Landlord?
Not necessarily. While a landlord (the property owner) can absolutely manage their own investment property, a property management firm is a professional company the landlord can hire to take this off his/her plate.
Property Manager Job Description
A property manager is responsible for:
1. filling vacancies in your property
Vacancies happen. You may buy a property vacant and need to get it rented asap, or you may have a tenant move out at the end of your lease. You may (hopefully not) even need to replace a tenant that was evicted. Your property managers job is to fill this vacancy as fast as possible, vacancy is one of the biggest killers of your cash flow.
2. screening potential tenants
It can be tempting to fill a vacancy with the first person who applies, but that can be very dangerous. A good property manager will screen to disqualify your potential tenants in order to ensure you don’t rent to somebody with a history of evictions, felonies, or bad rental history in general.
3. collecting rent
In this modern age, it can be easy enough to receive rent money electronically. That is great because you could collect the rent even from overseas…but what happens when your tenant doesn’t pay (unfortunately this happens sometimes). You need boots on the ground to go knock on their door and collect rent. The property manager also keeps track of late payments, and late fees in order to simplify your life.
4. ensuring tenants adhere to their lease
tenants break their lease. It happens. Sometimes a tenant may allow a friend/family member to stay at their place, or they might have a pet even though their lease doesn’t allow it (or they didn’t pay the pet deposit). This is where your PM can enforce the lease and make them pay a little extra rent for the additional occupant, or pay a pet deposit fee. There are times when the front yard may need to be cleaned up, or noise complaints addressed…all things I would rather not deal with!
5. maintaining your property
This can be as simple as changing air filters, making sure pipes don’t freeze, servicing HVAC units. This can also include repairing a hole in the wall, broken ceiling fan, or carpet. At the end of the day, it is critical that somebody maintains your property, and ensures the tenants don’t leave it in disrepair.
6. repairing/updating your rental when tenants turnover (out with the old, in with a new)
Whenever a tenant vacates you need to ensure it is prepared for a new tenant immediately. Hopefully, that means a simple cleaning, but sometimes it can mean a complete renovation. Either way, you want a good property manager there to handle the process, and decide how much (if any) of the deposit gets returned to the previous tenant. The faster this goes, the faster you get a new tenant in the building!
7. raising rental income in order to keep up with the current market rental rates
for the last decade, rental rates have been slowly, and steadily, climbing. This is partially due to inflation, and partially due to population influx and a booming economy. You want to ensure your property is always rented as close to market value as possible in order to ensure it is rented swiftly, and you earn as much cash flow as possible. Unfortunately, sometimes that means lowering the rent a little bit to fill the vacancy quicker…but losing $15/month (or even $50) is much better than having a property vacant for two months!
What Does a Property Manager Charge
Now that we have answered the question: “what does a property manager do?” Let’s move on to the number one reason people don’t use one, it costs money. I understand wanting to save a little money, but a good property manager will save you much more than they cost!
Property managers generally charge a percentage of the gross rent received. This percentage differs but is generally between 8-12% of monthly gross rent. I personally only pay 7% of monthly gross rent, and my property manager is amazing!
How much your property manager charges does not always correlate to how good they are. I interviewed three property managers before hiring this one…she was the most affordable, and also the better option (in my opinion).
When hiring a property manager to ensure you take the agreement between you and them home to read thoroughly…and ACTUALLY read it! Most property managers charge a portion of the first months’ rent in order to cover marketing costs.
The one expense that is absolutely unacceptable is if your property manager still gets paid when the unit is vacant. Ensure they only get paid X% of the gross monthly rent RECEIVED!
How Does a Property Manager Work
A good property manager is a link between you and your rental properties. They act as the middle-man on any and all issues that arise in order to keep your stress at a minimum. My property manager has literally allowed me to spend less than one hour a month working on the real estate I already own!
This freedom allows me to focus my efforts on more productive things, like analyzing and purchasing new real estate investments! Property managers work by taking a percentage of the gross monthly rental income as their pay. They take care of the monthly recurring tasks like receiving rent, checking on tenants, handling small maintenance issues, and monthly income/expense reports. In most states, they are required to be a licensed real estate agent and serve as the advisor that keeps you operating ethically to avoid legal disputes.
Property managers work in a reactive manner to problems. Any issues that arise, no matter the time of day/night, they need to be able to react in order to fix the problem. They have great systems in place to tackle these issues, and they are excellent problem solvers.
I love having my property manager work on issues so that I can sleep through the night without worrying!
Should You Hire a Property Management Company?
As with everything in life, there are pros and cons to hiring property managers. I want to explain some of these in order to help you make a more informed decision about your real estate management!
Pros and Property Management Services
1. A good property manager will make real estate investing more passive for you.
I spend less than an hour a month working on 13 of my rental units. The property management firm I hired handles all of the daily operations for my rental properties. The only reason it takes a full hour is that I balance my own books when I receive my monthly income/expense report. The property management team I have in place handles absolutely everything and only calls me if they need me to make a decision. That happens once every two or three months, and aside from this (and approving large expenses), the only interaction required from me is answering my email once a month.
Talk about passive income!
2. Property managers allow you to scale your business.
Because I spend virtually no time managing the rental properties I have the ability to scale (purchase more properties) without worrying about the additional workload. I am able to grow the business because once acquired, my real estate takes little to no effort from me!
3. You can leverage their expertise.
I purchased a 40-unit mixed-use building last year that had a lot of issues arise. Ultimately, I had to terminate the lease option and file a lawsuit in order to sort out the mess (still pending at the time I’m writing this). Without my property manager, it would have been impossible for me to stay up to date on the problems arising at our property. I was overseas and was still able to handle this situation and all of the problems that arose while avoiding catastrophic failure.
4. You don’t need to spend hours reading all of the landlord regulations in your state.
In regards to the lawsuit mentioned above, it was great knowing that everything we did was within legal and ethical bounds. Had I been dealing with this situation on my own (from 4000 miles away) it would have been ten times worse, and I may have accidentally broken some landlord law(s) while trying to apply solutions!
*Having an expert in the local regulations is a huge asset, but remember they aren’t a replacement for hiring a real estate attorney! If you need to seek legal counsel, do it!*
5. I sleep peacefully at night.
If I had a nickel for everybody that said they didn’t invest in real estate because “I don’t want to fix toilets in the middle of the night” I would have at least two nickels. I firmly believe this outweighs any con to hiring a property manager. I sleep peacefully and can focus my efforts on more productive tasks to move the needle forward in my business.
Cons to Hiring Real Estate Management
1. It adds to your bottom line.
Property managers aren’t free. Who cares, nothing in life is free and a good property manager will absolutely save you more than they cost. The only time this makes sense is if you live close to your real estate, and have a small enough portfolio that you can self-manage efficiently. The moment you move too far away or your portfolio gets too big, outsource property management to a professional!
2. You might have a bad property management experience.
You might have a great property management experience too. Don’t live your life (or run your business) with a “what if” mentality. You can always think of something that could go wrong, but there is so much that can go right. This risk can be mitigated if you adhere to the interview questions I will discuss in a minute, and hire the right manager!
I wrote an article about 6 things to avoid.
How To Find a Good Property Manager Near Me
The first thing I do when looking for a property manager is asking for referrals. I may reach out to local investors on BiggerPockets and ask if they have any property managers they might recommend, and I will definitely ask my real estate agent who they recommend I look into.
I will also search Google for “best property manager in X-town, X-state” or “good property manager near me” if I’m currently in that town.
Another useful resource is The National Association of Residential Property Managers (NARPM). I would use this as well as Google, but not instead of it. This only pulls up property managers that are members, and there are likely a lot of managers in your area that it won’t mention.
Once I have collected 3-5 potential property managers to look into I will search Yelp and the Better Business Bureau for reviews. Keep in mind that a negative review that appears written by a tenant might actually be a good thing!
For example, if a tenant writes a negative review about how the property manager made them pay late fees, or made them clean up the front yard…I would look at this as a great sign! I’m more concerned with any negative reviews from a client/landlord than I am with reviews written by tenants.
Get my free interview checklist here, or keep reading!
After narrowing my search down to two or three remaining prospects, I will schedule a time to meet with each property manager and interview them individually. Yes, you are interviewing them!
I want to see their office, and get a feel for the atmosphere amongst their staff…do they enjoy property management, or is it just a job? More importantly, I have a checklist of twenty interview questions (below) that I will ask them in order to see if they are a good fit for me.
I’m also looking to see if I’m a good fit for them. If my goal is to purchase 100 properties in the next five years I want to ensure the property manager is excited and ready for that! This absolutely needs to be a symbiotic (mutually beneficial) relationship.
DO NOT sign any contract(s) during this interview. Instead, ask to take the contract home in order to review it (and actually read the entire thing)! You want to know exactly what the terms of your relationship will be, any hidden fees, and verify that what they told you in the interview is reflected in the contract.
I can’t stress this enough, I would have hired the wrong property manager if I hadn’t compared the three contracts against each other at my house!
Property Manager Interview Questions and Answers
Finding a property manager is easy. Finding a GOOD property manager can be a completely different story. The interview process is where so many investors go awry. Any halfway decent business owner will be able to answer your questions and give you a “warm and fuzzy.”
The trick is to know what you’re looking for when asking these questions, watch their reactions! Taking home the contract to compare and contrast against other candidates allows you to make a logical decision. Don’t forget this step, do not hire your first manager on the spot!
1. Are you licensed?
You want to ensure they possess all of the proper licensing and certifications. In most states, property managers are required to hold an active license as a real estate agent. Ask to see their credentials, verify they are up to date and in good standing.
2. How long have you been in business?
It takes a lot of time and energy to purchase real estate. If I wanted to let somebody with no experience manage my properties, I would do it myself for free!
Make sure you’re hiring an experienced manager, with a proven track record. The only way I would risk a brand new manager is if I received a significant discount. I would also need to be on a month-to-month contract in case it wasn’t working out.
3. How many properties are you currently managing? What types of properties are they?
This is important on two different fronts. If a property manager only has a couple of properties in their portfolio (and they aren’t brand new)…why?
I would be concerned that nobody else trusts them. On the other hand, if they have thousands of units under their belt I want to ensure their team is large enough to handle the business. You want to ensure the proper team and systems are in place to handle such a large portfolio!
You want your manager to have experience in the specific asset class you own. An Airbnb property manager may not be the best fit if my portfolio is apartment complexes.
4. What services do you offer?
This question is to clarify what you’re getting in the deal. Do they handle maintenance/repairs in-house? Will they pay your bills for you? Maybe they can handle your accounting/bookkeeping as well! There are a lot of opportunities out there, and a good property management company could make your life much simpler.
5. Are you a real estate investor in your market?
Your goal should be to find the most qualified property manager for the job. They are much better suited to understand your needs and goals if they are an investor too. Investors instinctively understand that profitability, efficiency, and longevity are crucial to our success. Your manager is much better suited to meet these goals if they’re an investor too.
This isn’t a deal-breaker for me, but it is absolutely a bonus to find a manager that invests in the area too!
6. What is the average vacancy rate/duration for properties you oversee?
Many variables affect the vacancy rate on a given property. Location, Condition, Management, and the cost of rent are some of the most common variables to keep in mind when considering the vacancy rate. All-in-all the lower the vacancy rate, and shorter the vacancy duration, the better.
*Side note* Shortened vacancy at the expense of forgoing background checks, and below-market rents is not the answer.
7. Do you collect management fees when a unit is vacant?
This is a hard NO for me! Property managers should get paid on a percentage of gross rents received…Make sure that word is in the contract. I have seen management teams that charge you even when the unit is vacant (this is why I didn’t hire the team that had the best interview).
There is no incentive to get your rental turned-over and occupied as efficiently as possible if they get paid regardless. DO NOT sign a contract where the manager gets paid even when the unit is vacant…don’t do it!
8. Under what conditions can I cancel my management contract?
Not all property managers are created equal. Not all property owners are easy to work with. For these reasons, it is important to know what the terms of the contract say about cancellations. How much notice is required, how long is the contract, are there fees associated with breaking the lease. As with anything it never hurts to have an exit strategy!
9. Will you provide me with a monthly and annual report?
You may like to receive your reports on a monthly, quarterly, semi-annual, or annual basis. Whatever your preference, make sure you ask how they normally provide these reports. Then you can ask whether they’re willing to adjust to meet your needs.
10. What has been your biggest mistake as an investor or business owner?
This is the last question I ask. I use this question to help me understand a few different things. I want to know how they handle mistakes, and if they learn from them. Are they honest enough to admit their mistake(s) and open up to me? I want to understand a little bit about the inner workings and see how they adapt to curveball questions.
Most importantly, I want to know what the mistake is and see if it raises any red flags.
Rental Management Company Interview Checklist
While hiring my property manager I compiled interview questions from real estate forums, blogs, Facebook groups, networking events, etc. I then compiled all of these questions, sifted out duplicates, and consolidated to the questions I found most helpful.
After interviewing three managers I audited this checklist and removed the questions that didn’t really help with the hiring decision. I have been using this checklist ever since!
Having a checklist printed out is critical! If you forget this list you will assuredly forget to ask questions. That is why I give this checklist to all of my coaching students, and friends that are hiring a property manager!
For a limited time, I am giving away my property manager interview checklist for FREE!
Summary – Should You Hire A Property Manager?
Short answer; everything!
I hired my property manager because I was moving away. I kept my property manager because she made it possible to manage a growing real estate portfolio with ease.
If you’re still on the fence about whether or not to hire a property manager comment below and I’ll be happy to answer any and all questions, comments, or concerns that you may have!
Stuck trying to decide between two or three different management teams? Feel free to comment below or email me, and I’ll be happy to help you decide which to go with! If you’re investing from overseas property management is a must!