10 Important Things to Consider When Selecting a Property Management Provider

1) Does the Property Manager Specialize in Management?

Property management requires a full-time effort to provide investors with the best financial outcomes for the managed assets.

Property management requires a full-time effort to provide investors with the best results in the financial outcome of the managed assets. Specializing improves focus. Some property managers seek listings to manage, to result in a sales listing later. Short-term management thinking will not provide ideal long-term results for your investment. The best managers think long-term, so decisions and processes are built around holding the asset, not selling. Sales brokerages with management can have competing priorities that may impact the outcome of your investment assets. By specializing in property management, managers are better able to train and equip company resources to the specific mission of managing properties. When committed to a single mission using a laser focus, more effort is directed toward the issues that face the day-to-day management of your rental property. Is your prospective manager focused?

2) Does the Property Manager Have Experience?

Property management requires experience to excel in the many varied aspects of the property and human dynamics associated with...

Property management requires experience to excel in the many varied aspects of the property and human dynamics associated with the best property management practices. Many managers are relatively new to the business, so make sure you are comfortable with the experience offered by your prospective manager. The number of managers has doubled in as many years, with many lacking the experience needed for an optimum outcome of your real estate investment. Many management franchises have opened recently with experience in other markets but are new to the area; make sure they have the local experience needed for your success. Many managers lack “door years” (# of doors managed multiplied by the years managed) of management needed to have experienced the many types of situations that arise in the management of rental property. More door years provide more experiences that help teach management teams the best approach to reconciling conflict and one-off circumstances that arise in property management. How many door years of experience does your prospective manager have?

3) Is the Property Manager Licensed?

Property management requires familiarity with federal, state, and county laws and real estate regulations...

Property management requires familiarity with federal, state, and county laws and real estate regulations. Licensing provides ongoing continuing education to keep the manager up to date on the newest requirements to protect your investment. Licensing requires standards for accounting that are audited by the respective state, which helps ensure the safekeeping of funds held by the manager on your behalf. Licensing provides a resource for resolving a dispute of a licensee through the state agency that issues the license. Licensing does not make a good manager, but a non-licensed manager is oftentimes breaking the law by performing management in a state that requires it, and you are left with no regulatory oversight. Is your prospective manager licensed?

4) Does the Property Manager Have an Investment in the Business?

Property management can be run from the kitchen table and often is, but that is not a good sign ...

Property management can be run from the kitchen table and often is, but that is not a good sign of commitment (investment) to the long-term continuation of the business. Property managers who commit to operating in a commercial facility are more likely to be around for the long term. A commercial office does not make a good property manager, but a manager in a virtual operating mode has less invested and, therefore, is less likely to invest the needed resources for positive outcomes for your real estate assets. The best managers make an investment in location, tools, processes, and systems to provide good outcomes. A commercial business location is important for resident and owner meetings at important moments of the transaction. You should have the ability to visit and review the facility and systems investment made by the manager. Is your prospective manager invested?

5) Does the Property Manager Operate with Vetted Resources?

The best property management requires experience and resources to bring about the best outcomes at an affordable price to meet...

The best property management requires experience and resources to bring about the best outcomes at an affordable price to meet your investment objectives. Resources that are vetted for quality, insurance, and employment practices are a must to reduce your potential liability. As a property owner, you are at risk if substandard vendors are dispatched to your property and something happens that causes an accident or, worse, harm to a resident.

Understand your available resources and ask if these resources have liability and workman’s compensation insurance. Do these resources offer a warranty, and do you have the right to use your own resources if you like? Is your potential manager insured? Ask for a certificate of insurance to ensure both the vendors deployed and the manager’s staff have the right coverages to protect you and your assets. Does your prospective manager vet his vendors; can he pass the same test?

6) Does the Property Manager Use Third-Party Accounting Systems and CPA Reviews?

Managers should use the best, most proven, and widely accepted software to manage their property assets because...

In managing your property assets, managers should use the best and most proven and widely accepted software because of the complicated third-party relationship between you, the owner, the property manager, and the resident. Third-party management is a complicated accounting enterprise, and many basic accounting systems do not adequately accommodate this complexity. Only a few of these systems are deemed best of breed for this complicated accounting process, so be sure you do your research and inquire about your prospective manager. The best property managers use third-party CPA firms to regularly audit and review monthly and annual bank reconciliations and accounting practices. State laws require very specific processes for managing other people’s money and accounting of your money on your behalf. The best practices require that security deposits and operating funds be isolated from company funds and that all accounts be in balance every month. Some property managers don’t follow these strict standards, which increases the likelihood of your funds being at risk. This is an often-overlooked review of the manager’s ability to provide secured results for your assets. Does your prospective manager use third party accounting regularly reviewed by a CPA?

7) Does the Property Manager Provide Transactional Transparency?

The best property managers provide their clients with an open book of transparency in all that is performed on behalf of you, the client...

The best property managers provide their clients with an open book of transparency in all performed on your behalf. Managers deploying best-of-breed software can provide online portal information, but not all managers exercise these portals to give their clients access to information. The best practices for information availability include resident rent receipts, rent rolls, rent receivables aging, work requests, resident leases, notices, owner statements, and more. The best systems can optionally send out real-time notices when rents are received, work order requests are received, vacate notices, lease renewals, and more. The best managers use emails as a means of communication to have a written record of events that can be reviewed by you, the property owner, in the event of issues that require a historical accounting of activities and communications. The best managers have the discipline of archiving all communications for seven years in a tool that indexes every email from all parties involved in the transaction. Ask your prospective manager to show you the reports and tools you can access to get a view of the activities being managed. Does your prospective manager offer robust transactional transparency?

8) Does the Property Manager Promote Strategies of Wealth Building with Your Property Assets?

Managing property and managing property to build wealth can differ in the focus and tools that are deployed...

Managing property and managing property to build wealth can differ in the focus and tools that are deployed. A wealth-building strategy is one where the property manager understands the demographic dynamics of the location of the property asset and the potential residents that will be attracted to that location. The old saying in real estate, “Location, Location, Location,” reflects the assertion that the location and the neighborhood impact the property performance and value. Understanding how these dynamics work and the tactics to optimize performance takes art, science, and data. Understanding specific demographic dynamics and quantifying the risk associated with those neighborhood characteristics is critical to long-term success and the building of wealth. Can your potential property manager report what to expect from the neighborhood with real-time data? Can you review potential rent quantified using real-time data? Some managers will quote higher than realistic rental values to promote what appears to be better potential, only to find after protracted marketing that those numbers do not match reality. The best property managers realize that results don’t just happen; a strategy for management should be implemented and reviewed with you so you better understand the risks associated with your property location and the tactics that should be implemented. Does your prospective manager promote and follow wealth-building strategies?

9) Does the Property Manager Systematically Review and Accept Only the Best Residents?

The number one factor in the success and failure of residential rental results is resident quality...

Resident quality is the number one factor in the success and failure of residential rental results. Consistent resident quality placement is an art and science. Pre-screenings should be employed to minimize exposing your property to non-qualified applicants. If the prospective resident passes a high-level prescreen, a complete examination should be processed and documented to produce quality residents. Resident quality is defined as the ability of the prospective resident to consistently make timely rent payments supported by history and no negative attributes that indicate behavior that creates risk for the tenancy. Discriminating resident acceptance requires very specific standards that must be objectively met to eliminate any chance of discrimination. Validation and verification of all information must be exhaustively executed in real-time to avoid fraud and confirm that resident inputs are accurately portrayed. The best managers perform exhaustive screening and validation processes to ensure your property is occupied by a qualified resident that matches the expected standards established at the beginning of the marketing effort. Using analytical scoring models for the resident acceptance and analytical scoring values for the property, allows a match of resident to property without committing a discriminatory act. The best managers have fewer evictions and higher timely collection results than those who fail to heighten the importance of this critical process. Many managers rely on third-party low-cost screening firms to provide this important function, often resulting in less desirable results. The best managers are comfortable spending many times the typical cost of screening to eliminate negative experiences and the drama associated with poor-quality residents.

When investigating prospective managers, understand their process; is-it-discriminating-without- committing-discrimination, objective, analytical, well documented with all resident inputs validated? Is the process followed religiously with no subjective interpretations? If you want the best residents, you must have the best screening systems to achieve results better than the norm. Does your prospective manager have a “Best Residents” approach to resident acceptance?

10) Does the Property Manager Line Up with Your Goals and Objectives?

When you turn over your property asset to a manager, you should conduct a face-to-face interview with a company principal...

When you turn over your property asset to a manager, you should conduct a face-to-face interview with a company principal. Ask questions like many of those offered above. Others to consider: marketing plans for the vacant property; how many websites expose your property listing; quality of photos used on the web; move-out process, renewal process; collections process; sample of inspections performed; employee training; dispute management; quality of resident lease; documentation of all processes; competitive rates (to be discussed below); keys management and property security; reporting formats; document and records management; archival of resident communications; network and data security; consistency and timing of owner disbursements; the size of company and number of employees; areas of provided service, and more. There are many issues to consider, the biggest being “Can you trust your candidate with your investment?” Does your candidate exhibit passion in what he or she does? Check the Better Business Bureau and read online reviews. Remember, online reviews are often reflective of the property manager upholding your interests while disappointing the resident, who then writes a damning review of the manager. Does the manager offer a well-written contract? Was he timely in his response to your inquiry? Do you believe they exhibit the experience to entrust your property asset? Lastly, most inquiries from property managers should include fees and pricing. The total cost of management service is the cost of the fees charged plus or minus the financial outcome you realize with your investment. The manager that provides the best results generally provides the best value. Low fees with poor results will cost many times the perceived savings of lower fees. The lowest overall fee is the manager with the best results. The best managers offer competitive rates and the best results, making the fees a lessor important consideration. Confirm best management practices likely to produce good results in making your decision and if all else is equal chose the most competitive fees. Remember the best overall value is balance of performance results and fees. Does your prospective manager line up with your goals?