Turning over management of your properties to a management company can save you a lot of time and headaches, along with – hopefully – money. But choosing the wrong company can be more costly in the long run.
The first step for some real estate owners can actually be letting go of their current management chores. Many owners are also responsible for their own management, which by necessity requires a degree of micromanagement and being a detail-oriented person. Once a management team is in place, you have to be able to let go of the day-to-day (and minute-by-minute) operations. A skilled management company will still, of course, keep you in the loop, but you need to be ready to hand over control to a certain extent.
Ask the right questions
In some ways, it's important to treat them like you're hiring an employee rather than purchasing a service. Be sure to ask questions such as:
- “What kinds of properties are you most experienced in managing? (e.g. single family homes, multi-family, apartments, commercial, etc.)?”
- “When you look at my property (or the property I’m looking to buy), does it strike you as a good investment for the price I’m paying? Why or why not?”
- “If you were buying a new rental property today, which areas would you focus on and what types of properties would you be targeting? Why?”
- “How is your company’s work divided (i.e. how many units does each person manage)?” “How does your tenant screening process work? What steps do you take to find good, long-term tenants?”
- “How does your eviction process work? Tell me the timeline of events, starting from the first day rent is late.”
- “At what point will you come to me for approval of expenditures? What’s your spending limit?”
- “In what ways will you be able to improve the profit margin on my properties (e.g. increasing rent without losing tenants, sharing late fees, etc.)?”
- “How does your management fee structure work? What kinds of things are included or excluded (advertising, placement fees, etc.)?”
- “Can I review a copy of your lease agreement?”
- “Can I review a copy of your management agreement? (Note: it is very important to understand what’s in this document.)”
- “Can you give me 3 references? (Be sure to call them and follow up.)”
Perhaps the best advice is to make sure the management company is engaged in trying to answer your questions fully and completely. If they don't give you the time to go over a few steps like this (or don't have ready answers for the important ones), then they don't really want your business.
Review their policies and processes
Ultimately, the goal when hiring a full service property management company is to improve the quality of service for your existing tenants and also to improve the quality and qualifications of new tenants. Their screening process, background checks, and tenant-search expertise are the primary source of economic growth for your real estate by attracting a better quality of tenant. Having a firm grounding in these areas is vital and it's important that you understand how they go about these important tasks.
Along with that comes the ability to gracefully manage non-payment issues, troublesome residents and other issues.
Secondarily – but still very important -- it's also obvious that they need to provide appropriate maintenance services at the right cost and respond to your tenants concerns in a timely and professional matter.
Iron out an agreement
A larger company should have all policies in place with a fully vetted contract for you to sign. If you are hiring a smaller company they may not have everything in writing. That won't stop you and your lawyers from drafting an agreement (or buying one online).
Make sure the contract spells out all policies, agreements, methods of payment and responsibilities.