What You Should Expect From A Good Property Manager
If you only expect a property manager to collect the rent, you have the wrong expectations. The property manager is the most important member of any investment team for a very good reason. A good property manager provides value throughout the investment life cycle. I listed below the phases of the investment life cycle where property managers add the most value.
Property Manager Value
The property managers we've worked with provided value at all stages of the investment life cycle which we logically subdivide into four phases:
- Market Research
- Property Evaluation
- Property Management
The knowledge you gain from seminars, books, podcasts and similar channels is by nature, general information. Little of this applies to any specific property in a specific location. You need detailed local information on a variety of topics and the property manager has the information you need. Some of the market research topics we require includes:
- What property type rents well in a given area? Condo, high rise, single family, duplex, single story, two story, etc.
- What configuration? Two bedroom, three car garage, large lot, etc.
- What locations are likely to do well today and into the foreseeable future.
- What rent range best matches the pool of tenants most likely to be good, long term tenants?
- What are the legislation issues (including eviction cost and time) that are likely to impact profitability?
How can you be certain that the property you are considering is a good investment? A good property manager will be able to provide the following information for any property:
- Estimated rent
- Estimated time-to-rent
- Rehab items - The rehab items a property manager will note are primarily cosmetic (paint, carpet, etc.) Cosmetic items are what tenants see in the photos when they are selecting properties to consider. Tenants assume that the water heater, HVAC, etc. all work.
Also, knowing the estimated rent, time-to-rent and approximate rehab cost will enable you to make an initial go/no-go decision on the property plus you can determine how much you can offer. I can go into more detail on this if you like.
Every minute spent in rehab is time the property is not generating income. You want rehab to be as short as possible and as cost effective as possible (however never by cutting corners). And, you need to know which rehab items are required and which are optional. Optional rehab items should only be undertaken if they will pay for themselves in a relatively short time. This is another topic I can discuss if you are interested. So, in the rehab phase some of the key contributions the property manager should make include:
- Referrals to trusted handymen and such
- Review quotes so you know you are not overpaying or the quote is missing items.
- Before you make the final payment to the workers, the property manager must do a walk through of the property ensuring that the work is actually complete. A good property manager will likely find several small items that the workers will do for free now or you can pay for them later.
- Advise what colors, window treatments and such will appeal to the broadest range of potential renters.
- Help you select the optional rehab items in terms of increased rent or reduced time-to-rent. For example, if you learn that that an additional $1000 spent will increase the rent by $100/Mo., it is an easy decision to make. This is a place that the property manager can save you a lot of money because they can help you avoid wasting money and time on items that will not increase the rent.
When rehab is complete it is time to get the property rented. This is the phase that, to many, is the only value of a property manager. The key duties of the property manager in this phase include:
- Generating appropriate marketing materials (photos, flyers, etc) and getting them in the right locations so your tenant pool will see them. The photos are critical. Only excellent photos of a bright, attractive and desirable property will grip the attention of prospective tenants.
- Screen prospective tenants - This is the critical task of the property manager. Unfortunately, most property managers select tenants based primarily on credit score. While credit score is somewhat important, the numerical credit score does not tell you much about the tenant. For example, what if a prospective has a very low credit score solely due to medical collections? If every thing else is excellent, they will likely become excellent long term tenant. Effective screening of prospective tenants is so critical that I cannot empathize it strongly enough. A bad tenant can turn your property into a financial nightmare. Note, effective screening only applies to credit based tenants. Cash based tenants have no financial "history" and can rarely be screened effectively. I would avoid properties that focus on cash based tenants.
- Collecting all the rent on schedule and depositing it into your account in a timely and consistent manner.
- Controlling costs. Some aspects of this include doing only the work that is required, periodic inspections and proactive maintenance.
- If necessary, pushing the eviction process as fast as the law allows.
- If there is damage (beyond reasonable wear and tear), retaining a reasonable amount of the tenants deposit.
- Quickly preparing the property after a tenant vacates so it can be rented again without delay. Turn time is lost income.
Some Key Characteristics
In order to achieve the above, some of the characteristics I would look for include the following.
- Have an in-house maintenance department. An in-house repair staff is just another profit center to the property manager. This creates an inherent conflict of interest because in order to "make the numbers," the repair people will be pressured to make repairs, even if they are not needed.
- Charge you an annual "renewal" fee.
- Include costs like utilities, sewer, etc. in the rent. These service fees must be separate line items (not included in the rent) which are paid by the tenant so you do not pay the property manager fees on service fees.
- Mark up repair costs. Many of the property managers I know add 10% to 20% on top of any repair charge. The only way you will know this is not occurring is if you receive the original invoice for the work performed. This assumes that the property manager does not have their own in-house maintenance staff. If they do, you will never know what the actual cost was.
- Have the in-house systems (including software) and processes to enable effective screening of prospective tenants, process move-ins and move-outs.
- Have reasonable startup and management fees.
- Have the systems and processes in place that enable tenants to report maintenance issues 24 x 7. The 24 x 7 emergency response phone number must go directly to someone on the property manager's staff, not to a voice mail or answering service.
- Have the processes in place to detect and manage tenants who call in excessive repairs.
- Handle the entire eviction process, including going to court if necessary, for a reasonable fee. (In Las Vegas, the cost should be about $500 and take less than 30 days.)
I could go into a lot more detail but the above should get you started. We maintain our own "Property Manager Interview Questions" and if anybody is interested in a copy, send me an email.