You own a property and have decided you need a property manager, a good property manager and you need that manager now. How can you locate that “good” property manager is the subject of this article? We are going to provide you with some suggestions to help in your search.

You need to know a few things about property management and property managers in addition to how to find a good one. This article will give you some background on just what a property manager should be doing for you. It’s one thing to select a manager but you need to understand the “system” to make it work for you.

The next few paragraphs will cover aspects of property management and then we get into how to find the “best” property manager.

Property Management, A Profession

Individuals who practice property management have to learn many aspects of how to make a property profitable for their clients. When you leave your property in the hands of a property manager and you pay attention to their professional advice, your property should continue to be profitable assuming that it was profitable to start. 

Property managers are responsible for ensuring your property is well maintained unless you want to be one of those property owners who milk every dollar and pass along the deferred maintenance to the next buyer. If you want to own this type of property you may as well manage it yourself as most legitimate property managers will not work with you.

There is a wide range of things that a property manager must become an expert in. Not the least of which is how to work with people. Selecting the “right” tenant for you, one with the capability to pay the lease and pay it on time without damaging the property. This is truly a skill. Even the best property managers make mistakes in this area but the best make far fewer.

They have to understand the law. It may seem to many owners that the law is on the side of the tenant and many would agree. This means threading a minefield. Professionals understand this process and will be your best protection against violations of the law.

They want to hold funds for vacancy and maintenance

A good property manager does not want to call you at 10:00 in the evening and ask for funds to buy a new water heater. They should have been reserving funds each month from the lease revenue to build up a fund for this purpose. Some may ask for a few hundred dollars to start the process.

If you are leasing for example a single-family home and the lease is $1,000 per month, the property manager will reserve about two months of rent up to about $2,000 to help bridge the gap when tenants move out. The maintenance fund will vary depending upon the condition of the larger items at purchase e.g. stove, refrigerator, etc. That fund may hit $2,000 over time.

You may ask what about the interest earned on the funds. Consider this, the funds will build over time so when the first few dollars go in, interest paid will be perhaps two or three cents. When they are fully funded assuming that nothing required maintenance, let’s say there is a total of $4,000 reserved.

The best interest rate paid by banks for savings accounts has been under 2%. Assuming that the fund stays at $4,000 the interest in one year would amount to $43.47. This is however a wild estimate since things to go wrong and the fund would likely not get this high.

Tenant Deposits

Some property managers hold the tenant deposits in a special account. For example, the state of Mississippi requires the funds to be held in a special broker’s escrow account if they are retained by the property manager. Some property managers pass the deposits to the property owners to hold.

Considering that you are trusting your property manager with a property worth considerably more than a thousand dollars (one month’s rent), it would seem to be trivial to argue about who gets the interest. 

Due to state laws, some property managers would rather that the owner hold the funds. This does mean if someone moves out you will have to produce the funds quickly. I recommend that you obtain a 9-month or one-year CD as a place to park the funds.

Why should I use a property manager?

I recommend the use of a property by all clients. Property managers are equipped to deal with any problem that comes along. That late-night leak requires a plumber, the tenant who leaves in the middle of the night without making the lease payment and finding a good tenant.

Many people who acquire residential rental property have a day job or are retired. All they want is for the property to generate a return on their investment that is greater than other uses for the funds e.g. stock market. They do not want the day-to-day management drama.

While the vast majority of tenants are carefree, some require handholding. Some properties require maintenance and things that were unknown at purchase pop up. Maintenance items must be addressed immediately to prevent further damage.

You may be living four states away and you need someone on the ground who can respond immediately. A professional property manager can confront a tenant in person asking for that late payment. These situations can be uncomfortable for most people but it’s routing for professional property managers.

If you want to look into your bank account in the middle of the month and see that deposit and keep doing what makes the greatest income for you e.g. your day job, you need a professional property manager. 

How much does a professional property manager charge?

The typical charge on an ongoing basis is 10% of the revenue. There are initially set up charges and there are charges to acquire new tenants. There may be charges to oversee larger repair projects and other fees for specific services that you request. 

Late fees collected are retained by the property manager for the additional effort to obtain the lease payment. Returned check fees and other fees paid to tenants who cause issues are all retained by the property manager. This is small compensation for the additional effort. Since these fees do not come from your income, they should not be part of your consideration about hiring a property manager.

You should receive a monthly statement or have electronic access to your account so you can see funds coming and going. This electronic access should provide copies of receipts for expenses from your reserve account. From time to time, you may be required to fund a repair or replacement since the fund is dry.

To replenish the fund, the property manager may suggest that they retain a higher amount of the lease revenue for some time to build back the fund.

Professional property managers will present you with a contract which you will be required to sign. This contract will contain information about what you expect of them and what they expect of you. In the KEYLADDER Course, there is a copy of a sample agreement.

How do I find a good Property Manager?

You own a property or will be purchasing a property. Using a good real estate agent that understands investment property is a good start. Your real estate agent is the best person to ask about property managers. If your agent is an active investment agent meaning they own properties of their own as well, they should know a good property manager.

If your agent does not know a property manager it’s a good bet that your real estate agent’s broker will. You are not the first client that has purchased an investment property from the brokerage and needs a good property manager. In the very unlikely event that the agent or broker does not know a property manager, contact the local board of realtors and ask.

When you find what seems to be a good property manager you should interview that person. Contact their references. Ask the references for the address of their property and the type of property. You can look up the property on one of the national real estate sites. There is an entire process for interviewing property managers which we have covered in our KEYLADDER Investing in Residential Rental Real Estate course. 

What will your property manager do for you?

It’s best to get the details out in your interview. You should ask and discuss the following questions:

1. How long have you been in business?
2. Are you affiliated with a real estate broker?
3. Do you manage property in (the area where your property is located)?
4. What is your fee structure (can provide via email or online)?
5. When do you make payments to my bank account?
6. What is your policy about maintenance? (minimum before calling you etc.)
7. Do you do an initial inspection after we sign the agreement?
8. What is your success rate in filling vacancies in my area?
9. Do you have a client portal or some area where I can see details about the property?
10. How often do you drive by and/or inspect the property?
11. Your deposit policy (you hold it or do I)
12. What is your tenant screening process? (use credit reports etc.)
13. How long does it take to evict a tenant and can you manage that process?
14. How do you determine the best rent rate for my property?
15. Annual rent adjustment, will you notify me in advance and explain any increase?
16. How should we communicate e.g. phone, text, email, client portal, etc?
17. What happens if I sell the property?

The contract

It’s important to obtain a copy of the contract and read it. Get details in writing from the questions above. Many of the questions above may be answered in the contact. Ask about the duration and any renewal fees. Fees to post a property for sale when a tenant moves out.

What are early termination conditions if you decide to sell the property? Will they manage the old tenant move-out process if you are selling? What are dispute resolutions? The contracts are usually straightforward and fairly easy to read. Go over the contract with the property manager and ask for explanations for items you don’t understand.

The biggest cause of conflict is money issues such as repairing an item that you think you should have been informed about. The cost is deducted from your proceeds and that leaves you short of paying the mortgage. Remember that the agent has the authority to keep your property repaired if you want this to happen.

Property managers will usually call you if the cost is high or unusual and ask that you pay it directly to the worker or them. I always preferred to use my credit card and pay the worker this way I got the points.

What if I want to manage my property?

Some do, if you live in a duplex and there is another unit attached, you could manage it yourself. You should not attempt to manage a property that is not physically located near you as emergencies occur and you may not be able to be there. 

If you decide to manage your property start with a professional property manager and watch what they do to find a tenant, and how they manage the process. Observe and remember. You must learn what is essentially an entire profession not unlike selling Real Estate or becoming a CPA. 

There are risks that you need to fully understand. If you live in some states e.g. California, there are laws you need to understand to protect yourself. There are things you can and can not say to prospective tenants. Essentially to explain all of the things to do, you need to take courses as professional property managers do on how to do it right.

Many owners start with self-management and transition into the use of a professional property manager. 

Want to learn more about property management? Enroll in our Residential Rental Investment Education course. Everything you need to know about property management and investing in residential real estate is contained in this very comprehensive course.