Some smaller companies may not be technologically advanced and aren’t able to offer the variety of online services that tenants expect, such as rental applications to prospective tenants, electronic rent payments, and maintenance requests for current tenants. (Many companies now have property management software that provides an online portal where tenants can access a wide variety of services and information.)
Some companies have in-house maintenance personnel or affiliated contractors or vendors that charge markups or surcharges on supplies and materials, as well as increased labor costs. For some management companies, these hidden profit centers are highly lucrative. They will lowball the property management fee just so they can add more clients (especially owners with older properties) and then perform expensive maintenance and repairs, which is where they make their money.
They often don’t have the same care, consideration, and concern for the rental property that you have. You need to contact their current clients to make sure that your proposed property management company has an established track record of treating tenants with respect and putting their clients’ interests first.
They often charge extra (a leasing fee) to fill vacancies or take longer to fill the spots if they’re dealing with several other vacancies at the same time.
Despite the technological advances that are available with the latest property management software, some companies require tenants to drive to their offices to apply for the rental, to pay rent, or to request maintenance, which can be a disadvantage if the company isn’t located close to the rental property.
They may not be diligent in collecting delinquent rent, particularly if the management contract provides that they keep all late fees and other administrative charges — another hidden profit center for management companies that is not in the best interest of the property owner.
Some companies may try to falsely impress you with low maintenance expenses when they’re not spending enough on repairs and maintenance to maintain the property properly. Every property is unique, and there are no “average maintenance costs,” so don’t be fooled by very low maintenance expenses at a new property when you’re looking for a property manager for the 70-year-old house your grandma left you.
Management companies affiliated with “for sale” real estate brokerages may be more interested in a large real estate commission from a sale and may not provide the best property management services. The majority of property-management lawsuits I have seen are against major real estate brokerages that primarily make money representing clients who are buying and selling real estate but want to keep a relationship with the homeowner (with the goal of a future sales commission) by having an inexperienced and unqualified person offer property management services. Look for a management company that only manages property; then use a real estate brokerage firm that specializes in real estate sales to help you with your next purchase or sale.
Understanding what a good property manager does
Professional property managers normally handle a wide range of duties. If you hire a full-service management company, you typically get the following services:
Performance of rental market surveys and advice on setting the rental rate and security deposit
Preparation, advertisement, and showing of the rental unit
Tenant screening, selection, and handling tenant move-in, including documenting in writing the pre-move-in inspection
Preparation of leases or rental agreements and all legal forms
Property physical and/or visual drive-by inspection periodically as agreed
Collecting rent, making bank deposits, and paying bills (including mortgage, property taxes, and insurance if the owner doesn’t pay them directly)
Preparation of regular monthly accounting reports
Quality repair and maintenance of the rental unit
Timely response to tenant complaints and/or maintenance requests
Enforcement of the rules and regulations and compliance with laws
Telling the good from the bad
A good management company may be able to operate your rental properties better and more efficiently than you can on your own. Its superior knowledge and experience can result in lower costs, higher rents, better residents, and a well-maintained property. A good management company more than pays for its costs, giving you more time to take up additional properties or other pursuits. A poor management company can cut into your profits through fees, improper maintenance, or poor-quality tenants who run your property into the ground. A bad property manager can leave you in worse shape than if you’d never hired one in the first place.
The right property manager can make a big difference in the cash flow your rental unit generates because they find good replacement tenants quickly or make sure that maintenance is done in a timely manner without breaking your budget. You need a property manager who’s committed to helping you get the optimum results from your rentals. The following sections help identify what to think about when searching for a management company and what to ask potential managers so you can find the right fit.
Finding the right management company for you
You want to find a property management company that suits you. Size isn’t the only determining factor in whether a property manager can deliver quality service. Some management companies specialize in large rental projects, whereas small operations may focus on individual home rentals and apartment buildings with only a few units. Don’t assume that a big company that manages mega-complexes will do the best job for your duplex or that a small company has the credentials, experience, and knowledge you need for your larger property. Try to find property managers who are active in the area and who specialize in your type and size of rental property.
Keep the following tips in mind to select the management company that best fits you and your property:
Make sure that the firm you hire manages property exclusively. This guideline is particularly important when you’re selecting a management company for a single-family home, condo, or very small rental property. Many traditional real estate sales offices (as opposed to property management firms) offer property management services, but property management is often a loss leader, meaning that it costs more for the real estate office to manage your property than it’s charging you for that service, because it’s hoping to get your business when you’re ready to sell the property. Many property managers in real estate sales offices don’t have the same credentials, experience, and expertise as employees of property management firms. The skills required to represent clients in selling property are entirely different from the skills required in managing property. You can always hire a firm that sells only real estate when the time comes to sell your rental property.