Are you ready to take the plunge into multifamily real estate investing, but you’re a little hung up on the whole property manager thing. You might be thinking: Do I need a property manager? How do I choose one? What questions do I even ask? Are they going to know I am a beginner? What if I sound ridiculous? Phew! Believe us, we know it can be daunting and even a little scary, but in order to build your real estate portfolio you need to have a system in place for property management.
First things first, yes you do need a property manager. This is especially true if you are remote investing. There is no way around it, you just need to rip off that bandaid, start calling around and get your interview practice in. The good news is that we are giving you our top 10 most important questions broken down into 5 categories that will help you know exactly what to ask your potential property manager. By the end of this article the hard part and thinking will be over, all you have to do next is pick up the phone and start practicing.
Let’s start with some of the obvious questions for your potential property manager. Finding out their experience in and around property management is going to be essential.
- How long have they been in the industry?
- What types of properties do they manage?
The first question is pretty self explanatory and helps you determine if they know the ins and outs of the business. Question #2 gives you, the investor, insight as to whether or not they will even be a good fit for the properties you are going for. For instance, if you need a 20 unit apartment building managed and they only have experience with single family homes or duplexes, that is not going to be a good fit. The same stands true the opposite way around, if you need a duplex managed and they only manage 20-30 unit buildings that might not be the best match.
The next category you want to consider is service questions:
- How do you market vacant units?
- What is the typical tenant placement timeframe?
As an investor, one of your biggest expenses is vacant units. This is why it is extremely important to find a property manager who is super proactive at marketing vacant units for you. You also want to find out the typical amount of time it takes them to place a tenant into a property on the market. This allows you to plan on vacancies when you are running your numbers.
Without a doubt you should be in alignment with your financial figures, which is why you need to ask your property manager about their fees and other financial questions.
- What are your management fees and are they based on a percentage of the rents collected or are they based on scheduled rents?
- What is your tenant placement fees?
The difference between collected vs scheduled rents is essentially incentive vs indefinite. The first one, collected, bases the fee off of a percentage of the rents collected so the property manager only gets paid if you get paid. They have a little more motivation to collect rents in this position. If the fee is based on scheduled rents, more common practice , the property manager receives their fee whether or not rent is collected. Similarly, the tenant placement fee varies throughout the industry. Some charge one half of one months rent, others charge a little more based on a monthly percentage, and other property managers (that we don’t use) charge a full one months rent. As you are analyzing your deals you will be building these numbers and amounts in, so it is helpful when deciding on one property manager vs another.
Our next category is operations questions. As the investor you will not be the one talking to your tenants and handling day to day upkeep of the property, it is your property manager, so they better have a system in place for any accidents, predicaments, or repairs that come up.
- How are maintenance requests handled, what is the process?
- What happens if there is an emergency at the property? What if something happens in the middle of the night or on a weekend? What does the process look like?
One of the biggest things that will create turnover for your tenants is when the landlord doesn’t take care of the property. So, ask your property manager, “When the tenant calls and has an issue, what is the process of getting it taken care of?” The second thing you want to ask about is how they handle emergencies: hurricane, fire, flood, POLAR VORTEX (been there done that) and what is the standing procedure for those scenarios.
If we had to pick our favorite category it would probably be policies and procedures. The reason we invest in real estate is to create passive income and cash flow right? Well if either of those becomes obstructed then your investment starts to turn into a money hole (AKA a waste of time and moolah.) So you want to find out:
- What is your move in/out process?
- What is your eviction policy and process?
By having a solid system in place for both of these questions, it leaves no room for gray area when it comes to policies. A property manager who does not have a specific procedure dealing with evictions can lead to contradictions and a headache. If the rent is due on the 3rd then they need to deliver the message to pay or quit on the 4th to all the tenants. Wishy washy decisions and behaviors are taken off the table immediately by following a system.
We hope these questions and tips have helped you. We recommend interviewing at least 3-5 property managers in the market you are looking at. Take some time to compare and contrast which property manager will be the best for YOU. Do what you can to practice: roll play an interview call, outline these questions, and get comfortable with the words coming out of your mouth. As soon as you know it, you will be making calls without thinking twice about it.
The agonizing state of analysis paralysis can hit hard throughout your investing journey. Hiring a property manager can be one of those times, and a lack of knowledge and feeling out of place can leave you feeling defeated before you even start. We understand the intimidation can be heart pounding BUT this might be the very thing you need to do to get unstuck and into action. If you push through the fear, you will start to see a HUGE difference in your profitability and portfolio.
We’d love to invite you to join our facebook group (Multifamily Real Estate Investing Group)…we do lots of free education about investing in real estate and have a weekly live “Ask Us Anything” to help get your questions answered to keep moving forward and building your real estate empire!
Til next time,
Jen & Stacy Conkey