How to Choose a Good Property Management Company
I can't stress enough how important it is to find a good property management company to manage your out of state properties. They will be your eyes and ears for the area as well as your representative to your tenants.
If you get a good property management company the process of investing in an area goes a LOT smoother. If you get a bad one, it can be one of the most frustrating experiences of your life. So, how do you know a management company is good or not?
1. Look for Property Managers that Work with Out of State Investors
This one is really important because out of state investors have different needs than those in town. A property manager that works with out of state investors is usually much better at communicating information that the out of state investor is interested in and keeping the out of state investor in the loop as far as what happens with the property.
Also, they already have things set up so that the information flows easily. For example, they might have an internet based system so you can log in at any time to see the status of your property, repairs and rent payments. Or, they might have all the paperwork/accounts streamlined.
Some regular property managers have this but a lot of times they aren't as accommodating when an out of state investor needs information. They view the out of state investor as a pain who is always asking questions or needing information that the customers in town typically already know. If they view you as a pain they are less likely to help you or get back to you quickly. It's just human nature. The result: a bad relationship.
There are companies that cater to out of state investors in almost every decent sized city. It's going to be better for you if you use one that understands the mentality and needs of an out of state investor, but ...
BEWARE!
Some property managers that cater to investors aren't on the up and up and will take you for a ride. How do you prevent this? Keep reading.
2. Get References BEFORE You Contact Them
It's best if you find the management company through a referral instead of on your own. How do you get a referral?
If you're investing in a decent sized city you can usually find the name of a management company mentioned by other investors on real estate forums. If you don't see any mentioned on the forum you can always post a message that asks if anyone has any recommendations for good property managers in the city you're interested in.
You can also Google the name of the city plus the term "property management." For example, you might google Houston Property Management. Sometimes you will see reviews this way from tenants or other investors.
The idea with this is to know they are good and get references on them BEFORE you actually contact them. If you wait to get references after you meet them they will just give you people they know who like them and you may not get the full story.
I would also ask for references from them after you contact them but take those references with a grain of salt. Also, make sure the references are from out of state investors.
3. Make sure the Property Manager handles the Type of Property You Want to Invest In
Some property managers only handle apartment buildings while others only handle single family residences in certain types of neighborhoods.
It's important that you go with a property manager that handles the type and price of property that you want and can afford. Otherwise you can get talked into paying more for a property than you are comfortable with.
For example, if you are looking at homes in the $50,000-$75,000 range you wouldn't want a property manager that handles homes above $100,000. Even if he would take you as a client, your property would be the last one he wants to rent because he makes more renting out the higher priced homes.
4. Check with the Better Business Bureau and the Courts for Complaints against the Company
After you've gotten references you still want to be smart about this and do some more digging. Check with the Better Business Bureau to see if any complaints have been lodged against the property manager you are considering.
One complaint may or may not be bad, depending on the circumstances and if it was resolved, but if a company has several complaints from out of state investors it isn't a good sign.
The reason I say one complaint may not be bad is that let's face it some people are never satisfied and it could have just been a troublemaker or an investor that didn't understand the basics of what it takes to invest and they may have gotten mad when the property doesn't perform as expected.
If there is a complaint I ALWAYS ask the property manager about it to hear his or her side of the story but if the property manager has a good explanation for it one complaint doesn't bother me that much.
More than one though it does cause me to wonder and I really look hard and long at the manager's history and past including all court cases and complaints against him.
Most courts have online records of all cases filed so you can usually pull up the information to see if the management company was ever taken to court and what the outcome was.
5. Test the Property Manager Out Before You Sign up
You will get a pretty good idea of how well the manager communicates with you while you are still in the 'getting to know you' stage. What type of communications skills you will need in a property manager depends on you.
For example, you might know that it drives you crazy if you call someone and they don't get back to you within 24 hours so you wouldn't want a property manager that waits a couple of days before calling you back.
What I usually do to test them is to ask them for references. I'm asking them for something that they have to look up and get back to me about, it isn't something that they can just tell me right then. I see how long it takes for them to get back to me with the information.
If they get back to me within 24-48 hours I take that as a good sign. If I have to follow up with them or they never get me the info I know that isn't the property manager for me. I'm very detailed oriented and I want a property manager that responds to my requests for information. If they won't give me information in a timely manner before I sign up with them then I don't expect them to respond quickly after I sign up with them. Knowing myself, not getting info I want or need in a reasonable time frame would drive me bonkers.
If there are any red flags at this stage you need to pay very close attention to them. Just like in any relationship where you can't expect the other person to change, don't expect a property manager that doesn't call you back for 2-3 days to suddenly call you back within 24 hours when you sign with him.
6. Know what You Want in a Property Manager
Different property management companies do different things. For example, some property managers will pay your mortgage, your taxes, your utilities, etc. Others will just collect the rents and deal with tenant issues.
You should have an idea before you sign up with a Property Manager what you want them to do and how much you want them to do for you.
Personally, I take care of all taxes and my own mortgages. If a property manager doesn't pay those items for whatever reason (embezzlement, laziness, bad paperwork management, etc.) I could lose my investment so I want to retain control over those aspects.
7. Interview Several Different Property Managers
Although it can be tempting to go with the first property manager you talk with because they will usually be really smooth and give you a good feeling, make sure to interview several different property managers. That way you can see the differences between them and choose the one that you feel the best with.
Once you have done your due diligence on the various property managers (i.e., references, better business bureau, communication style, etc.), ....
IF AT ALL POSSIBLE, MEET WITH THE PROPERTY MANAGERS YOU ARE CONSIDERING IN PERSON.
I can't stress enough how important that is for several reasons. Usually if you are coming in from out of town, you will want to schedule at least 1/2 a day (preferably a whole day) with each management company. There are several reasons for this:
- You can really get a feel for how they operate by seeing how they communicate with their staff and any clients that happen to call.
- It's always better for you to know them and they know you because it makes communication easier and cuts down on the level of distrust that may be there with just a phone relationship.
- You can see each managers definition of a rehab. Some managers slap on paint and do minor fixes and call it a rehab while others do very detailed work for the same price. You won't know that until you go there.
- You can see how much they charge for various rehabs and get an idea if someone overcharges or is in line with the other property managers. Again, something that is hard to tell unless you see it in person.
- You can see the actual property and neighborhoods that they manage. Some property managers only manage low income properties while others like to manage in better neighborhoods.
8. Make SURE that the Property Manager will Give His Opinion on Any Property That You Are Interested In
Some property managers that deal with investors have their own property that they are trying to sell. That isn't necessarily bad. Many good companies do this so they can be a 'one stop shop' for investors. Most companies that cater to out of state investors make their money on selling and rehabbing the property rather than property management. (Click here to see the pros and cons of doing it yourself vs. buying a property already rehabbed and rented.)
If you do buy from the management company you would want to check out the property like you would any property and run the numbers yourself. (Click here to see how I run my numbers.)
Make sure though that the company will manage properties you buy on your own and not just through them. Also, make sure they will give you their opinion on any property you are interested in.
Some properties look really good from a distance but the people in town might know it's in a bad area or there is a really noisy, smelly plant nearby. You want someone to keep you from making a bad investment and getting the property manager's opinion before you buy on your own is absolutely crucial in my opinion.
I can't emphasize how important it is to choose a good management company. Even if you go through this list and the property manager looks good if you don't have a good feeling about him, move on to someone else.
Ok, now that we know how to choose a good city to invest in and how to find a good property management company in that city, let's take a look at how to determine if a property is a good buy or not.
Got questions? Let me know. If I can help answer any questions you have I will be glad to. kip@realestateoutofstate.com