1. How many doors do you manage?
One of the quickest ways to get to know a management company is getting to know its size. If a management company manages 300 units, they may be more equipped to manage your investment than one that manages 30 units.
While that won’t always be the case, a company’s ability to exemplify sustainability is valuable. Some may argue that companies that are too big end up having a hard time focusing on smaller owners. It’s a valid point, and we will discuss it at the end of the article.
2. How long does it take to fill vacancy?
The vacancy can be one of your most significant expenses when it comes to investing in real estate. Having a property manager that can rent quickly and to the best tenants is one of the most important things to consider. For example, here at Mayfair Property Management, from the moment one tenant vacates a unit to the moment another moves in, we average about 26 days. That includes basic unit turn-around, marketing, showings, the application process, and approval. That means that our marketing time is typically less than three weeks when you include the time it takes to get the unit ready for showings.
Every day your manager takes to rent out your unit, you’re losing potential income – so finding the manager that can effectively market, price, and lease units in a timely fashion is integral.
3. What is your management fee?
When analyzing working with management companies, you’ll need to figure out their management fees. The industry standard is somewhere between 5-10% of gross collected rent. Some companies charge a flat monthly fee. A mistake that owners often make is rashly picking the cheapest property manager to keep their net income as high as possible. Let me explain why this is a bad idea.
A ghost expense is one where you’re saving on paper, but you end up paying more in the long run. A real-life example of this can easily be found in shopping for clothes. When deciding between two shirts, you may go with the cheaper one, but you’re likely getting cheaper material that will have a shorter life. This means that you’ll have to replace the shirt far sooner than the more expensive one. So what does the money you saved mean if you have to repurchase the shirt months later?
I’ll give you a more practical example – you’re deciding between 2 different management companies for your property, one charges 5% and the other charges 8%. Your property produces $100k yearly in gross income.
|Subject Property ($100k GI)
|Gross income for Property Manager
|8% Management Fee
|5% Management Fee
It may be smarter to go with the 5% management fee on paper because you’d be making an additional $3,000 a year in income, but there is far more that you have to consider than what’s on paper. For example, will your manager be able to lease units quickly? If the 8% management company can rent ten days quicker, that’s an additional $2700 approximately in gross income ($100k/365*10).
Which company has better systems for communicating with owners? The 5% manager may require more time out of you, valued at way higher than $3k.
You also have to consider that your management fee is the gross income that a management company uses to manage your property. Consider the possibility that both managers are overseeing a portfolio of 100 similar properties.
That would make a $300k difference in income, giving one owner access to significantly more resources. While that 3% wouldn’t have a massive impact on your net income, it would provide one manager far more tools to effectively manage your property, as well as the rest of their portfolio.
4. What is the minimum length of the contract?
Over here at Mayfair, we like to say that signing a one-year contract with a property manager before experiencing their services is like getting married before dating. It can be nerve-wracking to lock yourself up in a year contract with someone before even knowing how they operate.
We offer month to month across all of our contracts to give owners the freedom they deserve. We only want to work with the people who want to work with us. Get to know what kind of contract minimums the company you’re thinking of hiring offers and what it might take to get out if you’re unhappy.
5. How often do you inspect the property?
Making sure that your manager is getting eyes on the property is important. Everyone who owns real estate wants their property to look good. If tenants are leaving trash out or parking cars on the grass, you need to know that. Unless the residents report that, there’s only one way to know what’s going on at the property – inspections. Some managers will offer twice a year, while some offer monthly.
Suffice to say, the more often they are checking the property, the better. Here at Mayfair, we do an exterior inspection on every single property at least once a month. In Fort Lauderdale things can quickly change from day to day so it’s important to be on top of it.
6. How do you collect rent from residents?
Collecting rent in cash can be dangerous for the person collecting it and can also be problematic for the owner if something happens. Reducing the number of transfers the money has to make keeps the process clean and your money safe. Aim for a management company that accepts rent online, either through retail cash payments or bank transfers.
7. How do you take service requests from residents?
Do they have someone who is in charge of taking maintenance requests? Or perhaps an online portal where residents can submit maintenance requests? Knowing how residents can submit issues they’re having with the unit is essential. At Mayfair, we have a service coordinator that works 9-5 Monday through Friday. We also have a third party that we work with that takes all calls 24/7, even on holidays. So if there is an emergency Christmas morning, our residents are covered.
While there’s no one-size-fits-all answer to these questions, we recommend asking all of them before putting your name on the dotted line. We also recommend asking for a blank management agreement to review before making a decision. There’s no worse feeling than going through the entire on-boarding process and seeing a section of the contract that is a massive deal-breaker for you.
Another suggestion we like to make is finding a property manager that specializes in your area or property type.
To circle back to point one and interviewing nationwide management companies, owners are often worried that they’ll get lost in all the commotion. The quick fix to that is working with a specialist. You want a team that knows the area exceptionally well or works with many properties that are similar to yours. For example, if you have a fourplex in Fort Lauderdale – it makes sense to find a management company specializing in small to medium-sized multifamily buildings.
Building a relationship with a great property management can make a difference in your investing career, so finding the right one and asking the right questions is going to put you in the best position.
Handing over one of the most significant investments of your life is not a decision you should take lightly. We’d like to hear more from you about questions you think owners should ask property managers in the comment section below! As always, if you’re interested in learning more about the real estate and management services that we offer, give us a call!