Property Mangement Companies – What to look for

By glblguy

property-management-companies

We haven’t fully given up selling our house, but we’ve entered into a contract with a property management company. Our old house is for sale and for rent at the same time. The really good news is that we have a potential tenant already and if all goes well, they should sign a lease this week. No more stressing about two mortgages!

Property Management Companies

Property management companies are companies that take care of “land lording” and marketing your rental house for you. They do this in exchange for a % of your monthly rent, and depending on the company they may charge additional property management fees as well. Here are just some of the services provided by typical property management companies:

  • Marketing of your for rent home
  • Tenant screening, including background and credit checks
  • Rental contract enforcement, including handling any required legal action
  • Providing 24×7 support and maintenance (although you’ll pay maintenance fees)
  • Collecting monthly rent
  • Dealing with problems and home owners association issues
  • Holding the deposit

Basically, a property management company becomes the landlord for your rental property or properties in exchange for a portion of your monthly rent. Some will also charge additional finders fees for marketing your home, and some will offload various fees to you such as legal fees, background checks, etc.

Reasons to consider a property management company include 1) just not wanting to deal with the headaches and overhead of being a landlord and 2) you live far enough away from the home that managing it and keeping up with it will be difficult. Reason #2 is why I went with a management company. I didn’t want to get a call at 3:00am that the water line broke and needed to be fixed NOW. Nor did I want to deal with a tenant that wouldn’t pay their rent when I live 3 hours away.

How to choose a property management company

When selecting a property management company, it pays to shop around. I called about 10 different companies before selecting the one we went with. Here are just a few things to consider:

  • How long have they been in business? – You want a company that’s been around for a while and knows the market and has good relationships with real estate agents in the area.
  • Are they insured? – The answer to this will drive how much and what types of insurance you may need. For example, what if a tenant sues the management company? Could you be held liable?
  • Are they experienced managing your type of property? – If you have a home, and the company does nothing but commercial property management, they are probably not the best option for you.
  • If a tenant doesn’t pay, what do you do? – The company you are talking to should give you a very clear and specific response to this indicating they have procedures they follow. These should include eviction notices and involving the Sheriff to forcefully evict if necessary. Understand who pays these fees if that occurs.
  • How do you select tenants, what is your screening process? – You want good reliable and safe tenants. The management companies screening process will drive the type of tenants you get. Again, they should have a good clear process that includes meeting personally with the tenants.
  • Understand the charges by asking what types of charges are involved? – Of course you want to minimize your charges/expenses, but not at the risk of the company not doing a good job. After all, nothing is free right?
  • How do you handle maintenance and repairs? A good company should have a set of companies they work with and/or have on retainer. This should include a general “handy-man”, plumber, electrician, and HVAC service company. Make sure there are reputable people. Understand how the charges will be handled and if you have the option of having the service done yourself by either you or someone else.
  • How do you advertise? – The company should have a very clear marketing plan for you home and should even be able to tell you what works and what doesn’t. Advertising should include both print media and internet marketing.
  • Do you have references I can call? – This is critical. The company should have a decent list of references and I strongly advise you to call them ask about what they like, what they dislike, have they had any problems, were they resolved, etc.

How I selected our company

I actually received 3 different property management company referrals. One from my real estate agent, and one from another agent we were friends with in the neighborhood, and one from a friend at work that uses a company to manage his properties. I also pulled a handful of companies out of the phone book. I called each of them and had planned to meet the ones that passed the phone screen in person at my old home. After the phone screens, I only found one company that I liked. The others had too many fees, didn’t seem interested, or just seemed like “mom and pop” shops that did it part time. Not what I wanted.

I met the owner of the company I went with at the house, he walked around, took pictures, and then we sat down and walked through the whole process. He gave me a list of references which was 3 pages long. The list included the mayor of the city we lived in, two famous Nascar drivers, several prominent lawyers and doctors, some other prominent public officials, and numerous other people.  We talked for a long time. He walked through the contract in detail and discussed how various situations would be handled.

I called a few references the next day, including one of the Nascar drivers and received nothing but good reports. No, I didn’t speak to the Nascar driver himself, but to his personal assistant…oh well. I only got one complaint and that issue had been resolved and turned out to be a mis-communication. I also did a quick check on any complaints to the better business bureau…none. I signed the lease papers the next morning.

Property Management Company Fees

My property management company charges 10% of the monthly rent. That’s it. No finders fees, no surcharges, nothing. Just 10%. If I find the tenant, they reduce that to 8%. I am responsible for eviction and sheriff fees if needed and any maintenance costs.  For a court situation, I am responsible for court cost only. The legal fees are handled by the management company by a lawyer they employee. The company manages over 600 properties in the area we lived, and also is a licensed real estate broker as well.

I returned home from the mountains very happy with my decision. If all goes well today, I’ll have a signed 1-year lease for our home that covers our mortgage and all expenses. I won’t be getting rich, but at least my out of pocket expenses are covered!

Have any of you used a property managmeent company? If so, any tips for a n00b like me? What is your primary selection criteria. Share your thoughts and story, add a comment!

Photo by: TheTruthAbout…


14 Responses (including trackbacks) to “Property Mangement Companies – What to look for”

  1. Mr. Imperfect Says:

    We made the mistake of trying the DIY method of land-lording. Terrible idea. You made the right choice in choosing a company to handle this, and the criteria you listed are perfect. Our main concerns were cost and experience. It was very nice to stop getting those 3am calls about the hot water heater!

    After about 2 years we sold the property to a tenant that was living there and a Realtor at the company we were dealing with handle the entire process flawlessly. Congratulations on this decision and we know it will work out well for you!

  2. Frugal Dad Says:

    I’ve never been in your position, but as a former renter I can tell you that dealing with a professional property management company versus an inexperienced landlord makes a big difference. Sure, you are forking over a portion of your monthly rental income, but when you factor in the time and hassle-factor involved in long-distance landlording it’s not a bad deal.

  3. ConnieBrz Says:

    Sometimes large property management companies take longer to fill vacancies. They simply don’t market an empty house as well as a smaller ‘mom and pop’ because they have so many others and it could get overlooked in the shuffle. A prolonged vacancy can get very expensive very fast.

    If you’re going to have a problem with this company it will be precisely because of those 600 other properties… and the fact that you are not the mayor nor a Nascar driver. I would’ve checked out Mom and Pop a bit more carefullly.

  4. Pamela @ Frugal Vet Tech (Student) Says:

    Interesting info. What happens if someone wants to buy the house half-way through the renter’s lease?

  5. Kacie Says:

    I’m also curious about Pamela’s question.

    As a renter myself (in an apartment building), I do appreciate dealing with a professional mgmt company. Much easier!

  6. My Journey Says:

    I am shocked that you get freedom for the price of 10%…I have always wondered what these services cost. I’d love a follow up comment giving the actually numbers you are dealing with, i.e. monthly rent
    - 10% fee
    - mortgage
    - Taxes
    - etc.

    Hook it up!

  7. glblguy Says:

    Well, I’m in the whole actually, but only for the management fee. Numbers are per month:

    Mortgage: $1066
    Taxes: $150
    Insurance: $55
    HOA: $30
    Total: $1301

    Property Management Fee: $104

    Out of Pocket: $1405
    Leasing at: $1300.00

    I only did this as I had an immediate tenant and it was cheaper than paying another house payment. The asking rent price was $1400, but the soon to be tenants negotiated me down. It was worth it to get someone we trusted and that could move it right away.

  8. MyJourney Says:

    GLBL,

    I am just throwing it out there for ya, but if houses grow at 3% historically, and it is a 300K home (I have no idea if it is or isn’t but the exercise still works) then your yearly capital appreciation over time would be $9,000. Divide that by 12 months and you are looking at $750/mo in capital appreciation so you aren’t completely in the red.

    Further, and I am just throwing this out there also, you are now a landlord and certain items become tax deductible for tax year 2009! You should look into (and write a subsequent post lol) about what items you’ll be able to deduct to further offset the $100/mo loss.

  9. Wayward Says:

    Thanks, GLBL; this was an incredibly informative post. We’ve been wondering ourselves whether we will need to rent out our current home in order to move since selling is so difficult right now.

  10. Personal Finance Ology Says:

    10% seems a little pricey for what they are doing. It may very well be worth it for the peace of mind. Also could be worth it if you are not skilled enough to find good tenants. I think it can be hard to pick someone (but I wouldn’t really know).

    I would be interested to know if the rent you are charging covers the mortgage and then some? Keep us posted, I plan on RE investing in the future and this stuff interests me. Sounds like you picked a real good company!

  11. Patrick Says:

    Glad to hear you went this route – much better than paying mortgage expenses out of pocket! As for the $105 or so you are paying out of pocket each month, I wouldn’t stress about it. You can just look at it as spending $100 per month for the added equity you are receiving. That’s a huge discount! :)

  12. Jennifer Williams Says:

    One thing that we know for sure is that many property management companies out there are NOT doing their job at conducting good tenant screening reports. We are constantly hearing from our clients who request reports at our site at http://www.tenantscreeningbackgroundcheck.com that they had to fire their property management company because our reports show many previous judgments, unlawful detainers and even criminal history that was not previously found.

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