Choosing a Property Manager
When you have considered all the relevant issues and decide to choose another party to manage your property, then the process of picking a management company is a very important one. Hiring a company to watch an investment is what is known as property management. There are many different types of property managers with various levels of services and thus you should consider various things. Are companies being considered specializing in what you are asking them to manage? There are some fee managers who specialize in residential properties, still others who specialize in commercial real estate, and yet even others who specialize in association management.
If you are purchasing a multifamily residential apartment property, then until want to choose a property manager that predominantly operates in this category. Real estate brokers often sell management services, but keep in mind they are predominantly in the business of selling real estate. Their motives for offering management services are often for supplemental income. Often, the size of the property management firm is somewhat important, too. When the initial investment is a simple duplex, a large firm may not be advisable.
If your investment is relatively small compared to the other properties the fee- managed organization has responsibility for, then it may not get the attention it deserves. When deciding on a management company, visit the company offices and scrutinize the office operation—remember that property management is all about detail and organization. A management office should reflect that. Obtain a list of properties and clients the management company services: ask for a complete list, not its selected list. Visit the properties listed and talk to the owners of those properties. There are multiple questions you should be asking during this process:
Licenses
Many states require that a real estate broker licenses be held by managers of rental property. All property managers associated with propertymanagementresource.com have real estate broker licenses as required by law in California. Some locations will require further certification and licensing. A prospective company should be able to produce proof upon request.
Certifications
The property management company should have some kind of industry certifications, such as the Institute of Real Estate Management (IREM) certified property manager designation (CPM).
If it's a larger company, how many properties does the company assign to each manager? A manager already watching twenty properties isn’t going to watch any more than that effectively.
How does the company collect and manage the money?
The company should designate individual bank accounts for each entity it manages. Money commingled is hard to account for, and furthermore it is unethical.
The company should be properly insured for liability and errors and omissions, and should be able to provide proof of insurance and should be willing to name your entity as additionally insured.
Does the company screen employees? Any property management company that you hire will be handling your money and going into people’s homes and therefore you will want to be comfortable with its security methods.
The Company should operate near the location and municipality where your investment is located. The management company should know the area better than the prospective owner, otherwise it may turn out to be a case of the blind leading the blind.
An question to ask is about fee structure. As a property owner, you need to asses whether hiring a fee management firm makes economic sense; if the investment is very small, it may not. If it seems to make sense, then make sure all fee questions are explored.
Several companies will charge a flat fee or charge by the unit, but the best arrangement is with a company that is willing to be paid a percentage of rent collected (not rent expected). This provides incentives to that company to work for its money. This is not the only fee-based concern. Many companies have fee schedules for certain administrative tasks such as copying and mailing. You should also be aware whether this company has its own maintenance division and if it collects additional charges and fees from a maintenance perspective. Also, some firms keep certain collectible fees such as late fees and markups on credit check fees.
Management Agreements
If a fee agreement is reached and all other concerns are alleviated, then you need to enter into a management agreement. There are many parts of a management agreement that should be considered before signing and agreeing to. Some of them are:
- The fee structure should be itemized clearly on any agreement.
- The terms of this agreement should be agreed by all parties and the terms under which each party can end the relationship should be spelled out. Watch out for automatic clauses. An end to the term of an agreement allows for clarification of what is and was expected as opposed to what has actually happened over the course of the contract.
- The collection of funds and the deposit arrangement should be clearly specified.
- The owner of the property should always be in charge, so establish spending guidelines for the management firm. You need to make clear on what and how much it can spend without ownership approval and under what circumstances the management firm needs ownership review before spending.
- Establish clear procedures for rent collection and debt collection including dates, fees, and who keeps those fees.
- It is important to itemize the responsibilities that the management company is expected to undertake. If financial reporting is a concern, then be explicit as to how often you receive reports.
- It would be a good idea to let the management company know that as an owner, you reserve the right to have its records independently audited should the need arise. This is a long term relationship , so this process should not be one the management firm objects to. If it does, its not a good fit for you.
Once you have picked a management company, stay in constant contact with a representative and visit your property regularly. Property owners make a dangerous mistake if they assume a management company will always handle the property the way they would wish. Like any business, management firms have a lot of turnover, and although some of them have very good internal controls, the people who actually do the work have a lot to do with a property’s success. As an owner, it is not a good idea to become removed or detached from what takes place at your rental property. An owner who stays engaged will always be better off