Out of all the things you could have invested in you decided real estate was probably the best option for long-term growth. And so, you’ve decided to purchase an income property or maybe income properties. Of course, you’re not, nor have you ever been a property manager and the idea of being on call 24-7 to deal with tenant emergencies is filling you with a sudden sense of dread. Like many other real estate investors, this is where you decide that hiring a property management company can allow you to get all the financial benefits of owning real estate and free you from becoming a full-time landlord. And of course, you already know that you can write off their services as an expense against your tax bill.
That said before you rush into to signing with just any property manager, here are 10 questions you absolutely must ask them.
What are your fees and what’s included?
Right from the beginning, you want to know how much this is going to cost. Having a property manager on your team is a great way to run a real estate investment, but you need to know all the details upfront. There will be a cost for placing a quality tenant, usually about half of the first month’s rent. You need to know if that fee covers staging and photography of the property and any other incidentals to get your investment paying for itself. Usually, the property manager will charge a percentage of the rental price as a monthly fee. You need to find out what services are covered in that monthly fee and if there are any extras you should be thinking about. You will also want to ask if there is an annual renewal fee for existing tenants staying beyond the first year and if there are fees associated with a vacant property. Some property managers will charge a seasonal maintenance fee for upkeep of a yet to be rented property.
Who will be my representative and how many properties do they manage?
When you are working with a property management company it’s great if they have some bench strength and are able to sub people in if your usual representative is unavailable for one reason or another. However, you should make sure there is ultimately one person that can be held accountable for the overall management of your investment property! It’s also important to know how many properties that person is managing. If the number seems high, you are going to want to know how they plan to give your property the appropriate attention.
How long have you been in this line of work and what sets you apart?
If the property manager is new, maybe they’re hungry and ready to go to new levels of above and beyond. If they’ve been in the business a while, they likely have strategies they’ve built up through their experience. Neither option is bad, but you want to know which one you’re getting. And of course, make sure they answer the rest of these questions to your satisfaction.
How would you structure a maintenance plan?
Owning real estate means you need to expect maintenance. Two very distinct kinds. The first is general upkeep. A pathway may need to be cleared, outdoor lights replaced, and as a property ages, there are going to be bigger things that have to be repaired or redone. Eventually, you will need new windows for your property and if it’s a house a new roof will be required at some point. Of course, the second kind is emergency maintenance. You will need a plan to get that tackled right away, and advice on what sort of insurance could be helpful to mitigate costs. Always have a potential property manager tell you about how they will help you structure a maintenance plan and find out about their preferred contractors.
Do you troubleshoot with tenants when they call for repairs?
This may sound silly, but repairs can really add up quickly if the tenant is calling regularly and each call triggers a maintenance response from the property manager. Sometimes it can be as simple as having a property manager that knows enough to make a couple suggestions before calling the contractor. Have they tested the light fixture with a new bulb? Did they double check that it’s not simply a tripped circuit breaker? A quick couple of questions can sometimes save you a small fortune.
What can you tell me about your screening process?
When you make an investment you always want to know as much as you can about the due diligence process used by the professionals you hire to work on your behalf. If you’re investing in a stock, you need to know how the executive team plans to make a return. When you purchase a property you want to know how they will select the person who will be essentially paying your mortgage. Having a good, long-term tenant goes a long way to making your income property stress free, so find out how they generate leads. Do they have a database, a special search site, or do they work directly with companies needing to place transferred executives? Have them show you their process for success and make sure you’re comfortable with it.
How much do you recommend I rent my property for and why?
If you hire a good property manager they are going to make sure your property is competitively priced for the market that it’s in. Too high and it will sit vacant for a while costing you out of pocket funds to pay the mortgage. Too low and you will be stuck feeling you are not getting what your investment is worth. When you’re interviewing a prospective property manager ask them to explain how they arrived at their recommended number. You never want to jump in with a manager simply because they gave you the highest number, it could be a recipe for an empty property.
When is the rent money disbursed to me?
If your mortgage is due on the fifteenth of the month, you will want to make sure you can arrange to have your rental payment in hand before that. Some property managers issue cheques, others direct deposits, and usually these are done to set account payable schedules. Making sure all the revenue is going to line up the way you need it to will go a long way to saving yourself potential stress in the future.
What do you expect me to do as the owner?
Expectations are important! You spend a lot of time asking a prospective property manager what sort of things they are going to do for you, it’s equally important to know what they expect from you. No investment is going to be totally passive, and nor would you want to be totally left out. Will you get to come along for rental inspections? Should you review their short list of applicants? It’s important that you negotiate upfront exactly how much involvement you want to have.
What is your termination policy?
It’s always important to know how to get out. Even if you asked all the right questions and have lined up the best property manager you can find. Ask them what are the terms for parting ways. Often times there will be a rental grace period, whereby if the property is not rented in a certain timeframe you will have the right to take your investment elsewhere. And that is the important thing to remember, this is an investment and needs to be treated as such. If your investment is suffering, no matter how much you like the people you are working with, it may be time to try other options. Always have an exit strategy.