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Success Strategies: Eight Questions to Ask Property Management Companies
By Matt James
Do you want to buy and hold (rent out) investment properties, but not be responsible for the headache of managing them? Do you already own property that you're tired of managing? If so, a professional property management (PM) company may be your answer. Having a PM company oversee your investment property offers a number of advantages, including:
o Riding out a down market while generating positive cash flow
o Maintaining out-of-state properties without having to live in-state or visit
o Enabling you to acquire that perfect retirement property when you're still years away from retirement
o Allowing you to maintain your fulltime job and recreational activities
In addition, PM companies take care of as much or as little as you specify, including finding good qualified tenants, coordinating showings, paying the bills, enforcing collection of rents, and taking care of all maintenance issues.
How do you go about finding the right property management company? Here are eight essential questions to ask when researching potential property managers; the answers will help you find a company that suits your needs.
* Next 37 17 investors only!
- What are your references?
Look for companies with sterling reputations, high integrity, and excellent customer service. The property management industry is fragmented and you'll find lots of different people doing it on a freelance basis. Ask your network for recommendations and follow up with all references (don't just call one reference and think your job is done).
Also, ask potential PMs if they're affiliated with a larger company or a nationwide group and how long they've been in business. Whether you go with a "freelance" PM or an established company, you want someone who has been in the industry for some time and who knows the ins and outs of real estate and managing properties.
- Do you own your own properties?
The purpose of this question is to find out if the property manager will be competing with you for tenants. As a property manager, I do own properties; but as a matter of integrity and customer service, I show all potential tenants all vacancies, whether they are my clients' or my own, and then let the tenant decide. Property managers who are also investors must remain unbiased, and in addition, tenants have various needs. One may want a condo while another wants a single family home.
- What types of properties do you manage?
Some PM companies will only manage specific types of properties, such as large apartment units or condo complexes. Others require a minimum number of units before they will manage your property, and many don't manage single-family homes or condos at all. Ask for the company's policy up front so you don't waste time.
- How do you manage maintenance issues?
Ask the PM company for their procedures regarding repairs. If a tenant calls at 4:00 AM complaining about the lack of hot water, what happens? What is their response time? Do they have contractors on call? Do they have backup in case a contractor can't make it? A responsive PM company will have a 24-hour service number tenants can call, will get right on the phone with the contractor, and will have the problem fixed - often before the property owner wakes up and hears about it.
Property managers usually have an "in" with plumbers, electricians, and other repair people due to the volume of work they send out - this keeps the PM high on the contractor's list. If in doubt, ask the PM company for its list of contractors.
- How do you qualify potential tenants?
Some qualifying questions are left up to the property owner - for example, it's up to you to determine if you want to allow tenants to have pets or to smoke. The property manager usually performs the background and credit check of all potential tenants and will give you their professional opinion on each one; however, it's ultimately your decision.
- How do you handle the accounting?
Again, you can decide how involved you want the PM company to be. (If a PM company is not open or "transparent" about their accounting practices, cross them off your list.)
Property managers generally collect rents; the money is then put into an escrow account, from which the PM can draw to pay expenses. At the end of the month, you'll receive an itemized bill and a check with the balance of the rent. However, you can also choose to specify that you'll pay all expenses and have the full rent check sent to you, minus the property manager's fee.
- What services do you provide property owners?
PM companies can provide as many or as few services as you specify. They can ensure landscapers mow the lawn every week, oversee all maintenance and repairs up to a specified dollar amount, show the property when it's empty, and advertise the vacancy online and in local media.
The management agreement outlines the duties of the property manger and generally is in effect for one year (but it can be changed for certain scenarios).
- Can you work with out-of-state investors?
A good PM company should have no problem working with out-of-state property owners. We had a client come in from Hawaii recently. He and his wife want to retire in northeastern Massachusetts and bought a condo here because the market is good. However, they won't be living in it for a year or two and want to rent it out. Once they closed on it, we met and walked through the condo together. They're back at home in Hawaii, while we're finding a tenant for their condo.
Although using a property manager does involve monthly costs, you should end up saving money over the long term. Property management companies constantly evaluate the market and know what properties rent for - ensuring you get the best possible rental price when new tenants move in or when a tenant's lease comes up for renewal.
In addition, you enjoy peace of mind knowing someone else is managing your property for you. Instead of fixing something on a beautiful Saturday morning, you'll have the freedom to play golf instead. Instead of having to take time off from work to find a plumber or electrician, your property manager solves the problem in less than half the time.
Matt James is a property manager with Real Property Management, a Londonderry, NH firm specializing in residential apartment buildings, single-family homes, and condos in the southern New Hampshire and northeastern Massachusetts areas. He can be reached by phone at 603-657-9040 or through the firm's website at www.realpropertynh.com.
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