Questions to Ask a Property Manager: Part 3 of 3

Here is the third and last installment of “Questions to Ask Your Property Manager.” I am providing answers to some of the questions. However, in some cases, there is no one “right” answer. Actually, this was illustrated by the last installment, published three weeks ago. I had suggested that it is better for property managers to have some of their own skin in the game, so to speak, by owning their own rental properties in the area. Josh Dorkin, the founder of BiggerPockets, disagreed.

My underlying point: Lots of property managers don’t really understand the business, and go into rental management because they think it will be easy. Managers who own their own properties are more likely to have a clue about property management.

Josh’s underlying point: Property managers who own their own rentals are more likely to take care of their own properties first and consider you a competitor, especially when it comes to finding tenants. For example, they’ve got a vacant two-bedroom unit and you’ve got a vacant two-bedroom unit. When a prospect comes in looking for a two-bedroom, the managers will push their unit first.

Who’s right? We both are on the underlying points. So do you want your property manager to have his own rentals? That, my friends, is a judgment call. But consider this – if you don’t ask the question, you’ll never know. You won’t really be able to make an informed decision.

The best time to ask these questions is, of course, before you hire a management company. But if you already employ a management company, and don’t know the answers, you can always go back and ask. Besides knowing what’s going on with your property manager, you’ll be reminding them that you are an involved customer. That might make them less likely to cut corners with your properties.

The first and second parts of this series are linked hereand here.

On to the Property Manager Questions (and, sometimes, Answers)

• Question: What do you consider the most promising towns and parts of the area for investment?
• Question: Where do you see rents going? What has been the development in rents over the last few years?
• Question: What towns and parts of the area have the best governmental climate?
• Question: What towns and parts of the area have the best business climate?
• Question: What kinds of people are attracted to this area? That one?
• Question: What kind of new inventory is coming on the market?
• Question: What’s going on with commercial development in the area?
• Question: Which towns have the best schools?

Answers: These are “no one right answer” questions. But that doesn’t mean the answers won’t be revealing! Consider all the different ways they can be used.

• The answers need to be thoughtful and detailed. Seriously, do you really want a property manager who doesn’t know which are the hottest parts of town?
• The answers can be very helpful in helping you decide where to invest. This is especially useful if you are not a resident of the area.
• If you do some research ahead of time, you’ll have your own ideas which you can compare to the answers you get from the prospective property manager. You might hear what he says and think “that’s completely wrong.” Or he might convince you, and now you’ve learned something new.
• Why do the questions matter? The first two could be rephrased as “where should I invest?” The other six provide evidence for choosing one area over another. Tenants are less likely to be attracted to an area with a bad business climate, because new employers won’t be coming in and existing employers won’t be hiring. A bad governmental climate means (in my definition) a government that is neutral or bad on growth and possibly anti-landlord. Watch out for excessive regulations, rapidly rising property taxes, and/or ineffective or corrupt local government. Bad schools mean that good families who care about education are less likely to move in. You’re more likely to get fringe-y people who are more likely to be bad tenants.
• Within the area, there are usually specific areas attracting new businesses. Office and industrial parks are great because people will be working there and looking for nearby housing. Property values will rise in general. If one business park opens in a relatively undeveloped area, others are likely to follow.
• On the other hand, new residential rental development is a mixed blessing. Obviously the new 200-unit complex opening in your area is competition for you. The managers will be looking for new tenants and will probably have very attractive units.
  However, just like new business development, new residential development in your area is likely to raise property values in general. Three more questions and we’re done.
• Question: What is your monthly commission? Your fee for each new tenant? Do you have a charge for vacant units? What are your other fees?
• Answer: This is mostly a “final deal-breaker” question. Since you’re interviewing multiple managers, you should have a general idea what the competition is charging. If Property Manager A is charging a lot more than Property Manager B, and their qualifications are similar, you know who to pick.
• Question: Do you require an exclusive arrangement?
• Answer: Hopefully the answer is “no”, but don’t count on it. However, you would certainly prefer an arrangement where you could use a different approach for certain management matters. The key one is finding new tenants. In my experience, however, almost all property managers require an exclusive arrangement, and you can understand why.
• Question: What is the complete list of services you provide?
• Answer: If there’s a service that you need and the prospective manager does not provide, you have a problem. But you might be able to make a separate arrangement for this service.There are many more questions you could ask, and I’d love to see comments and additions from readers.

Photo Credit: Payton Chung