Questions to Ask Lenders/PMs/Contractors

[Tim Kappel]

Hello

As I start out in this career of a REI, I am looking to interview some people for my team. I have a list of questions that I have put together form books, forums, podcasts, etc for 3 key players on any team. Does anyone have any good questions to add? Are any of these terrible? Thanks for any and all advice!

• Lender
• How much am I able to borrow (pre-approval amount)
• What is the current rate for investment properties
• How long is the “seasoning” period before I can borrow money against the property
• What is your LTV %
• What are your closing costs (breakdown)
• How much it will cost to buy down the rate
• What is your “cash out” refinance rate
• Does lender work with out of state investors
• How quick can you close

• Property Manager
• What are your fees (flat fee/% of rent)
• Do you have references
• How many are you currently managing
• How often do you check in on tenants
• Who keeps the damage deposits
• What do you charge for evictions
• Will you advertise and show property while occupied
• How long does it typically take you to turn a property around between tenants
• Do you conduct background checks on tenants
• Do you take photos of the property before and after move
• Do you offer a tenant placement guarantee
• How do you handle calls for repairs, do you try to solve the problem before sending someone out
• Do you establish a threshold $ amount on repairs above which you always call the owner
• Who do you use for repairs

• Contractor
• Are you licensed and do you have insurance
• How long have you been running your own crew
• Do you have a list of references
• Will you be using any subs on this project
• Do you give out warranties
• Have you ever had any legal action filed against you
• How often do you communicate with your customers
• How do you clean up your jobsite and what does that mean to you
• How many projects do you have going right now
• What will our contract look like
• How and when do you like to be paid

[David K.]

I'll chime in on my lane. Let's shoot for non "Yes" or "No" questions.

• Property Manager
  • What are your fees (flat fee/% of rent) - This is everyone's first question, but it shouldn't be. We're 10 months into an eviction moratorium that will last for who knows how long. Once it's lifted, the courts will be backlogged for years. Over focusing on lowest cost puts an investor in a position to be dissatisfied and vulnerable. Proper management can't be a $79 special without fees elsewhere, or just terribly quality. All of your questions should lead you to what you're getting for the price you're paying.
  • Do you have references - I get this regularly enough that it's worth discussing. Make a list of questions for the references the PM is hand picking for you. Make it worth your while.
  • How many are you currently managing - Good question, a better question might be about support staff in reference to door count. 500 doors and a staff of 3 should be a red flag, just like 40 doors with a staff of 12 would be.
  • How often do you check in on tenants - "Can you give me three or four examples of how you check in on tenants? I'd hate to think my property went unmonitored for months at a time." Asking for 3 or 4 examples makes them think beyond the common 1 inspection per year answer. Look for that their vendors report back their findings, or that the PM keeps is in regular contact by text, etc.
  • Who keeps the damage deposits - In my state security deposits are held in trust by the brokerage. IDK other states, but that's kind of a red flag question for me. If we need to discuss who holds the deposit, this conversation is about to end.
  • What do you charge for evictions - how about "What does the eviction process look like as far as cost goes?" I'm not saying people don't mark up evictions, I'm sure they do. Of course the PM's time has a cost, as does the attorney's, court costs, etc.
  • Will you advertise and show property while occupied - Yuck, I don't lol. Good question though.
  • How long does it typically take you to turn a property around between tenants - Good question, I'd get some sort of commitment to the answer. A good PM is motivated to get the property on the market to get the placement fee, and start earning the management fee again. Maybe ask what the process is that they use, and what amount of time each step takes. Move out inspection, time for tenant to fix, return remainder of security deposit to tenant, scope make ready, time to complete once owner approves, time from make ready to marketing, time from marketing to showings....etc. 
  • Do you conduct background checks on tenants - This should be a given. "Can you tell me about your screening process? Also, in this time of no evictions, can you tell me what you're doing for additional scrutiny for candidates." This is a trick question. The perfect answer is "nothing." Meaning their processes were already solid enough that this no eviction stuff didn't give them any pause or require a policy change. However even my answer is a bit naïve, because we all stiffened up some in March.
  • Do you take photos of the property before and after move - Another yes or no question we can rephrase. "What do you do to catalog the condition of the property pre and post tenant. I do throw confusing syntax and vocabulary at people to see if they're really on the same page. My wife is not a fan.
  • Do you offer a tenant placement guarantee - This answer should be no, but the question brings a better conversation. A good PM who loses you a paying tenant through their action should place a new tenant for free. However, a guarantee, I wouldn't expect that...at least I've not heard of it.
  • How do you handle calls for repairs -, do you try to solve the problem before sending someone out  Stop where I bolded and let them answer. Yes, you want them troubleshooting over the phone, but don't tee that up. Many PMs Step 1. Get Work Order Step 2. Dispatch Vendor. Great question, make sure they answer it.
  • Do you establish a threshold $ amount on repairs above which you always call the owner - Your management agreement should spell this out. I call it NTE (Not to Exceed) I learned it somewhere, someone told me. This should be agreed, but an investor should also understand that some things need to be fixed without a discussion. Uncontrolled water, no heat, no AC when its freezing or over 90° etc. "Give me a few examples where you wouldn't call me?" These type of situations are both right and wrong. The goal should be to establish a relationship together over time that eventually you trust the PM to operate on your behalf. 
  • Who do you use for repairs - A follow up to that answer could be "Will you use my guys?" The answer should be "maybe". All vendors should be vetted, have licenses and verified insurance. The things I just mentioned almost always eliminate the cheapest fella. The bigger issue is that they're cognizant of who they're sending to your property and that when something happens, there's insurance to handle it. I had a guy drop a garage door spring onto a Jaguar. I've had guys drop things from chandeliers that ruined the table below. These things happen, "Thank you for letting me know Vendor Bob, I'm going to call the tenant and then your insurance company."

The only other questions would be about:
-Tell me about the rent collection process (online portals, eviction timelines)

-How many pending evictions do you have right now?

-When do I get my money?

- Will you (or whom) will be managing my property directly?

That's all I can think of at this late hour. Good luck, PM me if you'd like and I surely think of more to say.

"Don't be afraid to have no tenant, no tenant is better than the wrong tenant."

DK