What do you look for in a property manager

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Andrew Johnson · Answer

@Chris Chesser I had no issue getting them to agree to money up front.  It wasn't even a question.  At turnover I end up paying whatever it takes to get the unit "rent ready" but that's more on the maintenance front.  And that's also assuming it's mild stuff that I can't (with good conscience) try to keep some portion of the security deposit to fix.  There's no specific charge from the PM to get the unit rent ready.  If there's a $25 charge to rekey the lock and it's done by the handyman of the PM I guess you could call that a "charge" but there's nothing around a leasing or re-leasing fee.

The only thing that comes to mind as for extra charges is that I pay for my owner-seat on Appfolio.  I think it's $100/year or something like that.  It's (given the number of units I have her manage) really negligible amount.  And that fee doesn't change if I have 5 units under management or 50 units under management.  So it's more like a (small) fixed-cost that's passed-through to me.

If a property manager *needed* any money up front from me I probably wouldn't use them.  I mean, seriously, you're collecting rents from day one (or week one) so you have the gross rents sitting in your bank account at least for a couple of weeks to use as a float.  And after the end of the first month (post-owner distribution) you have a funded reserve set up for the property.  If there is any expense over $300 (or whatever the threshold is) in the first month you're going to call me (as a PM) and get my approval for it.  If it is above the collected rents (or the reserves) I can always pay the vendor myself.

If a PMs business is in such dire straits that they can't function (i.e. manage my property) without an up-front fee I'm probably not going to trust you to manage my units.

Again, take this from the perspective of what is "standard" in the area where I have properties.  As I've noted on other posts before, if I went 30-40 miles to the west then 8% is standard, not 10%.  Some PMs offer tiers where the first 10 units are at 10%, the next 10 units at 9%, and units 21+ at 8%.  I've seen some people talk about 5% + leasing fee contracts.  And some PMs are now just charging a flat monthly fee per door (I've seen $75 tossed around for that).

So while it's not as though the terms that I have are "unique' but I can't say that they are indicative or common in Sycamore, Illnois or match the PM terms that @Elizabeth Wilson has in Memphis.

Andrew Johnson · Answer

@Chris Chesser I look for someone with at least a couple of hundred units under management. Basically, someone that has been successful enough in their market to grow a legitimate business, have employees, etc. I'm also a fan of them using some sort of application (mine uses Appfolio) so I can login as an owner, download reports, see things on a unit-by-unit basis, etc. I don't pay them anything up front, zero, zilch, nada. They get 10% of collected rents. The PM I use does hold back a reserve amount (from those rents) so that they can fund any standard repairs and maintenance that need to be done on a monthly basis. If it's a "high repair month" that amount gets replenished, if it's a "low repair month" the account stays the same and my distributions are the net (above that balance). I think the threshold for calling me is $300, anything below that, she has discretion. Above that she needs to get 3 bids. Honestly, though, if some random appliance is busted I just let make the decision. It might be $300 for a replacement (or $200 or whatever) vs. $50 to have someone come out to try and repair the appliance. I just let her make the call. I'm not there, I don't want to be there, if I don't trust a property manager to make a fix vs. replace decision on an appliance, why am I using them? What the heck do I know about the reasonable lifespan of a particular make/model of dishwasher? I have to trust that she will make the right decision.

However, I will say that I had a lengthy discussion of what I wanted done with the property at the outset. She knows to contact me when carpet needs to be replaced so I can choose if I want tile or that Allure(ish) flooring. She knows that I want prompt tree trimming and I want those branches well away from the roof. In short, I was pretty up-front and detailed about how I wanted the properties managed/maintained.

Hope that helps.

However, I will say that I had a lengthy discussion of what I wanted done with the property at the outset.  She knows to contact me when carpet needs to be replaced so I can choose if I want tile or that Allure(ish) flooring.  She knows that I want prompt tree trimming and I want those branches well away from the roof.  In short, I was pretty up-front and detailed about how I wanted the properties managed/maintained.

Hope that helps.

Elizabeth Wilson · Answer

@Chris Chesser - We lucked out with our first PM choice (thanks, @Douglas Skipworth!) so my advice is more what I'd do now if I moved to a market outside of Memphis.  My first question would be referrals from other investors. I'd find out all I could from investors on BP and/or your local REIA group about the company.  Size wouldn't matter as much as what other investors think about them.  If other investors are happy with their service, then go for it!

We pay 10% monthly and it is well worth it!

Levi T. · Answer

Could not of said it any better, nicely done!

As Andrew said, setup an operating agreement. I recommend using Google docs or something where you both can see and edit it. It must be clear and simple on each point. This way everyone is clear and fully understands what is expected.

What do you look for in a property manager

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