How to hire a property manager?

Question

I just closed on my first ever real estate buy and hold deal! I am meeting with a few property management companies in a few days and have a small quandary. I called two companies that service the area and got two very different responses. I will list them below.  ( paraphrased )

Property Manager A: Very confident we can get your property listed and rented quickly for $1000 a month. I have actually sold that very house you are in and while I don't normally service that county we should be able to get it rented to a good tenant with little to no down time. We will charge a premium which will be 15%, but we do so because we are the best and provide a better service than all competing property management companies.

Property Manager B: Yeah that property is in a good location that I am very familiar with. We service around 100 properties not only in that county but your town specifically. $1000 a month is not out of the realm of possibility, however I will more than like list it for $750 a month and we only charge 10%. While other companies may quote you higher potential list prices you can assure the number I tell you can be taken to the bank. If I can get more I will. Our main goal is to get a great low maintenance tenant in place so you can lay back as the investment property does its job.

...Property manager B is an acquaintance of mine that has always been a pretty stand up gentleman. I have done real estate transactions with "acquaintances" before that didn't go well. I am trying to take an impartial approach to hiring a property manager and want to interview both. The ultimate question I have is how do I discern the best property manager for my situation? Any advice on good interview questions or alternative ways to make a good hiring decision are greatly appreciated. Thanks in advance!

Mike Dymski · Answer

I recommend listing the property for the market rental rate and working with a referred PM in the area (also at a market fee rate).

I would not recommend working with a known PM with a rental rate well below market OR working with an out of market PM.  It's hard enough to make money in real estate even without those headwinds.

Ika Sargeant · Answer

I suggest you find out what the rental is in that market. $1000 and $750 is a big difference. Just remember how quickly the place is going to rent is always its location, condition and how fairly priced it is. I think you can hire a property manager for your  first year when you are learning and you seem pressed for time. Certainly do carefully read the contract, many people sign these contracts without ever reading them.

Account Closed · Answer

I'd honestly start by asking both of them for a copy of their management contract.  Read it thoroughly, paying attention especially to any fees they can charge you.  Then, expect them to charge you all of those fees, no matter what they tell you verbally.  Will you still make money if they do?

Also, if there is a section that says they can take care of maintenance problems without calling you if it's for something that would cost $250 or less (or some version of that), and if there is, ask them if they would be willing to cut that out of the contract and put in a section that says they have to call you for approval for any expense no matter how small.

Then, ask them if they would have a problem with you choosing your own handyman, plumber, etc., instead of using "their guy."

Also, I would never agree again to being charged to fire someone - most PM contracts will include a fee for even firing them.

I was personally ripped off with fees and so was my daughter by PMs.  Not saying they're all bad at all.  Just saying that the model for PMs is such that they really only make decent money when there are problems.  So, unfortunately, if they get a bad tenant, they make more money.  And if they get a kickback on maintenance issues, that is another temptation to take advantage.

Are you sure you can't self-manage?  I think it's hard to manage a manager if you don't know as much or more than they do.

Jason Foster · Answer

I’d recommend doing more diligence. Check Zillow & Rentometer to see what similar properties are actually renting for given how wide the spread is. I’d also check published reviews on Google and other sites, and ask both companies for a reference call with another investor that uses them. Picking the right PM is one of the most important decisions you’ll make.

Angelica M Garzon · Answer

Hi James,

Congrats on your investment!

I would evaluate both on their professionalism and work ethic with you until now. You are not married to a PM so if the one you think is a better choice doesn't work out two months from now, you can change.

If your property is vacant, I would check responsiveness and how quickly and thoroughly they handle putting a tenant into your home. They should provide you more than 3 applications, post your house on all free sites, get it rent ready and conduct tenant screening.

If you start the process and red flags come up change PM's before it's too late !

Hope this helps & good luck!

James H Webb III · Answer

I’m sure I could manage, however I work 60-80 hours a week. If I take on the job of property management my fear is it will cut into my time for the next property I am going to purchase. I assessed all of my numbers including 15% for property management and included capital expenditures as well as maintenance. The property management company won’t make or break me, however I definitely want to have one in place.

David Barnett · Answer

Based on the OP's summary of events, I vote C, none of the above.  I don't like what I'm hearing from either of the property management companies...  Good luck.

Ralph R. · Answer

@James H Webb III. I bought 10-12 units while living in Alaska. You made the classic mistake of buying a property with no place to manage it. Like buying a boat with no vehicle to pull it. Now you gotta scramble and maybe take a lesser PM. I NEVER buy without consulting a property manager.  That’s where you get the number to use for the rent!  Nuff about that.               I would not go with the first PM.  He’s selling you a bill of goods. Higher price cos he’s doing a premium job. doing you a favor cos he knows the property. None of that is important. And sooner or later your gonna be friends with both the pm and realtor if you use the same ones for every purchase. I always asked the pm I chose for a recommendation on which realtor to use. Why not ask the realtor who to use??  I like the second choice because he’s not painting a picture he can’t fulfill when he says it might be less than 1,000. He hasn’t seen it and prolly doesn’t know. And like I said your gonna come to know each other as you work together. I have 9 units with one manager. 3 of them are 80 miles out of his area. I do part of it myself. I find perspective tenants, he does the back ground checks. The tenants call him with trouble, but I get the maintenance man. He pays the bills and keeps track of all the books. That’s a biggie. He charges me 5%. None of my PM’s get any extra on maintenance. A flat 10% (except for the 3 units) and some get a lease up fee when they have to find a new tenant.   Things to look out for. Who gets the late fees and why?  Don’t go with one that has a penalty if you fire them.  PM’s that don’t return calls, ( you can’t check this out now as you gotta get a PM quickly). The PM should be using a tracking system that you have internet access to. Buildium is very good. Yardi sucks and Rent tech is mediocre. Check out the one he uses.   If it was me I would let the 2nd one tour the rental and recommend the rent. Ask him if he can give you a couple of names for references and CALL them. If you think it’s worth $1000 try that. If it rents good. If not go down. The PM works for you. BUT he knows the market better than you. That’s why you never buy a rental without consulting the PM first!!  RR

How to hire a property manager?

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