Property Management Agent Worth it?

Question

Hi all - I am moving forward with a rental property and have been shopping around for a property management company in California. After speaking with a few they range from 6% to 10% a month which adds on a large property up but my question is are they worth it or are they just collecting rent every month with minimal value add? Any experience or thoughts would be great. Thanks.

Nathan Gesner · Answer

Let me answer this from a PM perspective.

Yes, the higher price can bring additional value. But the higher price doesn't guarantee better value! You have to research and find out what value they are providing that justifies the higher cost. For example, I am the most expensive property manager in my area at 11%. All the other property managers charge 10%. What do you get for the extra 1% that I charge?

• Professional company with more rentals than all other managers combined
• Online marketing, tenant and animal screening
• Higher rent rates because we know the market better, have a better reputation
• Best screening process money can buy
• Proven, written, and enforced policies
• Free evictions and up to a month of lost rent reimbursed
• I cover up to $5,000 in pet damages
• I cover up to $2,500 in tenant damages
• Every Tenant carries $100,000 in renters insurance, guaranteed
• Online portal for owners and tenants

That's not the entire list. If anyone compares me to the competition, there is no comparison and I can easily justify my higher price. By the way, most of my owners make more money with me than they would managing on their own or with another PM because I prevent losses they would normally experience through below-market rents or mismanagement.

The difficult part is finding a good property manager. It's just like finding a good renter; you need to educate yourself on what a good one looks like and then screen many different ones before you make a choice.

Remember: cheaper doesn't mean you'll make more money.

You can start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. Regardless of how you find them, try to interview at least three managers

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

Account Closed · Answer

I’m actually switching a property over to professional Property management due to my time is worth a lot more than the percent of gross I have to give up.  I consider it much easier to manage one property manager than it is to manage dozens of tenants.

Heather Frusco · Answer

@Nathan G. I agree. The comments by @Patricia Steiner just highlights how most real estate agents are just not apt at investment properties. We have used property managers now for all of our properties and know we could not have grown our portfolio without them. We have certainly run into some bad ones but overall, they have been good to us. Don't know of any other options out there that will actually manage your property with boots on the ground for all the ground items needed. Rent collection is important but really it's just one piece of many that our property manager's bring. How will you lease your property from a distance or conduct make-ready or any other items you need someone on the ground?... an online platform isn't going to do it and a realtor isn't going to do it either without being way over priced and overrated.

Sandy Gabin · Answer

Hi Dev,

It really depends on you. If you live close to the property, why not? But if you live far, then hire a PM. Then, calculate to see if it is worth it. Hope this helps.

Patricia Steiner · Answer

What are you expecting from a PM?  You certainly don't need one to collect rent with all the electronic options available. To lease a unit?  There are options for that as well - that don't have you paying every month forever.  What about maintenance and inspections?  A PM isn't going to do that work but outsource it.  And, if you've been around BP for a while, you know that PM issues are just as large as tenant ones.  Unless you're investing in a large property (apartments), there are plenty of other ways to ensure that your property is taken care of, rents are collected, and the property remains leased. I certainly don't mind paying for what services I receive but a percentage plus contract ensures that the PM is paid regardless of performance.  Consider other options so you retain control of your property and your ROI.

Heather Frusco · Answer

@Patricia Steiner you mention other 'options' available but stop short of listing them. Would you be able to elaborate a bit more of other consistent options available to show and maintain units?

James Wise · Answer

Long distance Property Management is a looser. You don't think you need a PM till you REALLY need a PM. It'll be worth every penny.

Kenny Dahill · Answer

@Dev P., this is a loaded question and depends a lot on what you actually need.

What is the size of property?  Managing a 4-unit is vastly different than a 120-unit.  Landlords can self-manage a 4-unit from out-of-state.  You can utilize a realtor for the occasional leasing.  Anything above a 24-unit is expected to have 1-2 leasings per month, which your local real estate agent might not want to do that often.

What kind of condition is the property?  Are you looking to do major renovations?  Or perhaps bare minimum.  If your property is large enough, some PM's will offer a construction management service.  If you only need assistance with the day-to-day repairs and you have a lot of units breaking, then there is value for their coordination time.  You'll pay for that service though but some landlords prefer not to be bothered.

Minimal Value Add:  Management can only add value when it's a commercial property.  Increasing rents; decreasing vacancy and maintenance expenses.  These are the easiest ways to actually add value to your property.  If by 'adding value' you meant for mental stress, that is contingent on hiring the right property manager.  A great one allows you to focus else where.  A bad one requires you to focus on them.

Lastly, what is your alternative? Some investors have relationships with local contractors and agents.  Plenty of landlords succeed self-managing out-of-state.  But they have a trusted team in place for specific needs.  Do you have that?  If your property is small enough that you feel confident in self-managing and hire out specific local task, then put thoughts into a system that allows.  You can always start self-managing and then hire a PM when you need.

Soh Tanaka · Answer

It's not that the you will get something extra from the best property management company. It's just that the bad property management company will give you a problem.

John Collins · Answer

You need to be specific about the property itself. When was it built, what did the inspection report say, how are the tenants and the neighborhood, etc. etc. Just pure numbers is pointless.

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