How to Choose Property Management

[Sheryl Sitman]

When i started investing 14 years ago while living overseas, here is what I imagined in my head. A PM will collect rent, have periodic friendly interactions with my tenants, handle maintenance issues the same way they would on their own home and manage getting the unit ready between tenants . . . end of story. I had no idea of the challenges and issues that could arise, of regulations and ordinances I would need to abide by, of paperwork . . . And I was so naive I was unaware of the high rate of non payment and major issues that can arise with a tenant.

Fast forward to today. I actually still work with the same PMs I started with 14 years ago -- in A neighborhoods in other states. It was my entrance into the Philadelphia market that was a rude awakening. The first two PMs that I hired in Philly did not just not meet my expectations. They caused me a lot of damage. 

So what did I learn from the experience and what do I suggest looking for when choosing a PM? 

Review the agreement in detail. If it does not explicitly include something, you can be sure, it is not included. For example, do you want periodic inspections of your asset with pictures? It needs to be in the agreement. Do you want owner draws by a certain date? It needs to be in there. 

Make sure that they define the policy regarding vacant property - will you be charged for months when your property is vacant?

Ask about how they handle correspondence. Do they guarantee response to emails within a certain time? Are they available for phone calls? 

Clarify in detail how maintenance is handled - from the system by which tenants are able to report an issue to how they choose if and who to dispatch and at what point if any, do they involve you in maintenance issues. I prefer a management company that will inform me immediately and allow me to be involved - to bring my own vendor, to ask for multiple estimates, to receive pictures . . . If they seem to be resistant to your involvement, keep in mind that you should be able to maintain records of everything going on in your property. Having repairs made without knowing the details or cost, is not a good idea. 

Many tenants pay late and eviction is something that most owners will need to eventually deal with. Clarify late fee policies, how late payments and evictions are managed. Some PMs are persistent and correspond with tenants. Others will do the minimum and may wait to start the process until you ask them . . .
Basically, a good management company has a defined process for most of the potential circumstances that arise. An example: I received a violation by mail for a property for trash and debris. I worried that I will end up needing to pay if it was not made abundantly clear to the tenant that they needed to handle it quickly. The PM then shared their process with me for managing what is a common occurrence in Philly. meaning that I did not need to ask, worry, check...
My conclusion is that big cities present big challenges for all landlords and management companies. It is a tough business and at the price point demanded by the market, PMs can struggle to provide the perfect service. Economies of scale, trained staff, well defined processes and responsiveness is the minimum that a PM must have in order to provide a good enough level of service.

[Phillip Austin]

As a former Regional Manager for one of the largest PMs in the country, I can tell you that A LOT of the larger national companies do not share the same values as their clients. In fact, their values and goals often times are in direct conflict with their clients’ goals. 

Generally speaking, as an investor, our goal is maximize NOI. Well, these larger companies have particular revenue goals and are heavily dependent on maximizing their leasing and maintenance revenue. They make A LOT of money off of your vacancy and repairs which is why Brandon Turner states in ‘Rental Property Investing' that "property managers suck because they're incentivized to suck."

In my opinion, you need to find a property manager that JUST charges a monthly management fee, NOTHING ELSE. This removes that incentive and instead, incentivizes the PM to place the best tenant and KEEP that tenant. Otherwise, they’re spending a lot of time and making no money. Which is how it should be! If the landlord does well, the PM should do well. You don’t want a PM company that makes money off of your pain!