How to Choose a Real Estate Management co.

I recently consolidated my rentals in the Metro Detroit market to one property management company.

After months of critical thinking, and deciding on what is the most efficient way to manage my properties; I came up with a few guidelines that I plan to stick to when using a property manager.  Your manager should make this business run as smooth and as close to passive as possible for you.

My thoughts are as follows:

Fees  The typical management fees I have seen are 10,8,6 %.

When you start with a couple rentals, you’ll probably pay 10% of the gross rent to the management co. every month.  Once you get closer to 8-10 units it should drop down to 8% then once you get a dozen or so units you should be paying around 6% of gross a month to the management co. Whatever % they say they’ll charge you try to negotiate with them for lower, but this is usually the structure that I see.  I’m currently paying 6%

There will also usually be a leasing fee of one month’s rent for a new tenant placement, and if the tenant renews their lease you will be charged about $100 for every renewal. 

If the manger has to go to the house and collect bids for a large contracting job, eg. Roof, electric, brickwork, etc. They may charge 10% of the contractors fee to do the due diligence on the work and make sure to get the best price and quality work.  A normal small repair shouldn’t cost anything more than parts and labor.  Remember all costs and fees are negotiable

All of these will be directly deducted from the rent.  The manager may also require a cash reserve of a few hundred to a few thousand dollars in your account just to make payments in case rent is short one month. 

AUM   What are their assets under management, or units under management.  Do they have just a couple units or do they have thousands.  Ideally, you should want someone that falls right in the middle.  They’re large enough and experienced enough that they’re pros at what they do.  But they’re not so big where you can never talk to the same person, and when you call they don’t know who you are.  Which goes well into the next point…

Communication   Can you easily just text, call, or email them; and get a response within 24hrs?  Are you able to stop in and they know who you are? If you leave a non-emergency voice mail will they call you back within a business days time or return your email in a timely manner.  Will they let you text their personal phone? Also, if there is an emergency how do the tenants notify them, how do they react after hours? In my case, I need someone that can communicate well through email and can be an out of town manager; I’m often not in the same city or even at times, country, as my units.

Transparency    When you receive your monthly statements every dollar in and out must be shown.  There should be an easy way to see and read your monthly income statements and balance sheets. This goes into Technology having the ability to log on to see your statements whenever you want and if there’s a question you have the ability to contact them through the app or a quick email/text like previously stated.

How they handle evictions    In an unlikely event of having to remove a tenant, how would they handle it? This shouldn’t happen often if you buy in the right areas and they screen your tenants to have a high credit score and a stable job. Do they send demand right away, or after a few weeks.  What I have seen that works is once they’re three to five days late is to immediately send a demand letter and then file with the county for eviction, and if they do end up paying, just cancel the eviction and charge a late fee.  But the tenants will know that they will be evicted if they don’t end up paying.

Market insight     This is an important one.  Do they see what’s ahead in the market; do they know about future developments coming to the area; can they make suggestions based on former investments on what works in the rentals?  Where to spend money on upgrades and what is unnecessary. They also must know how to raise rents at the same time staying competitive in your rental market.  Can they find you off market deals?  This is an important one, and I could write a whole post on just this.  To sum this point up they should guide you through your investments, like a financial advisor at the bank but within the real estate asset class. 

 

Clear pics on Zillow/Marketing There’s nothing worse than seeing a listing of a house that was taken from a car or the picture is crooked, even worse the bathroom has the toilet seat up.  It just shows laziness on behalf of the agent, he didn’t want to take the time to steady the camera or clean up the place, it completely shows a lack of professionalism.  Make sure the agent at your management company isn’t mentally lazy and actually takes a minute to place a proper listing with a detailed description.  The tenants want to know the details about the property and their first impression is the pictures they see. They will decide if they want to see the house or not based on these pics. 

This is going to be the main way they market, this and people in the community who know who they are and will go to them when they need assistance finding a rental unit.  As well as their website.  It must be modern and professional with an easy way to schedule a showing.

The agents that show the house must know what they’re talking about, know the neighborhood, and know how to close a deal.

And don’t forget, look at their online reviews too.  With my current and a few past managers I used, I looked up their online reviews and my thoughts and experiences about the co. were exactly the same as that of what I’ve read.  They seem to be pretty accurate.

Bills Mortgage, Home Owners Association (Condo), Property tax, grass, water, etc.

Your monthly bills should all be paid by the management co. with funds from the rent.

The contract. If you sell the property, if you change management co’s., are there penalties associated with this? Carefully read through the contract.  Occasionally with certain management co’s they add sales penalties in there.  If they place a tenant for you and you sell that building with the tenant in there you may have to pay a penalty to them for selling.  Usually this is in commercial leases, you could also see this with lower end management companies.

When you decide to sell a residential building don’t pay more than 5%.  Residential property meaning 4 units or less in one building.  They may try to get 10% by saying that your 4 unit quad is commercial. Don’t listen to them and don’t pay >5%.  I’ve run into this a few times where agents have tried to get a few more percent out of my sale, I won’t let it happen, and neither should you. 

This is my experience and advice for a property manager. I hope it has been helpful to make the right decision.

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