How to Evaluate a Property Manager: Deal-Breakers

2016-03-14

How to Evaluate a Property Manager: Deal-Breakers

Some things you can brush off. These you can’t.

An oddly charming man with piercing blue eyes.Property management is one of many industries that operate on what market analysts call “asymmetry of information.” In other words, you as a client don’t know much about how a property management office actually functions — all you can do is look at what information you can get and make the best call you can based on what those numbers seem to say. Every property manager will tell you what they think you want to hear so that they can add your properties to their portfolio, so how do you know which PMs are right?

There Is No Universally ‘Right’ Property Manager
The first thing you should be aware of is that there is no such thing as a ‘right’ property manager for every client. There are a few different factors that need to line up for a PM and a client to match up.

  • Your properties need to be similar to properties they are already managing. If you have high-class, million-dollar-plus McMansions, you don’t want to deal with a property manager that manages mostly low-value former-foreclosures. If you have far-flung rural cabins that run on septic systems and have to worry about flooding from the nearby river, you don’t want a PM that specializes in suburban sprawl.
  • Your goals for the properties you own need to line up with their management techniques. If you plan to move into the home when Uncle Paul passes away, but the manager’s style is to skimp on maintenance until they can ‘renovate upward,’ those two goals aren’t going to work together without a lot of good luck.
  • Your personality needs to mesh well with the personality of the manager. Quite frankly, if you and the PM dread talking to each other, there’s no level of skill or service on the manager’s part that will make the relationship worth enduring.

If your properties, your goals, and your personalities align, you have a potentially good property manager. Now, you just need to make sure that nothing is obviously wrong with their business. How? Keep reading.

There Are Definitely Universally ‘Wrong’ Property Managers
That said, there are absolutely hard facts that you can use to determine that a property manager isn’t one that you want to hire on to.

  • If the PM isn’t licensed — not just to do business, but licensed as a Property Manager — they’re not legitimate. Oftentimes, a single PM business will have multiple licensed managers working there, which is important becauseā€¦
  • If they have more than 65 properties in their portfolio per licensed manager, chances are very good that the level of service they offer isn’t going to suffice for your needs.
  • If the PM won’t have eyes on the outside at least once a season and the inside at least once a year, find a new one. (Once a month/once a season is more comfortable.)
  • If their eviction rate exceeds 5%, it’s indicative of a problem with their tenant screening process, which is a problem you don’t want to have to deal with. (That assumes they deal with a decent amount of low-income properties — if the PM in question is strictly middle-class suburbia, aim for 2%.)
  • If they refund over 90% of their security deposits, it means they’re not doing an adequate job of holding their tenants accountable for repairs. If they refund less than 10%, it means that they either (again) have serious tenant screening problems or, quite frankly, they’re niggling jerks.
  • Finally, if adding your property to their management portfolio locks you into using their service to sell your property (once it comes time to sell), don’t do it. There are too many subtle conflicts of interest and ways that a company in that kind of position can profit at your expense without you having any say in the matter.

Those are the universal deal-breakers — if you have a company that overcomes all of those and matches the first three points above, you have a property manager that you can work with. Now it’s up to you to investigate all of the myriad of other details and figure out of that ‘can’ is capable of turning into ‘want to.’ Good luck!

8 thoughts on “How to Evaluate a Property Manager: Deal-Breakers

  1. I like your advice to choose a property management company who is already managing properties similar to ours. My husband and I are currently looking for a property management service. I want to end up with someone well-suited for any potential issues, so thanks for sharing the tip to choose a company who has experience with similar properties.

  2. That’s good to know that a property owner needs to make sure the property management they hire manages properties that are similar to theirs so they will understand the property. This is helpful since they can then ask different companies what type of properties they specialize in before they hire them to ensure they can do the work. It would also be smart to meet with someone in person since they should make sure they can communicate well with the management so the work will be smooth.

  3. Thank you for sharing this information with anyone looking to hire a property management company to help them manage their investment property. I agree with the commenters above that picking a property manager that has experience managing properties similar to the one you have is good advice. I also agree with the fact that a good property manager will conduct routine inspections of your property. After all, this is a great way to make sure your tenants are taking care of your property. It can also help prevent minor maintenance issues from becoming major ones. Thanks again for sharing and good luck to those on the hunt for the right property manager.

  4. Do you have a Youtube channel as well with this kind of content on it? I would love to see this post turned into a longer video if possible. Maybe I can share on it on my website.

  5. Thanks for the insight! You are right when you say that not all property managers are created equally. Some are inexperienced, some are understaffed, and some just don’t know how to manage properties similar to yours. That’s why it’s crucial you do your research when looking for a nearby property management company to hire. Make sure to conduct interviews and ask a bunch of questions so you know exactly what to expect should you agree to work with them. After all, you’ve spent a lot of time and money investing in a rental property. The last thing you want is a property manager ruining your chances of success.

  6. This is great information and things that most property managers won’t think about at first. I especially appreciate your mention of workload. It’s one thing for a property management company to have a lot of clients and another thing for them to be overworked and spread too thin. The key to being a successful landlord is having happy tenants. If your property manager cannot attend to your tenants the way you want them to, you risk losing your tenants at the end of the lease term and having a vacancy on your hands. Take the time to research your property manager before you hire them. It’s worth it in the end.

  7. Considering you’re hiring someone to take care of a massive investment of your time and money it makes a lot of sense that you’ll want to be meticulous when picking your property managers. I particularly agree with your suggestion about making sure the manager is licensed. That should honestly be one of the first things that you ask for; after all, you’ll want someone whose been trained and can take responsibility handling your properties.

  8. My godfather has been thinking of renting out his property so it might be best if he hires a property management company. I like how you mention evaluating a company that manages properties similar to his since they will understand the capital. I will make sure he reads this so he can start looking for a property management company in his area.

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