Top Questions to Ask a Prospective Property Manager: Part 1
So you’ve decided to hire a property manager — awesome! But how do you know which property manager is the right one? There are two basic steps: do your own research, and once you’ve gotten a short list of PMs you’d be willing to give a shot, interview each of them and write down the pros and cons. But what should you ask?
Actually, there’s quite a bit — enough that we’re going to break this down into three parts: how they deal with tenants, how they deal with properties, and how they deal with you. This week, it’s all about the tenants; let’s get to it.
How Do You Screen Tenants?
Tenant screening is the ‘immune system’ of property investment — it does 90% of the work needed to keep potentially profit-crippling tenants out of your rental properties. A good property manager will always, always, always perform a tenant screening by obtaining information on the tenant(s):
a. Credit History
b. Criminal Record
c. Eviction History
d. Previous Landlord’s References
e. Current Employment (and Predicted Income)
f. Personal References
What type of credit report are they using, and specifically how do they use all the above information to make an approval decision? One big red flag: a PM who trusts an applicant to pull and turn in their own ‘unedited’ credit history is asking to get shafted.
How Many Evictions Do You Average Per Property Per Year? (Over the last 5 years.)
Not many PMs would ever think to calculate a number like this, so if you get an instant answer, you’re probably getting the wool pulled over your eyes (unless the number is ‘zero;’ there is the potential that a new or very lucky PM has simply never had to evict anyone.) By looking at their average per property per year, you take into account the number of properties they oversee, so there’s no fussing about the size of one PM’s business over another’s. The ideal number should be somewhere less than 0.1 evictions per property per year, for the record — any more than that, and you would be justified in thinking their tenant screening methods needed work. Of course this number may also be higher if most of the properties they manage are in a demographically challenged area.
What is Your Eviction Process?
Every property manager has their own process for handling evictions. State laws tend to dictate some or most of that process, but nevertheless, it’s worth asking about. The items you’re looking for on this question are pretty straightforward: how quickly do they start the ‘eviction clock’ once the opportunity arises, and how do they communicate with you and with the tenant about the eviction as it proceeds?
How Thorough is Your Lease?
Most property managers believe their lease is quite thorough — but there are a lot of items a genuinely comprehensive lease should cover. You absolutely need the lease to include clauses relating to:
a. Basic Clauses (Names of Lessees, Rent, Length of Term)
b. Security Deposits
c. Maintenance and Repairs
d. Warning of Concealed Defect (If required by local law)
e. Severability and Termination
f. Late Fees and Allocations
g. Subleasing
h. Joint and Several Liability
i. Renewal
j. Service of Process/Landlord’s Right to Enter
k. Use of Premises
l. Surrender of Premises
And you very much want the lease to include terms explaining the policies on Pets:
b. Smoking
c. Pest Control
d. Renter’s Insurance
e. Quiet Times
f. Clogged Drains
Allocation of Rent (payments go to all other outstanding costs before applying to rent.)
Is Your Lease Agreement Legal According to All Relevant Governments?
This is one of those questions that nearly every PM will unhesitatingly answer in the affirmative, so be prepared to pursue it a little. Ask them if their lawyer has signed off on it in the last year — property law changes at the Federal, State, and Municipal levels constantly, so if their lease hasn’t been verified in the last year, there’s a modest-but-dangerous chance that it’s out of date. Because you are legally liable if a property manager you hire uses an illegal lease agreement, it’s in your best interest to make sure that your PM’s is rock solid. More to the point, an illegal lease agreement is a really crappy thing to do to a tenant — so don’t!
What do You do to be 100% Fair-Housing Compliant?
If the answer isn’t a confident “Everything,” just move on. That’s a hornet’s nest you don’t want to get involved in at all.
That’s it for the ‘questions about tenants’ section; come back next week for a (slightly longer) series of questions that you should be ready to ask your potential future PM about how they will treat you if you sign on.
Thank you for explaining that you should make sure to ask about how a property management company will screen potential tenants and what requirements they should meet. My husband has a friend that heard about a real estate company that owned an apartment complex and they weren’t super successful because they had a number of tenants that would leave without paying rent. My husband and I think that most real estate companies should try and work with quality property management.
Thanks for explaining how property law changes constantly. I think a lot of property owners don’t know this. I feel like it would be too complicated so I’d rather just hire a property manager to deal with all of that.
I’m glad you said that we shouldn’t compromise on finding a property manager who’s fully compliant with fair housing laws. My husband and I think it would be a smart financial move to invest in property and are considering buying a condo, hopefully by the end of the year. Thanks for teaching me how to find the right property management company to handle the condo for us!
Be sure to read the next 2 parts of this series.
My husband and I bought a property years ago and we’ve been renting it, but now we want to rent it as a vacation home to be able to increase our earnings so we’ve been considering hiring a property manager. I love that you made a very thorough list explaining what should be asked to ensure you’re hiring the right person. I will definitely let my husband know what you recommended so that we’re both in the same page of what to ask for.
Thanks for reading and commenting.
I had no idea that property managers can handle evictions on their own but the state does some have some regulations. I figured that all evictions had to follow state guidelines and requirements. It makes sense because some tenants are horrible so I’m glad property managers can keep themselves safe if needed.
Property managers are required to follow all state and local government eviction statutes.
I’m glad you mentioned that the lease needs to include rules for quiet times at the property. My brother just purchased a four-plex building in the next city over and wants to find a property management service so he can more easily get high-quality tenants for it. I’ll have to share this advice with him so he knows what to ask about when choosing a property manager soon!
Thank you for the details on what should be in a standard lease. Every bit of that info is crucial.
Very helpful post to learn what are all the qualities to be found in the property manager. The steps how to test the tenant and processes in this regard are very well explained. Thank you for the very helpful post.
You made a good point when you mentioned hiring a property manager who will always perform screening to obtain information on the potential tenant. My father just told me the other day that he is planning to lease the apartment that he had bought a few years ago since it had been vacant for quite some time. He is thinking that it would be great if he can at least make some money out of it. I will suggest to him hiring a property manager who is reliable and experienced to choose the right tenant for his place.