How to Select a Residential Property Manager

Not all property managers will look out for your best interest. If your situation requires that you contract with one, you should be careful in screening your options. Cast a wide net to find the best options. You should pay close attention to the costs in contracting with a property manager, but many of these are relatively standard. Be particularly careful to establish that you have found a reputable and trustworthy manager to care for you property.

Part 1

Part 1 of 3:

Searching for a Manager

1
Know when to look. Property managers might not always have your best interests in mind. You should only hire one if it is necessary. Good reasons to hire one include:
- You have more properties than you can handle.
- You live far away.
- You do not have the time.
- You’re not sure how to manage properties.
- You don’t want to deal with the legal and tax liability associated with being a employer.
- Your property is part of an affordable housing program. These often have complicated regulations that will make management more time consuming.^{[1]XResearch source}
2
Ask other professionals. If you have any friends in the business, ask them about their experiences with property managers. Consider attending the meetings of local real estate groups to ask other professionals about their experiences. Real Estate Investment Association meetings can be a useful resource. Some locations even have specific landlord groups, known as Property Owners Associations.^{[2]XResearch source}
- Your priority should be finding a property manager who is reliable. Ask other professionals if the property managers they worked with kept the property in good shape, responded quickly to their concerns, and maintained a consistent flow of revenue.
3
Search online. To broaden your search, look online for companies. The Institute of Real Estate Management and the National Association of Residential Property both offer online databases that allow you to search for local management companies.^{[3]XResearch source}
- Other online resources include: AllPropertyManagement.com and ManagemyProperty.com
If you are concerned about how a third party would care for your properties, set up a management structure and train a new but trustworthy manager in the system that you have set up.^{[4]XResearch source}
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Part 2

Part 2 of 3:

Negotiating Rates

1
Ask for a detailed explanation of management charges and fees. Most property managers calculate fees as a percentage of rent (6-12% is typical). Though these rates are fairly standard, you should be attentive to the details.
- Some companies charge rent on the basis of rent collected, others on the basis of potential rent. You should negotiate for fees to be based on actual rent, otherwise the manager will have less incentive to fill rooms and collect rent.^{[5]XResearch source}
- Will you be charged for 'extras' such as advertising, rent-up, or quarterly inspections? If so, consider carefully the value of those services.
2
Request information about the manager's maintenance policies. When something goes wrong with your investment property, you want to be sure the manager has a plan for how to handle a variety of problems and that you know how much it will cost.
- Is there a mark-up for vendor provided maintenance services? Some property managers mark-up a vendor's invoice by 10% or more. Try to negotiate over this rate.
- Most managers will want to perform repair costs up to a fixed dollar amount (normally between $250-500) without your prior approval. Negotiate over a defined amount, depending upon your price point.^{[6]XResearch source}
- How will he handle maintenance emergencies? Most good property managers will have a 24 hour maintenance emergency line to handle emergency requests immediately. Be sure the manager has a maintenance line and it is staffed 24/7/365.^{[7]XResearch source}
- Does the manager have a list of vetted and approved vendors? Be sure the list includes a plumber, handyman, electrician, appliance technician, and painters.
3
Ask about liability insurance. You should have your own insurance to cover the property, but you should confirm that the property manager has his own insurance in case of lawsuits. In some states, your property manager will be legally required to own such insurance. He should be willing to share the details of their liability insurance.^{[8]XResearch source}
- You should negotiate with the property manager as to whether they will be added on to your insurance as "additional insured" in case of tenant disputes and property damage incurred when they work on your property.
- In many states, your property manager will be legal required to have E & O insurance. You should also ask if he has liability insurance that cover him in cases when an employee sues him.
4
Get a written agreement about property inspections. Ask how frequently formal inspections will be conducted and get the pledge in writing. If he is reticent to agree to a particular timeline or asks for higher fees as compensation, he probably does not provide a high level of service.^{[9]XResearch source}
- The manager should perform a thorough inspection of the inside of the property at least once a year. The outside should be inspected at least once a quarter. Furthermore, an apartment should be inspected every time a tenant ends their lease.^{[10]XResearch source}
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Part 3

Part 3 of 3:

Establishing Quality

1
Verify the candidate has an appropriate license. Most states require property managers to have a real estate license and some states require a real estate broker's license.^{[11]XExpert SourceNathan Miller
Property Management SpecialistExpert Interview. 15 October 2018.} Check with the United States Department of Housing Authority (HUD) for more information about your state's licensing requirements.^{[12]XResearch source}
- Similarly, you should inquire as to whether he is part of an accredited national organization.^{[13]XResearch source}
- Visit the Better Business Bureau online (BBB.org). The BBB accredits property managers. If your property manager is accredited, that is reasonably good indication that they are reliable.^{[14]XTrustworthy SourceBetter Business BureauNonprofit organization dedicated to promoting marketplace trustworthiness by educating consumers and reviewing businessesGo to source}
It is important that your manager knows what rental rates are appropriate for your properties. Test the candidate’s knowledge by asking for a rental comparison (often referred to as a “rent comp”), as well as a rental rate recommendation. The property manager should be able to give you a ballpark rental rate recommendation based on a neighborhood’s rent comp.
3
Review the candidate’s experience. Look for a property manager who has taken care of residential properties that are similar to your own. Some managers focus on single family homes, while others prefer large apartment buildings, duplexes, or townhouses. Each property type comes with its own set of challenges, and you want to be sure you hire a manager who knows how to handle those challenges.^{[15]XResearch source}
- You should also ask how long he has been in business and if he has any notable success stories.^{[16]XResearch source}
- Visit some of the properties yourself. You should see how well they are maintained. If they are not well kept, the property manager isn't doing his job.^{[17]XResearch source}
4
Ask the candidate how many units he currently manages, and how many employees he has. One employee can generally handle 35-40 units efficiently. As a general rule of thumb, divide the total number of units managed by the number of employees assisting in the management effort (ie: 200 properties / 5 employees = 40 properties per individual). If there are more than 40 units per individual, the company's resources are likely stretched thin.
- You should also know if he manages any of his own properties. If this is the case, he is also your competition and might devote a disproportionate amount of his energy to his own properties.
5
Ask the candidate for references from past and current clients. A property manager should be able to provide you with at least 3 references. Call the references and have a conversation about the manager's performance. Ensure confidentiality to get the most honest feedback. Include the following questions in your assessment:
- Was the rent collected on time?
- Did the manager fill vacancies quickly?
- Were maintenance problems addressed in a timely fashion?
- Did the manager handle most problems with little to no intervention required?
- Were you ever charged for services that should have been included in the management fee?^{[18]XResearch source}
6
Choose a property manager with great customer service. Look for a manager who will communicate well with you. Responsiveness is one of the best qualities of a good property manager. If your manager doesn't return your calls quickly, how will he treat your tenants and prospective renters?^{[19]XResearch source}
- A responsive property manager will make your tenants and prospects happy, which will reduce your turnover rate.
- You should also consider how the manager interacts with you in your meetings. He should be providing a service to you and your renters. If he appears rude, abrupt or generally disinclined to serve you, then he is not likely to perform his job well.^{[20]XResearch source}
Establish when rent will be collected and how quickly it will be deposited into your bank account. Make sure your property manager understands accounting. You should receive detailed statements including a monthly rent roll, deposit breakdown, management fee summary, and maintenance charges breakdown.^{[21]XResearch source}
Most management firms now use software that keeps track of lease expiration data on your properties, move-in/move-out summaries, executed lease documents, occupancy lists, open work orders, and tax information. Ask the candidate to provide samples of output reports.^{[22]XResearch source}
How does the company collect rents? How do they advertise for and screen tenets? Try to meet tenants in properties they manage to determine how happy they are with their service.^{[23]XResearch source}
10
Request policy information for dealing with problem tenants. Every good property manager will have policies in place to handle difficult tenants. These policies are important because they protect your financial and legal interests.^{[24]XResearch source}
- What are the late rent policies? Be sure the manager has a system in place to properly document late rent payments. This will come in handy if you need to evict the tenant for unpaid rent.
- How does the manager deal with lease violations and complaints? The manager should have a formal addendum attached to every lease stating the property rules and restrictions. If the tenant violates a rule, be sure the manager knows how to properly document violations in case the evidence is needed for litigation in the future.
- Ask how frequently the property manager files for evictions. If they do so frequently, then they have not properly screened tenants before leasing the property.^{[25]XResearch source}
It is important that you have an exit strategy should you have difficulty with the property manager. A provision that ends the arrangement 30 days after receipt of written notice should be a reasonable request.^{[26]XResearch source}
Once you have a contract that appears to work to the mutual benefit of both parties, you should consult a lawyer. You are making an important deal. You should confirm that there are no hidden provisions that will detrimentally affect your financial situation or your property.
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Tips

Talk to at least 3 property management companies before you select one to work with. You want to be able to compare several different management styles and feel like you have adequately considered a variety of options.
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Remember that you can negotiate. If you find a property manager that you really like and want to work with, see if he/she is willing to negotiate aspects of the contract that you're not happy with.
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