Managing your rental properties can overwhelm even the most experienced real estate investors. It’s a nonstop job that can dominate your time, pulling you away from other important tasks. If you have decided it may not be the best use of your time or you’re new to investing, it’s likely time to hire a property management company.
Choosing a property management company to work with is one of the most important decisions you will make as a real estate investor. Hiring the right one can result in higher quality tenants in your properties, fewer legal problems, shorter vacancy cycles, better renter retention and efficient rental collection. Associating with the wrong company can put your investment in jeopardy.
CRITERIA FOR EVALUATING A PROPERTY MANAGEMENT COMPANY
WHAT IS THE COMPANY’S CURRENT WORKLOAD?
Be sure you understand the company’s processes and their employee-to-property ratio. A good rule of thumb is for one employee to manage no more than 30-40 units. A property management company with a higher ratio may not be able to provide regular updates to you about your property, including whether tenants are current on their rent, or if their employees are overworked.
ARE THEY ABLE TO ACCURATELY GAUGE RENTAL RATES?
A good property management company gathers data on rental rates in the area and works with owners to determine the best rental rate. They should meet with you to discuss the pros and cons of different policies, such as whether to accept pets or to make the property non-smoking, which could affect the rental potential.
HOW DOES THE COMPANY SCREEN AND SELECT TENANTS?
They should conduct a complete background check on every potential tenant, including verifying their identity, income, credit history and rental history. They should inform potential tenants who do not qualify for property and the legal reason why to avoid potential lawsuits.
HOW DO THEY WORK WITH TENANTS?
In preparing for a tenant to move in, your management company should draw up the leasing agreement and review the lease guidelines with them, including terms for rent payments and what they are required to do to maintain the property. Be sure they also:
- Confirm the move-in date with the tenant
- Ensure all agreements are properly executed
- Conduct a detailed move-in inspection with the tenant verifying the condition of the property
- Collect the first month’s rent and the security deposit prior to move-in.
Be sure to ask any prospective property manager what their process is for formal inspection of your properties and how often they do them. That service should be included in your fee. Walk away from any management company that wants to charge you extra.
When tenants move out the property manager should provide the balance of the security deposit to the tenant along with a detailed accounting of deductions. In addition, the property manager should clean the property and make any necessary repairs. They should also re-key the locks and quickly put the property back on the market to rent.
HOW DO THEY HANDLE REPAIRS AND MAINTENANCE?
Most property managers fees are between 7 and 10 percent of the rent charged for overseeing maintenance and repairs, but don’t hesitate to negotiate that amount. Beware of any company that continues to charge that fee even if the property is vacant.
Your agreement should state that the company is responsible for:
- Establishing a preventative maintenance policy to identify and deal with repairs.
- Maintaining a network of licensed, bonded and fully insured contractors it has vetted for good pricing and work that is up to code.
- Ensuring the work is completed at a reasonable price.
- Obtaining multiple bids for the work.
- Acting as general contractor by overseeing the work.
Investing in real estate can be a profitable endeavor, but understanding the importance of selecting the right vendors is paramount. You should carefully evaluate any property management company you entrust with your investment.
ABOUT LONGHORN INVESTMENTS
Longhorn III Investments, LLC is a direct private lender offering short term acquisition and renovation capital to real estate investors for both residential and commercial assets. We operate in major metropolitan areas throughout Texas, Missouri, Indiana, and North Carolina.
Highlights of our loan program include:
– Up to 70% of ARV (after repair value)
– Finance up to 100% of cost
– Close in 3 – 5 business days
– No income requirements
– Streamlined, simple approval process
– No pre-payment penalty
Longhorn was formed in 2008 and has funded over 1,800 loans since inception. Our complementary businesses include a title company and real estate law practice operating out of our corporate office. Our wealth of experience puts us in the unique position of being able to help investors through all aspects of each transaction.