This post was written for The Rentables Apartment Blog as the seventh part of a series entitled “Building Your Real Estate Investment Team.”
When starting out in real estate investment, many investors opt to manage their properties themselves. Most commonly this is done to save the expense and improve cash flow. Another reason some investors take this approach is to learn as much as possible about what is required to manage a property before hiring this function out. In this part of our series on building your real estate investment team, we take a look at how to select a great property manager. With responsibility for such an important part of your real estate investing business it is crucial that you make a good decision when it comes to selecting property management before turning over a set of keys. Unfortunately, this decision is tougher than it may seem.
You’ll first want to make sure you have a property manager who is familiar working with the type of rental properties you deal with. If you are renting an executive suite in a luxury high-rise condo you may want a different manager than someone working with multi-family apartments, student rentals, or rooming houses. The process of finding and keeping the right tenants is a little different for each niche. In this article we’ll explore what services to look for, how to narrow down your candidates, and some potential pitfalls to be aware of.
Real Estate Investment Team selection criteria
Once again, here are the things you’ll want to look for when selecting any member of your team:
- Owns investment real estate themselves
- Cares about your goals
- Has the appropriate qualifications
- Has specific experience working with investment properties in the area
- Has reasonable fees
- Provides positive chemistry
Why Add a Property Manager to Your Team?
As a real estate investor, you make money by finding great deals, putting them together, getting them up to speed and then repeating this process as many times as possible. Property management is a very time intensive part of the real estate business, and if your goal is financial freedom, hiring out the day-to-day management of your properties to a trusted property manager can help you get there. Rather than dealing with tenants, maintenance and repairs, you can focus on finding more positive cash flow properties and growing your business. There is a cost for property management, but you must weigh that cost against the potential benefit.
Property managers will offer different capabilities, levels of service and expertise. Some of the things property management companies may be able to help you with include:
- Showing the property
- Interviewing tenants
- Tenant screening (including credit and background checks)
- Filling out leases
- Collecting rent
- Handling evictions and other tenant issues
- Managing trades for repairs and maintenance
- Coordinating lawn care and snow removal
- Regular property visits
Property Manager Compensation
Fees for property management are most commonly defined as a percentage of monthly rent or a flat monthly fee. Whatever the arrangement is, be sure to find out which items are included and which are extra.
You’ll also want to make sure the compensation structure aligns the PM’s interests with your own. If you pay a flat monthly fee and the manager is responsible for filling vacancies, do they really have much of an incentive to get that unit filled? If you are paying one month’s rent to find a tenant, do they really have an incentive to find a good tenant rather than moving in the first applicant that has a pulse?
Finding a Property Manager
As with any service you are looking for, you can check your local Yellow Pages, search online, or seek out referrals. Since a quality property manager is one of the most important members of your team, your best bet for finding a great manager is to ask for referrals from other investors or members of your real estate investment team. In the process you’ll be able to get some real life details on who offers good service in the area, and who you should avoid.
More so than with the other members of your team, the number one qualification when selecting a property manager is experience. There are courses and certifications that exist, but property management is a tough business which requires certain knowledge that can only come with experience. Look for someone who has been in the industry full-time for a few years, focuses on the type of properties you have, and has positive recommendations from other investors.
Investment specific experience
Most property managers work with either landlords or large property firms and have an idea of what their clients need, but finding someone who owns rental properties of their own is beneficial. A PM who owns and manages their own rental properties will share a similar mindset and understand your priorities best. Having a positive relationship with your property manager will make your real estate investment career far more pleasant, so be sure to choose wisely and keep the communication lines open.
Narrow down a few managers based on recommendations from other investors and team members (you should already have a few team members at this point) and then meet with each. Afterwards, consider whether they meet the 6 criteria above and whether your gut-check says you’d be happy working with them to build a long-term relationship. Once you’ve found a property manager you like, get your agreement in writing and be clear on what services are included, how you will communicate, and what each of your expectations are for working together.
Check back soon for Part 8 of Building Your Real Estate Investment Team where we’ll provide some tips on selecting an Accountant to help keep your finances healthy.
Building Your Real Estate Investment Team Series:
Building Your Real Estate Investment Team – Part 1: Introduction
Building Your Real Estate Investment Team – Part 2: Selecting a Mortgage Broker
Building Your Real Estate Investment Team – Part 3: Selecting a Realtor
Building Your Real Estate Investment Team – Part 4: Selecting a Lawyer
Building Your Real Estate Investment Team – Part 5: Selecting a Home Inspector
Building Your Real Estate Investment Team – Part 6: Selecting an Insurance Broker
Building Your Real Estate Investment Team – Part 7: Selecting a Property Manager
Building Your Real Estate Investment Team – Part 8: Selecting an Accountant
Building Your Real Estate Investment Team – Part 9: Conclusion
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