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Property management is a tough business with a bad rap (much of it earned, by the way)! For investors who have taken on landlord responsibilities, you know just how demanding it can be. Managing an investment property is both challenging and time consuming and requires a bit of personality dexterity. Most real estate investors, however, never deal with the nitty gritty details of property management, even if they understand what goes into it. That is because most real estate investors participate in the this massive investment market in a passive way. They have no experience with property management so they have no idea what makes it tick.
Unfortunately, that fact — the reality that most misunderstand the gargantuan task of property management — means that too many investors are willing to overlook quality to save on costs.
We understand, really. After all, you’re in this business to make money, and if you’re spending a ton on property management, it means fewer dollars in your retirement accounts when rent is due. Right? Ben Leybovich just wrote a classic article about the challenges of affording property management and received over 100 comments!
However, when you are in the middle of the real estate game, it is real life. It ain’t practice! You don’t have time to make the mistake of trading your time to save a few dollars just like you do not have time to step over dollars to grab the dimes. When it comes to the notion that you can save money and build your retirement by doing the management yourself, my only advice is: Not so fast.
Premium Property Management is Worth It. Really.
Here’s the thing about property management: You get what you pay for. The difference between good property management and bad property management isn’t always immediately noticeable to real estate investors. Why? Because good property management isn’t something you have to notice, and bad property management does everything to hide just how bad it is.
Making comparisons based solely on price will come back to haunt you when you end up with chronically late rent payments, a property that’s falling apart, broken lease agreements, poor communication, improperly set expectations and high tenant turnover. Bad property management can not only hurt your long-term investment success, but it can damage one of your most valuable assets — your reputation.
Your management team is the on-the-ground, public face of your investment business. That’s big.
So really, what does a good property management team look like? What benefits do you get for investing in premium service? Almost as important is how do you set good expectations on the front end?
What Ideal Property Management Looks Like
Solid property management teams make sure they are in constant communication — especially about the big things, the milestone events. While they don’t overload investors with updates, they don’t hesitate to offer reports, documentation, and property status updates. Good property managers are organized and never try to hide things from you; they’re proud of the work they’re doing and have a genuine interest in providing quality services.
That does not mean things will always go smoothly. There can and will be hiccups, but a simple peace-of-mind communication goes a long way, and the best of the best make this a standard operating procedure.
Interview questions when hiring a property manager might include:
How often can I expect to hear from you?
Will that be by phone call?
What is the average response time for your team to tenant phone calls, maintenance phone calls and owner phone calls?
You Never Have to Ask Where Rent Is
Good property managers know how to track down rent payments. They don’t allow themselves to bend in the rules — they make expectations for payment clear and have the organization and prowess to ensure you get paid on time. Really good management companies have systems in place to operate on a daily basis all the way down to how a rent payment is processed and how quickly rent payments are sent to owners.
When speaking with a property management company, they should be able to communicate very clearly what that system is and what the process is for making sure that is a smooth process. If they cannot give you clear and defined rules for when rent is collected, when it is late, how late payments are collected and ultimately how and when payments are sent to owners, then they are not up to the level of the best in the business.
Your Tenants Feel Taken Care Of
Good property managers aren’t just there to collect rent. They build a rapport with your tenants, ensuring that they feel welcome and valued. They listen carefully to complaints and maintenance requests and take appropriate action. Tenants won’t resent a good manager because they’re doing everything they can to ensure the tenant is taken care of. Good managers know how to diffuse uncomfortable situations and resolve conflict, not escalate it.
More importantly, a great property management company takes pride in their average length of stay. The longer the period of time may mean a lower revenue stream for them as a company, but it will mean happier owners. After all, a happy tenant always translates to a happy owner.
If you can find a quality responsive company that treats tenants with respect, you will likely have a good long-term experience. How will you know as an owner? Simple. Ask the property management company what their average length of stay is.
When you have your answer, ask them again only in a different way. Ask them what percentage of their portfolio gets turned over in a year. Divide that number into 100 and you have your average length of stay. If the two numbers do not add up, then you know they were pulling data out of their backside anyway. If they do add up, you may very well have a winner.
You Rarely Encounter a Bad Tenant
How well does your manager screen tenants? You should know! Experienced property managers know that it’s worth the extra time and effort to really vet tenants. Because they screen well, you’re so much less likely to have to fool with the headache of property damages, broken lease agreements, criminal activity, and chronically late rent. So many problems are solved simply when the tenants you have are good ones.
There is much more to a screening process than credit, criminal, bankruptcy and eviction checks. There are absolutely subtle nuances that really good management companies employ and teach their teams to use in the field. A keen eye can spot issues that do not show up on background checks. The best management companies also know how to properly comply with the laws to make sure they are not discriminating in any way. This knowledge itself is worth its weight in gold.
Maintenance Issues Never Catch You By Surprise
Finding out you have to drop a couple of thousand dollars on a problem that could’ve been resolved for a fraction of the cost a few months ago isn’t fun, to put it lightly. Ace property managers are on top of everything. They not only pay attention to maintenance requests, but are vigilant in detecting issues early.
To be clear, this issue is not just one of competency of the management company, but it also speaks to how well they communicate. These costs — surprise maintenance issues — come up and bite owners in the backside all the time.
Be sure to ask your property management company how they communicate these issues and what they do to help mitigate and fix in the fastest manner possible. No one likes to spend money, and the best management companies make sure their owners know that spending their money is the last thing they want to do. However, not letting them know or sitting on a bill until a “good time” to call or email is a sign of weakness and a red flag on any company you’re considering hiring.
Legal Issues Are Few and Far Between
You know who ends up in a lot of lawsuits? Bad property managers. Now, we know not all managers are sued for valid reasons. But we’ve also heard one too many stories about illegal evictions, bed bug horrors, and generally awful management. Good managers don’t get into those kind of situations. They don’t just avoid them; they actively prevent them and are well-versed in the law.
To be clear, all property management companies are sued. That is a fact of life for management companies. But not all management companies lose lawsuits. Many, in fact, regularly win or deflect the frivolous lawsuits and rarely find themselves entangled in the long, drawn-out nightmare lawsuits that we sometimes hear about. Why? Because they know what they are doing and have a system and process for everything! Following those systems and processes is what keeps them out of trouble.
You Really Can Be a Passive Investor
The biggest advantage you have in hiring good property managers? You get to really be a passive real estate investor. They give you the security of knowing your property is in capable hands that will keep things running smoothly, leaving you room to focus on what you want to.
After all, who can argue with the fact that as real estate investors, we make the bulk of our money when we do what we do best: find, buy, renovate and hold or sell really good deals? Spending our time doing the dirtiest of the dirty work when there are great companies out there trained and versed in how to do it for us at a reasonable price seems to make perfect sense to this passive investor!
For the “I would never hire property management” crowd out there, let me hear what you have to say.
I would love to hear your take on this debate!