3 Simple Steps to Find a Great Property Manager

ESI Money
Today’s guest is ESI from ESI Money, a blog about achieving financial independence through earning, saving, and investing (ESI). It’s written by an early 50’s retiree who achieved financial independence and helps others do the same. He shares what’s worked for him and how others can implement those successes in their lives.

I have owned rental real estate for four years and have 14 units in Michigan, 1,200 miles from where I live. These units are the main reasons I was able to reach Financial Independence since their returns have been very nice.

A key part of this success is having a great property manager. It’s a key piece of automating your business, and honestly how else could I run my business from so far away and retire early??

But even before I moved halfway across the country I needed a property manager. I was working at a very demanding career and couldn’t afford the time commitment of active management.

So I found an awesome property manager and life has been good ever since.

This post will detail the process I used to find my property manager and how you can do the same.

But first, a bit of background…

Plan A Goes South

The plan was perfect. My real estate mentor was going to help me find some great rental properties. I’d buy them through him (he was a real estate agent too) and he’d manage them for me. Easy-peasy.

Once we got our first place he told me he didn’t really have time to manage it for me. Uh-oh.

Thankfully I had some time to find an alternative. The place needed a few months of remodeling to get up to snuff. This gave me time to find a property manager. That’s the good news.

Related: Estimating Rental Property Expenses.

The bad news was that I had never hired a property manager before and had absolutely no idea how to do it.

My List of Requirements for my Property Manager

property manager list

My mentor served as a sounding board but he wasn’t really familiar with the property management options in our area since he managed his own places. So I was pretty much on my own.

Fortunately, as a business executive, I had hired hundreds of people. Over two decades of filling jobs, I had developed a system to find and hire good people. I applied those same principles to find a property manager.

I started with a list of what I was looking for in a property manager. Of course, there were the basics of being able to do the job and manage the various tasks associated with it (finding tenants, managing tenants, maintenance, etc.), but there was more. I wanted someone who I thought was:

  • Trustworthy. After all, I was going to be turning over $600k in property to them.
  • Knowledgeable. I didn’t want someone who would just manage the process but add to my knowledge with insights that would benefit the business.
  • Affordable. This could play out in two ways — either having a low management fee or being able to save me on various costs and services (garbage pickup, snow removal, etc.) Or (hopefully) both.

With this set of criteria, I was off to find my manager.

Identifying Potential Property Managers

I then started a three-step process to help me find the right person:

1. Networked to get property management referrals.

I began to network with those I thought might know and recommend property managers — my mentor’s contacts in real estate, colleagues at work, friends I knew in the real estate business, people at church, business contacts, etc. It seems like I asked everyone I knew for a recommendation. Of course many had as much idea of where to find a property manager as I did, but I played the odds. Now and then I’d get a hit and a recommendation.

Of course many had as much idea of where to find a property manager as I did, but I played the odds. Now and then I’d get a hit and a recommendation.

Doing this, I was able to identify ten possible property managers over the course of a couple months. Though some were of admittedly questionable ability, I left them all on my list unless I deemed them to be an absolute disaster.

2. Interviewed the candidates.

interview-property-manager

My first contact was by email. This alone eliminated three of them. Two took too long to get back to me and one’s response was so bad that it turned me off from the get-go. Email was to be our main form of communication once I hired one of them, so they had to be prompt, responsive, and professional at this stage.

Email was to be our main form of communication once I hired one of them, so they had to be prompt, responsive, and professional at this stage.

Next was the phone interview. Here I was looking both for my criteria (as best I could over the phone) as well as also judging professionalism. Of the seven who remained, four were eliminated for one reason or another.

At this point, I could see that you have to weed through a ton of property managers to actually find a good one.

Narrowing it down further

Finally, I met with the three remaining in person. Two were one-man businesses who managed several properties each.

Of the rest, one just didn’t seem trustworthy and another one was good — pretty much what I was looking for at this point. The third option was a very professional company with 1,500 units under management. They knew their stuff for sure, but would they give me the service I wanted?

This was a key consideration for me because I didn’t want to just be another number on their record books.

By the way, I asked a TON of questions during this phase. The list is almost endless. I learned a great deal as well, not only about property managers but the business itself. So the effort was very educational for me and it was well worth the time and effort I put in.

My questions to the property manager

  • Policies and procedures for all operations — how they handle this and that.
  • The scope of their business — how many properties did they manage and how long had they been in operation.
  • Costs — Management fees as well as any other costs.
  • Who my contact would be — This was especially important at the larger company as I wanted a strong person who would represent my properties well.
  • Professionalism — They didn’t have to wear suits and ties, but I did expect a touch of class that I believe is mandatory for any sort of business.
  • What they could do for me “above and beyond” — What extra value did they bring to the table?
  • Trustworthiness — Admittedly this was judged mostly on instinct at this point, but I have a pretty good feel for people. Besides, the next step would help me out in this area too.

3. Checked references.

Once I had it down to two companies, I asked them each for five references. The big company had no problem giving me five and all of them rated the company highly (as you might expect).

The other guy gave me three (which was all he had) and his references were fine but did reveal a few concerns. You’d be surprised what even hand-picked references might tell you when asked nicely.

He wasn’t eliminated completely, but he certainly wasn’t as perfect as I originally estimated.

I was weighing the two options when fate intervened. I bought a second property and had a total of eight units (Rules to follow when buying rental property) and it just so happened to be managed by the large property management company I was considering.

At this point, they saw I was going to have more than a unit or two (plus they wanted to keep the units they had under management) so they invited me in again — this time to meet the president and his key executives.

I got the royal treatment and had access to everyone to ask all the questions I wanted. And they had good answers. Furthermore, the seller of the property spoke very highly of them — and he wasn’t even on their initial reference list.

My Decision

In the end, I went with the larger company because:

  • Solid reputation. They obviously knew their business — otherwise, they wouldn’t have had 1,500 units under management.
  • Cost advantages. They quoted me 8% of rents as a management fee while the other guy wanted 10%. In addition, the larger company used their buying clout to save money for all its owners on everything from snow removal to landscaping to maintenance.
  • Professionalism. The larger company had their act together. They had managed properties for 20 years and had the systems to support a rental property business. In addition, I was assigned one of their up-and-coming executives as my personal contact. He was very detail-oriented, personable, and responsive — just what I wanted.
  • Trustworthiness. First of all, I had a good feeling about the staff both personally and from the reference checks. Second, the company had checks and balances. The property managers worked with the accounting department to make sure things were handled appropriately. The other guy was everything by himself which left me wondering if he’d hold himself to a level of accountability I was comfortable with.

In the end, a combination of a good process and luck helped me find a great manager.

The Results

Now that I’ve been with the company for four years, I can say it was absolutely the right decision.

I lived in that city a year before I moved and was able to work closely with them. All of my initial impressions were reinforced. They were and have been a vital part of my rental success.

Once I moved away their services and breadth of experience were even more important. I couldn’t have done it without them.

So, that’s my process. I’ll stop by this post several times over the next few days and answer any questions you may have. I’m happy to help however I can.

By | 2017-11-17T14:35:01+00:00 January 16th, 2017|Categories: Real Estate|Tags: |6 Comments

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6 Comments

  1. Chris Adams February 6, 2017 at 12:59 pm - Reply

    Definitely keep this in my back pocket once I have a rental house.

  2. Jaden Khoury February 26, 2017 at 7:55 pm - Reply

    Thank you for the informative post! Can you post your actual list of questions? I will be needing a Property Manager in the next 12-18 months and don’t want to reinvent the questionnaire wheel if I don’t have to.

  3. John March 3, 2017 at 3:50 am - Reply

    That was interesting. Thank you for sharing those ideas. I’ll use some of them. Thank you.

  4. Clyde April 9, 2017 at 3:34 pm - Reply

    This is an excellent article to use as an initial basis for your property manager search, but there are other things to consider. I have 20 years of experience in the commercial sector with a large national portfolio. Some of my thoughts on this topic are:

    1) You do not want to be beholden to one manager. At some point all business relationships hit a rough patch. And you as the investor need to be able to fire or threaten to fire the manager as this is sometimes the only way to rectify material problems with their service. So as it applies to this article, I would recommend that you search for at least two if not three acceptable property manager candidates. This will give you back ups and will be time well spent particularly if you are 1500 miles from your investment market. You don’t want to start looking for a replacement manager when you have a particularly grievous problem in hand. That’s often too late.

    2) If at all possible, invest in the market that you can easily access on a frequent basis. If you can’t do this, don’t go to sleep at the switch once you’re hired a great property manager. The property management business operates on thin margins . As such, managers spend most of their time on the largest clients’ portfolios. But you can tilt this to back in your favor by respectfully keeping in communication with your manager on a routine basis. The squeaky wheel does get the grease. But if you are a small investor, this can backfire if your too squeaky, as you can be fired as a client. What you want to do is be knowledgeable and hold your manager accountable as to what they say they’re going to do. No manager can guarantee performance, but they can be responsible for their diligent pursuit of objectives.

    3) Generally speaking, good rent paying tenants are your primary asset even more so than the building. If you don’t believe this, buy a building, evict all the tenants, hold it empty for 10 years, sell it and then calculate your return on investment. To this end, interview tenants of your prospective property manager. It will be the manager’s job to find and maintain these assets in your building. Find out about the tenants’ experience when renting the property and also when asking the manager to fix problems. Be aware that sometimes owners restrict a manager’s ability to properly address a problem, but slowness in responding to problems should not be a frequently recurring theme that you hear from the tenants you interview. If your manager’s explanation is that they have too many bad owners, you must hold the manager accountable for this situation, as this is the manager’s responsibility to fire bad clients before the manager’s reputation is negatively affected in the rental market. If you hire a manager with a bad reputation, you must expect that ultimately you will be painted with the same brush. To see how this works, review the manager’s reputation on social media including Facebook and yelp. Tenant (and sometimes owner) reviews can be true eye-opener’s. These social media reviews are important, because this is where your asset, the tenant, will go to find out if this manager or building has a good reputation. Beware of the manager who has a reputation for taking the security deposit no matter what condition the unit was left in at the end of the lease and the managers who are not responsive to maintenance requests.

    4) Do the math. Calculate the actual dollars that the manager will earn from your property based on the fee quoted. Compare this to the amount of time you would reasonably expect the manager to spend managing the property. Include the time of the manager, the leasing agent, the accounting staff, etc. If the estimate of the manager’s reasonable cost to manage your property exceeds your management fee, you will have to assume that the manager is either incompetent or they’re not telling you exactly how they’re going to make money off your property. Managers whose fees are too low are likely churning tenants through your property. By churning tenants, the manager may earn their fixed minimum fee while the unit is vacant, a leasing commission on the new tenant, and the mark up on all the repairs they have to do to the unit to make it ready for the new tenant. For many management firms, particularly small ones, this is how they make enough money to profitably stay in business. They have no choice if they’re going to have a profitable business with only a few properties to manage. Of course all small management firms do not churn tenants but, caveat emptor. And remember if you do find that you have this type of manager working for you, you’ll need to be able to fire them immediately and replace them with a good alternative. Otherwise you’ll be just one more of those owners who looses money and eventually sells their property at a loss having been completely frustrated by the whole experience.

    5) Ask for copies of examples of written monthly or quarterly management & leasing reports for multiple properties that are comparable to yours. Much of what I’m about to tell you may not be offered to you as a small investor due to the cost of compiling professional management reports. But if you do find these things in your management report, this may be a sign that you might’ve found a good manager. Do the reports have a narrative that explains what has happened at the property (i.e., unexpected tenant vacancy, fire in the basement, police incident with tenant, etc.) as well as what is planned for the property in the next month/quarter? Does it include a comparison of actual P&L results to budget results with explanations for material variances distinguishing between those that are timing and those that are permanent? Does it include an aged accounts receivable section with explanations as to the status of the collection process? Does it include the status of material capital expenditure projects that are being bid or underway? Does it include copies of all tenant correspondence?

    • Eric Bowlin April 13, 2017 at 8:33 pm - Reply

      Wow, thank you very much, Clyde, for your informative comment. You’ve clearly spent a lot of time writing this comment and when I edit this post in the future I’ll be sure to include some of these comments in it.

  5. Costello Realty & Management April 17, 2017 at 6:17 am - Reply

    Very detailed and informative article, thanks for sharing it with us. I’m glad that things worked out well.
    I’d like to highlight one question that you asked them – “What extra value did they bring to the table?”. Even though it seems like a general question which can be found almost anywhere, it was very clever of you to think of it in your situation. I’m sure it helped you a lot.
    Keep up the good work!

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