Many “buy and hold” real estate investors decide early on that managing their own rental properties simply isn’t worth the time and effort. This is especially true for investors that own properties outside of their geographic area. While there are pros and cons to managing your own properties, ultimately it comes down to personal preference and capacity. Some people would rather be more hands on and save a few bucks while others gladly shell out a small percentage of their income to let somebody else manage the property while they focus on the more important things.

For those investors that choose to outsource management to a property management company, knowing what questions to ask and what charges to expect is an important part of making a good hiring decision. In almost any market, you’ll find a variety of service providers, including the rogue Realtor attempting to juggle real estate sales, listings, property management, leasing and rent collection. Without a clear focus, a multitasking Realtor is lacking ability across the board and will negatively affect your bottom line. Mom-n-pop outfits, normally 1-2 people (mom AND pop) managing all aspects of 100-200 units, while providing “ok” customer service they will most certainly lack in technology and networking ability. The third option you’ll find is the dedicated, full time/full service, licensed Property Management Company. Real Property Management does not conduct sales or chase listings; our only focus is residential property management. For those not familiar with how property management companies work, here is a basic checklist to help get you started:

Leasing:

How much does the property management company charge to place a new tenant in the property and is ALL advertising included in this cost? I’ve found that anywhere from half a months rent to a full months rent is fairly standard. Be sure to find out how the property manager advertises for a tenant. A property manager with a lower leasing fee will not spend as much on advertising.  Saving a few dollars on leasing may actually cost you more in vacancy if it takes longer for the property manager to place a tenant in the property. Also, it’s important to understand how the property manager screens applicants. At a minimum a property manager should:

-Verify Income

-Obtain credit report (look for prior judgments, eviction history, credit history)

-Run criminal background check

-Have a stated debt to income approach (ie. rent amount cannot represent more than 33%)

-Check rental references to understand rental history

Management Fee:

All property managers charge a certain monthly percentage for managing the property. This is typically somewhere between 8% and 12% of the gross monthly rent. An important question to ask the property manager is whether the fee is only charged against actual rent collected or if it is charged monthly regardless of whether a tenant is in the property and paying rent. It’s also important to understand what services are included within this management fee. Some of the fees listed below may actually be included as part of the management fee and not charged independently.

Lease Renewal Fee:

This is a fee most property managers charge to handle the paperwork associated with renewing the contract for the tenant for another year (or more). This fee is typically anywhere from a few hundred dollars up to a half month’s rent. While this may seem like an unnecessary fee, I’ve found that a good property manager can save you thousands of dollars in vacancy and turn-over expenses if they are good at keeping tenants in the property for multiple years.

Eviction Costs:

These are fees associated with filing the eviction and handling the corresponding court proceedings. I’ve found that this really varies from one property manager to the next. Some property managers simply pass on the actual filing costs, but manage the eviction as part of their management services. Most, however, charge a few hundred dollars (on top of the filing fees) to handle the eviction and court appearances. Real Property Management offers FREE evictions as part of our guaranteed service options.

Reserve Account:

Most property managers ask the owner for a reserve, a specific amount that the investor would be willing to spend for maintenance/repairs without having to provide specific approval. This is really to help insulate the investor from having to make insignificant decisions that could easily be made by the property manager. To accomplish this, most property managers hold between $300 and $500 in a reserve account specifically for these types of maintenance requests.

Repairs:

In my opinion this is one of the most important aspects to property management. You may find a property manager that beats the competition in almost every other category, but if they don’t have a good, affordable solution for repairs and turn-over expenses, you may still end up spending more money. Some property manager simply outsource the maintenance to third party contractors that may charge higher rates, while others have professional on staff that can make repairs and handle turn-overs at a very affordable cost. It’s important to know and understand this distinction when interviewing property management companies.

Transparency:

It’s your money; you should be able to easily keep track of it, right? A professional property manager will provide online access through a portal for investors to monitor rent collection and specifically where/how funds are being distributed. Generally tenants will also have portals to submit requests, download documents and make rent payments. Portals are also a great way to streamline owner communication and involvement.

Periodic Property Inspections:

For many investors, it’s important that periodic property inspections take place, usually two or three times a year to ensure the tenant is taking care of the property and there are no major issues that need to be addressed. Most property managers will also include interior/exterior pictures and service HVAC equipment during routine inspections. (routine inspections should cost between $75-150 per inspection)

Conclusion:

While different markets have different nuances associated with how property management is completed, understanding the basics is important in selecting a property management company. Whether it’s a single real estate agent with a loose portfolio of 30 properties, a small manager with 200 units or a large firm with over 1000, ultimately you have to be comfortable with WHOM you choose and WHOM you trust caring for what may be your largest financial investment.

Carnahan Property Management services Woodland Hills,West Hills, Calabasas, Canoga Park, Tarzana, Reseda, Topanga, Encino, Northridge, Van Nuys,North Hills,Chatsworth, Sherman Oaks, Studio City, North Hollywood, West Hollywood, San Fernando Valley, Granada Hills, Mission Hills, Simi Valley, West Lake Village, Agoura,Toluca Lake, Valley Village, Burbank. Call us at (818) 884-1500 and check if we can service your area.