How to Shop for a Property Management Company
If you know how to shop for a property management company, you can save yourself a ton of time, money,and hassle. Shopping for a property management company takes research. But with the right approach you can find the best property management company without shopping the globe!
Six Tips for Selecting a Property Management Company
We ought to know how to shop for a property management company — we've hired 8 or 9 property management companies over the years. Call it bad luck, but out of all of those propety management companies we shopped and hired, we only found one we liked! Now that we are a property management company, we have figured out what we should have been asking those property management companies all along!
It’s scary, really. Here you are ready to give over one of the biggest assets in your financial empire to a total stranger! How do you shop for and pick the good property management company from the bad and from the ugly? We get asked this all the time. Here are a few tips.
- Website. Go to their website. Is it rich with content? Does it read like an open book? Basically you want to ask the question "Are they good communicators?" If their website isn’t doing a good job of communicating key points then likely their staff won’t either.
- Tenant Screening Process. Far and away this is the one single task property managers do that separate the good from the bad. THE one question every property owner should be asking prospective property managers – "What is your tenant screening process?" You should go into detail on their process and compare.
- Communication. 4 of the top 5 complaints of property management companies deal with poor communication. Look for multiple, parallel communication channels. Email. Phone. Text. What about an owner portal? Will you receive email alerts on activity on your account? Property updates? Inspections? Market updates? Find out how they communicate.
- Referrals. No company in their right mind would give you the name and number to a bad referral. Nevertheless, information can be gained by calling referrals. That is why people ask for them. Sometimes you get lucky and learn nuggets that can help your decision. And if the company can't or won't give referrals then that answers the question right there!
- Maintenance. This is pretty important if you want to maintain the asset value of your property and not bleed it dry. Is it done in-house or with vendors? What kind of rates do they charge? More importantly, try to find out the quality of work. In-house maintenance is preferred because there is accountability and they can control the quality. Vending it out tends to be more “open season”.
- Online reviews. Do not put a lot into online reviews because usually the only ones writing them are people that are pissed off. Or the good ones are contrived. You can even pay to have good reviews written about you!
The six tips above are some of the more important points. You may have other "hot spots" you want addressed.
You may notice that in that list there is no mention of fees. Fees? Everyone shops price, right? You would be a fool not to. Not so quick. Read on.
Why Fees Are Not Important in Selecting a Property Manager
The quick and simple answer is that the difference in cost between an expensive property management company and a cheap one is dwarfed in relative terms by the damage that can be done by a bad tenant. The over-riding question should not be "How much do you charge?", but rather "What is your screening process?" Consider the following example.
You are shopping two property management companies. Company A has an 8%/month management fee and Company B has a 10%/month management fee. You property rents for a hefty $2,000/mo. Company A charges $160/mo. to manage your property while Company B's rate is $200/mo. Simple math tells you Company A is preferred over Company B, right? Not so fast.
What if Company A does a lousy job of tenant screening. They lease up your property quickly (because their screening criteria is lax). You are happy because you have quick cash flow and a reduced management fee. What could be better than this? A lot!!
Two years later the tenants are thinking of moving out. They start getting behind on rent. If the property management company is any good, they will be on it in a heartbeat. They begin eviction proceedings. Depending on how ugly that process gets it could take 2-3 months in WA State.
Tenants don't typically pay rent while they are waiting to get evicted. So chalk up 2 months lost rent — $4,000
Tenants that have been evicted also don't typically haul the trash and clean the house on the way out. In fact, they will sometimes lash out vindictively before leaving. But usually they go quietly in the night, or a Sheriff "helps" the stubborn ones out.
However they leave, when you finally do take back possession of the property you can figure on significant turnover costs. Usually new carpet and paint and yard work are a foregone conclusion. Sometimes repairs and appliances come into play. These types of turnover usually end up costing $2-7,000. Figure on $4,000.
The total damage
First we need to calculate how much you saved going with Company A over Company B. There was a $40/mo. savings between the two companies. Over 24 months that totals up to $960 savings. Call it an even $1,000. Can you see where we are going with this?
Your bad tenant cost you: 1) $4,000 in lost rent; 2) $750 in legal proceedings, and; 3) $4,000 in turnover costs. That comes to $8,760 in total turnover costs! You saved $1,000 in management fees, for a net loss of $7,760!
Of course there is no guarantee that Company B will find the perfect tenant either. But if you have done your shopping, and if Company B does their tenant screening homework like they promised, then the chances are a LOT lower.
That is why the fee expenses property management companies charge are a secondary consideration!!!
It should come as no surprise, then, that when we put our business model together, we addressed those points above specifically. Ask us — it is the only way to shop for the right property manager!
You may also be surprised to know that our fee structure is very competitive with the competition! Hmmmm...great service and competitive fees. Sounds like a winner! (And it is!)
We have put together a short HOA New Client Welcome presentation to help you become more familiar with us and our management style. Contact us if you would like a free, no-obligation evaluation of your property. Or see our Frequently Asked Questions for more information. Finally, feel free to email us if you have any general questions.