3 Questions to Ask When Choosing a Property Management Company

Here are some important questions to ask yourself and the property manager when choosing a property management company:

1.) Does the company’s philosophy match yours?

When you enter into a property management agreement, you are creating an ongoing, potentially long-term relationship. Doesn’t it make sense then to ensure that your property management company is compatible? Property managers should be willing to spend the time to answering your questions and explaining their philosophy to you. A good property manager will want to make sure the owner is a good fit for the company as well.

Here are some major discussion topics and corresponding questions to discuss with a prospective property management company prior to entering into a property management agreement:

– Company Background Info

Do you have a current license with the Oklahoma Real Estate Commission (OREC)? You can call OREC to check the status of a license and any disciplinary action.

Has your company or any of its personnel ever been sanctioned/fined by the Real Estate Commission?

How long has your company been in operation?

How many properties do you manage? In what areas?

Do you have experience managing properties similar to mine?

Do you carry E&O (professional liability) insurance?

What industry groups are you a member of? (IE, Realtor Association, National Association of Residential Property Managers, BBB, local chamber of commerce).

– Leasing Philosophy

How do you set the rental rate?

How do you market the property?

What are your tenant screening criteria?

How long does it typically take you to lease a property?

How do you handle pets?

How much is your leasing commission?

Do you charge for lease renewals?

– Management Strategy

What are your late payment policies?

How do you handle the unlikely event of an eviction?

How do tenants pay rent?

How are owner proceeds distributed?

What day of the month do you distribute owner proceeds?

Do you keep any late fees received?

What is your ongoing management fee?

– Property Maintenance

Can you describe your maintenance process?

At what point do you involve the owner in the maintenance process?

Do you charge a markup for maintenance?

Do you have in-house maintenance or do you use all outside vendors?

How often do you inspect the property?

Do you have an after-hours line for emergency maintenance issues?

2.) What is the focus of their business?

It has been said that where the heart is the mind will follow. We believe it is important for a property manager to be focused on property management, and not have loyalties divided between management and traditional brokerage activities (sales).

There are many large real estate brokerages that offer property management services. In fact, just about every one of them does. Unfortunately, these property management “departments” are often viewed as a side business by the staff and sales agents of the company. Frequently, property management is a service offered by these departments as a last resort when a home will not sell. The property management team at these large companies may be primarily concerned with earning a commission when it comes time to try to sell again.

Sure, property management is not as glamorous as selling million dollar homes. But shouldn’t your investment be the focus of the your property management company and not a side show?

Ask your prospective property management company what percentage of their business is in sales. If the staff of the company divides its time between management and sales, you may not get the attention you deserve from your property manager.

3.) Does the property management company align their interests with yours? 

A good property management company realizes that the way to grow the business is through adding value to client relationships. They will structure their policies and procedures to align with your interests and avoid conflicts of interest. Some common conflicts of interest to look for in property management are:

In-House Maintenance: If the property management company has an in-house maintenance division or the owners of the property management company also own the maintenance company, there may be a conflict of interest. The company will generate higher revenues by increasing maintenance charges. This runs contrary to the owner’s interest of keeping expenses low.

Heavy Sales Focus: Property management and sales are two drastically different activities. If the property management staff also act as sales agents, they may be incentivized to sell your prospective tenant a house or to focus their time on generating large commission checks and not on your investment property. You need a property manager who is focused primarily on one thing: generating the highest rate of return on your rental property through professional, diligent management.

High Tenant Turnover: Leasing commissions are a major source of revenue for most property management companies. Your interest as an owner is in placing and keeping a quality tenant in your property for the longest period of time possible. Some property management companies create a conflict of interest with their leasing practices. Some examples include setting rental rates too high and automatic rent increases. This may be counter-intuitive for many investors. After all, shouldn’t an investor seek the highest rent possible? Not when it causes a quality tenant to vacate. We believe automatic rent increases and setting rent at the top of the market are only good policies for the property management company who will generate more leasing commissions.

Retaining Late Fees: If the property management company keeps the late fees, they have created a conflict of interest because their revenues will substantially increase the more frequently tenants pay rent late.

In summary, remember that your business relationship with your property management team is likely to be long term. It is wise to spend the time up front determining if a company is a good fit.

We hope you have found these tips useful. If you would like your property management questions answered by a licensed professional, give us a call today at 918-665-0212.