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two women interviewing a man in an office-21 Critical Questions to Ask Before Hiring A Property Manager

21 Critical Questions to Ask Before Hiring A Property Manager

What critical questions should you ask a property manager before turning over your keys to your hard-earned rental investment? Lots! Why should you even interview a property manager? Because hiring the wrong property manager can lead to tenants from hell, lost rent, costly repairs, and lots of headaches!

Just as you complete due diligence before buying a property, you should also conduct due diligence before hiring a property manager by asking critical questions.

How do you start?

Ask Friends and Colleagues for Referrals

The best way to ­find a good property manager is usually word of mouth. Talk to people you know and trust, especially people who had a good experience with their current property manager. Good referral sources are realtors, business networks, and contractors (plumber, carpenter, renovators, etc.).

Research Property Managers Online

The next step is to do some research online. Once you have collected a few names from reliable sources, check the management company’s website, including mission statements/Facebook Page/Groups, and customer reviews on sites like Yelp or Facebook. The Better Business Bureau also offers ratings/reviews. While there, see how long they have been working as property managers. Start compiling your critical questions.

Interview your Potential Property Manager

Once you’ve narrowed down your search, call your short-list and arrange to have an interview. Here are 21 critical questions to ask:

Critical Question #1. What services do they offer, and in what locations?

There are two types of property investors, people who want to be hands-off and people who want to be involved. If you don’t want to deal with tenants at all, make sure your property management company can handle every aspect of maintaining your property investment, from advertising, leasing, and cleaning to maintenance. Ask about their team. Which services are included in your contract? Do they have a handyman, carpenter, plumber, electrician, renovator, cleaner, etc.? Or, if you choose to self-manage, look for a property manager that offers tenant acquisition only. What areas do they service? Do they have a business in your city/town?

Critical Question #2. What is the ratio of unit/person? Who will be managing your property? Can they provide references?

A property management company with hundreds or thousands of units but only one agent should make you nervous. Advertising, move-ins, move-outs maintenance, and tenant screening take significant time. It’s unlikely one person can offer you the kind of high-quality, detailed service that keeps the bad tenants out, your property in good shape, and your investment pro­fitable. They may not even have time to answer your calls or emails. Look for a property manager who has a manageable amount of rental units/person or who has delegated staff for the various functions. Another assumption new property owners make is that they interviewed will be managing their property. The critical questions to ask are “will they be managing your property or delegating it to someone else? If it is someone else, can you meet them? Are they someone you feel comfortable working with long-term? Do they present a professional image to your potential tenants? How do they treat you?

Critical Question 3. What is their property management experience?

Although owning a property isn’t a requirement, it sure helps. A property manager who owns rental properties, or even a home, has a better understanding of the rental process, the consequences of bad tenants, and the emotions involved in handing your former home over to a property manager. An experienced property manager understands how to make your investment hold its value and remain pro­fitable. Once you’ve concluded your interview, ask for references.

Critical Question 4. How is the rental rate determined?

Experienced property managers complete a market analysis of comparable listings in your property’s neighborhood. The market analysis, their industry expertise, and the unique aspects of your rental property, such as a pool, community amenities, or a tennis court, provide them with the criteria for a competitive rental rate. A critical question to ask is how they calculated the rental rate.

Critical Question 5. What are the most common issues, and how did they deal with them

Asking property managers to define their processes from their real-world experience will give you a clear idea of their problem-solving ability and whether they have clearly defined processes in place. Critical questions to ask are “describe some of the most difficult landlord/tenant situations you encountered and how you resolved them.”

Critical Question 6. What is the cancellation clause?

When everything is going well, you don’t need a cancellation clause, but life isn’t perfect, and there needs to be an exit strategy both parties agree is fair. If a company is offering you a contract without an exit clause, look elsewhere. Also, If the property management company does not have any accountability benchmarks in the agreement, find another property manager. The cancellation clause should allow you to exit the contract with a reasonable amount of notice, for fair reasons, and at a fair price.

Critical Question 7. What are the management fees when the property is rented?

Most companies charge a monthly percentage based on the rental amount; others charge a flat fee. Still, others have pricing levels, which may include a basic plan, standard plan, and a premium plan with either a flat fee or a percentage.

It works to your advantage to accept a percentage of collected rent only when the property rents. With a percentage, the property manager is not paid if you don’t have a tenant. Percentage of rent collected provides strong motivation to rent your property and to charge the highest rent the market will absorb. Companies who charge a flat rate receive the same fee every month regardless of whether your property rents.

A critical question to ask is “how are the property management fees calculated?”

Critical Question8. Are fees charged when the property is vacant?

If a company charges a percentage of paid rent, neither of you is getting paid when the property is vacant. The portion of rent paid is a strong motivator for the property manager to rent your property sooner rather than later. Suppose the property management company charges flat rates, regardless of whether your property is vacant; what is their motivation to rent your property?

Critical Question 9. Are there additional fees?

You can’t work for free, and neither can a business. Property management services have associated costs. Typically, property managers tack on a surcharge for maintenance. Renovations are charged at a percentage of total costs. Most companies have set fees for maintenance inspections and hourly rates for services requested above and beyond those included in the property management contract. Additional services can consist of renovation projects, landscaping, snow shoveling, etc.

Beware of low rates. Companies that seem inexpensive may have many additional costs that raise your fees above the most expensive property management contract.

A critical question to ask is “what do the property management fees include and what fees are additional?”

Critical Question 10. How and when are you paid?

Property management companies typically pay your rental disbursements on the 15th of the month. Why the 15th? The tenant’s rent is taken out of their account on the 1st, followed by a two-week waiting period for funds to clear. Disbursements are then sent to the property rental owners.

Critical Question 11. How do they collect rent from tenants?

Gone are the days of collecting cheques or cash. If your property manager isn’t collecting rent through pre-authorized debit (PAD), e-transfer, or credit cards, it’s a red flag. When payment is automated or online, you’ve eliminated issues with tenants forgetting to pay rent.

Critical Question 12. Do they conduct regular property inspections, how often, and at what cost?

Property insurance companies usually have a set schedule of how many times per year the rental property is inspected. If you ignore these dates, your property is at risk. Regularly scheduled property inspections are an excellent investment. Inspections help you/your property manager catch problems such as water leaks, mold, illegal activities, unregistered guests, or pets. Inspections prevent issues from turning into hundreds of thousands of dollars of damage later.

A critical question to ask is “do you conduct property maintenance inspections, if so, how often?”

Critical Question 13. How do they handle evictions?

If your property management company has a robust screening process, the chances of bringing in a bad tenant is greatly reduced. Although credit checks and references reflect a history of behavior, no screening process can predict a tenant’s future behavior. A tenant can develop a gambling or drinking problem, lose their job, divorce, or go off the rails for many reasons. There is insurance to cover rental losses; however, as a property owner, expect to cover the eviction costs. For good property management companies, evictions are rare. However, all investments come with risks and costs. Critical questions to ask include; Does the property management company have an efficient and reliable eviction process? Can they describe examples of how they dealt with evictions?

Critical Question 14. How do they market properties?

Your property manager should be advertising properties through various channels that include the popular rental sites in your area. If they are only placing ads on their property management sites and hoping for the best, then you should ­find another company. Ads need to be posted on well-trafficked popular rental property sites.

Critical questions include; where do you advertise your rentals? On which sites/publications?

Critical Question 15. What is the average time it takes to rent a property?

The average vacancy time depends on many factors, including time of year (November — January are slow rental months), holidays, weather conditions, location of the property, condition of the property, price of the property, amenities, curb appeal, etc. Renting a property is not an exact science, although experienced property managers can give you an estimated time frame. To protect your investment, factor in the cost of absorbing the mortgage during vacancies.

Critical Question 16. What are their screening requirements, tenant criteria, and procedures?

This is the most important question. If the management company doesn’t have standards or procedures, run away! Your rental property is a business and needs to be treated as a business that includes standardized quality assurance processes. For the property to cash flow it must have quality tenants. The property management company should be able to outline their vetting process that proves applicants have a solid history of paying their bills on time and have a good credit rating. If they outsource this process, who is doing the vetting? What are their processes and criteria? It’s critical to know what the property manager’s process is to verify income, employment, work and landlord references, eviction history, and criminal records. Minimum standards and processes must be set and adhered to for all applicants; make sure you know their processes and standards so that you know they only accept quality tenants.

A critical question to ask; describe your tenant screening and vetting processes and requirements.

Critical Question 17. Do they enforce tenant’s insurance?

Tenant’s insurance is essential protection for both the tenants and property owners. In case of a fire, flood, or other acts of God, the tenant’s insurance will cover costs for alternate accommodation. If tenants damage your property, your insurance can file a claim against the tenant’s insurance, which keeps your insurance in good standing. Since insurance policies are attached to the owner of the policy, not the property, the fewer claims you file, the better.

Critical question: Can you ensure the tenant supplies me with a copy of their tenants insurance?

Critical Question 18. Can you review their lease agreement?

Property management companies will have a set lease agreement; however, not all will stand up in the court of law. Critical questions include; Can they give you a sample lease for you or your lawyer to review? Does it follow the Residential Tenancies Act? Will it hold up in court? Do they have a pet agreement? Do they have an amendment form? Municipal landlord/tenant organizations are good sources for legal leases.

Critical Question 19. What percentage of tenants renew their leases, and what percentage leave before the lease term?

Tenant turnover is an expense you want to avoid as much as possible. If their lease renewals are low and turnover before lease terms is high, it’s a red flag. There is a good chance the tenants are leaving because of poor management.

Critical Question 20. Are they licensed? With whom?

Most provinces require property managers/management companies to have a real estate broker’s license or a property management license. Ask them if they are licensed and with which brokerage.

Critical Question 21. Do they have a clear understanding of the legislation governing rental properties, landlords, and tenants?

In addition to legislated housing and human rights acts, legislation governs landlord and tenant rights. Ensure your property manager and their staff have a clear understanding of the legislation and minimum responsibilities for landlords and tenants. A good property manager will ensure their properties comply with the Minimum Housing Standards ActHuman Rights Act, and the Residential Tenancies Act (RTA).

A property management agreement is a binding contract between you and the property manager. A lease is a binding contract between you, the property management company representing you, and the tenant/s. Do make sure you understand the terms and responsibilities before signing.

Property management can make or break your investment. Although finding a good property manager will take some time and effort, referrals, independent research, and asking the right questions will help you choose a property management partner who protects your investment and keeps it profitable. Take the time to choose a property manager with a solid track record in every aspect of property management who supports your real estate investment goals.

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Nelda Schulte is a property investor who is passionate about helping investors who self-manage have profitable investment properties through resources and education. If you struggle with the wrong landlord forms, or worse yet, no landlord forms check out Nelda’s 10 Essential Editable Landlord Forms that help you separate the good tenants from the bad and increase your property’s profitability.

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