A Few key questions asked by others:
Getting Better Tenants
Think of tenant screening as the moat and draw bridge around your castle. It is certainly possible to get a bad tenant out of your home once they are in, but it’s a real hassle and you are so much better off never accepting them in the first place. a thorough screening process results in reliable tenants that:
- Pay on time
- Rent longer
- Put less wear and tear on the unit
- Generally cause less problems
An experienced management company has seen thousands of applications and knows how to quickly dig for the real facts about candidates and analyze that information for warning signs. By allowing a management company to handle the screening, you will also be shielding yourself from rental scams directed at owners, and discrimination lawsuits resulting from an inconsistent screening process. This kind of experience takes time, and insomuch as it means avoiding bad tenants, scams and lawsuits it is arguably one of the most significant benefits a property management company will provide.
Veteran landlords & managers know it only takes one troublesome tenant to cause significant legal and financial headaches. A good property manager is armed with the knowledge of the latest landlord-tenant laws and will ensure that you are not leaving yourself vulnerable to a potential law suit. Each state and municipality have their own laws, these plus federal law cover a number of areas including but not limited to:
- Tenant screening
- Safety and property conditions of the property
- Lease addendums
- Terminating leases
- Handling security deposits
- Rent collection
Lower Vacancy & Better Tenants
A Manager will help you perform three critical tasks that affect how long it takes to fill your vacancies:
- Improve and prepare the property for rent – A Property Manager will suggest and oversee cosmetic improvements that maximize revenue.
- Determine the best rent rate – Too high and you are stuck waiting, to low and you’re losing money every month the tenant is in the unit. Determining the optimal price requires knowledge of the local market, data on recently sold comparables, and access to rental rate tools.
Effectively market your property – An experienced Property Management company has written hundreds of ads and understands what to say and where advertise in order to get a larger pool of candidates in a shorter period of time. Additionally because of their volume they can usually negotiate cheaper advertising rates both online and offline. Lastly, they are familiar with sales and know how to close when they field calls from prospects and take them on showings.
While its easy to see the effects of lost rent, there are other equally serious problems with a high tenant turnover rate. The turnover process involves a thorough cleaning, changing the locks, painting the walls and possibly new carpet or small repairs, not to mention all the effort associated with marketing, showing , screening and settling in a new tenant. This is a time-consuming and expensive process that can often be averted by keeping tenants happy and well cared for.
A good management company will have a time-tested tenant retention policy that ensures happy tenants with lengthy stays in your properties. These kinds of programs require a consistent, systematic approach, which is where a good Property Management company will shine.
Rent Collection Process
The way you handle rent collection and late payments can be the difference between success and failure as a landlord. Collecting rent on time every month is the only way to maintain consistent cash-flow, and your tenants need to understand this is not negotiable. By hiring a property manager, you put a buffer between yourself and the tenant, and allow them to be the bad guy who has to listen to excuses, chase down rent, and when necessary, evict the person living in your property.
If you let them, your tenants will walk all over you. They have to be trained to follow every part of the lease or deal with the consequences. Property managers have an advantage because tenants realize that they, unlike the owner, are only doing their job and are obligated to enforce the lease terms. Many Managers will tell you that it is considerably easier to manage other people’s units rather than their own for this reason.
Regarding evictions, there are strict laws concerning the eviction process, and doing it wrong, or trying to evict a “professional tenant” can be a major fiasco. A good property management firm knows the law and has a good process for obtaining the best possible outcome given the circumstances. Never having to handle another eviction can be a compelling reason to consider hiring a property management company.
South Florida Property Management Association has a partnering member www.NationalEvictions.com they can help all landlords with the information needed to understand the Florida eviction process, all members, real estate professionals & building owners can get the required forms for a Florida eviction and help with hiring a lawyer to help with an eviction.
Maintenance and Repair Costs
Good maintenance and repairs keep tenants happy and preserve the value of your investment which make them a very important part of land-lording. By hiring a management firm you gain access to both their in-house maintenance staff, as well as their network of licensed, bonded and insured contractors who have already been vetted for good pricing and quality work. This can translate into significant savings compared to going through the yellow pages and hiring a handyman yourself.
*South Florida Property Management Association has our own Vendor & Business Member directories these members directly aid our Management members giving them cost savings for any work needed in the buildings they manage. This savings means savings for the builidng owners.
Increased inspections means happier tenants, It aids in the value of your investment
Preventative maintenance is achieved through putting systems in place that catch and deal with maintenance and repair issues early on, before they grow into larger more costly problems. This requires a written maintenance check program, detailed maintenance documentation and regular maintenance visits. The management firm can also offer you suggestions and feedback on upgrades and modifications, both how they will affect the rent you can charge, as well as their impact on maintenance and insurance.
Evaluate the property and determine an accurate rental rate
- Perform detailed documentation of the interior and exterior including photos
- Offer recommendations on repairs and cosmetic improvements that maximize monthly rent while providing good ROI.
- Gather data on rental rates in the area and work with owners to determine the optimal rental rate. Rent research will vary, but should include looking at the recently rented comparables according to size and type.
- Discuss with owners the pros and cons of different policies such as accepting pets, allowing smoking etc.
Market the property for rent
- Prepare home for rent
- Clean home and optimize interior appeal
- Manicure landscaping to increase curb appeal
- Create ads tailored to the property and advertising medium. Some of the mediums commonly used are:
- Paid and free rental listing websites
- Print publications
- Work with other realtors and leasing agents to find a tenant
- Provide a 24-hour hot-line where prospective tenants can listen to detailed information about the property
- Field calls from prospects for questions and viewings
- Meet prospective tenants for showings throughout the week and weekend.
- Provide prospective tenants with rental applications that are legally compliant with fair housing laws
- Collection applications with application fee
- Perform a background check to verify identity, income, credit history, rental history, etc.
- Grade tenant according to pre-defined tenant criteria
- Inform tenants who were turned down
- Draw up leasing agreement
- Confirm move in date with tenant
- Review lease guidelines with tenant regarding things like rental payment terms and required property maintenance
- Ensure all agreements have been properly executed
- Perform detailed move in inspection with tenant and have tenants sign a report verifying the condition of the property prior to move-in.
- Collect first months rent and security deposit
- Receiving rent
- Hunting down late payments
- Sending out pay or quit notices
- Enforcing late fees
- Filing relevant paperwork to initiate and complete an unlawful detainer action
- Representing owner in court
- Coordinating with law enforcement to remove tenant and tenants possessions from unit
- Advise in the event of a legal dispute or litigation
- Refer owner to a qualified attorney when necessary
- Understand and abide by the latest local, state and federal legislation that apply to renting and maintaining rental properties.
- Perform periodic inspections (Inside and outside) on a predefined schedule looking for repair needs, safety hazards, code violations, lease violations, etc.
- Send owner periodic reports on the condition of the property
- Provide accounting property management services
- Make payments on behalf of owner (Mortgage, insurance, HOA dues, etc.)
- Detailed documentation of expenses via invoices and receipts
- Maintain all historical records (paid invoices, leases, inspection reports, warranties, etc.)
- Provide annual reporting, structured for tax purposes as well as required tax documents including a 1099 form
- Advise owner on relevant tax deductions related to their rental property
- Provide easy to read monthly cash-flow statements which offer a detailed breakdown of income and itemized expenses
- Provide and oversee an in-house maintenance crew
- Establish a preventative maintenance policy to identify and deal with repair needs
- Provide an network of licensed, bonded and fully insured contractors who have been vetted for good pricing and good work that is up to code.
- Assign jobs to different parties (in-house employees, handyman and professional contractors) based on who will do the best job for the best price.
- Maintain outdoor areas
- Leaf and snow removal
- Removing trash and debris
- Maintain and monitor a 24 hour emergency repair hot-line
- Larger renovation or rehab projects
- Provide recommendations on how the project can maximize rental income.
- Prepare preliminary cost estimates
- Get multiple independent bids for the work
- Act as general contractor overseeing the work
- Inspect unit and fill out a report on the property’s condition when the client moves out
- Provide tenant with a copy as well as estimated damages
- Return the balance of the security deposit to the tenant
- Forward any portion of the owner’s portion of the tenant deposit to the owner or hold in owner reserves for repairs.
- Clean unit and perform and needed repairs or upgrades
- Re-key the locks
- Put the property back on the market for rent
There is a science behind maximizing rents for a community association manager to achieve this requires them to have knowledge of the local market and perform solid research on the last 10-20+ most recently rented comparables. Rules of thumb like the 1% rule (charging 1% of the property’s value as the monthly rent) are handy for reference, but can not replace thorough research using current market data. Aside from affecting rental income, your rental rate can also impact the properties value. The goal should be to get the unit rented within a month.
How often do they raise fees & rents?
Rental rate surveys should be performed at least annually, and more frequently if there are vacancies or lease renewals.
Contractual rent escalators allow the rents to be raised without the need to negotiate, offer an explanation or give notice. Tenants know they have already agreed to it so it doesn’t feel arbitrary, and tenants are actually grateful if the firm decides to not enforce the full rate hike.
It’s a plus if the management company offers direct debit for tenants. Processing fewer checks improves cash flow and saves time and money. This lets you know as soon as possible if funds aren’t there and eliminates excuses about checks lost in the mail.
How do they deal with bounced checks?
This is usually a warning sign of trouble ahead; after the first bounced check tenants should be prohibited from writing personal checks until at least 6 months of good payment history has been established. Additionally, there should be a provision in the rental agreement that says tenants agree to pay the maximum the law allows for all returned checks.
How do they deal with delinquent payments?
Find a Community Association Management company with a process that is firm but reasonable. Tenants & Owners will start paying later and later if the management company lets them, therefore it is imperative they enforce ALL aspects of the lease. Once they identify a tenant with a trend of delinquencies, they should keep a close eye making sure they either get back on track or deal with the consequences. Remember that a strict collections process is only balanced out by the community association manager quickly responding to owners & tenants’ needs with quality service.
What is their current rate of delinquency?
Find out if they run a tight ship or allow things to get out of hand. When is rent due? Is there a grace period, if so how long?
Due on the first day of the month (in hand not postmarked), late on the second day of the month is standard. A grace period that extends to either the 3rd or the 5th is also standard. Keeping it shorter prevents it from getting significantly delayed in the event of a holiday or long weekend.
How much is the late fee?
While late fees can generate revenue, their primary function is to get owners & tenants back on track to timely payments as quickly as possible. This community association management fee is typically between five and ten percent of rent, sometimes a small daily fee is added to this as an incentive to catch up ASAP. In theory, the late fees are supposed to reflect the penalty the owner would experience in the event of a late mortgage payment.
How do they handle evictions?
How quickly do they usually get repossession of the property when an eviction takes place?
Their process should be well documented, and although the best course of action will vary based on the circumstances, they should be able to explain to you the basic checklist they go through each time. You want to deal with a company that acts quickly, documents their actions, and understands your area’s unique laws for this process.
with bad intentions can drag this process out for a very long time. Find a manager who excels at containing and eliminating the problem as quickly as possible.
This is basically a small monthly fee that insures that the management company will pay for all attorney and court costs associated with evicting a tenant they placed. It’s not a widely offered service, but it’s a valuable service that speaks to the property management companies confidence in their screening process.
Members of South Florida Property Management Association get 24-7 Access to www.NationalEvictions.com A Web based Eviction Information Company helping Landlords, Building Owners, Property Managers, and Real Estate Professionals with the Florida Eviction Process.
A software solution should be in place here. You want to find a manager with a system that does not allow maintenance requests to fall through the cracks and require multiple tenant requests before the work is done. Ideally, tenants should be able to submit maintenance requests online. ( Add the Page of all PM, Landlord Software )
How are after hours maintenance requests and emergencies handled and who handles them?
Make sure its someone qualified to handle the problem. The last thing you want is an answering machine or someone saying you will have to wait till Monday to get your or your tenants issue resolved.
What system do they have in place to practice preventative maintenance?
Preventative maintenance is the mechanism a manager uses to maintain the value of your property and avoid letting small issues become larger more expensive problems down the road. This involves things like a predefined maintenance and inspection schedule as well as promptly addressing known issues. This of course assumes owners are willing to make the necessary repairs when they come up. Slum lords may balk, but successful real estate investors know that when you’re in for the long haul you have to engage in sustainable practices that maximize property values, not short-term practices that delay (and multiply) costs.
Do they have their own maintenance crew?
If the answer is yes, are they covered by workers compensation and are they licensed, bonded and insured? Additionally are they available 24/7/365 for emergencies? As a member of SFPMA we have a full listing of vendors & business members on our directories for them to choose from.
What contractors do they work with?
Do the contractors carry workers compensation and are they licensed, bonded and insured? Does the management company oversee the contractors’ work for quality, code compliance and cost effectiveness? Some owners like to take the extra step of researching the primary vendors that will be used to make sure there are no red flags. All SFPMA members are checked making sure they have the proper licenses and insurance a requirement for membership.
What rules do they have in place regarding contractors entering occupied properties?
Make sure they have an established policy here. Anytime contractors and maintenance personnel are entering occupied units there is potential for trouble if the situation is not handled carefully.
Do they provide itemized statements with receipts for the work performed?
This adds accountability and transparency to the billing process. You don’t want to work with a management company that is unwilling to provide solid documentation of where your money is going.
Do they let tenants perform repairs?
Tenants perform inferior quality work, and their lack of insurance coverage, liability or workers compensation could leave you liable in the event of an accident or injury. Why take the risk of having them accidentally fall off a roof or ladder, electrocute themselves, or flood your home? If they don’t allow tenant repairs, make sure this is written into the rental agreement. If you are comfortable allowing them, at least have the tenant sign a waiver and agree that the repairs must be approved by the manager.
Do they allow tenants to hire their own handyman?
This is also inviting trouble, and the rental agreement should prohibit this. In some cases written into a single family home lease some repairs are included in the rental agreement, Find out if there are any agreement such as this. Check to make sure this is not considered a liability hazard although providing these services eliminates the issue of tenant neglect and can improve tenant satisfaction which helps with retention.
What is involved in their process for preparing a property to be re-rented after a tenant has vacated? How long does this process take?
The property should get the usual cleaning, paint job, re-keying, etc. but this is also a good time to consider strategic improvements that will maximize your rental revenue. You want to find a property manager that will proactively offer this kind of feedback on an as needed basis. Obviously the quicker the turnaround time, the better.
While tenant completed inspections are typical for apartments, for single family units, the manager should perform a detailed inspection which includes digital photos. The tenant should accompany the manager for a walk through and sign off on the inspection report. This kind of documentation is critical to resolve disputes over what damage took place during the tenants stay.
How often do they inspect the interior of the property?
Are tenants & owners notified before inside inspections?
They should inspect the unit at least annually, with every six months being the preferred time interval in between inspections. The person doing the inspection should have a check list that they go over which includes things like checking all appliances, locks, A/C (filters), furnace, water heater, smoke detector, electrical, plumbing and looking for lease violations.
Do not accept the management company only performing inspections in between vacancies. Tenancies can last years and there is no excuse for not inspecting the unit during that time. Of course tenants must be given notice before the inspection takes place (24/48 hrs depending on state laws).
How often do they inspect the exterior of the property?
Between monthly and quarterly is standard, although the more frequent the better. Realize that more often than not for many managers these are drive by inspections where the person doing the inspecting does not get out of their car. While this may be acceptable for more frequent visits, a full scale exterior inspection should be performed at less frequent intervals as well.
How often are inspection reports sent to you?
Ask for a copy of any reports they send to you as part of the agreement
The rule of thumb is to look for five years or more experience, but this must be weighed against all the other criteria as there are subpar veterans and excellent startups in many markets. Also, beware of a company that has changed its name to avoid bad past.
Community Association Managers who focus on one property type and/or don’t provide realty services pride themselves on this point. There are definitely benefits to working with a company that has a single focus and specialization, but there are plenty of competent community association management companies who provide realty service and/or manage multiple property types. The main thing to look out for is people who decide to become property managers overnight even though they are unqualified. Although this applies to people from all backgrounds, its worth noting that when the real estate market slows down a good number of realtors moonlight as property managers, some of whom lack the proper licensing and or skills required.
How knowledgeable are they?
If they appear to not have the time to answer your questions in the interview process, move on. They either genuinely don’t have time for their clients, or this is a front to mask their lack of knowledge. Try offering them some hypothetical scenarios to see if they offer you solid answers or dance around the question. Quick, clear answers mean there are well laid out processes in place rather than a fly-by-the-seat-of-their-pants, more reactive mentality.
Are they licensed to practice property management?
This is a very important point as it is a serious problem when anyone tries to practice property management without being a licensed Community Association Manager and educated in the field. The fact that your community association management company is licensed means they are subject to the ethics and guidelines established by their states governing authority. If they don’t have a broker’s license, they either will likely be operating under another broker’s license or are in a state that does not require a broker’s license. Either way it’s worth checking the laws in your state and verifying things to make you don’t hire a company that is practicing property management illegally. Also make sure to find out if they have a current errors and omissions insurance policy.
What certifications does the CAM company and its employees have? Do they participate in continuing education?
This is a good indicator of how seriously the company takes their work. You want to look for companies that nurture their employees professional development by encouraging (or even better requiring) them to attend graduate level courses and seminars. Professional certifications mean the recipient has invested considerable time and money acquiring the skills required to be an expert in their field. Here are some trade organizations and the designations they provide:
- National Association of Residential Property Managers (NARPM) – RMP, MPM, CRMC,CSS
- National Apartment Association (NAA) – CAM, CAMT, CAPS, CAS, NALP
- Institute of Real Estate Management (IREM) – CPM, ARM, AMO, ACoM
- South Florida Property Management Association. (SFPMA) Through Gold Coast Schools CAM, and Continuing Education Courses.
Does the management team dress and act professionally?
First impressions matter. The companies you interview are likely on their best behavior during the interview process so if they don’t look and behave professionally then, don’t expect things to improve. Consider that this person will represent you when dealing with current and potential future tenants; if you don’t find them agreeable what are the odds your tenants will? It’s also a good idea to get a look at their offices as this will provide yet another window into what kind of property conditions they find acceptable.
Generally speaking it is a good thing if they focus on specializing in one area.
How many properties are they currently managing? Is the company trying to grow, hold or slim their portfolio?
This question is closely related to size which is covered in the next article.
Do they manage properties locally, regionally, or nationally?
The conventional wisdom is that a local only is best because is allows for a more singular focus as well as increases managements attention and ability to meet your needs as well as your access to decision makers in the company. That said, this can be an over generalization easily out weighed by any number of the other factors covered in this hiring guide.
Do they manage any section 8 properties?
These kinds of properties come with their unique challenges and require specific knowledge to manage. If you own, or think you may consider purchasing section 8 properties in the future you are best looking for a company that has experience in this area.
Ask for the addresses of some of their properties so you can do a drive by and if possible get a walk through.
Bear in mind they will select properties that reflect well on them, if you really want to go the extra step you can hunt down one of their other properties by locating some of their listings on there websites. Either way, if you get the opportunity to talk to tenants & owners try to assess their level of satisfaction with the Community Association Management Company.
Where is their office located? How far is it from your rental property?
The farther away they are the more likely the level of attention your property receives will suffer. A maximum of a twenty five minute drive is a good rule of thumb. or Find out of they have managers at each property some companies have offices in each building they manage, or an agreement with the building owner placing an apt set as a office.
There is a significant difference between commercial vs residential property management fees but the average management fee ranges between 4-12% of monthly rent. For a single family home you might expect to pay 10% in rental property management fees. This fee will vary based on the number of properties you need managed, the number of units in each property, the location and condition of the property, and most importantly, what services are included for that fee. (Fees also vary market by market, Other pricing models include flat fees, or a hybrid that sets both a percentage and a flat fee and asks you to pay whichever is lesser/greater. Find out if fees are billed or deducted directly from owner accounts.
Many management companies don’t require this—if they do, pay close attention. Some management companies charge a monthly vacancy fee ($50) that is prorated when a tenant is landed. Other companies expect to collect the full monthly property management fee even though there is no rent coming in. Make sure that the language in the contract indicates management fees are to be paid out of “Collected rent” or “Rent collected” as opposed to “Scheduled rent” or “Rent due”. Ensuring this language is in place will also protect you from having to pay management fees in the event that a tenant stops paying rent.
This fee is for the time invested in setting-up a new account. It ranges from 0$-300$. Find out if the fee is per unit or per property, and if it makes a difference if the unit is occupied or not.
Leasing fees compensate the manager for the time, effort and cost associated with getting you a new tenant. While this fee is common, some owners are opposed to paying it, preferring that it be padded into the management fee so there is more incentive for the management company to find long term tenants.
In truth, a good management company views the management fee, NOT the leasing fee as the primary profit center. This is why leasing fees as a stand alone service (meaning without other property management services are typically much higher (75-100% of first months rent). A transparent fee structure is laid out in such a way that high tenant turnover hurts, rather than rewards the management company. The only time this is not the case is when the fee is excessive, or there are significant vacancy fees. In the event that you are fortunate enough to have a long term tenant, you will benefit by not having to pay a leasing commission that is padded into the monthly management fee.
There are plenty of ways to generate leads using free resources like signs, craigslist, etc. but with vacancies time is money and prolonging the search process to save a few advertising dollars is a bad idea. This fee could be charged in addition to the leasing fee so it’s important to ask who pays and what the typical fees are. The better they are at marketing the less you will pay, if they have a good strategy and use tools should be around $100 and certainly not more than $200.
Some community association managers charge this fee whenever they have to draw up the paperwork to renew a tenant’s lease. The fee typically ranges from 0-200$. The process doesn’t require a lot of work, so a big fee should be a red flag. You should ask if they require lease renewals or if they allow tenants to go month to month after the initial term is up.
Reserve fund fee
These funds are used to pay day-to-day operating expenses, making sure that services are performed promptly and bills are paid in a timely manner. A reserve of $200-$500 is normal for single family properties.
Will they contact you with an estimate before performing repairs over a pre-defined amount? Is this negotiable?
Their policy may be to notify you if an expense exceeds a higher figure like $500-$1,000, but you may want to ask if this can be set lower ($100-$200) starting out and increased over time as you become more comfortable with the property management companies judgment. Additionally, if this notification is waived during “emergencies”, ask that they define what qualifies as an emergency.
Do they have their own maintenance/repair crew?
Companies that don’t offer this may portray it as an ethical hazard since the company could overcharge, but so long as you confirm that the billing rate and process is reasonable, it should not be a problem. If managed properly, an in house crew is a benefit that can lead to cost savings and a more streamlined process.
Here are some questions to ask:
What services do they perform?
What is the billing rate? ($30-$40/hr is average.) Does it vary based on the work being done?
Is there a trip charge, or a minimum billing time?
Are they available 24/7/365? Is there an extra fee/higher billing rate if they are called on off hours, weekends, or holidays?
For larger remodeling/upgrade projects, do they act as the general contractor overseeing the work that is done? Is there a fee for this?
Do they get at least three independent bids for larger ($500+) projects?
Do they belong to a network to get better repair rates on the work they outsources
Do they charge a “mark-up” fee?
This fee is stacked on top of the final bill for the work performed. Not all firms have this fee; if they do it should come in around 10%.
Fee for serving notices, dealing with attorneys, court appearances, evictions, etc. Hourly rates are typically $25-$50 while a flat fee for the whole eviction process usually comes in between $500-$600 (plus court costs). Find out if they typically use an attorney for evictions and what their billing rate is.
Unpaid invoice fee
This is a small service charge (typically 1.5%) that is added each month to all unpaid invoices that are past due.
Bill payment fee
Fee for making owner payments such as mortgage, insurance, home owners association dues, etc. Some management firms don’t charge a separate fee, while others don’t even provide this service.
Sales commission if property is sold
Some management firms require an exclusive arrangement to broker your properties. If this is their policy, find out the brokerage rate and make sure there is a limited term which will allow you to re-list with another firm if the property does not sell within a reasonable period of time. Also, if the firm requires it, how much would the sales commission be in the event that a tenant ends up wanting to purchase the property they are occupying? This is typically 1-3% but we have seen higher, always make sure to check the contract.
Find out if they will be keeping any portion of the following sources of income:
- Late fees
- Returned check fees
- Pet deposits
- Lease violation fees
- Interest on security deposits (may not be applicable depending on state laws) and owner funds held by manager
- Income from laundry and vending machines
Extra duties fee
Some contracts contain a list of extra services not included in the contract along with the billing rate in the event the owner requests any of them be performed. Check to see if this clause exists, what services are listed, and what the billing rate is.
Now with the knowledge that you have learned about what a Management Company can do to help you with your property. You need to find a Management Company to manage your property!