Property Management Company Evaluation Guide For Rental Owners
This article was originally posted on March 15, 2019, and was updated with additional information on February 10, 2023.
The Property Management Company Evaluation Guide was written to help owners of residential rental properties make informed decisions when reviewing and selecting the services of a property management company. While this was primarily written for owners who own rental property in San Jose and Santa Clara County, the information provided will also be useful to those who own rental property in other areas of California and the country. The eight sections contained in this guide were written to inform and answer some the most common questions that Valley Management Group, a San Jose Property Management Company, gets from rental owners and clients.
- Property Management Fees
- Handling Tenant Marketing and Retention
- Screening Potential Tenants
- Handling Tenant and Owner Funds
- Setting and Collecting Rent
- Rental Property Inspections
- Rental property maintenance and repairs
- Reviewing a Company’s Qualifications, Background, Size and Portfolio
1. Property Management Fees
Owning real estate can be a very lucrative investment. Rental properties provide monthly income, and the value of properties will usually rise most of the time. However, for most people, the problem is that they often do not have the time to manage these properties on their own. Property management is an excellent solution for “outsourcing” the management of your properties without having to do it yourself. It allows you to have a passive real estate income.
What about management fees?
The only thing holding many real estate investors and property owners back from getting a property manager is the cost. But, as the old saying goes, “You get what you pay for.” If you invest in the lowest-cost property management company, are you going to get the value you need in caring for and maintaining your properties?
Fees vary according to the company you use and the property location, as well as the type of rental property being managed. Residential property management fees will typically range from 6 – 10% of the monthly rent. For a single-family home, you can expect to pay 7-10% in rental property management fees. On multi-family properties, this fee will vary based on the number of rental units, the location and condition of the property, and most importantly, what services are included for that fee. Below are the monthly management fees that Valley Management Group, a San Jose property management company charges for various kinds of rental properties:
- Single-family homes: 8%
- Duplexes: 7%
- Triplexes: 6%
- Rentals (with 4 or more units): 6%
While many management companies don’t include this fee if they do you need to be aware of it. Some management companies charge fees to cover the cost of maintenance and upkeep and may be prorated when a new tenant is found. Other companies may expect to collect full monthly property management fee even if the property is not occupied and no rent is coming in. Make sure that the management fee is paid from the “collected rent” as opposed to “scheduled rent” or “rent that is due”. Make sure the correct language is included in the agreement to protect you from paying management fees in the event a tenant stops paying rent. The property management company should have the incentive to ensure your property is occupied by a good tenant who pays their rent on time.
Leasing fees are fees that are charged to compensate the property manager for the costs associated with finding a new tenant and completing the leasing agreement. A good management company will view the monthly management fee, not the leasing fee as the primary profit center. This is why stand-alone leasing fees (not included with other property management fees) are usually much higher (typically the cost of the first month’s rent). The best fee structure should incentivize the management company to keep turnover rates to a minimum. The only exception to this is when there is a high leasing fee and/or vacancy fee. Leasing fees will vary depending on the management company and the location of the property. Typically costs can vary from 25% to 100% of the first month’s rent, but 50% is fairly standard. Other companies just charge a flat fee when the lease is written.
Tenant Selection Fees
Fees that property management companies charge for reviewing rental applicants and selecting tenants for rental properties will vary. Some charge a flat fee, while others charge half of the month’s rent or may include this in their leasing fee. The property management company you use should do a good job qualifying prospective tenants since this is important for having a profitable rental. Valley Management Group charges a tenant selection fee which is half of the first month’s rent, not to exceed $1000.
Additionally, some management companies also charge a setup fee for the initial administrative cost of setting up a new account. The fee can range anywhere from $50 to $300. Find out if this fee is per property or per rental unit and if there is any difference if the property or rental unit is occupied or not. Valley Management Group does not charge new or existing clients any setup fees.
Fees for advertising your properties vary according to the strategy used as well as the expertise of the management company. Most property management companies provide advertising services, but you need to ask what they do and if they charge for this service. Choosing free resources, such as craigslist, social media websites, and yard signs, typically do not produce the same results as trying-and-true programs such as Apartment Marketer and Rent Marketer. It may be worth paying the typical price of approximately $100 if your property manager does not provide advertising, but you should not exceed that amount for this type of service. Valley Management Group doesn’t charge any advertising fees for marketing your property.
Reserve Fund Account
Day-to-day emergencies are typically covered by the reserve fund fee, which varies according to the type of property being managed. The size and condition of the property influence how much money is expected to go into this fund. A single-family home may require a reserve fund ranging between $200 and $500. The reserve fund helps to ensure service bills are paid promptly and needed maintenance takes place in a timely fashion. It is a good idea to find out if this money is refundable at the end of the lease or if you decide to use a different property manager.
Leasing Renewal Fees
Renewing a tenant’s lease requires new paperwork. Some property managers charge a fee, up to as much as $200, while others do not. If the fee is more than this amount, you should ask why. You may also want to find a property manager who doesn’t charge a leasing renewal fee. Valley Management Group does not charge a lease renewal fee, since this is included in the overall management fee.
In addition to finding out when you will be notified regarding the need for repairs, you may also want to ask at what price point this notification will occur. Also, ask whether or not the company has its own repair crew or if they use its own pre-qualified list of service providers. In either case, you want to know if they are using qualified and licensed contractors or service providers who can provide quality and cost-effective repairs when the need arises.
Unfortunately, evictions can sometimes happen even to the best property managers. When it does, you’ll be glad to have someone helping you handle this task. Some property managers charge a flat fee that can range between $500 and $600 plus the costs associated with court. Other property management companies charge an hourly rate ranging between $25 and $50. If they use an attorney, it typically increases the hourly cost.
Bill Payment Fee
The bill payment fee covers the property manager’s time and effort to handle payments for homeowner association (HOA) dues, gardening/landscaping, and insurance. Since these are optional services, some but not all property management companies provide these services.
Other Income Fees
It is possible that your property management company intends to keep a portion of one or more of these income sources:
- Pet deposits
- Late fees
- Returned check fees
- Laundry and vending machine income
- Lease violation fees
- Interest on funds held by the property manager such as the reserve fund and security deposits
Unpaid Invoice Fee
If an invoice goes unpaid, a late charge is typically added to the bill. It is a minor expense that is usually about 1.5% of the unpaid invoice amount. Most property management companies will typically deduct the cost of any services provided for the property out of the monthly rental income which will avoid this issue. If the costs exceed the monthly income of the property make sure the property management company indicates when the payment for an invoice is due.
Extra Duties Fee
If a particular service is not listed in your contract, a fee for extra duties is often charged. A clause discussing the fees for extra duties may or may not be included in the management contract.
Reviewing the Property Management Contract
Carefully review the property management contract and discuss any services or fees you have questions about before signing up with a property manager. These fees can add up, and it’s best to work with a company that does not charge for all of them. Valley Management Group is a San Jose Property Management Company that does not charge advertising or leasing renewal fees. Most Property Management Companies, including Valley Management Group, use their own pre-qualified licensed contractors and service providers to complete repairs on the properties they manage. This allows them to provide more consistent results and cost savings on each of the properties they manage.
2. Handling Tenant Marketing and Retention
Finding responsible tenants and attracting them to continue renting is the basis of strong property management. Finding a company with the skills needed to do so is one of the smartest moves you can make. Before you jump in and team up with a property manager, make sure you ask the following questions and evaluate the answers you receive.
Where do they advertise their rental listings?
In real estate, the general rule of thumb is that the more types of exposure you generate, the better the results will be. The only exception to this rule is if you’ve hired a property manager without the knowledge to advertise efficiently and successfully. You should expect your property management company to utilize several methods, including both free and paid options. In addition to website exposure, your property manager may also take advantage of one or more of these avenues:
- MLS – Multiple Listing Service
- Outdoor signs
- Newsprint listings
- Recorded messages detailing property information for prospective tenants
- Printed fliers
What is their current vacancy rate?
While no guarantees exist, you don’t want to begin a business relationship with a company that can’t fill vacancies quickly. In San Jose and Santa Clara County the residential vacancy rates are very low and if the rental is clean and well maintained it should not take long to rent it.
How long does it typically take to fill vacancies?
If the length of time in between rentals is longer than a month, you should find a different property management company.
Do they know what the cost per lead is?
Property managers, who can readily share their numbers surrounding cost per lead without hesitation, clearly have a handle on their advertising and marketing efforts.
Who fields inbound leads from the rental ads?
Well written rental ads are only half the equation for success. Having a qualified individual waiting to access direct leads resulting from them is the other half.
How quickly do they return calls and emails from potential tenants?
A quick response time is critical when you need to fill vacancies. A property management company that is experienced in this area responds to each email and call from potential tenants with dynamic speed. The staff does so ambitiously, asserting a desire to nurture prospective leads in an effort to fill existing vacancies. Otherwise, your rentals may stay empty longer than desirable. To see just how quickly a company responds, request information from their website. If it takes too long to get a response, you may want to keep looking for a reputable Property Manager.
Do they prepare the home/rental for showings?
Details matter when you are trying to rent property. A management company that takes the time to attend to these features can make all the difference in realizing quick rentals.
Will they show the unit if it’s occupied?
Showing a unit while it is still occupied often facilitates finding a new tenant, shortening the length of a vacancy. Steps should be taken to notify the current tenant in order to ensure the unit is presentable and intrusions are minimized.
Who shows the units, and do they allow unsupervised showings for a lock-box?
Successfully turning showings into rentals requires the presence of a knowledgeable property manager. Potential tenants always have lots of questions. Providing answers on the spot gives tenants the information they need to decide whether or not the property offers everything they want before signing a rental agreement. Unsupervised showings using a lock-box aren’t recommended because they don’t allow free sharing of pertinent information, slowing down the process. Allowing unsupervised individuals into a property also increases the risk of theft or vandalism.
What kind of tenant retention program do they have?
Encouraging a steady stream of income from your rental properties is a profitable goal. Doing so typically involves hiring an experienced Property Manager, who has a successful track record of finding responsible, long-term tenants. Make sure you ask the property managers you interview what their tenant retention numbers look like along with their expertise and experience with the local rental market.
Experienced rental owners understand the value of finding a reputable property manager to help find and retain responsible tenants. It isn’t as easy as it may seem to find a tenant who not only wants to rent your property but who is also prepared to care for it responsibly. A good property management company provides valuable services in retaining the best tenants which is critical to having a profitable rental property.
3. Screening Potential Tenants
One of the biggest challenges for rental property owners is to find responsible, stable – and most importantly – long term tenants. If you own rental property in San Jose or elsewhere in Santa Clara County, you understand the difficulties that come with managing your own rental. Screening potential tenants may sound easy until you begin the process and see what is involved. The importance of proper screening cannot be underestimated.
Common Mistakes with Screening Tenants
Even though every property owner has their own individual details and issues to consider, there are a few common mistakes that are made by many rental owners when it comes to choosing a tenant. Some mistakes can be costly and can result in frequent vacancies. Below are a few of the mistakes commonly made by property owners:
- Not doing sufficient screening of prospective tenants (and co-applicants)
- Not understanding the local regulations in your area as well as the Fair Housing Act
- Considering applications that are not complete or that do not meet all of your criteria
How to Avoid These Problems
The reason people own property is to make a profit – but usually, they don’t want it to become a full- time job. That’s why using the services of a property management company will help you avoid the pitfalls.
Screening process: Carefully screening potential tenants should be one of the top priorities of a rental owner/landlord. It is sometimes tempting to rent a property quickly. On paper, people may appear that they would be a good tenant – and it is sometimes easy to make an emotional decision about renting to someone. Later on, however, you may be in for a surprise. They may not want to stay long-term or become troublesome tenants. Part of the tenant qualification process for a potential tenant includes meeting them in person, running a credit check and also checking their rental history (both current and past places they lived). Enlisting the help of a Property Manager will take the personalities out of the equation by performing thorough screening and background checks. They will do everything possible to make sure a potential tenant passes all of your rental criteria.
Local regulations: Housing and renting regulations can change and it’s important that property owners stay on top of new and updated rules and regulations. Not having a good understanding of the local city and state housing regulations in San Jose and California can cause problems with your tenants as well as with housing authorities. A Property Management professional can help you avoid these types of problems because it is part of the services they offer to their clients.
Application process: An inexperienced property owner sometimes makes the mistake of being too casual with applications and explaining what is expected from the tenant. This is where an experienced Property Management team can make sure the application asks all of the right questions and that the potential tenant has answered and signed the application properly. The application process must also be performed on any co-applicants who will be renting your property. It is important that an applicant be required to sign an agreement that allows you or the property manager to run a credit check. Since there is a cost associated with running a credit check an applicant needs to pay an application fee when they submit it for review.
It’s easy to make a mistake when renting property, especially if you’re new at it and trying to do it alone. Being a rental property owner is time-consuming, to say the least. It takes knowledge and experience to do it right.
4. Handling Tenant and Owner Funds
Records must be kept of all rental income, security deposits, tax bills, maintenance fees, and other miscellaneous costs. This information also needs to be compiled annually for tax requirements. A property management company should provide monthly as well as annual reports that include all the information needed to track income, costs and fees that will used for filing taxes. When you use a property management company be sure you confirm you will receive the items listed below:
Payments to the Owner:
- On what day of the month are payments mailed or deposited?
- Will the check be issued early that month, or does the management company hold back to the end of the month?
- Is direct deposit provided as an option?
- Does the management company pay required city and/or state taxes associated with a rental property?
- Does the management company advise you on tax deductions?
- Do they maintain information on all property expenses?
The state of California considers profits from rental properties as taxable. Therefore, it is important to have documentation available regarding monthly and annual expenses. Make sure the property management company provides an IRS-1099, because you will need it for tax purposes along with a summary of profits and losses.
Do they keep detailed monthly and annual accounting records?
Make sure you have clear accounting records for all funds for each property. Ask each company you interview whether or not they keep and provide accounting records and invoices. Ideally they should provide a secure online portal that you can access that contains this information.
How often does a property management company send out reports? Also when are they sent?
No matter how many rentals are involved, a responsible property manager sends out detailed income/expense statements once a month. Typically, the reports are generated on the same monthly date.
Are income/expense statements available online?
The majority of property management companies offer online access to each customer’s documentation. This strategy provides transparency and convenience, saving you time and effort.
How can you tell if the income-expense report meets your expectations?
Before you sign on with a property management company, ask to see a sample of their documentation. The report probably won’t have much information on it, but you should be able to get an idea of the details typically included. Ideally, the report should contain the following amounts: monthly rental fee, late fees, non-sufficient fund fees, lockout fees, itemized expenses for maintenance, and their monthly property management fees.
Managing Security Deposits:
Why are security deposits important?
Security deposits are necessary to protect your investment. They allow you to recoup financial loss due to tenant neglect, and they encourage tenants to properly maintain the rental unit.
How much is the security deposit?
In California, a landlord can charge up to two month’s rent as a security deposit for an unfurnished unit and up to three month’s rent for a furnished rental. An additional half a month’s rent can be charged if the tenants plan to use a waterbed. If you allow tenants to have a pet an additional pet deposit fee can also be added to the security deposit.
How quickly are refunds of security deposits processed for tenants?
Existing California law requires the return of the security deposit within twenty-one days from the date the keys are returned. A document detailing itemized deductions should accompany the refund so the tenant clearly understands any discrepancy between the original deposit and the refund.
Is there a check list of requirements to obtain a refund of the security deposits?
In California, a landlord is allowed to keep all or part of a security deposit for any of the following reasons:
- The tenant owes rent.
- Damage to the property exceeds normal wear-and-tear
- The rental unit is less clean than when the tenants arrived.
The refund and deduction process should be designed to motivate good tenant behavior, not for making extra profit. Make sure you have a property manager that uses reasonable deduction amounts and also provides good itemized documentation of damages and repair costs. It also helps to have photos of the rental unit before and right after it was occupied to confirm any damages.
Is it ever necessary to go to small claims court for disputes regarding security deposits?
Sometimes rental owners/landlords need to go to small claims court when the tenant disputes charged fees. When this happens, it helps to have clear documentation regarding damages and the cost to make repairs.
5. Setting and Collecting Rent
When properly managed, rental properties can deliver profitable streams of income, especially in locations where rents are high and vacancies are low. Working with a property management company optimizes this opportunity by giving investors access to experienced professionals with a full understanding of the best practices to use when managing rentals. Before you hire a property management firm, take the time to ask the following questions on how they set and collect rent and compare the answers with the ones listed here.
How is Rent Collected?
Two of the best options used by property management companies to collect rent are to have tenants provide monthly online bill payments or have them use direct debit. Both methods save time and money while also enhancing cash flow. There are never any questions regarding lost checks or missing funds.
How Does Management Deal with Bounced Checks?
A bounced check is the first indication that a tenant is experiencing financial difficulty. Once a bounced check occurs, management will prohibit tenants from making payments with personal checks. A property management company will typically require steady, reliable payments for at least half a year before allowing tenants to use personal checks to make rental payments. It’s important to also include a rental provision that the tenants agree to cover the maximum cost allowable by law for any returned checks.
How Does Management Handle Delinquent Payments?
Delinquent payments are problematic and must be dealt with firmly yet responsibly. Unless a property manager addresses this type of situation promptly, tenants are likely to continue making payments late, even to the point of increasing their lateness if negative consequences do not occur. A Property Management company should monitor tenants portraying a tendency to pay late, and communicate with them to follow the terms of their lease by making payments on time. In return, a property management company will follow the all the terms listed in the rental agreement, which includes providing quality service for tenants at all times.
When is the Rent Due and What is the Grace Period?
Rent is due on the first day of the month and is usually considered late after the 4th or 5th day. The grace period should be short to encourage prompt payments and should usually not be extend beyond the 5th day of the month.
Is There a Late Fee?
The standard late fee is typically set to be approximately five to ten percent of the monthly rent payment. The purpose of this fee is to encourage renters to make their payments quickly rather than to add to the profitability of a rental property. If the frequency of late payments increases, a small daily fee is often charged as an added incentive to get the renter back on track.
How Do Property Managers Handle Evictions?
The eviction process must follow local laws and should be handled quickly. Proper documentation should take place to protect the rental owner’s interests. Ask to see the property management company’s checklist for handling evictions so you are aware of the process for your specific location.
Do They Provide Eviction Insurance?
While it isn’t mandatory, eviction insurance delivers peace of mind that your property management company covers the cost of evicting a tenant. When eviction insurance is offered, it does suggest that the management company is confident in their ability to screen tenants properly.
How Often Do They Consider Raising Rents?
Most property management companies, including Valley Management Group, recommends having an annual lease contract that does not raise rents more than once a year. When the rent is raised, it is based upon local market conditions as well as the rental units involved. Following this practice helps to keep the units rented. Keeping good tenants in place even if the rent is slightly lower than the current market rates is preferable to an increase in vacancies.
Do the Leases Include Contractual Escalators?
Including contractual escalators in a lease is standard practice. Tenants don’t feel blindsided if the rent does go up, and they appreciate when the rent isn’t increased by a large amount. Contractual escalators provide management with the ability to increase the rent without negotiating terms, providing notice, or giving an explanation to the tenants.
6. Rental Property Inspections
If you’re paying a property manager to manage your rental property it is very important that you know how they schedule regular inspections. Many owners don’t realize how much damage a bad tenant can cause in a short period of time. There is a tendency to assume that as long as the tenant pays their rent and there are no complaints that everything is going well. Don’t make too many assumptions or take anything for granted. Regularly scheduled inspections will allow you to catch small problems from turning into big problems quickly. It is also an effective way to confirm your tenant is following the rules described in the rental contract and deterring undesirable behavior.
Ask a perspective property management company the following questions on how they inspect the properties that they manage.
How are move in and move out inspections handled?
The need for an inspection before move in and after move out is obvious. Of course, there is a right way to do things. You want to know that the company you choose will be thorough and will take full advantage of modern technology.
Having a tenant complete a move in checklist in an apartment or multi-family building is standard, but when it comes to a single-family home the manager needs to be more involved. A property manager should go through the entire home and take photos to document the state of the property. They also need to schedule a tenant walk through where they review the premises with the tenant and have them sign the inspection report when it’s completed.
Upon move out, the manager needs to go back through the property again–preferably with the tenant–and take updated photos. These new photos can be compared with the old to determine if any damage beyond normal wear and tear was done.
What notification do tenants need before an inspection?
Tenants need to be notified of intended entry to the property. The official time of notification varies by state. It usually ranges between 24 and 48 hours. Property management companies should be well-aware of the legal requirements for notification times and should have no problem adhering to those times.
How often should interior inspections be conducted?
Some property management companies are content to conduct an interior inspection between tenants. However as a property owner, you should expect more. Your property manager should inspect the interior of the property at least once a year. It can seem like an unnecessary intrusion in the lives of the tenants, but it is an unfortunate reality that some tenants can be destructive–and you won’t know it unless you go inside the home.
The interior inspection should be based on a checklist, one that includes inspection of the HVAC filters, water heater, electrical system, appliances, smoke detectors and plumbing. The inspection should also include notes of any violations of the lease.
How often should exterior inspections be conducted?
Exterior inspections can be as basic as a drive-by or as involved as walking the entire exterior of the property. Since drive-by inspections can be conducted with minimal effort, and no notification to the tenant, it makes sense to conduct them regularly–as often as once every three months. Exterior inspections should be conducted at least twice a year.
Even if drive-by inspections are conducted regularly, a more thorough exterior inspection should be conducted at least once a year.
What should an inspection report contain?
Your property manager should write up an inspection report and send it to you after each inspection. Most property managers will have a form that is premade for this purpose, one that they fill in during each inspection. If you want other things inspected besides what is on the standard form, you can request that the item is added to the list. A thorough inspection report will include all the items inspected during each trip to the home. Photos of damage should also be included.
7. Rental Property Maintenance and Repairs
Preserving and ideally increasing the value of rental properties for owners is one of the roles of a property management company. Requests from tenants should be addressed promptly and owners should be provided with an easily accessible online portal to see how their money was spent. An good property manager can provide this service with the assistance of their own staff and their network of licensed vendors they have qualified. Prompt attention to repairs and proactive maintenance will keep the property value up and increase the likelihood of long-term renters.
Typical maintenance and repair items that you should talk with a property manager about before you hire them should include the following:
Proactive maintenance of your property to maintain value
The best way for repairs to be kept to a minimum is to keep things well maintained. From outdoor sprinklers to bathroom fixtures and appliances, regular maintenance checks should be done on the entire property. This takes time but will help your property retain its value and will help prevent small problems from becoming big expensive problems.
Don’t let your property become out-dated
Successful real estate investors know that you have to engage in sustainable and proactive practices to enhance property value. Don’t follow short term practices that delay needed repairs and multiply costs. Follow a plan to up-date or replace items such as appliances and carpet when they are near the end of their useful life.
Keep up the curb appeal
Your tenants will appreciate driving up to their residence when they see the outside is well kept with routine yard services. It gives them the incentive to keep it looking nice. For apartments, condos and multi-family properties the outside landscaping and cleaning costs is covered by rental owners /landlords often through an HOA, but for a single family house this is optional. A rental contract may state that the yard will be maintained by the tenant, however since some tenants don’t often do this an owner may use yard/gardening services on a pre-determined schedule and incorporate these costs in the rent.
Ensure property maintenance and repairs are done promptly
Tenants don’t need (or want) to be micro-managed. However, they should know someone can be easily contacted when any maintenance or repair item needs to be addressed. This makes them more accountable for how they treat your property. The last thing you want is an answering machine or someone saying you’ll have to wait until Monday to get your tenants issues resolved. Property management services need to track incoming maintenance requests and work orders with a system that insures that nothing falls through the cracks. If a maintenance emergency comes up the property management company should provide tenants with an after-hours number that will be answered.
Contracting with professionals
A good property management company will use reputable contractors who are licensed, bonded and insured to do maintenance work. They should also take the steps necessary to make sure they provide quality work at a comparable price.
Rules for contractors entering occupied properties
Make sure your property management company follows an established policy when the contractors they use need to enter an occupied property. Anytime maintenance or contractors need to enter occupied units tenants need to be given at least 24 hours notice unless there is an emergency such as a fire or serious water leak.
Don’t allow tenants to hire their own handyman or perform repairs
Allowing tenants to hire their own handyman or do their own repairs can lead to trouble. The work done may be inferior and the lack or insurance coverage and liability or workers compensation could leave you liable if an accident or injury occurs. Make sure the rental agreement prohibits tenants from doing this.
Providing Itemized statements with receipts
Anytime work is done at your rental property the property management company should explicitly list these on your monthly statement and receipts of any work done should be provided or accessible from an online portal. This insures there is accountability and transparency to the billing process.
Re-renting a vacated property
Managing re-renting after a tenant has left is part of the services offered by property management. Cleaning, painting and re-keying the property are standard and completed in a timely manner to get the property re-rented quickly. An empty rental is a good time to do improvements needed such as replacing carpet or appliances and any other needed repairs. Nothing should ever be done without the property owner’s consent.
The good news – you don’t have to do all of this alone
Proper maintenance a rental properties can be time consuming, however it’s part of the cost of owning a rental property. Using the services of a property management company will take all these responsibilities off your to do list.
8. Reviewing a Company’s Qualifications, Background, Size and Portfolio
The service you receive for a property management company is only be as good as the people working there. It’s critical to hire trustworthy, experienced and knowledgeable professionals who will be attentive to your needs and the needs of your tenants.
Below are some additional questions to ask the property management firms you interview:
Is the business licensed to practice property management?
This is important for anyone who practices property management to be licensed and educated in the field. When a property management company is licensed they are subject to the ethics and guidelines established by the local governing authority. If they do not have a broker’s license, they will either be operating under another broker’s license or are in a state that does not require a broker’s license. In either case check the laws in your state to confirm you don’t hire a company that is practicing property management illegally.
What certifications do the company and its employees have?
Certifications are a good indicator of how seriously the company takes their work. Look for a company that nurtures their employees in professional development by either encouraging or requiring them to attend professional courses and seminars. Professional certifications show that the recipient has invested considerable time and money acquiring the skills and knowledge required to be an expert in their field. Some trade organizations and the designations they provide include:
- National Apartment Association (NAA) –CSS, RMP, MPM, CRMC
- National Association of Residential Property Managers (NARPM)
- Institute of Real Estate Management (IREM) –ARM, AMO, ACoM
If any of the above certifications are also complimented with other related real estate management designations that is a plus. This shows an even broader set of skills which further confirms their property management expertise.
Does the management team act and look professional?
First impressions do matter. Any property management company you interview is likely on their best behavior during a call or during an interview meeting. If they don’t look and behave in a professional manner then, don’t expect things to improve. Consider that they will represent you when dealing with current and potential future tenants. If you don’t find them professional and courteous in a face to face meeting what are the odds your tenants will? It’s also a good idea to check out their offices as this will provide another view into what kind of property conditions they find acceptable.
How long has the company been in business?
It’s best to work with a property management company that has been in business for five years or more, however this must be weighed against other criteria since there are good startups and subpar veterans. Also beware if a company that has changed their name to hide a bad reputation or past.
How knowledgeable are they?
If they don’t have the time to answer all your questions in the interview process, move on and find someone else. They either don’t have time to talk with clients, or need to hide their lack of experience and knowledge. You can ask some hypothetical questions to see if they provide good answers or dance around the question. Clear concise answers mean they have good proactive processes in place rather than a reactive mentality.
Have they been doing property management the entire time? Do they manage the type of property you have?
Some property managers focus on managing one type of property and don’t provide services for others. While there are some benefits to working with a company that has a single focus and specialization, there are many other competent property management companies who provide services and manage multiple property types. The main thing to be aware of is that some people decide to become property managers overnight even though they are not qualified. While this may apply to people from many backgrounds, keep in mind that when the real estate market slows down a lot of realtors may moonlight as property managers. These people lack the proper training and licensing that is required.
How many people are on their staff?
There are pros and cons to large and small property management companies. While these are not universal, below are some things to consider:
- Larger company benefits:
- Have more specialized staff (i.e. accountants, receptionists, specialized managers)
- Provide more process-driven services
- May have an in-house maintenance crew
- More back-up staff to cover when someone is sick, quits or is on vacation
- Able to negotiate better vendor contracts and advertising rates
- May have enterprise level software to provide various property management functions, along with accounting, admin and communication.
- Smaller company benefits:
- You talk directly with the people doing the work
- You can typically get quicker responses and prompt attention
- The company owner has their name, reputation and personal identity tied to their business that motivates them to provide good service
- You may be able to negotiate costs if you have multiple properties to manage
Do they manage certain types of properties and have a specialty?
Companies that specifically manage certain types of rental properties provide some advantages, however there are many competent property management companies that manage condos, townhomes, single family homes as well as multi-family properties. The main thing is to confirm that they manage other rental properties like the one you want them to manage for you.
Do they manage any section 8 properties?
These kinds of properties come with unique challenges and require specific knowledge to manage. If you either own, or are considering buying a section 8 property you need to work with a management company that has specialized experience in this area.
Do they manage properties locally, regionally, or nationally?
In most cases it’s best to work with a local company since they provide more focused attention and know more about the local real estate market. Local companies that have an office in the city or metro area where a rental property is located usually provide the best management and are able to meet your needs as well as those of your tenants.
How long is their average client relationship? Do they have good Online Reviews?
Having clients that have been with them for years is a good indicator of the service they provide. It also a good idea to check online to see the ratings they have they have from both property owners as well as their tenants. Companies that have been in business awhile should have a decent number of online reviews that are mostly good, but keep in mind that no company will always have perfect 5 star reviews.
Ask for the addresses of some properties they manage so you can drive by or even walk through them.
Keep in mind that companies will select properties from their portfolio that look the best. You may need take the extra step and find one of their other properties by locating some of their rental listings. Besides looking at online reviews from some of their tenants you may also want to talk to some tenants to assess their level of satisfaction with the management company.
Where is their office located and how far is it from your rental property?
It’s best to work with a management company that has offices in the city, town or metro area where a rental property is located. The farther away they are from your property the more likely the level of service and attention will not be good.
If all of these things sound overwhelming, that’s because it is — it’s no exaggeration! If you manage your own rental property or are currently in contract with a management company that’s leaving too much work undone, now’s the time hire a trustworthy and affordable property management company that has the knowledge and experience to manage your rental property.
Valley Management Group has more than 40 years of experience and expertise managing rental properties in San Jose, Santa Clara and throughout Santa Clara County. They have received many good online reviews from both property owners and tenants. If you own rental property in San Jose or in Santa Clara County call 408 286-4200 for a free property management quote with one free month of services.
Reviewed and Approved by Lloyd Kipp
San Jose Property Manager and Owner of Valley Management Group