How to choose a property manager - brutal criticism wanted on article

housingrental

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Please provide your thoughts and criticisms on article below - Thanks









Choosing a property manager





As a starting point in selecting a property manager a real estate investor should look to its trusted team members - Realtor, Lawyer, Mortgage Broker, etc. - for references to recommend firms. By also contacting the members of the local property management association additional choices can be added to dig deeper in finding the best suited candidate. You will find there will be a big variance from firm to firm on price, services offered, and experience. Be prepared to spend a few hours on due diligence when selecting potential management companies by asking the following questions:





Do you take on properties in the area and of the type I own? Certain firms will only manage single family homes, others only properties greater than 5 units, others only in specific area`s of the city, before wasting your time on anything else find out if the company will even take on the job.





What experience do you have?
Ideally aim to hire a property manager that has experience with similar property types for a significant time period ` the more years operating the better! A 4 bed 4 bath house could use slightly different strategies than a property with four bachelor apartments. Experience in your local area is also important as the appropriate rental price to ask, the code compliance requirements, and the best area`s to advertise the property can change from one town to the next.





What certification and training do you have?
There are significant requirements that have to be met to operate as a property manager in certain provinces and for other areas there are none at all! An investor should ensure that if your local area has requirements for property management that this is met. You will know that the manager meets a base level of competency and this can also provide you additional protections if anything goes wrong. Membership in property management associations, real estate investment clubs, property management designations, insurance coverage, and educational courses taken, will all increase the likelihood that a high level of service will be provided to you.





How long will it take to receive a response?
Can everything be responded to within a few hours? Or will it take a few business days? Will the current tenants receive the same level of responsiveness? What about potential renters? Are there systems in place to deal with urgent maintenance items in a timely manner?





How much will your services cost?
There are many ways property management companies charge ` be sure your clear on what the total cost of services will be. Percent of gross rent, flat fee, or a charge per visit to the property are all common billing practices. Some companies will charge an additional fee for each unit rented, others will charge a higher monthly fee but include this service in the cost. Watch out for companies that charge a premium on any work done on the property in addition to the amount billed out by contractors or that make use of a maintenance company that is owned by the property management company ` as these practices have the potential for conflicts of interest.











How much involvement can I have in making decisions about the property? Many property management companies will provide ` and demand! ` the property owner to be hands off from the operations of the property once hired. I recommend that when choosing a company there is clarity on your expectations on when you want to be contacted. Confirm with any companies that they will manage a property where you can maintain a level of control that you are comfortable with. You should set out up to what cost of maintenance work can be done automatically without you being contacted so that everything over a certain amount ($1000 as an example) the management company will get your authorization before proceeding. This will allow for ongoing maintenance to be more automated and for the property owner be able to get more involved when capital improvements are needed. This can also happen in any area where the property owner would like to provide input. Some situations could be:


Prior to approving a potential renter applicant


The cost of, wording, and placement of advertisements


Potential renter and current resident rental incentive programs


Non required upgrades to the property (adding in Dishwasher, AC, upgrading materials for aesthetic not maintenance purposes)





Written by Adam Hoffman, an investor and owner of a Waterloo, Ontario based property management company. If you have any questions about choosing a property manager he can be contacted through his company`s website at www.hoffaco.com
 

invst4profit

New Forum Member
Registered
All good questions. None of which I would ask the PM company.

I would be asking all of those questions to there present clients. I would want to speak to at least 10 of there present clients as well as try to find past clients.

I would seek out those customers through the area Landlord association. As a last resort I would ask the PM company to provide names of there clients.



Referrals are, in my opinion, a PMs most valuable asset and the only one that matters to me.



For myself the one area I would never trust a PM is in the selection of tenants. I would have to have the final word on that issue.
 

JoeRagona

Frequent Forum Member
Registered
I would definitely be asking these questions Adam. And Greg, I agree with some of your comments about seeking out clients of the PM company and the selection of tenants. I want to also have the final say in this.



It's why Adam, I am seeking a specific company to do a combination of services like you mention. As a full time investor and a business owner five times over, I can handle more than most - I just don't want to be in the trenches.



I'm not sure why Greg, you would ignore interviewing your 'employee' but that's your call - if it's working, great. For me, I would expect huge open communication between all my team members and knowing this is truly important.



So far so good Adam, I could post some of this on the Engaged Investor blog to get the word out if you'd like.
 

RandyDalton

Inspired Forum Member
Registered
Hi Adam,



I agree with the posts above and would add those two questions.



1) Obtain at least three references from clients with similar properties, locales, and requirements as my own.



2) Will I have the final say in who is granted tenancy.



My company also has an Interior Decorator and Kitchen and Bath Designer on staff. Luckily I am married to one. So I stress that any renovations include a report from her showing where to best spend the $$$ to maximize the resale value and market rent. She is also involved in all flooring, color, and fixture choices for the same reason. Since I have seen so many bad reno jobs with design and decor choices being made by the tradesperson or handiman, I would also ask;



3) Who is making choices when it comes to design and decor items such as light fixtures, paint colors, new flooring, etc?



I have a couple of other points in regards to your comments.



a) I do own a construction business along with a property management company. I believe this helps me and my clients tremendously. Of course any client can request that they obtain multiple quotes, of which mine is one. Or they can request that I obtain multiple quotes, in which case mine is not one. I believe this eliminates any conflict of interest while providing considerable value to my clients.



b) Rather than using a set dollar amount for repairs that do not require authorization, I use emergency repairs as outlined by the LTB. For example, if the furnace dies and the cost is over $1,000, my first call is to an HVAC company. My second call is to the owner.



Would love to hear your thoughts.



Regards...Randy D.
 

RedlineBrett

Senior Forum Member
REIN Member
All good questions. I'd add the following



- What do you yourself own in the area. You want a PM that does business on the other side of the fence as well. It gives them perspective and an understanding of what are priority problems in this business and which ones are not.



- What is your SOP when you get a delinquent tenant in a property like the one I have? Everyone approaches this a little differently. Some will start the eviction process right away, others will try and work with the tenant.



Regarding your questions and comments I'll add some of my feedback as property management business owner.



How long will it take to receive a response?




- This can never be guaranteed by a PM. All depends on what kind of question the owner has and what time of the month they are looking for an answer. If you contact us on the 2nd of the month asking about a bill from two months ago or for the last walkthrough report we probably aren't going to get back to you right away because my staff is busy chasing down rents.



How much will your services cost?




- Like you say there are lots of different types of fee structures. Regarding your comment RE conflict of interest: If a PM has 2 or 3 'preferred' contractors there will still be conflict of interest. Regardless of what industry you are in if one company sends a lot of business to another they get taken care of through preferred rates or referral fees or sending business back. It comes down to a simple question - do you trust your PM or not? If you do - take your mind off it and let them do their job. If you don't then you need to be more hands on and should either self-manage or look for an a-la-carte type of PM service.



How much involvement can I have in making decisions about the property?


- This relates closely to the topic above. I'll add that the good PMs can be selective about the type of business they take on. I've been put through the ringer by REIN members that think I am drooling at the prospect of managing their tired fourplex. If you come off as being overly high maintenance and you aren't bringing a good sized book of business with you the best PMs will say 'thanks but no thanks'.



Per property PMs make at most a couple hundred bucks a month for doing all the worst things about the business. The nature of the job means they are always the bearers of bad news to both tenants and owners and every time the phone rings its because someone wants them to do something. If you are the type of owner that has to have perfect service and spot-on answers to all of Adams questions you'll never be happy with any management company and chances are they'll fire you before you fire them.
 

housingrental

Frequent Forum Member
Registered
Thanks everyone

I'll respond in detail to all when I have more time at a computer

Brett - You sound like you already burned out with your new business venture - Be strong :)
 

RedlineBrett

Senior Forum Member
REIN Member
Hey Adam - far from burned out my friend... I've just found REIN members (particularly new ones) have unrealistic service expectations when it comes to management that's all. I'd find it hard to believe that you haven't noticed the same... The senior ones are usually much better.



For a management company it's service vs. profitability and you get diminishing returns by throwing more money (staff) at the service problem. While the numbers are subjective I feel I can meet 80% of standard REIN expectations and make money doing so. To offer 90% means I break even. To offer 95% I'm losing $... and couldn't offer 99% even if I only had one client and did every little thing myself. but that 1% is still out there and will claim you are doing a poor job with very little personal management experience from which to base their criticisms... All while taking up way more of your time than one client should.



I've thought of offering a top tier package and charging a special "REIN rate"... though it might not be what most members would expect ;)
 

johnsu

New Forum Member
Registered
Here are my 2 cents fellas!



1. How do you price the rentals?

2. Okay, how do you know when you're over priced?

3. What other strategies besides lowering the rents do you use to get me renters?

4. How do you screen tenants?

5. What's your eviction process?

6. Tell me how you solved some of your "renter nightmares"



This will show the "Real Skill set" of any property manager.
 

housingrental

Frequent Forum Member
Registered
johnsu: Thank you for your thoughts!



Everyone re previous posts: This can be viewed as an unethical business process - you have a potential for a HUGE conflict of interest - Even if you are taking steps to ensure everything is done PERFECTLY relating to this you still risk having clients have concerns, firing you, or bad mouthing you to others after the reno project you do for them does not meet (price, quality, whatever reason) expectations...... Caution is needed.....
 

housingrental

Frequent Forum Member
Registered
Hi Brett



I hear - and trust me understand fully - your concerns....



I'm not too sure I'd lump into a REIN member vs non REIN member client difference....There are a wide range of expectations from person to person whether REIN member or not.... I think the core issue is that there is huge pricing pressure on PM's and the rates desired from certain clients make it impossible to provide a quality service....



Two big issues with this:



a) Rent to purchase price in most markets is low - So low that it's often hard for an investor to break even (with standard leverage) before PM expense.... So they often want to spend $X only on services but $X+Y is needed from most firms



b) Many "interesting" people offering services as a PM... Often with minimal training, minimal experience, lacking certification, lacking insurance, and on occasion doing questionable things - like not disclosing non arms length business on contracting, or taking markups on invoices without disclosure.... or just doing a terrible job.... In Alberta where you have licensing requirements I'm guessing it minimizes this... In Ontario it's not too uncommon for an owner to get a few quotes at $800-$1000 from a few PM companies and then one quote at $300..... and choose $300 quote or try to hammer down price from other PM firms.... And then come back a long time later looking to turf $300 PM.....



My - always work in progress - solution:



a) Offer a higher quality of service than competing firms to justify reasonable compensation - Faster response times on phone calls, email, photocopies of leases, whatever the client wants - and being able to point them in the right direction on real estate but not PM related topics...



b) Offer segmented services / limitations on services.... A few easy to implement examples....



Problem - Smaller property - Collecting $150 per month PM fee.... In one month tons of reno and tenancy issues.... have to stop at property 20 times.... after expenses losing hundreds a month on property.... Solution: Having clauses in contract along lines of Monthly management fee includes X visits to property per month... Any visits greater than X will be charged a rate of XX per visit.



Problem - (Very common with REIN members) - Client wants to have advertisements up on 20 websites and newspapers....

Solution: PM fee includes posting ads at X amount of places. If client wants ads placed in additional places there is an additional fee of X per place plus cost of ads.....





So what to do:



a) Do not undercharge - Better to lose out on a few contracts from pricing concerns than take on discounted work.... PM is a lower bill rate business than many - there just isn't fat on fees to allow for cutting unless your willing to work for $5 per hour.....



b) Proactively structure your contracts to anticipate all these "non standard" situations that can burn you so that you're appropriately compensated for work that you do - You benefit from fair pay - Client benefits from consistent quality service regardless of the management difficulties that might be encountered... and having a PM they can rely on for the long term..... If you do poor work, or quit in the future, it is not in either of you or the client's interests.....





HAPPY LANDLORDING !
 

RedlineBrett

Senior Forum Member
REIN Member
Great post Adam. Will definitely help to educate investors on the challenges related to running a PM business.



Many of your strategies are excellent and we have similar procedures. If only you had tenancy laws like we do in AB I think you'd make even more money than you do already :)
 

housingrental

Frequent Forum Member
Registered
Thank you



Re "Will definitely help to educate investors on the challenges related to running a PM business." Hopefully some... :) Others only clue in 6 months after they have gone the route of discounter firm and want change



Sadly Ontario keeps getting tougher and tougher to operate in.....
 
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