Selecting a property management company is one of the most important decisions a real estate investor can make. The following are critical factors that we believe you should consider when making your decision.
Customer service
You really want to select a company that provides excellent customer service, both for you and the tenants. If you experience any responsiveness issues when inquiring about their service, chances are you will experience the same on an ongoing basis if you select the company. Ask relevant questions like:
- Are they available after regular business hours?
- How do you handle emergencies?
- Who can you talk to if there are problems and where are they located?
- Do you offer any guarantee on your service?
Knowledge of building construction and maintenance.
Experience and knowledge of building construction and maintenance is key to your property management business. We would expect a coffee company like Starbucks to have excellent knowledge of the coffee equipment used in their stores. We should expect a property management company to have excellent knowledge of the building technology in use on their properties. The key questions are:
- Do they have skills on staff to be able to diagnose construction problems quickly and effectively?
- Are formal and documented maintenance and capital upgrade plans created for each property?
- Can they handle outsourcing work in addition to minor maintenance?
Tenant selection process
You will need to select a company that is serious about tenant screening and does more than just standard background checks. Tenant screening takes time, strong interpersonal skills, and good judgment. Ask questions like:
- How much time will they spend with a potential tenant?
- What kinds of questions will the tenant be asked?
- Will references be checked even if a reference letter is provided?
Knowledge of the local market
The most important influence for the value of real estate investment is the influence of the local market, and knowledge of the local market is key. Your property manager should have excellent knowledge of the local real estate market. Ask relevant questions like:
· What local staff presence exists?
· How does the company keep up with local market trends?
· Will you be dealing with remotely located personnel to obtain the service?
· Will tenants or potential tenants deal with local or remote staff?
structure fee
You will want to select a company with reasonable fees and also a structure where fees are avoided in addition to fees. For example, for a renovation you will want to avoid paying a % fee to the building contractor and then a % fee to the property manager on top of that. Ask relevant questions like:
· What fees are charged for renovation and construction projects?
· Do you use general contractors for renovation and construction? If so, what fees are charged?
· Do you have the ability to manage subtrades directly?
Information systems
Technology helps businesses run. Your property management company must have a clear and operational information systems management strategy. As the property owner, you are ultimately responsible for the information, so you’ll want to make sure the property manager has a good handle on it. Ask relevant questions like:
· How is the information maintained?
Are IT industry best practices followed?
· How is compliance with privacy legislation achieved?
· Is there a backup strategy?
What is the company’s IT disaster recovery plan?
Accounting
And finally, you’ll want to get your books in order. This will keep your tax accountant happy and your accounting fees low. Find out if the property management company has a solid foundation in accounting practices. Key questions include:
· What financial and transaction records are kept?
What is the accounting cycle of the property?
· What reports will be provided?
· Is someone available to answer your accountant’s questions should they arise?
Understanding the above areas and learning about a property management company’s management approach to managing these key aspects of real estate management will lead you to make an informed decision.
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