How to Interview a Property Management Company
Updated: Feb 2
When people call to explore our property management services the conversation is almost always the same.
The client starts by asking about our fee structure… “What do you charge in management fees? What do you charge for maintenance? What do you charge to lease the property?”
Then, our instinctive pitch is to tout all of our services… “We are a full service management company which means we do leasing, management, and maintenance…”
Finally, to put a bow on the conversation we usually receive the final two questions… “How long have you been in business?” and “How many properties do you manage?”
After the client has gone through this exercise with three or four companies they typically select based on this criteria:
1.) The friendliest team…
2.) …that answered their phones…
3.) …as long as their fees were no more than the other guys.
THIS IS A TERRIBLE WAY TO SELECT A MANAGEMENT COMPANY!
To understand what questions would be more valuable you first need to understand the inner workings of a property management company. The profitability of any management company is largely based on the two variables below:
Revenue generated from each unit
Number of units managed per employee
Asking questions about these two variables will provide the most insight into their business.
Revenue Generated from Each Unit
All of the questions about the fee structure from our intro example will fall into this category but that is just a part of the entire equation. Management companies change the property owner some fees but they can also charge your tenants fees as well. Here are some common examples:
Move-In/move-out inspection fees
Non-online payment fee
Lease renewal fee
Charging fees to a tenant might not inherently be a problem but as the property owner it is good to understand. If the tenant gets into a situation with limited funds it is important that their available funds go towards rent that you will receive rather than management fees that you will not receive. The sheer number of fees that a management company might charge is also an indicator of how they have chosen to run their company.
Number of Units Managed per Employee
Before you hire a management company it is worth going through this mental exercise. Take an average monthly salary for your area divided by your expected monthly management fee per unit.
Avg monthly Salary /Management Fee per Unit
$5,000 / $100 = 50
This number is simply the number of units each employee would need to manage just to pay for their own salary. In order to cover other overhead and actually turn a profit each employee will probably need to manage 3x this number.
50 x 3 = 150
If you’re concerned that your property manager is managing too many properties then here are some great questions to ask:
What tools and software do you use to be efficient at your job?
How are you able to communicate with so many different tenants and property owners?
What happens when you are sick or on vacation?
And finally, the best question of them all...
How do I know if you are doing a good job with my properties?
This question is great for a lot of reasons. Any good answer should provide you with the following:
1. A clear understanding that the management company knows what they are doing
2. A sense of commitment from the management company
3. An understanding about how they communicate with their owners
4. Specific KPIs (key performance indicators) that the management company holds themselves to (i.e. 30 day turnaround, 10% maintenance expense, etc)
Write down the exact KPIs that they mention. Make sure that these KPIs are in line with your investing objectives. These are the standards that you should hold them accountable towards.
As a quick summary, you should not hire a management company until you have the following information. This will not only help you select the best management company for your goals but also provide you some basis for managing their performance throughout your partnership together.
· What fees do you charge me and what fees do you charge tenants?
· How many units do each of your employees manage?
· What special tools or software do you use to be efficient at your job?
· How do I know if you are doing a good job with my properties?