Sooner or later everyone has to face the prospect of hiring a fee manager for an investment property.
Before you hire a property management company, you need information about that company and how it will perform. We have developed list of questions for interviewing a potential management company.
Keep in mind that not all the questions apply to all properties or all management firms, and use common sense about whether all the questions are necessary. They should also be asked in person. Don’t fax them the list and expect them to write it all down and send it back, because it won’t happen. You’ll come across as a “client from hell” with whom they’d rather not do business.
How to Use This List
The questions can be asked over the phone, but we recommend you visit their offices and meet the staff. Sit down with one of the executives and the employee who will be assigned as your manager, and use the list to guide the conversation. Feel free to skip questions that don’t apply or are answered during the discussion.
Note that many of the questions don’t have a “correct” answer. Those questions are just to get you thinking about what’s important to you as a property owner, and to see if you and the management company have similar philosophies. They are excellent for comparing the different companies you speak with.
For example, consider the question, “If I have a vacancy, how long do you think it will take to re-rent it at the current rent?” If three of the firms whom you ask that question say, “four weeks,” and one says, “two weeks,” you should ask that one why there is such a difference.
We would love your feedback on these questions. Which ones worked for you and which didn’t? Are there questions that you think should be added to the list? You can email me at email@example.com.
- I own a ___ -unit property in ___________. Would you be interested in managing it?
- How long have you been in business?
- How many buildings of this type and size do you currently manage?
- What is the mix of property types in your portfolio: Single-family, smaller multi-family, larger multi-family, retail, industrial, commercial?
- How many total units do you presently manage?
- Do you manage any units near my property? If so, where are they, so I can drive by?
- Have you or your staff been accredited or certified by the Institute of Real Estate Management or the National Association of Residential Property Managers?
- Do you belong to any local or regional property management related organizations?
- Do you belong to civic organizations?
- What’s your profile in the community?
- To which industry periodicals do you and your managers subscribe and read?
- Do you have a company code of ethics?
- If not, will you agree in writing to abide by IREM and NARPM Codes of Ethics
- Has your firm been sued or been in arbitration with one of your owners/clients in the last five years? If so, please describe the situation and how it was resolved.
- How many people in your company hold state Property Manager’s licenses? What are their names?
- Would one of them be specifically assigned to my property? Which one?
- What special training do your licensed managers receive at your company?
- Do you have an employee-training manual?
- Do you have a company Policy and Procedures Manual I can read?
- If you managed my property, what additional staff would you hire, if any? If none, how would you organize your work to accommodate my property?
- On what schedule will you or your off-site management staff visit and inspect the property?
- Would you use an on-site manager for this property? If so, will you pay their salary, taxes, and insurance, or will I? How much?
- What will be the on-site manager’s duties? Will he or she do turnover cleaning and repair?
- Describe any training you offer the on-site manager.
- Are there any books you require your managers, both on-site and off-site, to read?
- Can I interview and approve the on-site manager? Can I determine if they are retained?
- Are there any up-front fees I am expected to pay at the beginning of our agreement?
- Would you provide a written management plan at the start?
- What fee do you charge for finding and installing a new tenant? If a tenant moves out within a few months, will you waive it for the next tenant? If you ever have to evict a tenant, will you waive the lease-up fee? What if I find the tenant?
- What percentage of gross income do you charge for monthly management?
- What is included with the monthly management fee?
- Is advertising included in the management fee?
- For monies held in your client trust account, is interest paid? To whom does the interest accrue?
- Would you consider a net/net lease, whereby you lease the property, sublease to the tenants, pay the operating expenses, and pay me a flat fee? If so, what rate would you propose?
- Which property management software do you use?
- Does your software allow you to project an annual operating budget for your properties, and then compare the actual performance to the budget?
- Please submit samples of the types of monthly and quarterly reports it generates.
- Will you produce my IRS Schedule E or Form 8825 at the end of the year?
- What bank will you use for my accounts?
- What are your accounting controls? (e.g. two-signature checks; expense review and account reconciliations by separate personnel)
- What do you typically do to prepare a unit for re-renting?
- How much time do you take to prepare a unit for re-rent? Would you commit to that in writing?
- Do you have your own repair staff? If so, what are their qualifications, and what types of work are they NOT qualified to do (for which you have to hire outside contractors)?
- If you use outside contractors for maintenance and repair, which ones?
- What is the hourly rate charged for work performed by your repair staff? Contractors?
- Can we pay a flat fee for turnover expenses, such as cleaning, carpet cleaning, and painting, instead of an hourly rate?
- When outside maintenance and cleaning contractors are used, will you charge us an “override” on their bills? If so, how much will this be?
- Do you inspect the work of all contractors and repair people, and not pay them until they get it right?
- Over what amount do you typically seek the owner’s permission before having repairs done?
- Who will handle the landscaping and lawn maintenance for this property?
- The building’s current rents are $______ for a ___-bedroom unit that’s ____ square feet. What do you feel is the current market rent for my units in this submarket or market area? How do you know that?
- What is the market occupancy rate? How do you track that?
- Is there a glut or shortage in either end of the market?
- If I wanted you to raise it to the market rent, how soon and on what schedule should we raise them?
- Should I accept Section 8 tenants? If so, explain your experiences working with the local housing authority and Section 8 tenants.
- If I accept Section 8 tenants, what would you suggest the rents should be for those tenants?
- What security deposit do you propose charging? Will this be collected all upfront, or will you allow the tenants to pay it over time?
- Do you propose collecting a “last month’s” rent? Will this be collected all upfront, or will you allow the tenants to pay it over time?
- If I have a vacancy, how long do you think it will take to re-rent it at the current rent? Market rent?
- Would you want to offer concessions to fill a vacancy in the current market? What type, and how much will they cost?
- What is the longest period of vacancy you’ve experienced in the last year?
- What is your typical advertising budget for filling a vacancy in the current market?
- Where would you advertise vacancies for my property?
- Do you have an Internet site or advertise vacancies on an Internet site? If so, do you provide pictures and other information? Please provide the Web address.
- Please submit a sample classified advertisement you would use to promote my property.
- If a tenant must be evicted, will you handle it yourselves or contract it out? To whom?
- If a tenant must be evicted, what charge will I pay?
- How many evictions have you performed in the last year?
- What do you do to recover costs and fees and unpaid rent from evicted tenants? Collection agency? Small claims court?
- Do you file judgments when granted by the court?
- Who pays the fees for collection efforts?
- Do you supply a monthly delinquency report? When?
- Do you recommend month-to-month tenancies for this property or annual leases?
- Do you allow tenants to pay their rent by automatic withdrawal or credit card?
- If so, what are the fees for this service and who pays them?
- Would you recommend offering tenants a discount for early payment of rent?
- What late fee will be charged to the tenants?
- Is that credited to you or me?
- What is your procedure if a tenant’s rent check is returned as unpaid?
- What is the returned check charge?
- Is that credited to you or me?
- Describe your tenant screening procedure and tenant screening qualifications.
- Who performs the screening service, you or a third party agency?
- What is the tenant screening charge to me? The prospective tenant?
- How many previous landlords do you (or the screening agency) check with when screening a tenant?
- Do you visit the tenants’ existing residence to see what their lifestyle is like?
- For my review, please submit a copy of your tenant screening standards, application, rental agreement, and move-in/move-out checklist.
- What hours is your staff available to show vacancies to prospective tenants?
- What are your normal business hours?
- Who should tenants contact after normal business hours?
- Do you encourage tenants and prospective tenants to contact your company by email?
- Please submit a copy of your standard Property Management Agreement.
- If I find something in the Property Management Agreement objectionable or wish to add to it, can I modify it to suit my needs?
- How much notice is required to for terminate the Property Management Agreement?
- Do you require us to list the property with your company if I decide to sell the property?
- Do you have an email address? If so, how often do you check it?
- Is it possible for me to contact your company after hours?
- If I have a problem with an employee, what procedure should I follow?
- Will you give me either your cell phone number or home number?
100. Describe some of the weaknesses at your company that you hope to improve in the future.
101. What separates your company from all the others? Why should I hire you?
Please list three of your current clients who have buildings like mine.
[Owner will ask the client references the following questions]:
- i. Have you ever had a problem with the company and if so, what kind?
- ii. What do you particularly like about this company?
- iii. What is the worst thing you’ve experienced in having this company manage your property?
- iv. Can you recommend this company to me?
(This article is an excerpt from DealMaker’s Guide to Commercial Real Estate)