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Vetting A Property Manager – Part 1

By Tom OlsonFebruary 8, 2017

Author: Tom Olson

This subject is something I hear many questions from a lot of the investors that invest with us and a lot of different people that want to own rentals, and it’s something that is very important to make sure that you understand the property manager. If you’re going to buy a rental, the property manager is the person that, at the end of the day, is going to make this a successful adventure for you or not.

You can get a great price. You can get a great house, but if you don’t have that person who’s going to manage for you on the back end that’s an honest person, that has systems in place, and that really has your best interest at heart, it’s not going to succeed for you. In my opinion, this is probably the most important relationship.

I’ve made a list of questions that I have created, and the way I created this list was a couple of different ways. Number one, I used to be a property manager myself. I managed about 40 properties at the peak and I had some things that I wanted to make sure I did, so some of the questions were from that, and some of the other questions was from another property manager that we hire a lot and that we refer out. I asked him to help me create this because I figured, “Hey, if a property manager knows what you should be asking, I think that would help.” In addition to that, I also talked to clients and asked them, “What questions would you want to know from a property manager, when I’m vetting a property manager for you?” That’s where we came up with this list.

1 Tell Me About You.

Obviously, in any kind of interview, first question you’re going to ask is, what’s their name? I know it’s simple and it doesn’t need a whole lot of explanation, their company name, just to get to know them a little bit, and then also right along with that is, where do they manage? Just understanding what counties they manage. Some people are all going to manage in one city. This is something that you definitely want to know.

I cover a large geographical area and sometimes, I may want a property manager to go two or three counties and a lot of property managers don’t do that. Depending on what your needs are and depending on if you’re the person that’s vetting this for somebody else or if you’re on the backside, you may want to know this, if you’re just an investor and you’re just going after either turnkeys or active turnkeys, either way. Where do you manage? Just get a feel for that.

2. How Many Doors Do You Manage?

The next question is, how many doors do you have on your management? When I say, “doors,” that means actual units. The last guy that I asked about this question, he said he had 400 doors that he managed, and I like that. That’s a great number. I like the people that have more than 150, so that’s kind of a threshold I’m looking for.

I’m really not looking for the single, solopreneur management company that everything relies on one person because I know that sometimes, that one person gets sick or that one person’s on vacation. I’m just not as comfortable with that one person managing my properties unless they’re really close to home and I can come in and fill in, but that’s not really what we’re after as investors. As an investor, we’re looking to get a return. We’re looking for a steady income from our investments in this rental space.

I’m more interested in systems, but I feel like you could have a thousand doors and if you have really good systems and really good people in place, you can be a better property manager probably even than if you’re smaller.

I have more of a minimum. I’m looking for that 150. I’m looking for somebody who’s been in business long enough that has enough doors, that enough people trust him, and he understands how to communicate with the investor.

3. How Many Properties Do You Manage?

The next question I go into is, how many properties is that? Because, for instance, this particular person that I had an interview with, he had 400 doors, but those were 300 properties, so several of those properties were four units or duplexes or multi-units and so on and so forth.

That’s really my third question. What are the bulk of these properties? Are they single-family? Are they multi-unit or are they duplexes? Because all these questions are to help me understand what I’m getting into. It’s to help me be upfront with him on my expectations and for him to be able to be upfront with me because I may think I know all the great systems and how a property should be managed, but I promise you, there’s people that know how to do it a whole lot better than I do, so these are all questions to pull out information.

This particular guy, he’s used to doing single-families, and that’s the majority of it. He did a lot of duplexes, and he only had three complexes. The complexes had eight or more. That gives me some insight on his company and what he’s doing.

If I had a guy that had 400 doors and I’m trying to bring him a single-family resident and out of the 400 doors, he only had, say, 50 buildings, and all of his stuff was apartments, he might be a really good apartment manager, but he may not be a very good single-family manager. There’s a completely different systems that need to happen, a completely different way to manage when you have to manage a single-family than when you’re managing a multi-unit.

Now, multi-units could also be more complex sometimes because you have neighbor issues. You have shared walls. You have all these other little issues, and women and men getting fights with each other or whatever, music too loud or what not. Again, I’m trying to get in the mind of my manager. I know this person and I know what he’s all about and what he’s used to doing and what’s he’s got experience in.

4. How Many Do You Have On Staff?

This particular person, he had four in-office that were in the property management. He had one main person that was his repair person. This guy also owned a construction company, so that was good for me too to know what other experiences, what other companies this guy may own. He had four people in management and construction, and then he had additional three to four people in labor, so I know this guy definitely could be able to get these repairs done if maintenance needs to happen, so that was good to know.

Does a property manager need to have some form of experience in the construction business or is that able to be delegated to someone? It’s definitely able to be delegated, but they have to, in my opinion, have a system or have a process, and I’d like to know what that process looks like. If he tells me, “I have one guy. His full-time job is maintenance for my rental properties,” I know, okay, if a call’s coming in and something needs to happen, I know it’s going to get taken care of or at least looked at right away.

Knowing how many people they have on staff is a good thing, and then from there, “Okay, you said you had four people in your office and then one main person for your maintenance. Well, what do those people do?” Again, that upfront conversation. This person might do billing. This person does new leases. This person does reports. This person works with cities or whatever. Just knowing what the different people do in the office.

It helps me understand what the people do in their office and who I should contact, and I ask that too. If this happens, if I need my statement or if I didn’t get a statement or if I didn’t get my check, who do I contact? If I didn’t get an update on a maintenance issue or something, who contacts me if there is a maintenance issue that’s over, say, $500, and who’s going to ask me that question if we’re going to do the repair or not?

5. Tenant Screening Procedures

This particular guy had a great system. Again, I’m looking for systems here. I’m looking, “Does this guy have processes and systems in place to be able to give me a good experience down the road?” This guy actually had a scoring sheet that included his credit. It included judgments. It included his employment, length of time, his rent to income ratio, if there were late payments. He also pulled a rent-wise and criminal check. He checks on the reports on the people, and that all goes into a scoring system on the scorecard of his and at the end of the day, they have to hit a certain minimum in order for them to qualify for rent.

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That was the first person I had ever talked to that had a system like that, but I’ve talked to other people that they run a four or five-report check on them. They run judgment checks. They run employment checks. They run rent history, judgment checks, credit checks, so it’s not just a credit check. I think credit check’s important, but there are some other ones that you want to really make sure that you check on, so knowing what the tenant screening procedures are before we even talk about signing a lease.

6. Tenant Placement Procedures  

What are your tenant placement procedures? This particular property manager said, “They come into the office to sign a lease. They have an upfront explanation for the expectations, and then they get a tenant workbook and then this book tells them everything that they’re responsible for.” I thought that was really neat and really unique. They actually have a book that every single tenant gets that actually tells them, “Well, this is your responsibility. It’s your responsibility to pay it by this time. This is how you pay. If you need to get a hold of maintenance, you call this number. If you need to get a hold of x person, this is the number you call,” and then also, at the beginning, how are they going to pay? That upfront expectation on it, if they’re going to pay with autopay or there’s also cash card systems or if they’re going to come in the office and pay.

7. What’s Covered In The Tenant Interview?

The next step that we talk about is, what do you cover in that tenant interview? This one’s very similar to the last step, but I always like to ask this question. How do you request maintenance? Tenant-landlord responsibilities. I kind of already covered this in the last question and I know you put it together, but I like to just ask a question. It’s almost like a follow-up question to the last question.

8. Rent Collection Procedures

The next one, what are your rent collection procedures? I’d just like to know, how are they getting paid from their tenants? I don’t feel like there’s really a wrong answer on this. If their tenants all come in and pay with check and they come into the office every single month, that’s fine. I know some that they have it set up at the bank. They have a Chase Bank in the area and their account was with Chase, and they can go into Chase and actually pay their rent. I know other people that they have a cash card from Walmart, and they can go in and they can pay their rent on cash card. Some people are automatically withdrawn. Some people have all these possibilities for their tenants, and their tenants get to choose.

9. Delinquent Tenant Procedures

What do you do when somebody doesn’t pay on the first of the month? Is your state a five-day grace period or a ten-day grace period? This particular person was in a very landlord-friendly state, and they have a three-day notice. If it doesn’t get paid on the 6th, there’s a five-day grace period, but then they only have to give them a three-day notice in the state. Again, what I’d like to see here is a lot of the states have five-day grace period. If you don’t pay by the 5th or the 6th of every month is that person getting a notice.

Does your state have a grace period? What do your late fees look like? This particular state allows very excessive late fees. There’s two late fees for this particular guy and they’re $75 each. If they don’t pay by the 5th, they automatically get a $75 late fee, and if they don’t pay by the 15th, they get another $75 late fee. I know some states will allow that. Some states will allow you to even charge everyday.

We talked about “What are your delinquent tenant procedures?” I want to know what that looks like. Do you ever do workout payment plans with people? We do a lot of workouts and almost every property manager that I talk to agrees with me that your turnover is what’s going to really kill you, and I’m a firm believer of that.

I am not evicting people every single month if they’re not paying me on the 5th. I know that if I do believe I’m going to get paid from this person eventually, it’s way cheaper for them to stay in the property than for me to get out, but what I will say is my rule is as soon as the communication stops, it goes right to the attorney. If there’s not communication, I can’t deal with that personally and I would not expect my property manager to deal with that, and if they do, that might be a red flag to me at that point.

10. Eviction Procedures

Once you decide, “Okay, I’m going to evict it,” I want to know, how much are the attorney costs? I want to know, how long is this going to take? For me, something that worked very well for me over the years was I offered cash for keys a lot. I would say, “If you’ll sign this paper saying that you’ll be out by such and such date, I will give you $500 if you will leave this place spick and span. Get all your junk and leave the property in a great order, as nice as you left it in. I’ll give you $500.” Even though this person’s may owe me money, I’d still rather give that person $500 and get them out of my house than go pay an attorney and be out the same kind of money and then have to clean the house anyways. This is actually a cost saver, and it’s actually a headache saver too if they actually go forward with it.

I want to know for this particular state. If it’s a non-contested eviction, it takes 20 to 25 days. You want to know that information. If this goes to your attorney, say, day 25, when am I going to have my unit back to be able to rent again? Because the turnover’s where you lose all your money in rentals. Somewhat maintenance, but turnover is really where you feel it every single time. I want to know. What is your eviction procedure? Do you offer cash for keys? What are the attorney costs and how long should this take?

11. How Long to Evict a Tenant – Start to Finish

Ask about the what-ifs on the evictions. That will help you understand again the state you’re in. It will help you understand if this guy knows what he’s doing. It will help you understand if he does have procedures, if he has an attorney already that he’s been working with. All those things you want to make sure that they’ve got it upfront.

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About the Author: 
Tom Olson Extraordinary is a term best used to describe Tom.  Tom has the ability to provide vision for a company or get involved in the day to day operations. Tom has built multiple business to over $5,000,000 and has helped Wayne scale our real estate company to over $14 million. He has the ability to lead and not just drive, he manages to push people to greater heights. While this makes him a great leader, his greatest attributes are the way he cares for others. You will not be around Tom long before you hear him say “If you help enough other people get what they want, you will eventually get what you want”

E-mail: tolson@goodsuccess.com

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