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The
Cal State Companies: Center for Real
Estate Studies ¨ Cal
State Properties ¨ Cal State Investment LTD Partnership
How to Pick the “Right”
Property
Manager
The following
is what you need to know before you hire someone to manager your
property:
Be Wary of “Mom-and-Pop” Operations
I prefer to use a medium-size
property management company, rather than a “mom-and-pop” company. These kinds
of operations usually don’t have the staff to do an adequate job. In addition
to managing smaller units, they are typically involved with real estate
brokering. I’ve actually seen these
operators give prospective tenants the key to a vacant unit, rather than
showing it themselves. This type of marketing effort won’t do if you’re trying
to keep vacancies down.
Be Just as Wary of the “Giants” in the Field
Larger property management firms are
geared to institutional investors. Midsize apartment buildings somehow get lost
in the shuffle. Individual attention
suffers. The needs of your building might have to wait until those of a much
larger complex are met. Your building might be assigned to a new or relatively
inexperienced property supervisor to provide training.
Procedure Manuals Are Critical
Ask to see the operations or
procedure manual of the firm. Read it and ask questions. You’ll get a clear
indication of how a property management company manages apartment complexes
from the manual. Be leery of the company that doesn’t have one. In fact, do not
consider using a company unless they have a formal plan on how they manage apartment
buildings.
What to Expect from Your Property Manager
Under no circumstances should you run
the day-to-day management operations. Your role is to properly monitor the
project in order to establish effective policies and to make management
decisions.
What support should your property
management company provide? Ideally,
they should be able to provide all services in the areas of acquisition,
operation, and disposition of your property.
After you’ve pinpointed possible
property locations, a good property management company should be able to give
statistical, as well as subjective, information concerning socioeconomic,
political, and developmental conditions. A quality firm should be capable of
preparing physical inspection reports, capital improvement requirements, and an
effective operations budget.
During the operations phase, a
competent property management company will issue timely monthly operating
reports that compare actual income and expenses to budgets. They should be able
to give you a detailed explanation of any major variances, and their
representative should meet with you periodically.
During the sale phase of your
property, your management firm should be able to communicate with the potential
buyers on your behalf regarding the building, and to assist in various
inspections. They should have no problem providing these services because it
gives them the opportunity to display their own expertise to the new buyers.
Controlling Property Management Fees
How much should you pay a property
management firm? Payment should be based on the various tasks you want
performed. In assisting you with the acquisition, you should contract out on an
hourly basis that’s comparable in the area. Under no circumstances agree to an
inspection contingent on signing a management contract. You can readily see
where this could lead. More property managed equates to more in-come, a
flagrant conflict of interest. Work with a reputable company, one that won’t
recommend you buy the building just to get the management contract.
higher percentage than larger ones. Re-member,
management fees are always negotiable. There are no fixed rates. Make sure all
services and related costs are spelled out in writing before you enter into a
management contract.
It is important to note that fees
based on the percentage of rents collected should not include other items such
as total cash collected, projected rents, gross possible rents, security
deposits, and laundry income, for example. Be careful. Know exactly what the
rate is and how it’s applied.
If you want to give additional
incentive to the property management company, offer them a bonus based on the
building’s performance. It could be based on net operating income or the
overall improvement of the complex over a period of time, usually one year.
