A friend of mine recently relocated to upstate New York from his home state of Texas. He and his wife wanted a home that was “move-in ready” and settled on a newly remodeled ranch in Saratoga County and moved in this past July. Within days of moving in, he was complaining of trouble with his air conditioning, so I gave him the number to my HVAC technician and he scheduled an appointment.
Following the appointment, I checked with my friend to see how things went, and he sheepishly replied, “Evidently not all houses in New York come with air conditioning like they do in Texas.” While this may sound absurd to those of us from northern climates, I can understand how a Texan might overlook that central air is not standard equipment in the oft-frozen tundra of upstate New York. Making decisions where we have no prior experience or even frame of reference is risky, and unfortunately, the most impactful decisions we will make in life tend to be ones with which we have least experience.
For example, just think of all the things you wish you had known before taking that lousy job. Or how practically everyone that has ever built a home has a list of things they would do differently next time. Or that your wife snores...(kidding!)These decisions come around so infrequently in life that when they do, we often don’t even know the right questions to ask to help make an educated decision, and choosing your first property manager (PM) is one of those decisions.
Sure, you know the obvious questions that everyone asks, like “what are your rates?” and “what is your screening process?”, but all PM’s are prepared to answer those softballs, so once they all pass your interview, you’ll probably choose the most affordable that you think provides the services you’re looking for, but discover in a few months all of the things no one told you to ask that are making you count the days until your PM contract expires. Here are some of the best questions that will separate the good from the truly great.
1. What is your exact process for handling delinquent rent?
This may sound like an obvious one, but the key here is to get a day-by-day, understanding of how late rent is handled from the 1st of the month all the way through eviction. Every state is different, but they are all extremely specific and time-sensitive about how the process is supposed to work, and courts are generally more sympathetic to tenants than landlords.
If an eviction is not done properly, it can cost you weeks of lost rent, legal fees, and court fees. You’ll want to understand in detail on which day rent becomes officially late, when and how tenants are delivered the “pay or quit” notice, when and who will handle subsequent actions toward eviction, and precisely when and how the tenants are notified along the way.
A good property manager should have automated systems in place that will notify tenants during any grace period that rent is overdue, and also be prepared to follow through with an eviction on the quickest path legally possible. If every step is performed just a couple days late, this can multiply into weeks or months of lost rent.
2. Can I see a sample financial statement?
Every PM should be able to provide some level of financial statements, but not all will generate reports with the level of granularity you might expect. Even if you don’t necessarily care about detailed reporting as long as the profits are rolling in, I promise that your accountant, Uncle Sam, and a future buyer will all care deeply about the accuracy and granularity of your reporting.
I’ve passed up purchasing properties due to unclear financial reporting by property managers. For example, an income statement with separate lines for rent income, subsidy income, late fee income, laundry income, storage income, etc. is much more useful than a single expense line for income. If you’re not sure what to look for, share the sample statement with your accountant.
3. What property management software do you use?
The idea here isn’t necessarily to judge the PM based on their choice of software, but rather to ensure the answer is not “excel” or “pen and paper.” Successful property management is about streamlining processes and automating wherever possible, and having purpose-built software is critical to juggling and organizing the loads of documentation, bookkeeping, vendors, clients, tenants, and constant notifications involved in managing a high volume of properties. And there are so many reasonably priced, easy-to-use software solutions available on the market today, there is no reason for a PM to not use one.
4. How do owners and tenants access their accounts?
This may result in a look of confusion from the interviewees that failed question #3, but what I’m referring to here are tenant and owner portals. Portals allow for real-time access via a login to accounts online, eliminating the need for requesting and waiting for statements to be generated by the PM.
Depending on the services offered, portals are great for owners because they can run their own custom reports 24/7, see in live time if rent has been paid, expenses incurred, and even if the PM is responding to tenant maintenance requests. It’s great for tenants because they can view charges, access account history, pay rent, and access rent receipts in live time, eliminating the confusion and hassle of having to call a PM for clarification on charges.
5. What options are available for collecting rent?
According to Money, 62% of millenials’ bills are paid online, and 43% of seniors’ bills are paid online. Furthermore, 3 of the top 5 reasons late-payers give for late payment - 1) forgetting, 2) losing the bill, and 3) procrastination - can be cured with automatic online payments. Collecting checks is a pain for both the PM and tenant, and with dozens of secure options on the market for cheap or even free online payment, there is no excuse for a PM to not accept online payments.
6. Can I see your lease, addendums, vendor requirements, minimum qualification standards, and a sample PM agreement?
This may sound overboard, but this one is absolutely critical. Despite what a Google search for “lease template” may lead you to believe, a 1-page boilerplate lease is not sufficient protection for the PM, owner, or tenant.
Same goes for a 1-page PM agreement. There’s a common misconception that long, detailed contracts are designed by those who love to litigate, but the reality is that robust contracts are intended to prevent litigation by making all obligations crystal clear to both parties and leaving nothing to interpretation down the road.
Just as important, policies regarding minimum tenant and vendor qualifications should be written and not determined purely on a case-by-case basis. Setting tenant qualifications is important to be fair to tenants and ensure that fair-housing standards are followed, and vendor qualifications help ensure that contractors and suppliers have adequate insurance, licensing, and experience.
7. Who calls the shots?
There is no right or wrong answer to this question, but you may be surprised with the different answers you’ll receive. Obviously the owner is the one hiring the PM and ultimately in charge, but owners and PM’s can have vastly different (and sometimes conflicting) preferences over the level of control and involvement the owner has in day-today management and decisions.
Some owners want to approve every expense incurred no matter how small, while others don’t want to be bothered unless the building is on fire, and even then only on weekdays from 10 to 2. Conversely, some PM’s prefer to be left alone to manage with minimal input from the owner, while others prefer to get approval for every action they take in order to avoid assuming any liability. This one is personal preference, just be sure to choose the PM that aligns with your expectations or you will both be miserable.
By asking these questions of your next property manager, you’ll not only gain a deeper insight into their operation, but also weed-out the amateurs from the pros. And remember, great property managers act with integrity and transparency with both tenants and owners, so don’t accept “that’s proprietary” as an excuse to not answer the questions or provide the information you’re requesting, that’s a sure sign that they just don’t have the answer.