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200 Part IV:Day-to-Day Ownership and Operations
So, he had to make a decision: Keep on trucking at a mile a minute or let go? He decided to let go and hire professional property management companies to oversee his properties. He soon got his life back. We don’t want you to get sucked in like Peter did, so in this section, we discuss how to successfully hire and manage property management companies.
Understanding the ins and outs of professional property management
Professional property managers are a special breed. They have to be extremely effective organizers, and they must be masters of the day planner. Frankly, we don’t know how they can keep track of thousands of apartment units and mil-lions of square feet of space at any one time. But the successful ones do this quite well. And thankfully so. Here’s a typical list of the day-to-day responsi-bilities of a professional property manager. She must do the following:
U Collect and deposit rents
U Oversee maintenance of the property
U Handle day-to-day operations
U Contract in the name of the owner for utilities
U Enforce leases
U Hire and supervise all employees and independent contractors
U Keep accounting books and records
U Pay all bills in a timely fashion
U Furnish the owner with financial reports
U Prepare and execute annual operating budget and capital expenditures
U Write a sales and marketing plan
U Monitor effectiveness of the sales and marketing plan
U Handle legal matters, such as evictions
U Handle emergencies
U Work with local officials, such as police and code enforcement
What the previous list does is help you define the role of the professional property manager or property management company. It’s always helpful to know what to expect out of a person or company that you hire. Be clear and concise upfront and have everything in writing before signing on the dotted line.
Chapter 11: Property Management: Who’s Minding Your Ship? 201
Deciding to hire a professional property management company
Think of your million-dollar investment as a suitcase full of money. Now imag-ine that due to your busy schedule, you need to find someone to look after your suitcase when you can’t be around. You can imagine how scrutinizing you would be of the person or company you chose to guard your suitcase full of money. You’d check that person’s or company’s background, credibility and capability, and integrity to the utmost with tough questions.
So, what we’re trying to say is this: Treat hiring and managing of a property management company for your property with the same care. After all, your investment is worth a lot of money!
Determining whether you want to hire a property management company to look after your investment can be a difficult and frustrating decision. However, there are some instances where you’re almost sure to hire someone. Here
are those four instances:
U The property isn’t local or it’s too far away. For instance, performing the following duties can be difficult if you’re operating properties that aren’t in your area:
· Picking up and depositing rents
· Overseeing maintenance and repairs
· Taking care of evictions
· Handling emergencies
U The property is too large. Here are two questions to ask yourself if you aren’t sure whether your property is too large:
· How will I manage 100 apartment units myself and still have a day-time job?
· Can my current self-managed apartment business handle double or triple the amount of units efficiently?
U You want to have a life or get your life back. Let’s face it, managing property profitably takes time — your time. How is your time best used? Are you spending too much time on your apartments and not enough
on the other parts of your life? If so, hiring a property management company may be the right decision for you.
U You aren’t good at managing property. You know you’re leaving money on the table each month due to your lack of skills. If that’s the case, hire someone who has these skills and has a system and passion for manag-ing property. This way, you get to do what you do (and enjoy!) best.
202 Part IV:Day-to-Day Ownership and Operations
Searching for property management candidates
When you’re trying to round up property manager candidates, start by asking for referrals. For instance, use commercial real estate brokers as a resource for referrals. Hopefully, they have done enough deals where their clients are using management companies that they can speak on their experiences. We would also ask fellow investors who own properties like yours. Inquire about their experiences with certain companies that you’re looking into. If one of your referrals doesn’t pan out, ask that referral for a referral. Because prop-erty management selection is such a hit-or-miss process, it’s best to start off interviewing someone who has already used that particular management company.
Here are some search-related tips to keep in mind:
U It’s helpful to drive around the neighborhood looking for “For Rent” or “Now Leasing” signs. Most times, the phone numbers listed are from property managers. Call those companies and start “feeling them out” as possible interview candidates. We suggest just being honest and straight-forward and telling them the reason for the call is to find property man-agement for yourself.
U It’s best to gather a minimum of three property managers to interview. Obviously, the more you interview, the better your chances are of hiring the best suitor for the property.
U If you’re unable to find a reputable property management company, don’t purchase the property — no matter how good of a deal it is. Remember the suitcase of money?
Interviewing your prospective managers
Okay, so now it’s time to pick up the phone and start the initial interview process. Remember, this is just a “feeling out” process, where you’re looking for professionalism, prompt return of your phone call, and good rapport. There’s no way you can judge the quality of the candidates’ management skills just yet. In fact, we’ve found that you can go through all the interview situations and assessments and still not have a full grasp on a candidate’s skills. You don’t find out who your new manager really is until he’s hired and put into action.
This interview isn’t for telling every candidate everything you expect. It’s merely to gather information in order to make a decision regarding who you want to conduct a full interview with.
Chapter 11: Property Management: Who’s Minding Your Ship? 203
Here are a few questions to ask during your initial phone calls:
U What is the general vacancy rate in your area? “Your area” could be a city, town, neighborhood, district, or street. This information is crucial when studying the feasibility of owning property in this area.
U How many units and/or square feet of space do you currently have under management? What type? Make sure that the company has experience with your type of property. After all, a property management company that manages 400 single-family homes isn’t the same as one that man-ages 400 units of apartment buildings.
U How long have you been in business? If a candidate has less than a year of experience, don’t use him. A candidate really needs to complete at least one cycle (spring, summer, fall, winter) to know what’s going on. We personally wouldn’t use anyone with less than three years of actual experience.
U What are your percentage management fees? Plug these fees into your property cash-flow analysis. Compare fees and services with other companies.
U Do you have your own maintenance staff or do you use independent contractors?
U What is the cost for an eviction process from start to finish? Have the candidates review with the whole process with you.
U What are the costs of new leases to the new owner?
U How do you advertise your vacancies? Who pays for advertising?
U What are your business hours?
U How are tenant emergencies and weekend calls handled?
U What monthly reports do you typically send owners?
After hanging up from a phone interview, it helps to sit back and ask yourself this important question: “What does my gut feeling tell me about this person and his company?” Gut feeling and instinct are an important part of this process, so honor your perception. If you feel that there wasn’t a connection between the two of you, move on to the next candidate. Whatever you do, don’t continue with a candidate just because he was really nice. Nice doesn’t cut it in property management.
Checking credibility and capability
After conducting your initial phone interviews, you have to narrow your choices. To do so, ask those companies that you’re interested in whether they’re interested in managing your property. If the answer is yes, the next
204 Part IV:Day-to-Day Ownership and Operations
step is to invite them to the property for a face-to-face meeting and walk-through. During this meeting, you have to gauge their credibility and capabil-ity. Asking yourself the following three questions can help:
U Is this company a “Mom and Pop” operation? Smaller-sized operations don’t have the manpower to get the job done. They’re just too small to consistently deliver what they promise. You may want to steer clear, because you’ll likely need to hire a medium-sized property management company. Medium-sized companies have more structure, more employ-ees, and have a “company feel” to them. On the other hand, hiring a very large property management company that manages 5,000 units and mil-lions of square feet may be a bit too expensive for you at this point.
U Does the company’s management style match yours? Is your prefer-ence to work with a very aggressive “in your face” manager or one that’s more diplomatic. Both styles can be effective in their own ways. Choose a type that settles with what you’ve been exposed to in your own life. It’s only natural to gravitate toward what you feel would be more effective.
U Is the company local? Find out if the company operates in the same city as your property. If it doesn’t, how far away is it and does it currently manage property in the vicinity? If the company is not local, and has no presence, you’ll have to question how well they know the area, the market, and potential tenants.
A big chunk of hiring an excellent property management company and being successful is being in agreement with one another. What we mean is that you need to make sure that you and the manager have a complete understanding of each side’s expectations. So, be sure to express, in detail, as much about your expectations as you can to the property manager. In general, and from an owner’s point of view, here are your likely expectations plainly put:
U Maximize potential rental income and reduce operating costs
U Strengthen tenant retention and relations
U Enhance visual appeal of property and increase property value
These are ultimate goals for a property when you get right down to it.
Inquire whether any of the property management companies you’re consider-ing hiring owns and manages properties they personally own. We consider this a huge potential conflict of interest. The property they manage for you may be in direct competition with yours. Whose property gets the best ten-ants and whose property gets occupied first are two questions we would con-stantly ponder.
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