Getting the most out of a property management service starts with finding a good fit between the property owner and manager — and running a proper background check can lead to a greater chance of success.
“Look at the credentials and qualifications of property managers,” says Ira Krumholz, president of NAI Daus property management. “Do they focus on residential or office buildings? If you have a building in a central business district, you will want someone who has experience with that type of property.”
Smart Business spoke with Krumholz about finding a qualified property management service and how to ensure the experience meets expectations.
When searching for a property management service, what matters are most important?
A property manager associated with the Institute of Real Estate Management shows professionalism. Also, it is a good idea to see if they are certified.
A property owner should also review the priority a property manager gives to tenant retention and responsiveness to tenant concerns. One measure of success is that the more tenants retained by being responsive to concerns, the better the property will be in the long run. A history of client turnover may be a red flag.
Another topic to review is how a property management company pays its contractors. A property manager that pays its outside vendors promptly may receive preferential treatment. If the manager needs an electrician, the electrician will drop everything and go to the property because there is no 30- to 60-day wait to get paid.
Does a property manager typically provide a turnkey operation?
Many property owners look for a turnkey operation in which the manager takes on all duties: collecting the rent, paying the bills and reporting at the end of the month.
An advantage of having third-party managed properties is that property owners don’t have to focus on the day-to-day operations. They can focus on duties such as acquiring new properties and other ways to produce income. They can feel assured that they have a qualified company that is managing their property.
For out-of-state property owners, it makes sense to have a local property manager. They don’t have to worry about finding contractors, vendors, roofers, etc.
On the other hand, an owner may want to be more involved in the property, and may want to give input on decisions and control the bank accounts for the property. A property management service should be able to meet the needs of both arrangements.
What are some ways to evaluate a property manager’s performance?
An owner should evaluate if the manager is able to add value to the property. Has the manager been able to reduce some expenses at the property? If the manager can save some money, it adds to the value of the property. How well is the manager retaining tenants or leasing vacant space? Is the manager making any capital improvements or recommending any capital programs that will increase tenant retention?
Another sign of a quality property management service is that usually within 30 to 60 days of taking over a property, the manager will create a budget for the property and review the document with the owner. Then, on a monthly basis, the manager will report ‘budget to actual’ expenses. That provides insight on how the manager is operating according to the budget. If there are variances in the budget, the owner can ask for explanations.
If an owner is unhappy with the manager’s performance, what process should be followed?
A well-written property management agreement will contain an escape clause, such as an option to cancel the contract at any time with notice.
It takes about a month for a new property manager to get oriented to the operation, so there should be an indication by then of how well the operation is proceeding. Years ago, agreements did not require a termination date but Ohio law now calls for a fixed term in all property management agreements, which can be renewed in writing at the end of the term.
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