There are a few important questions you should ask rental property managers to determine if the value you’re going to receive is worth the price the property manager wants to charge. Warren Buffet says price is what you pay and value is what you receive. It’s important that when you talk to a property manager, you ask them open-ended questions. This is, after all, an interview.
Property Management Experience
So the first question I recommend you ask is: tell me about your property management experience. Lots of managers will advertise they have over x years of experience or their office has a combined x years of experience. You really want to find out what that means. Ten years of experience with a staff of four people could mean that three people have one year of experience and the rest is with one person. Or, each person might have two and a half years of experience. A limited amount of experience, even though it’s combined with others, is still limited. It takes a long time to gain the on-the-ground experience that’s needed to be truly effective in managing your property or properties.
Vacancy Rates and Renewal Rates
A common question we receive is about vacancy rates. On the surface, vacancy rate sounds like a great question. But you need to understand the vacancy rate. It tells us how many units are not occupied, but it doesn’t have anything to do with how long a tenant remains in the unit. Some managers will have a low vacancy rate because they place the first warm body who applies and pays the first month’s rent. After that, you may or may not receive any rent. I know a property manager who brags about how many turnovers he can get before his clients fire him and move to another property manager.
So let’s talk about turnover. Your vacancy rate means no rent. It means turnover costs and releasing costs. Vacancy rates are expensive but perhaps a better question is – what is your renewal rate? When a tenant renews, your only expense is a renewal fee. That’s worth the savings in turnover, vacancy, and leasing fees.
You always want to ask about tenant screening. With the internet, pretty much all property managers of any quality will do a background screening. It’s done online, and you can get credit, criminal history, and eviction records. You want to make sure the property manager pays attention to them. The next level of tenant screening is doing a prior rental history verification, and an income verification. Most quality managers will do this and then only a few property managers will also look at debt to income ratio. Look at the income and how much debt the tenant needs to pay each month. Is there any money left over to pay the rent?
A good question to ask is about communication. Ask your property manager how they will communicate with you. Find out if they are being proactive or reactive. Do they only communicate when you contact them? How long does it take for them to get back with you? This is a good sign of the kind of value you should receive. Proactive communication could be a phone call, text, email, or anything that gives you indication that there is information your property manager feels you need to have.
There are lots of other questions to ask, obviously. Talk about transparency and how often they do inspections. Those are operational questions that may address your specific needs. Don’t be afraid to dig deep and ask the property manager some uncomfortable questions. The point is – you want to feel comfortable with the manager you’re hiring. It’s your money.