By Joe Dyton, WCI Contributor
Working as a physician can lead to earning a great income, but no matter how high your salary gets, you are still trading time for money. That’s what makes investing so attractive—it’s an opportunity to earn money without physically working. Investing in stocks, bonds, and real estate are all good options for building future wealth. While the first two can generate income passively, real estate investing can take a little more work on your end. Real estate ownership may be recognized as a way to earn “passive income,” but how passive is it if a tenant calls you after midnight to address an issue?
What’s the solution if you don’t want to miss out on the revenue stream owning real estate can offer but also want to avoid letting your properties overtake the rest of your life? Hire a good property manager.
The essential word here is good. Sure, any property management company can save you time, but a good one will truly make your life easier. So, what makes for a good property manager? How do you find one? Here are eight essential traits a property manager should have.
#1 Good Organizational Skills
Chances are that your property is not the only one your manager is handling. A good property manager can stay on top of any and all issues, whether it's the tenant complaining about a noisy neighbor or addressing repair requests. They should also have a good system in place to manage day-to-day duties, such as rent collection and screening potential tenants. Remember, you’re hiring a property manager to give you back more of your time. It defeats the purpose of working with them if they’re disorganized and need you to step in and handle things.
More information here:
Direct Real Estate Investing vs. REITs
#2 Consistent Availability
Property management is not a 9-to-5 endeavor. Tenants will have needs at various times of the day—make sure the company you hire will be there to address them. Otherwise, tenants will be looking to you to fix what’s broken. Being available 24/7 is just part of the equation, however. Make sure your property management company can respond to tenant requests quickly. Again, if they take too long to respond to a tenant, you can count on being their next call. If tenants are contacting you at all hours, there's no point in paying a property management company.
#3 Good Communication Skills
It’s wonderful if your property management company is there when your tenants need them. It’s even better if a property manager communicates well when they speak to your tenants. A fully occupied property is a successful one. Tenants that feel heard and respected are more likely to stay. Find out how the company you’re considering communicates with tenants, maintenance workers, and anyone else who helps keep your properties running.
#4 Property Management and Maintenance Expertise
All of these other traits won’t matter much if your property management company does not know what it’s doing. From a pure property management standpoint, find out how long a company has been managing properties and the size of its portfolio. Inquire about how it deals with late rent payments, tenant complaints, and problem tenants.
You will also want to find out how property management companies respond to maintenance issues. Ask if they have their own crew or have contracted vendors. A good property management company will have maintenance practices in place that help save you money on any repairs that need to be made.
More information here:
What to Know About Buying a Vacation Home
Selling a Home by Owner Is Easier Than You Think
#5 Pays Close Attention to Detail
In line with good organizational skills, you want a property manager who’s extremely detail-oriented. Owning a rental property is just like running a business. Money coming in and out needs to be accounted for—and financial focus is especially critical around tax time. T/the IRS will demand accurate information; can your property manager provide it? Additionally, laser-focused attention to detail will be valuable in the future, even if a different property manager is overseeing things at that point.
#6 Offers Good Value
There is a trade-off in working with a property manager. They are saving you time, but you’re paying for those time savings with potential profits—which can be off-putting. Rather than looking at hiring a property manager as lost revenue, however, consider it an expense. When you’re looking at properties to acquire, build the expected management fee into your potential return on investment.
A property manager might be the cost of doing business in real estate, but it’s still worth your time to find a company at a reasonable cost. Standard management fees for a single-family home typically run between 8%-11% of the monthly rate. A multi-family property’s management fees are often 5%-8%, depending on the building size. As you compare companies, ask for a full fee sheet because there could be additional fees in situations like tenant turnover or a building rehab.
Also, don’t make price the only factor when looking for a property manager. Examine what services they offer and if they could help save money elsewhere, such as on building maintenance.
#7 Possesses Technological Expertise
Technology has made life easier for tenants and property managers alike. The internet has made it possible for tenants to pay rent online and make maintenance requests, and it has also minimized how much time managers spend on the phone dealing with issues that arise or communicating with tenants in general.
The key to making these technological advances a benefit is if your property manager is willing to use them. If so, property ownership will become that much more convenient—especially when it comes to rent payments. Online payments work well for all parties—they are more instant than traditional checks and they save tenants time they’d have to spend writing out a check and mailing it.
#8 Can Meet Your Property’s Individual Needs
No two properties are alike. A good property manager understands that and won’t apply a “one-size-fits-all” mentality toward your rental. Instead, you want a company that will take the time to understand your unique needs so they can help you develop a plan that best suits you and your tenants. As you interview companies, they should be asking you questions too so they know how they can help you reach your goals. The more information they gather from you, the easier it will be for them to ensure your success as a real estate owner.
More information here:
The 60+ Worst Mistakes You Can Make in Real Estate Investing
The Bottom Line
Discovering these traits before you hire a property manager may be the most difficult part of the process. You can accomplish it by asking companies for examples of their accounting, discovering what procedures and policies they have in place for other buildings, and noticing how they interact with you. Tour another property that they manage. Call those landlords and find out how happy they are with the management.
This part can be just as important as finding your building. You need someone capable and competent to run not only the building but your business. They are your connection to the tenants, and they need to handle that effectively.
Property management will free you up to what you wanted in the first place: enjoying time with your family and ensuring that the passive income you want is actually passive.
If you are interested in private real estate investing opportunities, start your due diligence with those who support The White Coat Investor site:
Featured Real Estate Partners
The White Coat Investor is filled with posts like this, whether it’s increasing your financial literacy, showing you the best strategies on your path to financial success, or discussing the topic of mental wellness. To discover just how much The White Coat Investor can help you in your financial journey, start here to read some of our most popular posts and to see everything else WCI has to offer. And if you're inspired to build a sturdy financial foundation, make sure to sign up for our WCI 101 email series.
Great article! You absolutely have it spot on when it comes to making money in real estate the two most important factors are buying it right and property management. I also use professional management cos. I knew going in that I didn’t have the time or interest in doing my own management and I don’t regret it. Some landlords I know are too much into control to let a management co. do it but I just manage the managers. You have to be ready to fire a company if they aren’t doing the job and I have done that. Real estate is my retirement income and it keeps me active. Best investment decision I’ve made.
Great article. I’ve never owned a rental property, but having lived in a couple rentals (and been active in a big rental market here), I can see how your choice of PM can make or break you. I can tell you how companies have lost good tenants like me (too difficult to get through their rigid screening process, first come first serve vs right fit) and how they’ve lost their owners a ton of cash with revolving door properties, tons of damage, and even fraud.
I know the point of a PM is to keep a layer between you and the tenants, but the best experiences I had as a renter were when I talked directly to the owner. Some were horrified to hear what their PM was doing and how unfairly they were treating their tenants. Being at the mercy of a PM as a *renter* was a large reason I felt the urge to buy even though I did not have much cash to put down. I would recommend making available your contact info to all tenants (at least e-mail), and consider even asking to be cc’d on any concerning interactions. I am certain if the owners of some of the properties I lived in knew what their PMs were doing, they would have stepped in, to save their property from damage, to avoid losing a tenant, and to avoid legal risks.
For example, consider when tenants complain about something, under what circumstances should the PM get the item checked out, and what is the policy if there isn’t something needing immediate repair. Something that does not result in immediate failure can be a sign that a part should be replaced before the entire system blows (an expensive outcome for one of the owners we had, and involved urgent calls all over during a frigid Thanksgiving holiday). If you let your PM hire your own maintenance people, make sure they’re doing a good job to maintain the long term appearance/integrity of the home (my PM would not listen when I said their gardeners were trashing the property, caused long term damage, another “handyman” said the only fix for the microwave table was replacement, but when I insisted they bring out an actual appliance guy was actually just a $5 plastic part). If a tenant is afraid to report something because they will be charged for a visit when “nothing is broken”, expect to find tenants trying to fix stuff themselves and/or let things go since it’s not a permanent home for them anyway. I could have sued my landlords for a bunch of things that they cost me while I was a tenant, all because of PM behavior.
And tell your PM when they do move-out checks, you want photos/video of whatever they find that is not in the appropriate condition. I left one property in way better condition than I got it, but they tried to charge me. I pushed back and offered video footage of move-out condition and they let it go. Later I came to find out that they charged their owner thousands in “repairs” which I know were not needed. The PM represents the owner, so if they are trying to defraud the tenants, that’s your liability too.
Bottom line, even apparently reputable PMs who seem to be serving YOU, may actually screw you by screwing your tenants. Revolving door tenants are expensive (not just the lost income, but they tend to treat your property worse so need to do repairs/replacements much more frequently) — much better to pay a couple hundred here and there to keep your property filled and drama-free.