Should you need to hire a professional property management company then the profitability of your property boils down to whether you hire a good or bad company.
The right property management company will make your rental home a profitable experience. The wrong property management company could cost you thousands of dollars a year in rental income and repairs from a bad tenant.
One of the biggest mistakes owners make is that they just pick a property management company out of the phone book without first doing research on the company.
Don’t hire one of those big nationwide corporations that sell property. They do property management because they want to be the first company you think of when you want to sell your property. They lose money on property management, but make money when you are ready to sell your home. It’s never a good idea to go with a property management company that is trying to get you to sell your home because that’s where they make the big money. You want a company that specializes only in property management and nothing else. You don’t want a big corporation either. You want a small, local expert that has lived in your city for at least 20 years. You want a property management company that specializes in your local market only.
Try and get three references from the property management company. Call those references and make sure they do not know anyone personally at the property management company. Ask them how they like the company. Find out if there has ever been problems with getting paid from the management company. Ask them what they dislike about the company.
Use the Internet to make sure the property management company and its employees have the necessary licenses and that they are in good standing. Most states require property managers to have a real estate license and/or a property manager’s license. For example, the state of California requires property managers to have a real estate license.
Make sure that the property management company is insured. The company should have general liability insurance, workers’ compensation, auto liability, and professional (or misconduct) liability. Because the management company will be collecting your security deposits and rents, they should have a fidelity bond to protect you in case an employee embezzles or mishandles your money.
Another big mistake owners make is that they do not ask the right questions when hiring a property management company.
Ask the management company the following questions when you are interviewing them:
1 – Can you provide a list of exactly what management services are provided?
2 – Do you sell homes or make money on referring me to a real estate agent?
3 – Can you tell me exactly when I should expect a monthly check or deposit into my bank account for the rent you collected?
4 – How will you market my property?
5 – How are maintenance orders from tenants handled?
6 – Who will manage my property? What are his qualifications? Does he have all the necessary legal licenses? How many homes does he currently manage?
7 – Can you give me three references that I can call? I would like three people to contact that are clients of yours and that are managed by the same person will be managing my property.
8 – If maintenance is provided in-house or by an affiliated firm, do you only charge the actual cost of labor and materials without any surcharges, markups, administrative fees, or other such add-ons? Can I opt out of your in-house maintenance division and have repairs done by external companies only?
9 – Do you pass along any volume purchasing discounts fully and directly to clients for appliances, carpeting, and other items without any markups?
10 – How do you handle late charges? Who gets to keep the late charges? If you keep the late charges, will you come down on my monthly management fee? If I get to keep the late charges, are you charging me a higher monthly management fee?
11 – Do you carry Errors and Omissions coverage of at least $500,000, plus general liability coverage of at least $2,000,000?
12 – Do you have at least a $500,000 bond and a forgery and alterations insurance policy of $25,000 or more for all your employees?
13 – Do you have separate bank trust accounts for each client rather than a single master trust bank account containing multiple owners funds?