Rental Property Management – Choosing Right Company for Syndicate

Rental Property Management
Rental Property Management

I’ve never used a rental property management company.  In fact, I’ve been rather outspoken here and everywhere about my belief that if there is a reason we choose to put our money in real estate as opposed to traditional investment vehicles, it is precisely because we believe that can do it without managers or brokers, and we can do it better and cheaper.  After all – no one will care for money better than we can.  This is reasonable, is it not?

Furthermore, I’ve always assumed that as my portfolio grows larger, I’ll just start my own rental property management company.  I figured that when the Cash Flow is large enough I would employ in-house professionals which will cost less and will allow me to hand-pick and train my people.

This line of thinking has worked well for me thus far.  I do not perform any of the manual labor on any of my units.  Instead, I have a part-time handyman.  And anything above his pay grade get’s outsourced.  The extent of my involvement in property management has been (for 5 years now) a function of receiving a call for the work order, and placing a call to the appropriate party – done.  Not having a property manager in the mix has saved money and kept me limber as it relates to my decision-making process.  My typical monthly time commitment is 5 hours, unless I am in the middle of repositioning project.

THINGS ARE ABOUT TO CHANGE

As part of a syndicate I am obviously looking for property out of my micro-market – Lima OH is hardly large enough to accommodate purchase of 100+ units.  A decision has been made in collaboration with my lead investors that the first deal we do will indeed be in Ohio, State where I am licensed as an agent.  Even so, the markets I am looking in are a 2-3 hour drive from Lima, where I live.  Reasonably, then, I must adjust my thought-process to address the necessity of having a rental property management company in charge and employees on-site…

Furthermore, and equally importantly, any lending institution evaluating permanent financing for a project of the magnitude that we are considering would expect there to be accredited management in place. So…

I AM INTERVIEWING RENTAL PROPERTY MANAGEMENT COMPANIES

The place to start is IREM – Institute of Real Estate Management.  Through theit website you’ll be able to make contact with most of the big players in the rental property management space.  I don’t really know which questions are appropriate to ask – I haven’t been taught this in some college program.  However, I do know how a property needs to be managed, and I do know how to ask for advice from people much more experienced at outsourcing management than I am.  Thus, I’ve been able to identify the following questions to ask during the initial interview.

As part of this article, I will provide the questions, and outline some of the reasons why these questions are important.  Most of this is self-explanatory, but perhaps this helps some of you.  Please understand – these are not all of the questions to be asked, but it’s a good start…

1.      What Class of property do you specialize in?  In what areas of town?

The approach to managing a B Class asset in an A Class location is very substantively different from what is needed in a C Class location.  Find out what they do, and don’t ask them to do anything other than that.

2.      How many units are under your management?

If they say 75, then you are talking to a mom and pop shop who manage Single Family Residences and small multiplex.  If you’ve got an 120 community this ain’t gonna work.

I am restating myself here, but if you have just a few units, you should not be using a management company – there simply isn’t the strength in numbers to facilitate the expense.  In other words, if you are small-time, then act small-time and manage your own…

The general recommendation for larger assets, however, is that the management company has at least 1,000 under management.  It takes that many to develop and perfect the kind of systems we are looking for.

3.      How many buildings are those units situated within?

Can you multitask – do you have the systems?

4.      How long have you been at it?

Self explanatory

5.      What monthly reporting do you do?

This can vary, but we want to see a detailed Income, Expense, Vacancy, Income and Loss Statement both Monthly and Year to Date, and the same relative to Balance Sheet.  We also want to see work Capital Improvements Report in terms of Work in progress, Work completed, and Work scheduled.

6.      What On-Property software do you use?

We want a standardized operation.  Make sure they use a well-vetted software package.  I have not fully researched all available products, but from talking to several people I gather that OneSite software package is a good option for multi-family.

7.      Do you have regional managers?

Larger companies will have a complex operational structure, which often includes regional managers.  This person, along with the on-site manager will be reporting to you.  Understand their corporate and operational structure…

8.      How many units are assigned to each regional manager?  How many buildings?

You don’t want this person to be either too busy, or not busy enough.  Both are indicative of something…

9.      Do you have a tenant retention program?  Is there a referral program?

One of the highest expense items within operations of multi-unit is turn-over costs between tenants.  We want to keep tenants put as much as possible.  What is the manager’s plan to achieve low turn-over?

10.  What is the going vacancy rate?

Self explanatory

11.  What type of insurance do you carry?

Make sure they are covered to the hilt…

12.  How do you ensure that the funds in your control are safe?

Ask – listen…

13.  Is there an initial set-up fee for new landlords?

Preferably Not…

14.  Do you own and manage any property yourself?

If they own 120 units across the street from yours, could it be that they would be motivated to get those filled before they get to yours?  This is not necessarily an issue, but it should be a consideration…

15.  Do I Like You?

If, as you are talking to the person, you feel that you are not clicking with them – don’t hire them; regardless of qualifications.  Real estate management is a slow dance; make sure you pick people you would want to dance with…

CONCLUSION

In the next 10 years I plan to buy assets all over the US. As part of doing this, I must develop a system of pre-qualifying property managers.  Hopefully this helps you with choosing a company to use for you portfolio.

Photo Credit: gorbelabda via Compfight cc

6 Comments

  • Sharon Tzib Reply

    Hey Ben! I think it is quite telling that one of your questions was not “what are your fees?” Oddly enough, that is the question most investors begin their interview with. If you find a company that meets all of your criteria, you should be more than willing to pay the fee for their expertise (assuming they are not completely out of the stratosphere of what are market rates).

    I am curious on #4, what you consider to be a minimum amount of time for your purposes. Also, I’ve heard great things about Buildium PM software. Thanks!

    • Ben Reply

      Hey Sharon!

      As far as #4, I am looking for sufficient time to set up systems. The number of units under management of at least 1,000 will preclude something like 2 years in operation. So, this works in tandem with number of units. I’d say that under 5 years is out, but it’s case by case.

      I’ll look more into Buildium PM. Thanks Sharon!

    • Ben Reply

      Thanks James!
      I hear good things about Upfolio – any thoughts?

  • Robert Reply

    As a subscriber to MFE (Multifamily Executive) magazine I always see the Yardi Property Management software noted within. Not certain of the cost but probably well worth the consideration if you’re shopping around.

    • Ben Reply

      Thanks Robert – I will into Yardi.

      Thanks a lot!

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