Looking for a Property Manager ? 16 Questions to Ask, Final Installment13-16

  1. When do you typically pay landlords the rents collected?

Why is this important?  Remember that the property manager has a fiduciary duty to manage your money.  Knowing how long the manager waits between collecting rents and giving them over to you helps with your own business budgeting (because owning rental income properties is a business).  Don’t schedule to pay a bill on the 5th of the month if the collected rents will only be available in your account on the 10th.  Also, beware any manager who holds onto the rents longer than is truly necessary.  Typically rents should be paid to you before the 10th business day of the month.

  1. How do you pay rents collected?

Why is this important?  It is infinitely more efficient and faster to have rents direct deposited into your bank account, than it is to have to wait for a check.  However, the answer to this question will let you know if the method you wish to conduct your business is even available to you.  Some managers may not send out checks, doing everything electronically and you may prefer a check.  In addition, some methods of payment may incur a “service fee” which you will need to budget for and which you will definitely want to know, up front when you are still comparing your property manager options.

  1. How do you handle tenant emergencies?

Why is this important?  Income property owners need the dependability of long-term tenants in their properties.  Each time a property is vacant, that represents lost income for the duration of the vacancy.  Property managers who handle tenant emergencies well and who have access to repair people who can make emergency repairs as well as normally occurring ones timely and pleasantly are more likely to attract and keep the types of tenants an income property owner needs.  It is important that any property manager you hire knows that there is a correlation between how responsive the manager is to the tenant when there are issues at the property and how likely the tenant is to renew a lease.

  1. What is the eviction process in this state for tenants who don’t pay their rent and how long does it take to evict a non-paying tenant?

Why is this important.  No matter how great your property manager is, or even how great you are as an income property owner, evictions will happen.  They are greatly minimized with an excellent property manager, but even the best of managers cannot predict life events that sadly may put a tenant into a situation where rental payments are not made.  It is good for your business planning to know  the eviction process occurs and how long it might take from the date eviction proceedings are started, till the property is returned to you so it can be rented out again.  Unfortunately, in some states, the eviction process is very lengthy and a tenant can stay in a property for up to a year, without making a single rent payment.  Knowing this, lets you plan for perhaps  needing to make mortgage payments and property tax payments from your own funds, instead of rental income funds, for the duration of the eviction process.

Knowing the eviction process and in particular how your property manager handles that process also lets you know if the property manager is willing to both file an unlawful detainer action on your behalf and appear in court on the matter, or if you need to do that.  This is particularly important to know if you have an out-of-state income property that is being managed, because if your property manager will not file the matter for you, or appear in court on your behalf, you will need to travel to that state for each hearing.  There are often several hearings on an unlawful detainer action after it has been filed.

 

Photo Credit: Copyright,  Michaeljung

Looking for a Property Manager ? 16 Questions to Ask, Cont. 10-12

10.  Do you charge a leasing fee?

Why is this important?  Many managers simply charge the percentage of rents as their fee regardless of whether or not they have to secure new tenants during the term of their management agreement.  Many other managers are willing to charge a lower percentage of collected rents but will add a leasing fee to their agreements.  Leasing fees can add up to a substantial amount of money, effectively more than the difference between 8% with a leasing fee and 10% without a leasing fee, so it must be considered in any financially-based decision to hire a manager.  Some leasing fees are charged with every new lease written while others are charged once in the same calendar year for the same property.  Don’t assume you are getting a great deal because a property manager has agreed to manage your properties for a lower percentage than others you have spoken to.  Ask about the leasing fee.

11.  Do you require that I give you a deposit to hold for property repairs?

Why is this important?  Some property managers require that you allow them to hold additional monies for “future” repairs as they may arise.  This repair deposit is generally between $200 and $500 dollars (often more for a high-end property) and will be used by the manager to pay repair people who perform general wear and tear repairs on the property during the tenancy of the tenant.  This provides some funds for the property manager to pay repair bills on your behalf if the collected rents will not cover them completely, or if there is a delay between when the rents are collected and repair invoices are due to be paid.  If you have more than a single rental property, or if that single property has a high income rental rate, then it is generally unnecessary for you to provide a repair deposit to the property manager.

Remember, also that it is generally considered fair and reasonable to ask that a tenant pay a deposit that is equivalent to a month’s rent.  Often a smaller additional deposit is required if the tenant has a pet, in the event that the pet causes additional damage to the property.  Your property manager will generally hold these deposits in trust for you and will act according to local law and regulation to deduct repair and damage costs from it upon the tenant vacating the property.  Carefully consider the reasons why a property manager says that a repair deposit from you is necessary because that will be income that will be unavailable to you for the duration of the property management contract.

12.  Will you please send me a copy of your typical property management agreement?

Why is this important?  Even my list of tips is not exhaustive.  There may be clauses in the property management agreement that you don’t like.  Never hire a manager without first looking at the type of agreement you will be required to sign.  Also, and people forget this constantly, if the property manager (or the property manager’s legal advisor) wrote the agreement, it is definitely going to be written in a way that fully protects the property manager, not you.  You can ask that clauses be added to protect your interests as well.  So secure a copy of the contract and get some legal input on where your risks are and how to guard against them by adding additional language to the contract.  Getting a copy of the property management agreement in the interview stage allows you to compare the contracts of the managers on your short list and can help you make your decision.

Stay tuned for Questions 13 through 16, up next…!

Looking for a Property Manager ? 16 Questions to Ask, Cont. 7-9

sas-goodnight-quote-pic  7.  Have you or any of your staff been charged with a crime or felony related to the management of other people’s money or any money-related crime? Has any property management company you have owned or work for ever filed for bankruptcy?

Why is this important? The property manager collects your tenant’s rent payments, deducts the management and repair or maintenance fees and must give you the rest. Misappropriation of your money will be devastating. This is an important question to ask and too often it is never asked. If a property manager feels this question is too intrusive, just move on. There are many reputable property managers and in states where licensing is required the licensing process requires fingerprinting and background checking. However, the lag time between licensing and renewals and between the filing of charges and a conviction could mean a person is licensed but has not yet addressed an issue like this with the licensing board. If a property management company has filed for bankruptcy it likely experienced severe business mismanagement and should raise questions for a landlord and should be discussed.

It is also a good idea to ask if and how the property manager vets vendors who do repairs and maintenance on properties. Also ask if the property manager requires them to have a bond and insurance. This is particularly important if repair personnel will be given access to tenant occupied properties, especially when the tenant is not home.

  1. When choosing someone to undertake a repair or maintenance at a property, how many quotes do you obtain for the job?

Why is this important? Some property managers have a contractual (sometimes just a verbal one) or a mutual service agreement with their friends or family in the business. They will only steer the work their way and not open it to competitive bid. You want your work to be competitively bid on to make sure that you are getting the best price for the job. It is, of course, fine for the property manager to secure bids from friends and family, so long as they are properly qualified to undertake the work, have all applicable state and local licenses to do the type of work contracted for, are not overcharging to “kick back” a portion to the property manager for the referral and will guarantee the quality of the repair. This also goes back to the vetting process mentioned above, but competitive bids help you to know the work is being done at a market reasonable cost.

  1. What percentage of the collected rental income do you retain for your management fee?

Why is this important? It is what you are paying for the property manager’s services. In residential management, this number is usually between 8% and 10%. In commercial, it is more often a negotiated percentage based on the total collected rents and the size of the property and it can be as little as 5% and as high as 15%, or more depending on what is negotiated and the extent of the work involved. Whether residential or commercial, you can negotiate this number. It is not a given. Remember to take into account the amount of work involved for the manager and the amount of rents that will be collected. This is a cost of having someone else manage your properties, but it will also decrease your annual income by that amount, so consider it carefully.

Stay tuned for Questions 10-12, up next…

 

Four Tips For Making Your Rental Stand Out From Others In The Neighborhood

Why you should not neglect the exterior of your rental

By: Eveline Brownstein (c)

Everyone wants a desirable rental property that has tenant longevity. Here are my four tips for making your rental the most desirable one in the neighborhood.

1. Landscaping. Most rental referrals are from yard signs and people who drive past the property to view the neighborhood and the property itself. Don’t underestimate the power of a pretty yard. Frequently mowed grassy areas, clean flower beds and property trimming of trees and shrubs can go a long way to make a strong and positive initial impression of your property, making potential renters more interested in seeing the interior of the property.

2. Exterior condition. If the paint on the exterior of your house is peeling and faded, the initial drive-past could make a potential renter drive away permanently. Maintaining the exterior of the home by touching up the trim paint and painting the exterior when necessary will make your rental home a place renters want to call home.

3. House numbers. There’s no point in advertising a property if your rental home cannot be found or can easily be mistaken for the property next door. In addition, emergency personnel need to be able to easily identify your property (this is a good tip for owners and renters). Make sure that the property numbers are clearly displayed and easily readable, from the street. This can be achieved by regularly painting your curb numbers and by erecting onto the house some large house numbers that can be seen from the street. Make sure your rental can be found and identified by potential renters and the people they may invite as guests and the emergency personnel, who may need to find the home.

4. Don’t neglect the mailbox. A leaning, missing or broken mail box can send a message to a potential renter that you do not care enough to make minor repairs to the property. After all, new mail boxes are not expensive investments and repairing the posts for them are generally simple and easily done. A sad mailbox could signal to a potential renter that the interior of the house is as sad and that a landlord will be difficult to deal with when it comes to making home repairs.

Don’t neglect the exterior of your rental home. It is the first impression a renter will have of the type of landlord or property manager you are and what they can expect in the future. Sadly, you will never know if a potential renter was disappointed with the exterior of the home as most will not bother contacting the leasing agent if they were put off by the home’s exterior. A renter may even overlook minor imperfections in the interior of the home, if the exterior makes them interested enough to enter the home for a viewing.

Is A Short Sale A Good Idea for a Rental Property?

By: Eveline Brownstein (c)

When considering any rental property for purchase, part of that consideration is how soon you can start generating income, and how much of a return on the money you put into the property are you going to get.  Short sales often appear to be bargains.  The bank or mortgagor is willing to walk away from the property for less than what is owed and the owner of the property needs to get out from under the mortgage.  Besides the bargain price, there are a number of considerations that go into the decision to purchase a short-sale property for a rental income:

How much time do you have?  Typically, short sales can take three to six months from acceptance of the offer price to closing of the sale.  Hiring a realtor who is experienced in short sales is important, because often the mortgagor on the property will have a tendency to move the file on the property through different departments for review.  An experienced realtor who has dealt with short sales knows that it is important to establish at each stage which department the file has been transferred to, and who to contact for a follow up.  Nevertheless, these transactions usually move very slowly and file review takes months.  A buyer cannot expect to own the property for several months and therefore cannot expect to be able to move a tenant in during that time.

Do you want a move-in ready property? Many short sales properties suffer from the reality that not only did the owner not have sufficient money to pay the mortgage, but the owner also did not have any extra money for maintenance, repairs and upkeep on the property.  I once represented a buyer of a short sale property where the owner had begun extensive remodeling of the property and then lost her job.  She was unable to complete the remodeling projects and thus any offer my buyer made had to take into account that the remodeling projects left undone would need to be completed before she could move in.  The same would go for a property one intends to rent to a tenant.  Landlords have a legal obligation to provide a habitable property as defined by local and state ordinances.  Any issues with the property will be the responsibility of the buyer as short sales are generally sold “as is” without a single credit for repairs, nor are any made prior to the closing of the sale, regardless of habitability.  Short sales are typically not move-in ready, so added to the time considerations of how long it will take to own the property, one has to consider the additional time it will take to undertake the repairs to the property, before it can be rented.  Between the time it takes to own the property and the time it takes to undertake necessary repairs, it could be close to twelve months, or more, before a buyer can realize any rental income on the property.

Are you willing to pay the original amount of property taxes? Even though a short sale property sells for less than the market value, most property tax rates are based on the market value of the property.  So, once you close on the property and you have undertaken the necessary repairs to make it habitable, you will pay the market value of the property in property taxes as determined by the local assessor’s agency.  Once you get that first property tax bill, the bargain of the purchase price may not seem like such a bargain if the property is located in a high property tax, or high property value area.

Can you set aside enough money to make necessary repairs? As mentioned above, if the property is not move-in ready (and most short sales are not), you will need to set aside enough money to make necessary repairs.  When considering the cost of the short sale, you must also add in the cost of repairs to the property.  For the purposes of a rental property, adding in the cost of currently necessary repairs may not be sufficient.  A property inspection may reveal future, necessary repairs.  As I have previously stated, I believe that the purchase of real estate for rental income purposes (and many other purposes) should be undertaken with a ten-year plan to hold the property.  So, apart from the immediate repair issues, one should also consider long-term repair projects like roof replacement, furnace and water heater replacements and appliance replacements.  Painting of the exterior should also be considered in this plan.  When calculating what the rental income will be, one should consider what portion of collected rents should be set aside in a capital improvement account for the long-term repairs of the property.  Short sales with deferred maintenance may need sooner capital improvements, due to long-term, general neglect.

Are you willing to defend a legal action? In the current climate, some banks have been accused of acting improperly in their short sales and foreclosures.  This could expose a buyer of these properties to legal action.  A very careful review of all the paperwork in a short sale is critical to protect the buyer from legal action.  It is a good idea to hire an experienced real estate attorney to review the legal paperwork, if an attorney for a real estate transaction is not required in your jurisdiction.  Legal fees charged by such an attorney should be considered in your calculations of the cost of the property.  Nevertheless, even if you do not have legal exposure, this does not mean that you cannot be sued and that you will not be required to defend your purchase.  It may merely mean that you will prevail, but you will still likely have to hire an attorney to defend your position and that can be costly.  The potential for this should be weighed against the savings you will be realizing in the short sale purchase. Purchasing a short-sale from a mortgagor who has a solid and dependable reputation for legally reliable transactions is important.  So, take some time to research the mortgagor’s reputation in these types of transactions, before making your offer.

Some bargains truly are bargains.  Some bargains have the potential to become money pits.  Taking a little time to thoroughly research the parties and the real costs involved in a short sale, before committing to the purchase, can ensure that your purchase choice is the right one for you.