How to Evaluate Property Management Companies

While real estate investors can certainly handle the management of one or two rental properties, what happens when you get up to ten rental units? Twenty? There comes a point where you simply cannot manage all of your rental units, and do any other work. How do you choose a good property management firm?

First of all, it’s worth noting that the best time to evaluate property management firms is not when you need them; rather, you can (and should) start evaluating property management companies long before you’re actually ready to hire one to manage all of your rental units. Most property managers will place tenants for you in your rental units, usually for a fee of one month’s rent, even if they won’t be handling the ongoing property management. Ask around your real estate investment club, find out who’s recommended by the investors you trust the most, and try out the three or four best companies.

As you work with each of these property management companies, get a sense for how thorough they are in their tenant screening. Do they pull credit reports? Do they check civil court records? Do they verify income and employment? Do they call applicants’ current landlords to verify payment history? Do they inspect the applicants’ current residences to check their cleanliness? Good property management firms use all of these screening methods, and sometimes more.

How are the tenants placed by each of the property management companies? No property manager can place perfect tenants every time, but better property managers have better batting averages, and these emerge over time.

What kind of contractors do each of the property managers use? Are they licensed? How long have they worked with these contractors? Good property management companies have longstanding relationships with reputable contractors that they trust, and you can tell right away how by how confidently the property managers speaks about their contractors how confidently you should feel in the property manager themselves.

How long have they been in the property management business? How many clients do they have? How long have they worked with their largest client?

There is, of course, always the issue of pricing as well. Most professional property management firms charge between 5-10% of collected rent, though this number is often negotiable. Yet another reason to start working with property management companies before you’re actually ready to hire them full time is to establish a relationship, which can then be leveraged as you work out the pricing arrangements with the property manager of your choosing.

Property management companies come in all sizes and qualities, and the cheapest is often not the best. Evaluate these firms carefully, as a bad property management company can break your business with high vacancy rates, causing tenant lawsuits, and failing to care properly for your rental properties. Experienced and effective property management companies, conversely, can make your life a lot easier, and allow you to sleep at night knowing that your investments are in good hands.