Property Management: A Financially Intimate Relationship

Whether you’re just starting out or longing for a break from tenants, what should you consider before hiring a professional management company? How can you tell you've found one that suits your needs — and your pocketbook?  

SERIOUS BUSINESS 
Unfortunately, there's no quick answer. Gone are the easygoing, "deal on a handshake" days of landlording.  "Liability," once a word no one could spell, now spells trouble for many landlords. As a result, a myriad of laws and regulations have sprung up to complicate ownership. And, that's just one aspect to worry about.  When considering using a management company, make sure the company is licensed in the state where the property is located. You can look up the company’s broker's license on the Web through the consumer site for that state. Also ask how many buildings they manage and in what areas. Some laws vary by location, such as inspection and rent control laws. If the company is spread too thin, your budget may be as well. 
LEGALLY AWARE
Jim Silton, whose company manages more than 400 units in Los Angeles, California, delves deeper. "Property management companies, if they are worth the fees they are earning, should be at the forefront of legislative changes. And if they are keeping updated on these changes, these property management companies can save you, the owner, money which might even exceed the fees they charge you." Besides the legal aspect, what else do management companies provide? Do you really need someone running your business on every level? Let's start with the do-it-yourself basics. Do you want everyone who lives in the building to know your name? You'll also need to know the tenants' names. Nothing like bumping into a resident and trying to guess if they’re the correct renter for the unit.

If the job is handed over to a management company, your privacy and peace of mind are your own business.  

PAPERWORK SACROSANCT 
Ask how they keep track of property residents for their own records. Key questions to ask a prospective property manager are: How do you handle after-hour calls? Do you have a paging or answering service? How quickly do you respond? Do you communicate well with tenants? Managing property also requires financial skills. Accounting, including accounts payable and receivable, must be meticulous. Thanks to computers, the taxman can come knocking at your door more quickly than ever before. Do you know the difference between expenses that are deductible for the current year versus one that can only be stretched out over a set period? A professional company should know the answer. 

EXPENSES: Accounts payable can also rise unannounced, dropping your bottom line. Utilities are the most obvious. While rates always seem to rise, sometimes usage is the culprit. One owner noticed the bill jumped up along with the usage compared to the prior year. A quick call to the plumber brought the problem, a water main break under the concrete, under control. Sometimes a few running toilets can run up a bill. Would a management company have noticed? 

INCOME: Then there's the most important accounts receivable item — the rent. Keeping track of the time, amount, and who wrote the check is vital. Did you know that a tenant’s rights can be asserted just by writing the rent check for a period of months? Even if you never rented to the person writing the check, they may have staked a claim to the unit. Who picks up the check and collects the deposits? Some owners prefer to keep the accounts receivable chore to themselves, and avoid the pitfalls of another doing your banking. When considering a management company, be sure they are screened properly to handle funds. 

GET PHYSICAL 
There’s also the day-to-day grind of running the physical plant; ditto for scheduling maintenance work to keep the property in top shape. A DIY owner needs to find and contract properly certified workers, including a licensed plumber and electrician. A management company can curtail the hassle, handle all the repairs and maintenance, and provide insurance. Find out if they have their own crew and what they charge for repairs.  As a DIY landlord you better be handy. It's Lowes or Home Depot to get needed maintenance supplies and material that may be tax deductible. You can hammer out your frustrations while fixing that broken fence. But what if you're inept and clumsy with a power tool? 

LIFE AS YOU KNEW IT
Two properties, then four and life as your family remembers you is over. A management company will take all those worries off your hands, leaving yours free to pursue other interests. Find out who does the job and how long they have worked for them.

STAYING TENANTED 
From the time 30-day notice is received, to the final move out, the clock is ticking down on the remaining rent for that unit. Some owners prefer to handle their own vacancies. Investor Bernard Mittleman of Los Angeles says, "I just feel more confident that I covered all the proper questioning when I do the job myself. I also get a gut feeling if I detect something negative during interviewing them. When I handle the job myself I have no one to blame if I made any mistakes." Of course, if you don’t have the guts to handle the job, vacancies may be better left to the professionals.  

"The management company should handle all the work for you from the background check of a prospective tenant to visiting their current rental to verify that it is being kept in good shape," said Sean Whalen, president of Rich from Rentals. "They should also handle the unfortunate and hopefully rare actions needed to legally remove a tenant that is not fulfilling their duties. With the right management company the latter of these circumstances should be a rare occurrence."  

Ask the management companies you are considering for copies of recent ads, and find out how often they update the listing. Do they call back promptly and politely? Call their ad and find out. Ideally a unit should be shown by the leasing agent or manager or an open house be held. How long is the average vacancy? What do they charge for running an applicant's credit (which costs about $11)? Finally, what fee, if any, do they charge for leasing?  

And finally, even for the most adept of management companies, there's a reality to consider. Longtime real estate investor Livia Steingart suggests, "When you use a management company it is like using a babysitter for your children. Assuming the owner has financial knowledge and knows the rules, the owner often makes the best decisions. After all, it's your money that is being looked after."  

RENTING AT DISTANCE
"Love and land" does not work well from a distance. This was especially true of rental properties. Two things have happened. Good companies have grown and become institutionalized. Brewer-Caldwell and GoRenter in Phoenix, and Apex Property Management in Memphis are good examples.

Now a new trend has occurred with the breakout growth of Real Property Management of Layton, Utah. Two seasoned investors, who happen to be accountants and owners of a large HRBlock franchise, have turned their energies the business of property management. Personal Real Estate Investor Magazine has met the management and believes this company holds great promise for investors who want predictable service over one or multiple properties or markets.