How to Vet a Property Management CompanyNov 11, 2021
Topics of this video:
- Understanding fees/charges
- Understanding business model
- Factoring into the expense ratio
- Interviewing property managers
What about property management? How do we drill down on property management? What would you, what would you say to the listeners?
Chase Leavitt: So with property management, understand your options and what percentage they're going to be charging because this falls underneath expenses, right? And so we'll see what your options are and see what value they're getting. Not only what they're going to be charged and to manage, but also charging for lease-up. Make sure you get all the fees, all the expenses in. And then that's what you put that in your expense ratio.
Sherida Zenger: Interview a few different property management companies, because one may say one thing and one may say another, but like chase said, make sure you know what fees are included. I know our property management charges, if they're going to notify a tenant because you want to do a walkthrough or an appraisal if you happen to be selling things, there are different fees that they charge along the way.
So make sure you know, all of those fees ahead of time, because somebody may tell you that. A lower rate, but it really isn't all said and done because they have a bunch of Allah cart stuff added on top. Like, are you full service or not?
Chase Leavitt: Yeah. And the other way they can hide that a little bit too is, okay, there's value with repairs. Right. And there's value in having different maintenance guys come in and control the repairs. If repairs are not. But are they going to get a percentage of that or a dollar amount of that? What does that look like? Does it make sense? Because there is time and value that maybe they should get paid, but are they going to be more motivated to get a lot of repairs done within your unit because they're getting paid for it.
Steve Olson: Are they making maintenance a profit center?
Chase Leavitt: Exactly. Yeah. So really take a close look there.
Steve Olson: Typically in a property management agreement, The managers are allowed to spend up to $300 a month on just incidental stuff, clogged toilets, broken lights, which without having to tell you, so if every month, $299 is coming out of your rent, you know, this is a business model for them. It just nickel and dimes with maintenance as much as possible.
You found that out too late, right? We're talking about vetting your income and expenses. This you don't know until later if they're actually doing. Referrals and interviewing on the front end. I mean, we've interviewed a lot of property management companies together because it is a little bit easier of a number to drill down on assuming its apples to apples, right.
Are the cause, you know, if, if it's a manager for a whole apartment complex, they're gonna have very low management fee, but you're going to have payroll and marketing and advertising budgets on top of that, which would typically be FIC. Regardless of your vacancy rate, right? So you have to understand that too, but this number is, is only as good as your rents, which we'll get to drilling down on rents in a minute, because typically most of your management fee is a percentage of rents, right?