Hello, my friends and welcome to another episode of Ask Marco where I answer your investing related questions.
And today’s question comes from Linda. Linda says, hello. I am currently in the process of saving up for an investment property but I am doing my research before I commit. I came across your website and it was very informative and clearly laid out, very user friendly. Thanks. So one of my main concerns as friends and family also advise me of is purchasing a property outside of my local area and then trusting a property manager with my investment. They do not always have my best interest at hand and will not necessarily do their job responsibly, which could lead me into more debt having to fix up a damaged property. I have a friend who signed her property off with a contract to a management company who acted irresponsibly and she couldn’t follow through because she lived halfway across the world.
What can you say about this or what has been your experience? Thank you, Linda.
Okay, Linda, thanks for the question. Let me begin by saying that property management is very, very important. In fact, I kind of jokingly say at times that you live and die by your property manager. Property management is critically important and I like to think of my property manager as an asset manager because they are not just managing and taking care of my property, but they’re managing and taking care of my assets. And those assets are important to me because my assets generate income and cash flow. And so I want them to continue to generate income and cash flow for me. And as long as they’re properly managed, then they will continue to do so for decades to come. Understand the importance of property management right from the beginning, it’s your property manager and the management team.
They’re one of the most important team players on your team. Now what you’ll want to look for is a full-service management company or a full-service property management firm. And I like to avoid real estate agents, not because I have any problem with real estate agents and brokers. They are qualified, often qualified to do property management and in many States, depending on the state, the fact that they have a license like a real estate broker’s license qualifies them to do property management, provide property management services for a fee. But the problem that I’ve had in my own personal experience and what I hear as well from others is that property brokers and agents that are doing property management are often in moonlighting as you might say. So they’re splitting their time between selling and listing residential real estate, doing property management, and potentially something else.
They may have, you know, a fuller part-time job on the side as well. I try to avoid real estate agents as property managers. I’ve been there and I’ve found out that it wasn’t the best experience. Now speaking of experience, you want to look at the experience of your property managers, but also their experience with the property type that you have. So if they are experienced with single-family homes and duplexes or let’s just say residential property, which are one to four-unit properties, great. That’s the type of property manager you want. You don’t want a commercial management company because they are managing commercial buildings, retail space, office space or whatever. Also with full-service property management firms, you’ll want to consider the number of properties under management. Are they managing 10 or 20 properties or is it more like one or 200 properties? The more the better.
Typically speaking because it gives them a broader range of experience and if they have over a hundred units under management, odds are they’ve probably got a team of two or three people that are going to be spread across the actual leasing or management side of it as well as the maintenance side of it. And so now you’ve got that diversification of skills that are being spread across different people. So they have different responsibilities and people are focused on different parts of the business. In terms of choosing, you want to check reviews and references. You can start with places like the better business Bureau and or the chamber of commerce. Now they don’t always have information and you may not often find references good or bad or comments or testimonials on websites like those, but it’s good to check because they may be members, they may have some positive writeup.
There may be some complaints that they’ve actually addressed and resolved and that looks really good when you can step up to the plate and take care of problems. When people are upset, you know they’re a little heated, that they tend to say things or post things that maybe later they regret or they just wanted to vent and have things taken care of. Also, you can do some searching online and looked for online posts and forums on real estate or property management and see what people are saying. Usually when people post, unfortunately, it is often about something negative, not typically positive. People are more likely to post an event when they’re upset about something, not when they’re having a good experience because a good experience is typically expected. Now, another thing you can look for are professional licenses and certifications. The most common one you’re going to come across is the N, a, R, P, M, which simply stands for the national association of residential property managers.
A lot of property management companies and property managers become members of this association, not all of them. And you don’t have to be a member in order to be a good or great property manager, but it doesn’t hurt. And often a lot of companies have a certain pride and want to be a member of this organization just to show that, Hey, I’ve got a certain level of professionalism and skill that I can provide you in. Here’s how I’m showing it. So this association is pretty much focused on single-family homes and small residential properties. Residential meaning one through four-unit properties. So that’s really the foundational license or certification above and beyond that. There are three other certifications that you may or may not see. Property management companies may go one step further and get our MP designation, which is the residential management professional. There’s just some additional training and vetting in getting this certification.
Beyond that, you have the master property manager or M P M designation and this is given to more experienced managers. It’s a little more demanding and it takes a little more time and energy and effort to get to that point. And then at the top of that pyramid is a certified residential management company designation or C R M C and this is really out to demonstrate the highest levels of professionalism. You’re not going to find a lot of property management companies with this designation. If you are trying to find a management company that has that, you’re going to find them, but you’re not gonna find a lot of them in different markets around the country. I think the important thing to know is that you have a very professional responsive management company that has good references. Now speaking of references, you can ask for current clients and tenant references if they’re available.
Some management companies are reluctant to give them out, not because they don’t have any, it’s because they do respect the privacy of their clients. And so even clients I know don’t necessarily want to take the time to speak to a whole bunch of other people that are shopping around for a property manager, but it doesn’t hurt to ask. You can do that and then review the property management agreement services that are provided within that agreement need to be reviewed by you as well as the fees. Those are going to a range of course, and I’m not going to get into that too deeply here, but you’ll typically find that the monthly management fee will range from about seven to 10%. So look at that, understand what’s in there, what services they are providing as well as what services they are not providing. And there may be a section in there about owner responsibilities.
In fact, almost always there is what you are responsible for. You need to be responsible for your property such as it’s important that you carry insurance and they will probably require or demand it. Um, as well as keeping your property taxes paid, being responsive to their requests or questions. If there’s an issue that they need your approval on or a question that they can’t resolve without asking you about. So you know there are some owner responsibilities. Lastly the duration and the termination clauses in there. So you want to know how long the agreements for, how it renews if it’s automatic, and how to terminate that agreement with the property manager if you ever need to. So for me, the big things for me are professionalism, the amount of experience, making sure that they’re not a one-man show or one-woman show. So I want to see a team of people as a property management company.
And last but not least, and one of my pet peeves is just having good communication. I want property managers that are responsive, clear, concise, respond relatively quickly, whether by phone, text or email and have regular updates or questions. For me, if they’re in the process of leasing and turning over my property, that’s when you really hear from them the most. Otherwise, you probably don’t hear from them at all. So good communication is critically important. And that’s one of my pet peeves if you will. Hopefully, that helps. That is how I look at property managers. So in wrapping up, back to your concern about purchasing a property outside of your local area, meaning investing in other markets, there should be no reason or hesitation or reluctance on your part if you are looking to get good quality properties with professional management in markets that make sense, especially if you’re in a market where it doesn’t make sense as in an unaffordable or overpriced or bubble type market.
Don’t be hesitant about that because even if you had properties in your own local market, within, you know, an hour radius of where you live, odds are you’re probably still going to hire a local management company to manage it. I don’t think that you would be managing it. And if you did, I want to make sure that you’re cautious, that you understand what you’re getting into because property management is a thankless job and it’s not for everybody and you’re probably better off hiring a professional to handle and manage your property. Okay, so Linda, I hope that was helpful and for everyone else, if you have a question about real estate investing or finance, you want me to try and answer it on the phone or on the show? Simply go to passive real estate investing.com. Click on the ask Marco link at the top. Submit your question and I will do my best to get to it. If you haven’t already subscribed to the show, remember to do so, just click that subscribe button on your smartphone or on your tablet, share the show with your friends and family and other likeminded people. And if you have the time, leave us a quick review and rating on iTunes. I would greatly appreciate it. Thank you again for listening and I will see you on our next episode.
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