This article is a guest post from ESIMoney
I have owned rental real estate for four years and have 14 units in Michigan, 1,200 miles from where I live. These units are the main reasons I was able to reach Financial Independence since their returns have been very nice.
A key part of this success is having a great property manager. It’s a key piece of automating your business, and honestly how else could I run my business from so far away and retire early?
But even before I moved halfway across the country I needed a property manager. I was working at a very demanding career and couldn’t afford the time commitment of active management.
So I found an awesome property manager and life has been good ever since.
This post will detail the process I used to find my property manager and how you can do the same.
But first, a bit of background…
Plan A Goes South
The plan was perfect. My real estate mentor was going to help me find some great rental properties. I’d buy them through him (he was a real estate agent too) and he’d manage them for me. Easy-peasy.
Once we got our first place he told me he didn’t really have time to manage it for me. Uh-oh.
Thankfully I had some time to find an alternative. The place needed a few months of remodeling to get up to snuff. This gave me time to find a property manager. That’s the good news.
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We have spent years developing this process that has literally generated millions of dollars in value and a stable yearly revenue for investors.
Related: Estimating Rental Property Expenses.
The bad news was that I had never hired a property manager before and had absolutely no idea how to do it.
My List of Requirements for my Property Manager
My mentor served as a sounding board but he wasn’t really familiar with the property management options in our area since he managed his own places. So I was pretty much on my own.
Fortunately, as a business executive, I had hired hundreds of people. Over two decades of filling jobs, I had developed a system to find and hire good people. I applied those same principles to find a property manager.
I started with a list of what I was looking for in a property manager. Of course, there were the basics of being able to do the job and manage the various tasks associated with it (finding tenants, managing tenants, maintenance, etc.), but there was more. I wanted someone who I thought was:
- Trustworthy. After all, I was going to be turning over $600k in property to them.
- Knowledgeable. I didn’t want someone who would just manage the process but add to my knowledge with insights that would benefit the business.
- Affordable. This could play out in two ways — either having a low management fee or being able to save me on various costs and services (garbage pickup, snow removal, etc.) Or (hopefully) both.
With this set of criteria, I was off to find my manager.
Identifying Potential Property Managers
I then started a three-step process to help me find the right person:
1. Networked to get property management referrals.
I began to network with those I thought might know and recommend property managers — my mentor’s contacts in real estate, colleagues at work, friends I knew in the real estate business, people at church, business contacts, etc. It seems like I asked everyone I knew for a recommendation. Of course many had as much idea of where to find a property manager as I did, but I played the odds. Now and then I’d get a hit and a recommendation.
Of course many had as much idea of where to find a property manager as I did, but I played the odds. Now and then I’d get a hit and a recommendation.
Doing this, I was able to identify ten possible property managers over the course of a couple months. Though some were of admittedly questionable ability, I left them all on my list unless I deemed them to be an absolute disaster.
2. Interviewed the candidates.
My first contact was by email. This alone eliminated three of them. Two took too long to get back to me and one’s response was so bad that it turned me off from the get-go. Email was to be our main form of communication once I hired one of them, so they had to be prompt, responsive, and professional at this stage.
Email was to be our main form of communication once I hired one of them, so they had to be prompt, responsive, and professional at this stage.
Next was the phone interview. Here I was looking both for my criteria (as best I could over the phone) as well as also judging professionalism. Of the seven who remained, four were eliminated for one reason or another.
At this point, I could see that you have to weed through a ton of property managers to actually find a good one.
Narrowing it down further
Finally, I met with the three remaining in person. Two were one-man businesses who managed several properties each.
Of the rest, one just didn’t seem trustworthy and another one was good — pretty much what I was looking for at this point. The third option was a very professional company with 1,500 units under management. They knew their stuff for sure, but would they give me the service I wanted?
This was a key consideration for me because I didn’t want to just be another number on their record books.
By the way, I asked a TON of questions during this phase. The list is almost endless. I learned a great deal as well, not only about property managers but the business itself. So the effort was very educational for me and it was well worth the time and effort I put in.
My questions to the property manager
- Policies and procedures for all operations — how they handle this and that.
- The scope of their business — how many properties did they manage and how long had they been in operation.
- Costs — Management fees as well as any other costs.
- Who my contact would be — This was especially important at the larger company as I wanted a strong person who would represent my properties well.
- Professionalism — They didn’t have to wear suits and ties, but I did expect a touch of class that I believe is mandatory for any sort of business.
- What they could do for me “above and beyond” — What extra value did they bring to the table?
- Trustworthiness — Admittedly this was judged mostly on instinct at this point, but I have a pretty good feel for people. Besides, the next step would help me out in this area too.
3. Checked references.
Once I had it down to two companies, I asked them each for five references. The big company had no problem giving me five and all of them rated the company highly (as you might expect).
The other guy gave me three (which was all he had) and his references were fine but did reveal a few concerns. You’d be surprised what even hand-picked references might tell you when asked nicely.
He wasn’t eliminated completely, but he certainly wasn’t as perfect as I originally estimated.
I was weighing the two options when fate intervened. I bought a second property and had a total of eight units (Rules to follow when buying rental property) and it just so happened to be managed by the large property management company I was considering.
At this point, they saw I was going to have more than a unit or two (plus they wanted to keep the units they had under management) so they invited me in again — this time to meet the president and his key executives.
I got the royal treatment and had access to everyone to ask all the questions I wanted. And they had good answers. Furthermore, the seller of the property spoke very highly of them — and he wasn’t even on their initial reference list.
In the end, I went with the larger company because:
- Solid reputation. They obviously knew their business — otherwise, they wouldn’t have had 1,500 units under management.
- Cost advantages. They quoted me 8% of rents as a management fee while the other guy wanted 10%. In addition, the larger company used their buying clout to save money for all its owners on everything from snow removal to landscaping to maintenance.
- Professionalism. The larger company had their act together. They had managed properties for 20 years and had the systems to support a rental property business. In addition, I was assigned one of their up-and-coming executives as my personal contact. He was very detail-oriented, personable, and responsive — just what I wanted.
- Trustworthiness. First of all, I had a good feeling about the staff both personally and from the reference checks. Second, the company had checks and balances. The property managers worked with the accounting department to make sure things were handled appropriately. The other guy was everything by himself which left me wondering if he’d hold himself to a level of accountability I was comfortable with.
In the end, a combination of a good process and luck helped me find a great manager.
Now that I’ve been with the company for four years, I can say it was absolutely the right decision.
I lived in that city a year before I moved and was able to work closely with them. All of my initial impressions were reinforced. They were and have been a vital part of my rental success.
Once I moved away their services and breadth of experience were even more important. I couldn’t have done it without them.
So, that’s my process. I’ll stop by this post several times over the next few days and answer any questions you may have. I’m happy to help however I can.