What kind of rental income can we expect in this region?
Rental income will be one of the most important questions to ask if you are looking to purchase a cash flow positive investment. One of the easiest ways to find out this information is to contact management firms directly, prior to purchasing rental property. Compare the rental prices of similar properties across multiple management firms to get a fairly accurate estimate of market rent in a region. Use rental income as a factor when deciding between management firms. It might be useful to evaluate management firms this way: $100 dollars extra in rental income might mean a lot to a small investor, but wouldn’t mean much to a property manager who expects to only receive 10% of it each month. A property manager’s incentive, then, is to mark the rents low to eliminate the possibility of vacancy, even if it ends up attracting tenants with riskier credit scores.
What is the vacancy rate in this region?
Vacancy rate is important in estimating costs and ROI if you intend to utilize your property as a rental property. If the vacancy rate is 10%, for example, you can expect that your home will be “un-rentable” 10% of the year. One easy way to project ROI is to reduce rental income by 10%, and calculate profits/cash flow based on the reduced income. It’s important to ask the management firm this question, not only to validate your research, but to get a general gauge the competency of the management firm.
What is your screening process and would I have a say in approving the tenant?
Management firms take on the responsibility of screening prospective tenants before moving them in. Typically, firms screen on credit score, rental history, criminal history and employment verification. Try to find out what the minimum requirements at each firm. Although steeper requirements will weed out more prospective tenants, most landlords will agree that it’s most important to get a responsible tenant to occupy the unit over a long period of time. Try to find a management firm that takes pride in it’s screening process, this will save lots of headaches in the long run. In my experience, landlords aren’t involved in the screening process at all. Management firms have a legal obligation to make the screening process fair for all applicants. The best a landlord can do is to find out what the minimum requirements are, and make sure that they are high (relative to requirements of competing firms). Application fees are paid to the management firm by the tenant. Management firms do not supply tenant screening data to landlords, citing that such action would be in violation of tenant privacy rights. I’m still not sure why landlords are not entitled to the information. At minimum, landlords can expect to receive the rental agreement after it is signed, and sometimes a landlord may be able to ask for the rental application.
What are all the fees that you charge?
-Renewal
-Advertising
-Listing
-Management
-Reserves
How large is your staff? How many managers/maintenance do you have? How many properties do you manage and in what areas?
It’s not uncommon to find a ratio of one property manager per 30 properties. It’s hard to imagine how this is possible, but it’s clearly to the management firms to maximize capacity of it’s staff. Unfortunately, it’s not uncommon for management firms to be short on staff, allowing repair and maintenance issues to linger a few days before addressing them. Obviously, landlords should search for management firms that have the capacity to quickly handle all tenant issues as they arise. Before signing with a management firm, give the maintenance staff a call to see if you get an answer. If you have to leave a message, see how long it takes for them to return your call. I’ve come across so many management firms, selling me pitches about their world class staff, and later discovering that their maintenance team is too busy to answer my call.
Do you manage HOA’s?
If you are unfortunate enough to have a bad tenant move in, not only will you have to deal with missed rents and eviction headaches, you might find yourself getting nasty letters from your HOA warning you that you will be fined if the tenant’s old jalopy isn’t moved off the property. Landlords hire property managers so they don’t have to deal with these headaches. Make sure your management firm is willing to deal with your HOA before signing any agreement. HOA’s can sometimes be tougher to deal with than tenants.