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5 Questions You Should Ask A Property Manager Before You Hire Them

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HIGHLIGHTS FROM THE PODCAST:

0:17 – Introduction
2:59 – #1: Rental number
6:24 – #2: Rent
10:26 – #3: Inspections
14:03 – #4: Guarantees
19:48 – #5: Maintenance

FULL TRANSCRIPT OF THE PODCAST AUDIO:
Spencer Sutton:
The whole point is life happens and some people get laid off from jobs. Some people have personal struggles and they’re not able to pay rent for some reason, and sometimes residents have to be evicted. That’s just part of the risk of owning rental property. Everybody, welcome back to another episode. I am your host, Spencer Sutton, and today, I’m flying solo. No Matthew Whitaker, so we’re going to get right into it. I want to talk today about just how many owners that we get, who call us and ask us questions. We have owners from all over the country, and a lot of times they’re asking us questions, but they’re also talking to other property managers and we think that that’s a…Hey, that’s a smart thing to do, so what we wanted to do, or what I wanted to do today was really lay out what I believe are the top five questions that you should be asking a property manager when you interview them.

Spencer Sutton:
Now, this is beyond the pricing question, so this is beyond pricing question and fees, anything like that. That’s an obvious one that everybody wants to know and hopefully when you go to look at a property manager, hopefully you’re able to find those fees on their website. It should be super obvious. I know on our page at evernest.co for each market that we serve, for each market that we manage rental properties in, we’ve got fees listed under the market names, so you can find them there, but so what should you be asking when you’re in the market for a property manager? I was just thinking about all the different questions I get asked when I talked to investors from around the country.

Spencer Sutton:
Now also, I’m going to skip the pricing question, but I’m also going to skip the questions that have to deal with specific properties, so a lot of times people will call us and they’ll ask us, “Hey, what will this property rent for? I’m really interested in a rental report on this property. What about this area?” I think those are wise questions to ask as well. The great thing about an investor calling us or someone calling us and asking us about a property and should they purchase the property or our thoughts about a certain area of town is that we’re able to give really just some straight advice to you.

Spencer Sutton:
We don’t have any skin in the game as it were and we are just going to be able to tell you directly our experience in these areas, some positive things, and maybe some things that you should consider when renting in that area or owning rental property in that area, so it’s great to talk to investors from around the country. At the end of the day, we want to manage rental properties and have a successful experience with an investor. Our interests are aligned and so we’re going to tell you, “Hey, this is what you can expect from these certain areas,” but let’s get into the top five questions that you should be asking before you hire a property manager. Okay, so question number one that I think you should ask are, “how many rentals do you manage?”

Spencer Sutton:
Why would I ask that or why should you ask that? It’s because you want to get a gauge as to what size this property management company is, what kind of services you probably can expect with this property manager and what I mean by that is, okay, so when we started in 2008, we started with 30 rental houses. Okay, so if you came and interviewed us in 2008 and said, “how many rental houses do you manage?” and we said 30, and by the way, these 30 are all of our own, well, you may second giving your rental properties to us back then, so you may think, “well, I don’t know, they’re just managing their own rental houses. They don’t have any systems and processes in place. Are they going to care about my rental house when they’ve got their own rental houses that are really looking after them?”

Spencer Sutton:
Well, I’m thankful that in 2008, there were other people that we knew in the community that trusted us with their rental properties and so we were able to grow that pretty quickly over the first couple of years, but so here’s what you need to consider. If you ask this question and a property manager says, “we manage 200 houses”. Well, that’s going to be a lot different than a manager that you interview and they say, “well, we manage a thousand houses or a thousand properties in town” and so what that’s going to do is give you an idea maybe of the level of service or the systems and processes that they have in place and so this is what I mean by that.

Spencer Sutton:
If you’re considering someone who’s managing just 200 properties in town, well, they’re what we would consider a boutique property manager, so there may be a level of service, like you may be able to have their cell phone and get them on the phone right exactly when you need them and we call these mom and pop property managers, which are great, and the country is full of mom and pop property managers or if you have somebody who’s managing a thousand rental properties, well, obviously they’re doing something right.

Spencer Sutton:
They’ve been able to kind of break through the barrier of the 200 to 400 properties. Now they’re managing a thousand, so that probably means they have more systems and processes in place and it also may mean that there’s going to be some added economies of scale that you’re going to be able to take advantage of with a larger property manager. They may have access to things that you may need down the road that a smaller, more boutique property manager may not have access to, so we’ve been both of these. We manage a lot of properties right now. We manage around 4,500 properties across all markets, so we definitely have systems and processes in place and there are some advantages we have with scale that maybe a smaller one doesn’t, but we’ve also been that smaller one with 200 and 300 and 400 properties and there were some advantages there as well, so that is the first question is just how many rental properties do you manage and you’ll get a good sense of that.

Spencer Sutton:
Question number two is how do you determine my rent amount? This is a question we get a lot because what the owner is really wanting to know, and sometimes they’ll even say, “do I get to determine my rental amount?” and what I like to talk to owners about at that point is I like to ask them, “is there a number that you have in mind?”

Spencer Sutton:
A lot of times, they’ve already thought about it and so they’ll throw out a number and that’s great, like, I don’t necessarily know and truthfully, when I’m being interviewed or when you’re asking this question, you need to know that the property manager is going to have probably a ballpark idea, but until they actually go in and see your property, it’s going to be very difficult to pinpoint that.

Spencer Sutton:
I’ve had this conversation so many different times. When I ask, “do you have something in mind?”, let’s just say they tell me, “well, yes, Spencer, I was thinking of renting my property for $1,900 a month” and I think, okay, based on what I know about the property, as far as bedrooms and bathrooms and things like that, and the area of town it’s in, let’s just say, I think that the property is going to rent for $1,700 a month.

Spencer Sutton:
They’re thinking $1,900, I’m thinking $1,700. I’m not going to give a lot of pushback on that at this point. What I would always tell owners is I don’t mind starting off at $1,900, if you believe that your property will rent for this, but ultimately, the market is going to tell us if this is the right number or not and then it’s also going to take us going out and looking at the property. They may have very nice finishes on the property.

Spencer Sutton:
They may have done some work to the property that we weren’t expecting and so that may command a higher price, so until we ultimately get inside that house, we’re not going to be able to say, “hey, definitely,” like I might come back and say, “oh man, this thing will rent for $1,900 all day or $1,800,” but ultimately what I want to say is, “hey, I’m fine at $1,900 a month and we can let the market determine if the price is right,” because what happens is if it’s overpriced, then we’re not going to get a lot of showings and that’s just the bottom line is we will not get a lot of showings and this is the market saying, “hey, I’ve looked at all the houses or I know all the houses in the area and yours is too expensive.”

Spencer Sutton:
Now, if we get a lot of showings, but we don’t get any applications filled out, then that more than likely is going to tell us that the price is right, but there’s something going on in the house, so there’s something that needs to be changed in the house. Maybe it’s a funky layout, something you can’t really do anything about. Maybe the finishes are old or out of date, or maybe they just don’t like the lot, or maybe you have a steep driveway, whatever the case is.

Spencer Sutton:
This is a really good question to ask is just how will you determine my rent amount, and so what we like to tell people is we want to do a rental analysis of the property, so we’re going to pull up comps in the area. We’re going to look at bedrooms and bathrooms. We’re going to look at things that have been on the market and rented recently. Then we’re also going to pull from our own experience in that area, so we probably have rental properties in the area where your home is. We’re going to look at all of those and say, “oh man, this is what we believe,” so this is a joint effort.

Spencer Sutton:
You’re going to probably have an idea of what you should rent it for and we’re going to have an idea and hopefully, we are going to be in line with this or very close. The goal is to rent it as quickly as possible. At the end of the day, if you’ve said $1,900, we say $1,700 and it sits on the market at $1,900 for 45 days or 60 days, then that’s a lot of money that we just lost. Just think about if we would have just lowered it to $1,800 or $1,750, and rented it quicker, it makes financial sense to do that, so you need to be very, very realistic and then I would say, act fast, listen to your property manager, but definitely a question you want to know, or you want to ask is how are you going to price my property?

Spencer Sutton:
Okay, third question is, “do you conduct property inspections?” This is very, very important and we’ve been all over the board, just from our personal experience. We’ve been all over the board with this before, like we have done quarterly inspections, we’ve done annual inspections, we’ve done semi-annual inspections. We have done at all, but what you really want to know “are they going to be out and go through my property?” Now, the first thing that I would say is that every property manager should be doing a… if your property is vacant or is about to be vacant, they should be doing this preliminary walkthrough, so that is an inspection. They should be walking through that property. Somebody who is trained to look at everything and what they want to know is, is the property rent ready? This is not a home inspector that is going to pick the property apart.

Spencer Sutton:
What they’re looking for is, is the property rent ready? Is it safe? Is it habitable? Are there any glaring recommendations that we need to have like, is a room painted hot pink? Maybe we would suggest you painted a neutral color. It may rent quicker, may rent for more money, but you do want to know initial property inspections, a must, if the property is vacant and then secondly, at least one inspection per year, like the property manager that you choose should be doing at least one, so what we found was when we were doing quarterly property inspections was, it was just too much, like I know the owners loved it because we changed the filters in the air conditioner. We checked batteries and smoke detectors. We took pictures throughout the house. We created a report.

Spencer Sutton:
We sent it to the owner and told the owner, “hey, this is exactly how the resident is taking care of your property.” They love that. Who didn’t love it, were the residents, because they felt like we were just in their property way too much, like they wanted privacy. Vast majority of the time, there’s nothing going on that we’re pointing out, but like nothing that the owner like should be alarmed about, so there’s got to be a balance there. I would say one to two times a year is enough and so right now, currently, as we are today, we are doing annual inspections. Now we may be in the property more than that and simply because a resident has a maintenance request, then we’re going to be out there at the property. We’re going to be walking through the property.

Spencer Sutton:
We’re going to be checking things out, so if there’s anything that we notice that needs to be taken care of, we’re going to contact the owner. You want to make sure that the property manager is at least going to do a property inspection, definitely initial, and then at least once a year and I would say, if they’re doing it four times a year, our experience based on doing this thousands and thousands of times, it gets to be a scheduling nightmare and the residents are not super happy about that and what you want to do is you want to keep your resident in the home. You want them happy, especially a good resident. If you have a good resident in the house, you don’t want to be bothering them all the time, like they don’t want to be hearing from the property manager, if you have a good resident. They want to be left alone and that is great.

Spencer Sutton:
If we leave someone alone, if we’re in their house once a year for five to six years, just doing an inspection, they’re paying rent on time, every time, that is a great scenario for you, the owner. Let’s move on to the fourth question, so what’s the fourth question you should ask a property manager before you hire them. The fourth question I would say is, “do you have any guarantees?” I think in today’s world, people want to be reassured. They want to have guarantees, like what are some of these guarantees?

Spencer Sutton:
Because what we have found is that when owners, especially first time rental house owners, whether you’re a new investor and you’re looking to build a huge portfolio or you’re a homeowner who maybe you’re what we call the accidental landlord, so maybe you’re moving out of town and you have to rent your home. You don’t want to sell it, so you’re going to rent it. It’s one house, one owner type thing. To me, everybody’s biggest fear is “what if I get a bad tenant that tears up my property and what happens if they don’t pay rent? What if you have to evict them?” Typically the worst case scenarios are swirling in people’s mind and so they’re asking questions. Well, I think this is a great question to ask a potential property manager that you’re going to hire is, “do you offer any guarantees?” Now, I’ve seen all kinds of guarantees. We’ve got a friend out in San Antonio and his company. He’s got…my goodness.

Spencer Sutton:
I think he’s got like seven or eight guarantees and they’re fine, but what are the guarantees? I know that we offer several guarantees and it’s just a way to give the owner a peace of mind in knowing that, “hey, if I turn my property over to these people, then they’re going to stand behind their services.” The first one that we have that we offer all new owners that come to us… Now, this is not something that is an ongoing guarantee that every owner gets every single time they rent their property, but it’s for all new owners that come on board is we have a 21 day lease guarantee and all that is is “hey, we’re going to rent your property within 21 days, or we’ll give you your first two months of management free,” so that’s for all new owners.

Spencer Sutton:
What that is communicating to the owner is, “hey, we believe in our leasing process,” and right now, as I’m recording this podcast, our leasing process is dialed in, like we are renting properties as fast as we ever have before, so that guarantee is one. Another one that we have is just called the happiness guarantee and we’ve had this one for forever and all that means is you can cancel at any time, like you are not locked into a contract. Even though you’re signing a management agreement, if you’re not happy for some reason, you can cancel. There’s no cancellation fee, no penalty calls, nothing like that. Ultimately, we want you to be happy and if you’re not happy, then we are not going to lock you into some agreement.

Spencer Sutton:
Another guarantee that we have is a tenant eviction guarantee and what that guarantee states is, “hey, if we have to evict your tenant within the first 12 months, we will replace that tenant and not charge you a leasing fee.” Just like I said, our leasing process is dialed in. It’s very fast, like we are renting properties quickly. We are also renting properties to great residents, like our leasing process and how dialed in it is and how careful we are with our screening process, our underwriting process, it’s the best it’s ever been and so we stand behind the residents that we put in these homes low to moderate income housing, all the way up to super nice properties, so it’s really saying, “hey, if for some reason, we have to evict the resident in the first 12 months, we’ll replace them without charging the leasing fee. Now think about this for a second.

Spencer Sutton:
Why is that guarantee important, because you could be saying, “well, of course, you want to put a great resident of the property and we do,” but you also have to understand that life circumstances happen. Just think about COVID in 2020, what happened? We still had this guarantee, and now there was an eviction moratorium on, so we couldn’t do that enough that we were trying to go out and evict people, but the whole point is life happens and some people get laid off from jobs. Some people have personal struggles and they’re not able to pay rent for some reason and sometimes residents have to be evicted.

Spencer Sutton:
That’s just part of the risk of owning rental property. We don’t like it. Nobody likes it. The resident doesn’t like it, owners don’t like it, but it is what it is and so that guarantee is just in there to help an owner feel more at peace, like we are standing behind the residents that we put in these properties and then the last guarantee we have is our maintenance guarantee and this is something that sets us apart from other property managers is that mostly everything is in house maintenance, so we’re not hiring a bunch of vendors out. We have our people. We found that we can control the quality of the work. It’s much better and we know that all of our people are licensed and insured and then the maintenance guarantee is just saying, we’re warrantying our work for 12 months, so if we fix a faucet and that faucet starts leaking eight months later again, that was what you called us out for, then we’re going to go and take care of that at our expense, like we’re not going to charge you for that.

Spencer Sutton:
We warranty that work, so this is a really good question to ask. “Do you have any guarantees,” and I would just suggest you probably want to go with a company that does have some guarantees, and then you want to know exactly what those are. And then last question we’re going to talk about today. Number five is “how does maintenance work?” How does maintenance work, and are there any markups? This is a great question because whether you want to believe it or not, your property is going to have maintenance issues. Now, if you have a brand new build, you’re going to have less maintenance than anybody else, but most of the houses and the properties that we manage are not brand new builds. Now, if your home has just been rehabbed, let’s say you bought a property and we rehabbed it for you, then yes, you should expect less maintenance issues, but for most property owners, there’s going to be maintenance issues at the property.

Spencer Sutton:
That’s just a part of owning a rental property and so the question you want to ask is just how does maintenance work? You need to know that, so I would say there’s a few things to be aware of at this point, but you want to ask, or you want to know about the reserve fund, so most property managers are going to require a reserve fund, like we need you to keep this amount of money in your account. It’s your money and we will only use it for repairs. Different property managers are going to be different. I know that ours has been anywhere from 250… currently it’s at 500. All this does is allow a property manager to take care of issues without calling you or without calling you for money and holding up the issue, because a resident is not going to be super happy if it takes you days and days and days to get that money to your property manager, so it allows a property manager to take care of issues without them paying for it.

Spencer Sutton:
They don’t want to go out and buy the materials and pay for the labor and really most of the time, most property managers don’t have in-house maintenance like we do and so they are paying a third-party vendor and so if you are interviewing a property manager that is using third party vendor, what you want to know is what are your markups? Do you have any markups on their service, and most of them do and that’s very typical, I would say, just because they’re going to manage that vendor, they’re going to make sure that the vendor gets the work done and handles everything, gets you in a kind of a report and it takes care of that for you.

Spencer Sutton:
As of this recording, we have a 10% markup for any third party maintenance. Again, vast majority of our work is all in-house and so it’s just based on an hourly rate that we charge plus materials, so that’s the way we do it and again, like I said, a reserve fund is $500, but other companies are going to be kind of all over the board, but you really want to know how are they going to handle that? Are they going to get you an estimate? Are they going to call you every single time something happens with the property?

Spencer Sutton:
Some owners want to be alerted every single time something goes on, like I mentioned that faucet earlier. “Hey, a faucet’s leaking, we have to go out there.” No, no, the owner wants to be communicated with. I’ll tell you my thought on that is, I think that’s just a little too much, like you need to let a property manager do their job, and you’re going to see what that looks like on your statement every single month, if they went out and fixed that faucet, but if you’re requiring a property manager to contact you every single time, then before you give an approval of a hundred dollar fix, then that is going to slow everything up.

Spencer Sutton:
The resident is not going to be extremely happy probably with the service and more than likely, you’re going to have a short term resident on your hand. I would just say, you want to know kind of what the threshold is, and unless you are actually doing the work yourself, if you live in town and you have a brother-in-law, who is the handyman, and you want them to do the work, then yeah. They’re going to pass all of those work orders on to you, but you do want to get very, very clear about that part of the business, how maintenance works, because that is going to be a part of you owning rental property for however long you own it, so that’s it.

Spencer Sutton:
Those are the five questions other than the pricing and fee question, which everybody has, and then just the specific area, specific house questions, and listen, these are good questions. There may be more that you have that you want to ask. I know we have had people call up and ask us… I want to say, like I’ve had people ask me 15 questions. I’ve had people send me a list, a document in an email with 20 to 30 questions and I can’t tell you how painful some of that is to answer.

Spencer Sutton:
Some of it is valid, but some of it is very, very situational, very, very niche, but these are good five questions that are a great starting point that you can ask when hiring a property manager, so I hope that helps and as always, guys and girls, we would love for you to leave us a review on Apple iTunes, give us a five star, if you find the information valuable and then leave a review, like give your opinion. We’d love to read it and then we’d love for other people to read it as well and we’ll be back next week with another episode. Talk to you then.