When you are interviewing a property manager ask to see a copy of their service contract. This is a good indicator of how any given scenario may play out once they are your manager for your property. A typical property manager contract is just like a tenant-at-will rental agreement you hold with your tenant-at-will resident. You want to be able to end the contract mutually either way in 30 days. If you are not happy with them and the service you receive, or visa-versa, this is a pretty good rule of thumb for a contract to end with a property manager. Look out for a contract that is one-year in term length. You could get stuck with the wrong person for a very long time that could devastate your rental community, destroy your cash flow, and leave your property in ruins very quickly.
Take a good look at the whole contract too. Who is responsible for what? Again, just like that rental agreement with your resident, it should clearly define who is responsible for what under the contractually agreement. You want to know the lease up fees, renewals fees and if there is any types of guarantees on the services being provided. For example, what types of contractors and vendors will be called upon to work on your property?
Will it be a handyman to do minor repairs or will they hire a licensed insured contractor with workers comp and disability insurance. You need to know your exposure to risk from which contractor your property manager allows onto the property to make repairs. What would happen in the event of an insurance claim for fire if the property manager allowed a handyman to do electrical work that required a permit to be pulled? Chances are the insurance company would not pay the claim. That $50 or $100 dollars you may have saved on the repair could cost you hundreds of thousands of dollars in lost property, penalties and fines, and regrettably even a wrongful death lawsuit, with no insurance to cover the damages.
How are maintenance and repair issues handled? Who is responsible for paying the contractors for labor and materials? Are the bills and invoices being submitted directly to you from the contractor, or is the property manager adding a markup cost to the work performed? You want to make sure you are getting several bids on a larger project and having a candid debate about the pros and cons with your property manager. Ultimately, the decision is yours to make.
What happens in case of an emergency? Who gets called and how is the situation to be handled as far as managing the residents and service contractors. Fire, flood, blood, no heat, or hot water which are the major concerns at the rental property and where you may see your greatest risk exposure. You want to have a plan in advance and talk about how these types of events are to be handled.
What type of insurance binder is required? Some property managers require a “no harms hold” for events like a slip and fall at the property and will request you to add them to your insurance as additionally insured. This is not uncommon and is typical in the industry. Does the property manager cover his or her own staff for workers comp and disability? What does the manager charge for maintenance fees and how are they billed, tracked and reported? Granted, things break from time to time and need to be repaired but the repairs should not break the bank.
What is included in the monthly management fees, and what is not? A typical lease up fee is one month’s rent. Be careful here. There is a loophole for the property manager to turn your rental property into a revolving door of unqualified residents. The property manager can collect the lease up fee over and over again during the year by not properly screening the residents. This is a disaster for the finances of your rental business and can quickly cause a downward spiral at the property with an exodus of good residents leaving your property. Does your property manager offer you any type of assurance or guarantee if the tenant does not pan out?
The industry standard for typical property management fee is 10%. Also be on the watch for clauses about the sale of the property. Some property managers hold their REALTOR license and have a clause in their service agreement that you must use them as the selling agent should you decide to sell the property while under contract. You should have a crystal clear picture of the roles and responsibilities of each party with a concise and well-written service contract agreement.
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Warmest regards,
Brian Lucier
Belaire Property Management
Regional Property Manager
(978) 448-0669
info@belaire.co
www.belaire.co
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