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How to Find a Good Property Management Company

Kathy Fettke

Kathy Fettke

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How to Find a Good Property Management Company – Video


Video Transcript

Leah: Questions that you should ask. How many clients does this company have? Do their clients own multiple properties? Some property managers are not used to working with large investors and all they work with are individual clients. If you’re a large investor, they’re not going to know how to treat you. They’re not going to know the differences between a mom and pop who owned their house and rented it out and an investor that has a portfolio of 20 homes. That’s an important question to ask.

How many listings do they have active at a time? This is important because it’s going to gauge how many tenants are coming to them to find property. If your property management company only manages 50 homes and has one listing up at a time, it’s going to be harder for them to release each property because they’re not going to have people just coming to them, probably.

What’s their vacancy rate? That’s an important question. What’s their eviction rate? What ways do they avoid eviction? This is probably the biggest one on this list because there are things that we do and things that other companies should do to minimize that risk of eviction.

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Number one is we have a system where tenants can go on in advance of their rent being due and let us know that they’re going to be late. They give us a reason why they’re going to be late, how much they can pay and when, and it makes them commit to a large portion of the rent upfront. My lease has large late fees. $75 initial, $15 a day thereafter. When they do that and we agree to those payment arrangements, we reduce their late fees.

Yes, you as the landlord are still going to make a big chunk of change with the late fees. By the way, we let you keep all those late fees but a lot of property management companies might try and keep them. A lot of the contracts split them 50-50 so that’s another important thing to ask your property manager. Who keeps the late fees? We’ll reduce those late fees for that tenant and it makes them want to stick to that payment arrangement. It keeps their balance lower as we move forward with them being behind and it allows us to avoid eviction court in a lot of cases.

Now, the other thing is, we do negotiated re-rents. What’s a negotiated re-rent? Tenant can’t afford the property. Tenant’s lost their job, boyfriend left, mother died, whatever the situation may be. Once we get information from them or they don’t pay, we contact them and say, “Here’s the deal. We’re going to put the property up for rent now. You are going to continue to pay while we show the property until the new tenant moves in. When the new tenant moves in, your responsibility to the rent ends, but you will forfeit one month’s rent out of your deposit towards a reletting expense.”

We do these all the time. We do many of them a month. All of these things that we work out allow us to avoid eviction court. It’s important that you ask your property manager, “What are you doing to not have to evict my tenants?” Not only is eviction costly and time-consuming– Now, Texas is not as difficult as California. This question’s probably even more important in some of those states that are going to be more difficult for eviction, but it also is a cost. Evicting a tenant can be hundreds of dollars. Typically, in Texas, the court cost is going to be between $100 and $200 just to file. Everything we can do to avoid that is a good situation.

The other thing is, if you treat the tenants right and let them leave on their own terms, then they’re a lot less likely to damage the house on the way out. It’s an important question to ask. The other thing you want to ask is, “How many tenants leave with the balance owed?” Are they collecting enough deposits to protect against higher risk tenants? Are they making sure that they’re taking care of the property during the term of the lease and checking on the property so that doing everything that they can do when that tenant vacates to make sure there’s not more money spent than what they have in escrow for the deposit. That’s a real important question.

About 40% of our tenants pay more than one month’s rent as deposit. That’s just something we have to do to protect our clients. On top of that, every lease we do, they take at least one month’s rent as deposit. I can’t tell you how much I take over properties, especially multi-family units, where there’s no deposit or it’s $100 or $200. A big red flag is when your property manager treats your multi-family like an apartment complex. If they are treating it like an apartment complex with free move-in and all these things, that’s a red flag. That is not the type of property manager you want taking care of your investment. It’s very different to do that on a 250-unit complex than it is on a 20-unit building.

The other question is, “Do they send tenants to collections?” Oddly enough, most property management companies do not send tenants to collections. They make you incur the cost of suing the tenant or make you take on the responsibility or it costs you to send the tenant to collections even if they don’t collect. In our case, we have a special agreement with a company who handles our collection accounts. They take 20% of what’s collected if and when it’s collected. We take care of sending the account to collections for you at no charge. That’s one of the things that you want to be asking your property manager as you move forward.

Kathy: Wonderful. We got a few questions here. We’ll go through it. Do you charge for the escrow account as bank fees?

Leah: No, we do not.

Kathy: Do other companies?

Leah: Many do, yes. They actually charge a monthly maintenance fee.

Kathy: Any suggestions for the smoothest transition from our company to yours, or from any company to another?

Leah: We actually take care of that when you switch to us. We will reach out to them for the information we need. We’ll contact the tenant, give them notice, let them know where to pay, make an introduction, schedule, the initial meeting. One of the things we do when we take over and account to is audit the records and the leases and typically we redo them all because typically they’re not to my standards. I’m going to talk a little bit on this next slide and those after about what my lease says, and what your lease should say but we can take care of that for you.

Now, a lot of people that switch, they’re unhappy with their current manager, what my recommendation would be is for you to call us, let us know the situation and we can guide you towards what path you need to take because part of this is delicate.
You don’t want to upset the property manager too much where they don’t help with the transition but on the same token, oftentimes, we have property managers who are absent and don’t help, and we still take care of it. Even if we have to go meet the tenant and do a whole new lease, we do what we have to do.

Kathy: Okay. Any examples of how that’s gone wrong, maybe not for you but for transitions you’ve seen?

Leah: Well, our transitions are usually pretty smooth, the only time we run into trouble is when we can’t get a hold of the current manager. I had one account that switched to me this past month, where the current manager was in the hospital and there were no leases, there were no applications, nobody knows where the deposits are and we took over the property, and we did the initial visits. One unit was completely full of mold, one unit had no sanitary sewer system functioning. Those are the types of things that will come up and if that happens, the one thing I’ll tell an owner to be prepared for is there will be a lot of repair request.

Once they see someone in there visiting the house taking care of things, they’re going to request to get the stuff fix, that’s broken. I wouldn’t really call it going wrong, because it should have been done all along. The one thing I will say is, I am a very blunt person, I’m very upfront about my business and if I see a situation where you have a manager who has really done you wrong, I’m going to tell you. I’m going to refer you to an attorney or to the licensing entity because these types of managers give me a bad name. They give all of us a bad name and no, not every tenant loves me.

I have tenants that, they try and say negative things about me because I kept their deposit or I walked their house and wouldn’t let them reschedule, that’s part of life. Having a property management company and having the tenants that you enforce their lease to being upset, that’s normal, but having tenants that are living without sewer systems, having tenants that are living without air conditioning in the heat of summer, it’s just deplorable. Those are the types of things that when we take over accounts we run into.

I mentioned the vandalism, often we take over a property I have one a few weeks ago, we took over what to go do a re-key and the house was condemned by the city. It has been vandalized months before the old manager has been telling them, they were marketing it. The old manager had charged the owner for a make ready and the house was destroyed. Now this particular owner owned this house and South Dallas, we got the house to bare minimum standards and got it sold and it’s closing actually this coming week. Those are the types of things that we do when we take over an account.

It’s very, very different case by case and I’d be happy to discuss with anyone their particular situation to help guide you.

Kathy: Wonderful, just out of curiosity, and that particular cases is there’s something that that client could have done differently so that things didn’t get so bad?

Leah: Well, in this particular case, the house that the owner had thought it was vacant for, I think, four months, something like that, and they requested the make ready. They sent the money for the make ready and the property manager sent half the make ready money back. That to me is a red flag, that’s red flag number one. When that happened, I would have started asking questions. We give updates to our owners when the property being marketed, how it’s showing those types of things. The owner can go online and see the listing.

In this case, the property wasn’t even listed, there were no photos up. Due diligence, everything goes back to due diligence. Even if you have a property manager that you trust, even if you work with me, due diligence. That’s because anything can happen at any moment in your life and people that you trust can let you down. We all know that on a personal level and a professional level due diligence is the biggest thing I can say. Double check what you’re being told, make sure that your interests are at heart. Make sure that you know what’s going on.

That’s the biggest problem is people sometimes don’t even realize the house is vacant until four or five months later, they check their bank account, they realized I haven’t gotten a deposit. For me, I couldn’t imagine that happening. I check my bank account all the time, it doesn’t matter whether it’s high or low, but some people just don’t do that, especially those who get busy with work or traveling or whatever it may be. The first thing you want to do is look at your statement every single month and check your deposit every single month. That is going to probably find 90% of the issues.

Kathy: Yes and just put a little ding on your calendar that every month you do this stuff.

Leah: Right, exactly. Moving on, let’s now talk about-

Kathy: One more question, someone said they’re having a bad experience in Nevada. We don’t have– We haven’t been, we don’t have property teams in Nevada. Do you have any suggestions on how they can find a better property manager in that state?

Leah: The Better Business Bureau. Better Business Bureau is a great place to look.
It’s a place that allows you to see which ones are actually accredited and what the rating, and how long they’ve been in. business. The Better Business Bureau also looks at their license information in most cases. That to me would be the number one place to start.

Kathy: Okay, someone said, if they’re not able to invest for about six months, would it be worth going on the tour?

Leah: I probably would say, don’t come on the tour until you’re ready to invest. Our areas are changing, what we offer is changing, we always stay at the height of the market and the height of looking at all the different ways we can make people money. I would say don’t tour until you’re ready to buy. Number one, it’s going to be depressing, because what we have to offer is this is a really good batch.

Number two, I think that it doesn’t help you to not know what you can do now and be able to buy what you see. I would say when you’re close and you’re able to have a pre-qual that’s when it’s time for you to come look.

Kathy: Yes, because the problem is, prices might be higher, cash flows lower. I mean, we know that markets are changing and just be depressed. Go when you’re ready.

Leah: Exactly. A lot of companies actually don’t lease. I know that sounds interesting. Then again, if they’re not realtors, they’re not going to have MLS. It’s important that you ask, especially if you have multi-family or commercial property do they lease because that is something that you don’t want to have to go hire another company to do.

You also want to ask and see do they analyze the market and see top dollar rent and rent increases. For instance, each year, when the property comes up for renewal, we’re going to look at the market. We’re going to raise the rent as much as we can. Then on top of that, if the markets good to sell, we’re going to let you know. It’s an important thing to make sure that your property manager’s being proactive and that they’re keeping the investment at heart. What I mean by that is an investment is more than just renting every month.

An investment is looking at when is it time to sell? Capitalize on that equity and buy new. That’s one of the things that we do. It’s important that you talk to your property manager about that. Not all property managers are full-service real estate firms like us. Just know going in if they are if they aren’t, because if they’re not keeping an eye out at your market value when it’s time to sell, then you need to make sure that you have someone doing that for you.

It’s also as I mentioned, important to make sure they have MLS access
and to make sure that they’re using it. Just because someone is a realtor and they have MLS access does not mean they’re going to list your properties there. When you list on the MLS, you have to offer a commission to another agent. If you’re not using that avenue, you’re missing out on a lot of tenants, but it’s a little bit more expensive and so some agents may not use that. You need to not only asked if they’re a realtor but do you list your homes for rent on the MLS?

Next, you need to ask what their leasing fee is. Our leasing fee, for instance, is 75% of one month’s rent only for new tendencies. We don’t charge for renewals or rent increases or any of that with existing tenants. Of that 75%, we pay back out 35%. It’s important that you’re asking companies what they charge.

Typically what I see most companies that I see count switching to us from charged one full month’s rent for the leasing phase. It’s important you ask those questions and find out are they offering a cooperating commission to the leasing agent, to the one who brings the tenants. If you know they’re doing that, you know that they’re using the MLS or marketing to the widest audience possible.

You also need to make sure that they have their own agents to show and lease home. For instance, we have between 70 and 120 listings active at a time. I have a leasing team of six people full time. That’s one of the things that we do. We have people that come to us directly. We work with temporary housing agencies, we work with insurance companies, all sorts of things.

You want to make sure your agent is high enough volume to do that and to think outside the box. Those who think outside the box are always going to be more successful because they’re going to have the most possible ways and potential to make you money and to minimize your loss. That’s not to say that homes don’t sit sometimes, we have properties and undesirable areas that people bring to me from another company and sometimes they’re very hard to rent.
That’s just nature of where you buy. One of the things when clients work with us is we talk to them about where they want to buy and where we want you to buy because we don’t want you in that situation. It’s important that you talk to your realtor about that and ask them or do you manage in this area? What’s your success in this area? What’s your recommendation? Should I hold this home? Should I sell this home?

If they quote you a really low leasing fee, that’s often a red flag that they’re not going to use the MLS because if they don’t use it, they’re not going to need a higher fee. A lot of things just to keep in mind as you’re talking to your agent when you hire them as a property manager about what they do and what their costs are. As I mentioned, we don’t charge for renewals, that’s a big piece you want to talk to your agent about because a lot of companies will charge that thing commission for renewal or maybe half of it. Every time you renew that lease, they’re going to have to pay it over and over again. That’s an important thing to ask as well.

This next slide is going to give you an example of some of the places that we market our properties. We actually mark it on something called the IDX as well, which means that post all the other real estate agents, sites, all the big housing sites, thousands and thousands of websites.

This is an addition to all the people who come to us directly looking for property because of our volume and the people who refer to us. It’s important to talk to your agent, where are you marketing? What do you do? Obviously, 99% of rentals are going to rent from being listed online. The other thing to ask is if you have a property in a high-risk area do you put a sign in the yard? That’s an interesting question because there are a lot of areas where you do not want the sign in your yard. If you have a property in the slums, you do not want a sign in your yard. That is going to increase your risk of vandalism. That’s going to increase your risk of people knowing the home is vacant. We, if we list a property in those areas, we don’t put a sign in the yard unless the owner demands it. It’s just, again, thinking outside the box of things you can do to minimize risk.

Next, let’s talk about the application itself. When someone runs an application your tenant, there’s a lot of things they need to be looking for. I can’t tell you how many accounts I take over where the agent did not even run the applicant. They maybe called a landlord, but they didn’t run their credit, or God forbid, they ran their credit, they certainly didn’t run their criminal. They didn’t look for liens against them. Just because maybe they didn’t owe their landlord money doesn’t mean they didn’t move out and trash the house and get a lien put against them for the damages. You need to make sure they’re looking at all these things.

Now, our system is unique in that when a tenant fills out an application online, it’s actually going to send them an email and they have to answer fraud protection questions from their credit profile. Before we can run them, they have to successfully answer those questions. It’s a pretty important thing because fraud is, unfortunately, very prevalent right now. I had an application we ran today have a fraud flag come back.

It’s just important you talk to your agent about, “How are they screening your applicants? Are you looking for eviction history? Are you talking to the old landlord? Are you doing anything to confirm they are who they say they are? Are you getting a social security card and a driver’s license? Are you making sure they make enough money?” My recommendation is as long as they have normal debts, not over-the-top debts, that if the rental property is less than $2,000 a month, you should make sure they make at least three times that. If it’s over $2,000 a month for the rental property, typically, two and a half times is enough, but everything is case by case.

You definitely don’t want to rent to aggressive breed dogs, or if you decide you want to consider that, you must talk to your insurance company. I tell people this all the time. I do animal rescue. I have 10 foster dogs in my house right now because one of the foster moms popped out 9 puppies. I am definitely pro-pet, but I am not pro-aggressive breed pet. The reason being is, at any point in time, your insurance company can change to say they won’t cover an aggressive breed dog but you’re locked in that lease. If that change happens and you can’t find the insurance that you need, you’re going to be in a really hard situation and it’s a very risky situation.

You need to make sure that the tenant knows, and your property management company should take care of this, no above-ground pools, no trampolines. Your lease should say that and I’m going to talk more about what else the lease needs to say, but everything that your agent does should be to minimize your risks. Everything that you do when you ask your agent should be to minimize your risk because the lower your risk, the better your chances for success.

This all should be at no cost. The tenant who applies should be paying an application fee to cover this process. They should not be charging you to run this application. I’ve seen companies who do. They charge for the time to run it. Again, that’s part of the leasing process. It is my recommendation that you discuss this with them and thoroughly check that contract to make sure they’re not going to charge you for running a tenant’s application.

Kathy: Do you want questions now or at the end?

Leah: We can go ahead and hit them now.

Kathy: Do late payments go on tenant’s credit reports?

Leah: We send everything to collections. At the end of their tenancy, if they owe money, it goes on collections, but we do not submit throughout the term because, number one, collection companies won’t take that and, number two, it’s just not going to behoove us because we would have to constantly be updating it. If it was ever not updated or the collection company missed an update, then we could be liable. No, but if they owe a balance and they don’t pay it, then at that point, that’s when we’re going to report them.

Kathy: Do you manage properties in San Antonio? The answer, I’m guessing, is no. Dallas only.

Leah: DFW only, yes. As I mentioned, we’re family-run and operated. We do have a large team, but my husband and I own the company. We would not be able to offer the level of service and the pricing that we do if we were not working out of our own backyard.

Kathy: Again, the way that you would look for that is through Better Business Bureau or, of course, through our network. We have 16,000 investors and, oftentimes, we’ll just go out and survey our members and ask who they are really having a good experience with in different markets. Happy to do that for you.

The manager said that he had people who can repair things at a reasonable cost. After I signed on, it turned out he does not. What to watch out when I want to go to another management company? How do you know that you have people who– How do you know the property management company has good repair people that are not going to inflate the prices?

Leah: If we can, let’s table that because I’m going to talk about that in a couple of slides.

Kathy: Perfect. Next, then–

Leah: Is there another question?

Kathy: Yes. There’s a bunch more, but we’ll wait. Next page or stay here?

Leah: Let’s keep going. Let’s talk about beliefs. Nothing frustrates me more than when I take over a property and there is some form that they bought at Office Depot. That’s a three-page lease, and it’s completely incorrect. The first thing I want to tell you is the lease should be long. When I say long, I mean 10 plus pages. It should also be promulgated. Every state that I have spoken to clients in offers a promulgated form.

Whatever state you buy properties in, you should ask, “Is there a promulgated form?’ Now, for those of you who don’t know what that means, promulgate is fancy for fill in the blank. All of the Association of Realtors have promulgated forms, and that is looked at by attorneys, and licensees and everyone in the community. The Realtor Association forms are very, very much designed. It’s everybody’s favor.

Now in Texas, they’re very, very much in the landlord’s favor, as is pretty much everything else. It’s very important that you are not using a lease that somebody bought at a store or a lease somebody drafted themselves without reviewing it first. We are happy to provide a copy of the lease that we use to anybody who asks, and the promulgated form we use is available on the Association of Realtors website. Very, very important piece. The last thing you want is to have a lease that is executed that is one-sided.

That being said, the lease should state the items prevalent in the area. Texas, prevalent in this area of water in your yard, pest control. Two very simple things that need to be in that lease. Changing the AC filters. We make that every single month required in our lease so that we do the three months check. If it’s not done, we do it and build them. Three very simple things to protect your home.

Making sure the tenant has a responsibility to submit repairs so that if the tenant is neglecting the house because there’s a water leak they don’t report, they become liable. Very, very important. You need to make sure there’s a re-renting period. As I talked about earlier, there’s that re-renting period of the lease. We do two months that means anytime they give notice we have two months market the property while they’re still living there and show the property with the lockbox. That’s what allows us to keep our vacancy rates so low. You also want to make sure that lease says the tenants understands that they’re responsible for their belongings and they need to have renters insurance.

Whether or not they buy it, we don’t care. What we care is it they signed, they understand that they are responsible. If you have a house with a pool, that tenant must carry liability insurance. Our lease requires that. You need to make sure your managers does too.

I talked about the fact that you need to make sure you have at least one month’s rent a security deposit. Higher risk tenants that you accept should have more. Another important factor, do not remove the property from the market until you have the deposit in your hand by certified funds. When they move in, have them pay the full first month’s rent under the lease. Do not let them pay prorated. Typically, we see tenants default months too. If you let them move in with half a month’s rent because they move in on the 15th, then the next month you are out money. Very, very important you collect that full first month’s rent up front. Yes, it makes them come up with more money at lease signing, but if they can’t come up with it or not tenants want.
Kathy: Absolutely. Right.

Leah: As I mentioned, the lease should be the Association of Realtors promulgated lease one available, or you can always talk to your attorney or your property manager and see what type of form they recommend. Very important, if you have properties in Texas that you use the Association of Realtor lease even on multifamily. Let me tell you why. Pest Control responsibility, air filter responsibility, repair responsibility. So much of that is in the TAR form that is not in the Texas Apartment Association form. Very, very important. The other thing that’s not in the Texas Apartment Association form a relenting period.

If your multifamily manager is using that form, you very well may not be able to show that property until that tenant vacates. That means you are potentially missing out on two months of being able to market the property. That means you’re less likely to get top dollar because you don’t have enough time, you’re more likely to have a vacancy period, and you may not be able to control the time at which the property is marketed.

If we have a property that’s coming available in September even though it’s outside of prime season. Yes, we do to our leases back to prime season when we take over the property anytime we can, try and have the leases end between March or April and the end of August. By listing it two months early, you are still in prime season, you are more likely to get at least very, very important piece.

If your property has a washer, dryer, or fridge, make sure it’s not warrantied. Those are expensive to fix. You don’t want to be responsible for that. Some states that may be more standard than it is here. It is not standard in Dallas or Texas in general to provide a fridge washer or dryer. Don’t provide one if it’s there. Either sell it or include it as a benefit. Maybe get you a little more money but don’t warranty it.

You also need to make sure that lease says the tenant’s responsible for items caused by their negligence or their abuse. Very, very important. If your tenants’ child flushes GI Joe down the toilet, they need to pay for it. That’s something that you want to make sure the lease says that they don’t get to fix it themselves but that we get to fix it and they pay for it. You want them getting John Doe out there to come fix it if doesn’t have a license or somebody that’s going to burst up the things in the house. It’s important that we get to control or the property manager gets to control who does these repairs.

Talking about repairs, let’s go back to that question. It’s important that you know the repair process of the company that you’re hiring. We have a policy that we do not take repairs over the phone unless the tenant cannot get access to an online account or unless it’s an emergency. We do that for a few reasons, number one approved timelines, number two it puts the burden back on them and number three it creates a clear record of everything that’s transpired.

You also need to as if they are available 24/7 for emergencies. I cannot tell you how many properties I manage in HOA communities where the HOA has responsibilities for plumbing and things inside the home where the HOA manager does not have emergency answering. Or if they do it goes to a pager or a cell phone nobody calls back. You need to make sure your property manager has overnight staff. A five or 10-hour difference from when water gets onto a floor can make the difference between saving pockets, saving baseboards, saving walls and having to rip out everything because of mold. Just a two or three-hour difference can make the difference from a $1000 repair bill and a $10,000 repair bill.

It can single-handedly make the difference between being able to cover it for half a year insurance deductible or having a claim against you and dealing with adjusters, very, very important. You also need to ask if you’re property manager works for home warranties, that we recommend them in my other webinar I always talked a lot about that so I’m not going to go too much into detail on that now, but I will tell you that a lot of property managers refuse to work with them. They are more difficult, it’s more time consuming, you need to make sure if you want a home warranty that the manager you hire will work with it. You also need to make sure that they have contractors available for after hours or even during business hours and they are not going to charge you an arm and a leg.

Somethings are just expensive if you have a slab leak, you have to use a licensed plumber who is insured. You’ve got to make sure they do a good job. It’s not going to be cheap no matter who you use, but if you’ve got a clogged toilet and they send you another $300 an hour licensed plumber, there’s a problem.

You want to make sure that they have staff available. The biggest question that you need to ask and I’m a huge, huge advocate of not using management companies that do this, do the contractors work for them? Are they paid by them? Does the property manager profit from the repairs that are made at your property? Many property management companies have their own repair divisions, although they may not quote up charge repairs they are making an hourly rate from you for the repairs that their hourly person is doing and they are pocketing the money. It’s a profit house for them.

Many property management companies have their own repair companies that does everything. To me that’s a red flag, to me that’s risky. It’s very, very important that you ask that question and you make a decision on how you feel on that matter. Some companies I’ve seen that have switched to us, I see their contracts and I see that not only do they have contractors at work for them that they profit from, they also up charge the repairs. Read that contract very carefully before you sign. The last thing about this I want to make sure people know is that in Texas when you have a contractor that you pay for work, you have to 1099 them. It’s a responsibility that you have to send them a 1099 with how much you paid them. Does your property manager do that for you? We do, make sure the company you hire does to.

Kathy Fettke
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