OR MINNEAPOLIS PROPERTY MANAGEMENT COMPANY
TOP 10 QUESTIONS YOU SHOULD ASK A PROPERTY MANAGER OR MINNEAPOLIS PROPERTY MANAGEMENT COMPANY.
- What are your credentials?
The truth is anyone can call themselves a property manager or a Minneapolis property management company. You should make sure your property manager or company have either a real estate license, a real estate brokers license or another certification such as a CPM, RPM or one of other various industry designations. You’ll want to ensure they hold some sort of real estate designation or license at minimum. This is because there is an industry organization board that is there to hold the property manager accountable. You want your property manager or company held to a higher standard of professionalism.
Ideally you want your Minneapolis property management company to have a fiduciary obligation to you. This means the property manager is legally and ethically obligated to act in your best interest at all times. Secondary education is not required to be a property manager, but you might want to look and see if your manager or management company has any post-secondary education. This is because in the state of Minnesota realtors nor brokers are even required to have a high school degree. Even a brokerage license only requires the applicant be at least 18 years of age, have 3 years of licensed realtor experience and pass a proctored test, that’s it.
You might want to make sure the manager or management company has some sort of college degree also, if not also an advanced degree. This is because the overall knowledge and awareness of a property manager or management company is likely to be deeper and broader the more familiar, they are with concepts such as finance, investment concepts and strategies, the economy and economic cycles, resource procurement, budget forecasting techniques, project and product management, marketing, customer service, etc. These are all very important fundamental business concepts that are not taught in most real estate licensing or designation schools or courses.
2. Who is actively engaged in the process of managing my property?
Often times real estate investors meet with a property manager or a Minneapolis property management company, they feel good about their credentials and ability to manage their investment property but don’t understand that person will not be the one actively engaged in the daily management process of their property. Is the qualified representative that you’re meeting with the one who will be answering the phone themselves when there is a problem or decision to be made? Or are they handing these duties off to an “office manager” or another “property manager” or an “assistant”.
Who exactly are the residents of the building contacting when they have a question or request or emergency? Who is the person that is responding to emails and marketing your property? Who is handling documentation? Who is handling communication or requirements for the local municipality? How easy is it to get in touch with the person you’re meeting with initially? Who is the person showing my property to prospective tenants?
Make sure the Minneapolis property management company you’re hiring is actively engaged and responsible for all of these areas regarding the daily operation and management of your investment property. Make sure they are easy to get ahold of and responsive to your communication needs.
3. What is your vacancy rate currently?
Often times property managers or Minneapolis property management companies may attempt to swoon would be clients by boasting about the number of properties they currently manage. This is often a smoke and mirror tactic employed to hide the real key performance indicator that matters most… What is the vacancy to occupancy ratio or vacancy percentage? This number is found by taking the number of units multiplied by 100 divided by the total number of units. Therefore, if a 50-unit building has 10 apartments open this would be a 20% vacancy rate.
Simply managing a lot of units says nothing about the manager or management companies’ ability to effectively manage those units or effectively maximize revenue the building is capable of producing. Obviously, the fewer units an investor has, the greater of importance this KPI becomes because every vacant unit cuts further into profit and cash flow potential. Every real estate investor knows the importance of cash flow. Also, it’s easy for a company to lie or falsify information regarding the number of units they actually manage making this number even less dependable. The closer to zero the vacancy rate, the better.
4. Was the management company established with the purpose of taking care of their own personal real estate investments or other people’s real estate investments?
Here’s a secret regarding many property management companies… they were never set up to manage other people’s real estate investments, only their own. Often times real estate investors invest in their own real estate, then establish their own property management companies around them because they are actively involved with their own investments and figure they can save the money associated with third party management companies by managing their properties themselves. They would be right, that makes management a good idea for them, but not necessarily for you. Plus it allows the investor who starts the management company to realize tax write offs they would not be able to otherwise.
Establishing a Minneapolis property management company with this purpose is very different than establishing a property management company to actively and effectively manage other people’s investments. This is because management companies set up initially to just manage their investments are far more likely to remain actively engaged in the management of their investments while not showing the same level of care and attentiveness to someone else’s real estate investments.
This may not be the case if the manager or management company has far fewer of their properties under management compared to other investors properties. If anything, a conflict of interest may be created the more of their buildings they manage because they may select the best residents for themselves while pawning off less qualified residents into your investment property. They may be more responsive to dealing with needs at their property than yours.
A company setup to specifically handle other investors real estate portfolios means they were established with a clear purpose of brining value to someone else other than themselves. You want someone who brings value to you first, not themselves.
5. How is rent collection conducted and enforced?
This is an important question to ask because the answer is going to be different with a lot of property managers and management companies. How they collect rent could affect when you receive your rent money. You will want to know how payments are collected and how this money makes it into your bank account. Smart companies will remain as flexible as possible and tailor the collection process to their client’s needs. You will want to make sure you’re not being subject to transaction charges for electronic payments.
You’ll want to make sure when exactly you are expecting to receive your money if your rents are going through an escrow account. Sometimes companies that filter your money through an escrow account first may not even disperse your money until the 10th or 15th of the month. Most investors know they have bills to pay earlier in the month and this could create a problem.
You’ll want to know when does the property manager or company do things like review the rent roll with you, how often can you expect updates, what times during the month do they hand out late notices, or when do they escalate to other notices in the event late notices go unanswered and deadlines are missed? What should you expect in case of an eviction and how would that work? These are all important aspects of rent collection and enforcement you should know.
6. What is the management fee structure?
Have you ever noticed how few property managers or property management companies tell you what they are actually charging for their services? They employ a “help you now, ask questions later” approach that generally doesn’t translate well into transparency.
Many managers believe they would be best off by negotiating with each client individually so that way they can get a maximum amount of fees/ commissions depending on their feel and the negotiation ability or inability of the client. Just like in a real estate sale or purchase scenario, commissions and fees are negotiable. In our eyes a client should not have to become an expert negotiator to find someone to take care of their investments for a clear, understandable price.
While providing solutions is of the utmost importance, so is honesty and transparency, at least to any company who operates in a highly ethical manner. Charging one client one fee and charging another client another fee for the same or very similar service is unethical in our eyes. If it takes someone longer than 30 seconds to explain their fees or fee structure or you feel like you’re having to draw straws to get pricing figured out, you should be on high alert.
If a fee structure seems complicated or needs any advanced explanation, it’s probably because they are hiding something, otherwise it wouldn’t be so complicated. This would especially be the case if you feel any pressure at all to sign a long-term contract.
Many managers or property management companies entice would be clients with affordable looking up front rates but then hide a myriad of other fees they impose against not only the investor, but also the building residents. Does it really bode well for the reputation of your business to nickel and dime your residents with administrational charges that you think would be included in the management of your building? Does it help your bottom line to have someone managing your investment that is more concerned with finding ways to bill you for extra fees instead of create value for you and look for ways to save you money instead of spending it?
Most property managers and property management companies tend to charge anywhere from 5% to 12% of the monthly rent collected. You’d obviously like to be on the lower end of that range with someone who is highly qualified and directly responsible for the management of your property.
Other questions regarding fees would be, what is the fee per unit? Are there “onboarding” fees or “account setup” fees? What is the fee for renting a unit? Would these fees be waived within a certain amount of time if that resident needed to be replaced? Are there any lease signing fees or lease renewal fees? Are there any administration fees that the management company charges to the residents or myself? Are there any fees if you decided to move on and no longer want their services? Are you still having to pay management fees on a vacant unit or when a current resident doesn’t pay their rent? How are repairs handled and what should you expect regarding costs of repairs or maintenance? Pay should match performance.
You shouldn’t be getting hit with extra fees or paying fees on vacant apartments or paying when a resident has stopped paying rent. There shouldn’t be large contract cancellation fees or administrative fees for doing things that are a regular part of managing your or anyone else’s real estate investments.
7. How are you determining rental pricing and strategy?
You will want to ensure your manager or property management company is highly familiar with the local market and not only know what going rents are but also what ideas they have to possibly increase your rents, or decrease your vacancy rate, or perhaps increase your resident retention levels. You need someone who is going to get the rental price right from the start. You want things aggressively priced without being overly aggressive.
The property manager or company should be able to refer to other things they currently have for rent in the area. This is also why you want to ask about the percentage of their units vacant as this can give you a glimpse into how effective they may or may not be at marketing and renting out the other units they manage.
You’ll notice many Minneapolis St. Paul property management companies have a seemingly never-ending stream of apartment availabilities year-round, why is this? If you take the would-be manager into, say a vacant apartment you have, and they are not giving your feedback on the things you know could be fixed or improved, be careful. You’ll need someone with an eye for detail who can put themselves in the shoes of a would-be renter.
You’ll want someone who can find the main things to fix or improve that will create value and offer a good return on investment while not being so detailed they’re wasting your money on small things that a would-be renter could care less about. There has to be a balance. Once you have a good renter in a unit what can be done to keep them there? Are they going to be overly aggressive and raise the rents too high once the lease is up and push good people out of the door just so they can make a commission on re-renting the unit to someone else?
Or are they totally on the other end of the spectrum and content with never raising the rents in order to retain residents at the cost of you forgoing future higher rental prices because it makes their job easier? Find out their methodology regarding pricing and increases up front to avoid problems later down the road.
8. Will you ever rent an apartment to someone sight unseen?
This is a practice that is becoming more acceptable within the real estate industry, especially after the introduction of Covid-19 pandemic/ endemic. We would highly recommend investors not fall into the trap of what we call the “appearance of ease” and working with manager or management companies who will allow someone to sign a lease without seeing what they are renting it in person.
Most Minneapolis St. Paul property management companies do not enjoy the showing process. This is why often times they farm out the work to leasing agents who are paid a low hourly wage. Do you really want someone who’s only getting paid minimum wage or slightly higher to be the person who is representing your property to prospective renters? This is why question #2 is highly important. This is an unnecessary risk that occurs far too often.
A video tour is not the same as seeing something in person. While it may make for a good marketing tactic to get attention upfront to your property, it is not an end all be all solution by any means. Even with a 3-D tour, you simply are not having the same experience as seeing it yourself. This approach does seem to work better with a sale where you are selling something to someone and once a purchase agreement is completed and the purchase is complete, you (hopefully) never have to deal with that buyer on that transaction again. The rental process is different. Once you sign a lease you have to continue to deal with that resident for the term of the lease or beyond.
You want people to see an apartment they are renting in person so you can be fully confident they are happy with the unit and want to sign the lease agreement. You don’t want them to have the excuse that they felt lied to or manipulated into doing something or felt under duress to do something. This eliminates the excuse of how they didn’t see something or they didn’t realize something or this or that looks different than it did in the virtual tour. Now you are suddenly engaged in a tricky situation where you have someone who is looking for ways to back out of a deal, or even worse, painting you in a bad light by claiming you misrepresented something.
Meeting with the prospective resident in person is also beneficial for the manager themselves because they need to make sure they feel comfortable with the resident also since they will be the ones dealing with them on a daily basis. The best way to ensure a good fit for all parties is to have the resident look at the place in person to eliminate sources of confusion and ensure the residency is starting off on the right foot.
9. Will you allow residents to sub-lease?
As with virtual tours, it is easy to assume sub-leasing would be a suitable practice when someone wants to cut out of a lease early because again, the process would appear to be the easiest option. This appears to be the case especially when dealing with apartments more than one bedroom in size. The thought would be, this should work out great because now I won’t have to pay the manager or management company another fee to find a new renter.
Unfortunately, the easiest option is normally not the best option. With a sub-lease you are now relying on the resident to find you a good renter instead of a qualified professional. Renters are thinking about how they can quickly get their foot out of the door and escape the monetary requirements associated with the contract they signed, not with procuring the best resident for the property owner. This is not to say that a resident is not capable of finding another good resident. Some residents are capable of doing this well, but most are not. Most are employing a strategy of sending you whoever comes along first and the first option may not always be the best option.
Minneapolis St. Paul property management companies who make sub-leasing a regular part of their business model are often times not placing the interest of the client first and doing what is best for the client. They often are doing what is best or what is easiest for them. After all, now they don’t have to come out to show the property again or they don’t have to pay the leasing associate as they normally would to come out and show the property.
Make sure the lease being used has specific language regarding sub-leasing and that it is either specifically not allowed or only allowed when the property owner, not the manager, provides an exception to the agreement in writing that they are willing to allow a sub-lease to occur.
10. How often do you provide updates and how are they documented?
Often times property manager or management companies’ idea of updating you is simply sending you a print out of your escrow account activity. They literally print off the transactions for the month and call it a day. This does not provide any insight as to what has occurred at your property.
You want a Minneapolis property management company that not only makes you aware of the transactions that occurred within a given amount of time, but also why those transactions occurred. Why was a plumber called and you now have a bill for thousands of dollars? Why was a new landscaping company called and now you have a bill for hundreds of dollars extra when maybe you weren’t willing to pay that much for certain services? Why are they using a commercial cleaning company that charges more than say someone you should hire at an hourly rate yourself?
Things need to be clearly explained so you understand where your money is going and why. Often times these things are not explained because it allows the manager or company more room for up charging you for basic services or implementing unexplained charges. Now they might be adding on surcharges every time they buy materials for you or call someone to fix something for you.
You should be receiving updates and a rent roll on a monthly basis from your Minneapolis property management company. Updates that not only include a ledger of your escrow account bank statement but updates on things such as who has not paid their rent and why and how is this being handled. How is progress being made on your vacant units with some sort of metrics showing if their marketing is being run effectively or not, a highlight of maintenance services that were needed and why, and a highlight of other factors inside the local business environment that could possibly effect the operation of your business.
This information allows you to determine negative risks that might need to be offset or avoided, transferred or mitigated while also allowing you the opportunity to identify and exploit positive risks that may present themselves as opportunities that you might miss otherwise.