Chandler Properties Blog

A topic of hot debate is whether a real estate investor should hire a property manager to handle the day-to-day property management of their properties.  I have seen arguments for both sides, but I tend to believe that for most investors it’s better not to hire a property manager. 

What a Property manager Does?
A property manager generally is in charge of the day-to-day activities of a property.  This includes showing the property to prospective tenants, collecting rents, answering phone calls, coordinating repairs, paying bills, etc.  Property managers will charge a fee of 5% to 10% of gross rents collected for their services.  This fee pays for rent collection, phone calls, and paying bills.  Most other services are in addition to the 10% fee. For example, if you have a leaky faucet, the property manager will field the complaint and then hire a plumber to go do the work.  The owner is responsible for the plumber’s charges. 

The reason I don’t believe most real estate investors should use property managers is because answering the phone and farming out the labor to subcontractors is the easy part of the job.  I’m not sure it is worth 10% of my gross rents to have someone answer the phone, and pay my bills.  The hard part is mowing grass, painting, cleaning, fixing toilets, repairing, and did I mention painting.  None of these tasks are covered by the property manager’s fee.  Property managers simply subcontract out these tasks and pass the bill along to the owner.  If you are a young investor trying to get ahead, then it’s probably best to save the fees and do as much as you can to keep your expenses to a minimum.  Besides, managing the property on a day-to-day basis is a great way for a new investor to really learn the business.  

Bad Property Managers
No one else will take of your property as well as you do.  If I am going to invest a couple hundred thousand dollars on an asset, I want to know that someone is keeping a close eye on it and will keep it in great shape.  I have heard several horror stories about a property management group in my town that charges low rates, but has very poor service and does hardly any maintenance on their properties.  They don’t paint the units in between tenants, clean, or remove trash.  I just rented to a tenant the other day that commented on the stinch that was coming from a rental that this property manager was showing to him the day before.  The property manager had not bothered to do any cleaning before showing the property.  Not only did this scare the prospective tenant away, but it is not good for the long-term viability of the property.

When to Use a Property Manager
I do not think all property managers are bad.  There are some situations I can think of where using a property manager is a good idea. One is if you inherit a property and you don’t really have any interest in managing properties.  Another is if you are moving away for a few years and do not want to sell your house.  However, I would be sure to screen property managers and make sure you get a good one that will take care of your property.  

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One of the most common questions I get from Newbie real estate investors is “how do you screen tenants.”  Almost everyone has heard nightmare landlord stories about the “tenants from hell” who destroy an apartment, don’t pay rent, and then sue the landlord for some bogus reason.  Fortunately, there are several basic techniques that will screen out 99% of these types of tenants.

Quality of your Units
One of the biggest indicators of what kind of applications you attract is your rental property.  Location, size, condition, and price play an important role in the types of applicants you get.  Generally speaking, the better your properties, the better quality of tenant you will get.  People generally don’t move into run down properties in bad neighborhoods if they can qualify for better. 

Initial Phone Call
I start screening tenants from the moment they call me.  What kind of questions are they asking?  Are they in a hurry to get into a new place?  Are they argumentative?  Is there old landlord a butthole?  Are they aggressive or demanding?  These are all negative signs.

Showing the Property
When it comes time to show the property, do they arrive on time?  If someone is late to an appointment and they don’t call to let you know, this may indicate they will be late paying rent down the road.  When they come to view the property, who do they bring with them?  If it is their parents, this is a good sign.  If they bring 3 or 4 dirty friends who wander uncontrollably all over the apartment, this a bad sign.  What kinds of questions do they ask about the property? 

Some good questions are:
What is the lease term?
What is the average utility bill?
Do you mind if we pay 2 or 3 months ahead of time?
Would you like my mother and father to co-sign the lease?
I like this unit.  What is the standard lease term?
How does the application process work?

Some bad questions are:
Can I chain my dog up outside?
Can I paint the room and you pay for it?
Do you pay much attention to bad credit?
My last landlord was ridiculous.  Will it hurt me if they give me a bad reference?
I’ve got to be out of my old apartment by tomorrow, can I move in then?

Application & Credit Report
After the applicant has completed the application and you have a copy of their credit report it’s time to analyze this tenant’s history.

 What is the prospective tenant’s credit score?  The higher, the better.  If they have bad credit, it’s bad for you.  I generally like to see a credit score of 650 or higher.

 GET A REFERRAL FROM PREVIOUS LANDLORD.  This is the single best indicator of what kind of a tenant they will be for you.  Cross check the phone number they give you for the previous landlord to ensure it isn’t a buddy pretending to be a landlord.

Job History - Are they stable?  Do they have a job that indicates they will be good tenants? Accountants and school teachers generally make better tenants than lead singers of rock bands.  Do they tend to keep the same job for extended periods of time or do they change every 3 to 6 months?  Stability and consistency are good signs.

Conclusion
The above information is a rough guideline for you to screen a prospective tenant.  With all that being said, always rely on your gut for the final call.  If you get a bad feeling or aren’t sure, don’t rent to this person.  You will eventually find a good tenant and the worst thing to do is put someone questionable into one of your largest assets just to get some immediate cash coming in.  The long-term hassle and cost to get a bad tenant evicted just isn’t worth it.

Best of luck to you.  If you have any questions feel free to leave a comment.