When you own a rental property there are so many responsibilities. Finding a good tenant, collecting rent, maintenance, repairs, emergencies, evictions! At some point, many owners decide the cost of a property manager is minor compared with the opportunity to not have these issues and just collect funds monthly.
There is only one thing harder than deciding to hire a property manager. It is to decide the time has arrived to make a property manager change. How will you know you need to make this decision? How will a transition take place? For many owners, their concerns about the logistics of changing causes them to drag their feet and continue to not receive the service they should expect.
Signs that it may be time to change your property manager and how to implement the change
Does your manager seem focused on improving your returns?
The list of tasks for a rental owner are part of the day-to-day management. There should also be a stated goal that increasing your return and cash flow are a priority. If a manager does not think about improving your returns, they should be. Whether the manager seems to be charging too much for repairs, or not discussing rent increases, or their lease is structured in such a way that a tenant has a locked-in rent rate as long as they wish to stay in the home, these are signs you are not getting all you should expect from your manager.
How is tenant non-payment handled?
Do you know your manager’s collection process and why? Do several months go by with no rent payments and you have to inquire what is being done about it in order to start action? A tenant allowed to stay in a rental and not pay is hurting the owner and the property. Your manager needs to know the proper methods of posting notices for payment and filing for an eviction in a way that minimizes losses to the owner.
Does your manager show a sense of urgency when you incur a vacancy?
A vacant unit is one that is not generating any revenue. When a home becomes vacant, all attention should be on turn-time by your manager. The immediate focus should be on whatever is needed to make the unit rent able. Next, price and market it to produce plenty of applications. If the activity is not generating applications, then it likely means you are going to have to lower the monthly rent. Your manager should be addressing this issue with you as it is cheaper to lower the rent than to sit on a vacancy for several months.
Are reports on performance easily obtainable?
If your manager does not have performance reports available at your request, then there may be a problem with their internal systems. With the software programs available today, there should be multiple options available to you to review your rental business. If performance information is not obtainable it is time to make a property manager change.
How is their communication?
Does your manager respond to your questions? Do you know how to reach the people who work on your account? If you have a property management company, do you know the person in charge of your account?
Do the cost of repairs appear reasonable?
When you visit the hardware store do you find materials that are available at retail prices significantly less than what you have been charged? Do vendor or contractor bills seem hard to review or does your manager post each one for your review? The nature of the repairs process is that you likely are providing some discretion to your manager to make decisions. If you are strongly starting to suspect these decisions are not in your best interests, there is likely reason to consider a property manager change.
What does your manager know about your tenants?
Through the years, one of the most consistent problems I have experienced when taking over management from another manager is the lack of information on the tenants. A lack of initial screening places future legal actions at a huge disadvantage. Not having policies or approvals specific to a tenant with pets, or smoking in a home, has cost owners thousands of unneeded costs. Make your manager give you a description of why a tenant was placed in your properties to ensure they are taking the steps necessary to preserve the property, and remove them if needed. If the manager resists, it is time to move on.
Does your manager have an inspection process?
Do you know if and when the manager will inspect your property? What is the documentation at a tenant move-in? Your manager should have a process for checking on your property.
How do your tenants feel about your manager?
This may seem surprising but your manager should treat your tenants respectfully and the tenants should feel good about the payment, maintenance and repairs process. A stated goal of renewing the leases of great tenants should be a focus of your manager. It costs a lot more to find a new tenant than to keep a happy one.
Are the manager’s cost of services in line with the market?
This one is a little more difficult to know. By itself, this question is a very poor reason to change managers. If the other questions are not checking out, call a few property management companies and compare fees for similar properties. There is likely not a lot of disparity between fees but they may charge differently for services. When it is said and done, property management is a low margin, high volume business. A successful property management company thrives because of the systems they incorporate in recognition of the limits of the fee structure. In many cases, this is why you will find problems with the services while paying similar fees. When making your final decision, focus on experience, services and references.
What is the best timing to make a change?
What time of the month is best to cut off one property manager and contract to start with a new manager? The end of the month is a great time to start a new manager. But do not wait until the end of the month to terminate your manager. The best way to transition between managers is to terminate (or give notice) at the beginning of the month and change at the end of the month. A sudden change at the end of the month is problematic as an owner is about to receive a new rental payment. There is very little time to let a tenant know to change where and how to make payment. If a tenant has automated their payment, it is impossible to get that change made in time. The end of month termination results in a freshly terminated manager collecting rent and still settling out accounts while the new manager takes over.
Unless there is an emergency or notice periods agreed within the existing management agreement, we always suggest the termination and subsequent transition between property managers begin after the late rent date of most of the leases. In the ensuing approximate three-week period, tenants may be informed, while the new manager obtains copies of all leases and tenant information. The final cut-over date is the first day of the next month. In the transition period, the new manager should handle any new rental applications and eviction actions. If you decide to make a property manager change, insist the transition is handled in this way with both the old and new managers.
If the reasons you originally hired a property manager are not being satisfied, it is possibly time for a property manager change. If you read the above list of signs and felt a lot of similarities to your own situation, then it is time. Don’t let your business, or retirement plan, under-perform because you fear making a change is a hassle.
If you make a change and find that the issues above are no longer clouding your relationship with your investments, it will be a burden lifted from your shoulders. A great manager or Management company will make it easier to achieve the goals you set for yourself when you first entered the world of rental ownership.