Choose your property manager like you'd choose your spouse

Laziest Landlord -

Your property management company is your single point of contact.

It's also your single point of failure. Make sure it never becomes that. Like a spouse, divorces are messy and expensive. Avoid if at all possible.

Spend the time up front to find the right property management company. We will cover:

  • How to shortlist
  • What to screen for
  • What to negotiate

How to shortlist

There's no shortage of people willing to sell you properties (brokers) and willing to manage your properties (property managers). I googled "property management listing Michigan". Here's a website that I found: https://www.managemyproperty.com/find/michigan-property-management-companies

No shortage, right?

Find 5-10 to reach out to. Don't operate primarily in the area(s) you're interested in? Scrub them. ONLY do buying/selling OR property management? Scrub them. Bad website? Scrub them. Lots of disgruntled tenants or employees? Scrub them.

What to screen for

Once you have your shortlist aim to meet the owner. They won't meet? A red flag. They're either content where they are, or they're too big. Don't forget, you want to find a spouse.

But do your 50% also. This relationship should be a two-way street, even if you're new to this. Be credible. That means having some clear ideas (where you want to buy, how much you want to spend).

There are some 'hygiene' questions you will need answered. No company will be perfect. But you should feel satisfied with the answers.

  • How long have you been in business?
  • Do you have your buying/selling license and rental license?
  • Who owns the company and how much do they own?
  • When did you last lose a customer (property owner)?
  • Which area(s) do you manage properties in?
  • What contractor relationships do you have today?
  • How many evictions have you made in the last six months?

There are some 'moneyshot' questions you need answers to.

What type of properties do you manage? How many units do you manage today? How many do you expect to manage next year?

You're trying to find the goldilocks business partner.

Too small and the property management company risks failing. Too large and you're just a line in their spreadsheet. Find a property manager you want to grow with and they want to grow with you. I recommend a company with 40 to 120 units. Big enough that they have systems and processes. Not so big that you don't make a difference to their success.

Get a sense of their ethics. There isn't a good way to test for this. This is the company to whom you're trusting your assets and your reputation. Trust your gut.

What to negotiate

Once you've selected 1-2 potential partners, here's what you need to negotiate (and in this order of importance):

  1. Property management fee of 3.5% to 5.0% (of actual rents...no tenant = no fees)
  2. Rebate on buying commission of 5% to 25% (example: you as the property owner would get 2.5% buyer's commission x 5% x purchase price)
  3. Property manager pays legal costs and representation in case of eviction
  4. Property manager makes no mark up on contractor repairs etc.

You may get some push back on #1 above. Maybe you get to 6.5% for your first property. Fine. Negotiate a sliding scale. Your second one is 5.0%. Your third is 4.0%. You get the idea.

You will likely get pushback on #2. Fine. Then be more aggressive on #1.

This isn't a negotiating class. I'm just telling you where you have leverage.

Don't go for the property management company with the lowest fees. Play for the long term. An extra 0.5% to 1.0% is a rounding error when you have the right partner 10 years from now.

Congratulations! You're now married. And ready to build something great together.