A Boston Property Management Guide for Owners and Trustess – Part II.
Imagine this: you invest your hard-earned money in a condo in Downtown Boston. You decide to rent it out and hire a property management company. The management company says they mostly cover the South Shore, but they can manage your condo no problem. After doing some research, you realize they manage new construction communities 45 minutes from where your condo is located.
How can this make sense?
Here’s a tip: it doesn’t.
Many Boston property management companies just can’t say no to a juicy new contract, regardless of whether they can service it or not. This is just one of the many hidden pitfalls property owners can encounter when hiring a management company.
So how do you avoid the landmines when hiring in a field not exactly known for great business practices?
Start by asking the right questions:
What is the most common type of property you manage?
You need to know if they manage single families, condominiums, HOA’s, or entire apartment buildings. Asking a management company to service a property that’s not in their wheelhouse is like asking a dental surgeon to do a hip replacement. They both know how to use a scalpel, but it won’t go well.
Where are most of the properties you manage?
Similar to the first question, you need to know if they can physically get to your property in a timely manner (burst pipes don’t care if you’re stuck in traffic). The management company’s vendors and subcontractors also need to be relatively local to your property. We recommend a maximum 15-minute travel time to each property as an approximate guideline. Long-distance management works about as well as a long-distance relationship.
What is the base rate for management, and what is not included?
Knowing the baseline cost of management is a no-brainer, but people often make the mistake of only asking what is included. A better way to get the information you need is to ask what’s not included. Lease renewals, tenant turnover, and paperwork fees are often buried deep in a management company’s Schedule of Fees. Get the costs up front, so you’re not surprised after signing a contract.
What is the markup for repairs and maintenance?
Many property owners mistakenly assume that actual repairs and maintenance are included in the 5-10% base rate for management. No, your property manager won’t GC your kitchen renovation for 5% of the monthly rent. While it’s common for some property managers markup the cost of repairs and maintenance (see why we never mark-up repairs), you need to know what the margin is. A typical markup rate is 10% – think of this as an investment to avoid headaches of coordinating with maintenance staff and subcontractors.
Do they have liability insurance and an attorney?
Property management companies should carry liability insurance to protect against any claims made by tenants. Remember: the more protected the management is, the more protected the owner is. Do they require all subcontractors to be insured? The management’s mistake in hiring the wrong contractor could hurt you financially.
What is their vacancy rate?
Last but not least, find out how many of their units are currently vacant. If they have a 7% vacancy rate in Boston (where the average is about 3.5%), you should ask why. What’s more, if the property manager you’re interviewing can’t come up with that figure in a minute or two, that’s a red flag. If they don’t know which of their units are vacant, they may not be working diligently to secure tenants.
Some Boston property owners are afraid to ask the tough questions, but it’s the only way to figure out if you’ve found a good fit. Don’t think of it as “grilling” or “raking them over the coals,” these questions are designed to create a conversation that naturally yields the most valuable and relevant information. If you just listen to the pitch, you likely won’t get much substance; but remember that if you antagonize your would-be property manager with accusatory questions due to a negative previous experience, they won’t want to deal with you. No one likes to hear, “Why should I hire you?” Instead, try asking, “What does your firm do differently than others in the area?”
Approach interviewing a property manager as a two-way street and you will be much more likely to find a great fit. After all, it’s a business relationship, and you need to bring each other value!