Is your property manager really protecting your investment?

Truthfully, do you really know what that 10% to 12% of your GROSS RENT is going to when it lands in your property managers hands? Sure you have a contract (hopefully) but has your manager defined exactly what they will do to protect your investment from environmental and tenant damage? Are they being completely truthful in the repairs and vacancies?

Nightmare story of the day - Property Manager in Tulsa, OK claimed a property was vacant for months... investor was 700 miles away... investor assumed it was vacant and let it roll until a third-party (me) did an audit of the portfolio and found the fraud.

Too often investors trust their property managers to handle things and assume the managers are doing so. But as a prudent investor, you should never risk making assumptions on an incredibly expensive investment.

I'm not attacking property managers in general, 99% are legit and incredible at what they do.

So how do you protect yourself?

Investors New To A Market Searching For Good Property Manager Start Here - Others Skip down...

If you are out of town and are just getting into a relationship with a new property manager, ask for references from their clients. Also find out how many properties they has vs. staff/resources to handle the load. A great manager may have 100's of properties and 24/7 resources, management software, and a staff to handle it - (Shameless Plug to Danny Haas @ KCMS in Kansas City). I tend to lean towards managers that have a large number of doors because they tend to have that many for a reason... they're good. But sometimes a manager will windfall a huge client and not have the resources, tools, etc. to handle it. Getting references and verifying his bandwidth and resources can be the difference in a cash flow delight or hell.

In general, a few items that I always recommend requiring the manager to have on hand are:

1. Pictures inside/out every 90 days
Knowing the condition of your property is equivalent to watching quarterly reports from company on their earnings. It also reduces the ability for the "vacancy fraud" issue I discussed earlier. Property Managers will groan but they should be changing out air filters and checking smoke alarms every 90 days anyways... it won't kill them to shoot some photographs and slap them on flickr or their property management systems.

2. A repair report monthly
Most property managers have a maximum limit they will spend before contacting you,some contact you for everything. Either way, sporadic phone calls can't provide you the knowledge you need to understand the properties true condition. A monthly spreadsheet, word document, etc. itemizing repairs/complaints can give you a 1000 foot view of the property.

3. A list of rented/vacant properties monthly
This provides you with an overall understanding of your properties occupancy straight from the property manager. When I managed properties, just seeing a list of vacancies made me sick and motivated me to work harder to get them off an otherwise flawless sheet. I was dealing with one of the largest financial institutions in the world and the word "Vacant" at our monthly meetings was not a fun line item to discuss. Trust me, make them list them and see if things change a little.

4. A property write up every 90 days of condition of property inside/out with comments of changes from previous 90 days
This goes along with pictures and vacancy lists. Your property manager should provide a property condition template filled out for each property every 90 days. As the condition of the property changes, these forms are fantastic at noticing trends in certain areas like plumbing or electrical. Especially on properties that were freshly renovated and under warranty.... you can look back at your records and audit for maintenance fees you may have paid over the quarter that were under warranty.

5. Contact information for the tenants
Have names and numbers of your tenants. Certainly don't call them from your cell or home number... trust me... bad idea... But a free skype account or other phone number works. Call and ask if they are happy, if the property manager is treating them right, etc. Expect a little exaggeration from them but get an overall understanding of how they are being treated. An unhappy tenant is worse then a leaking roof.