Poor management is the number one reason for property investment failures. After spending significant time, money, and effort securing a rental property make sure those managing it are looking out for your best interests. Many owners do not know what they should be looking for in a professional property management company. Maybe you inherited the property and have not communicated with the company that has been running it for several years. Are you an out-of-state owner removed from the process of daily operations? Or maybe you hired a local company based on the recommendations of your friends or agent. At any rate, the following questions confirm your management company is providing you with the best service.
Do they provide monthly financial statements?
Financial statements are an absolute necessity to understanding the financial health of your property. A monthly cash flow report tells you the operating income, operating expenses, and capital expenses. Reviewing this report every month ensures that all rental income is collected, operating expenses matched yearly averages, and no unauthorized capital expenses occurred. Additionally, your company should be able to answer any questions you have regarding this report. These contacts can take the form of a controller, account executive, or sometimes the property manager themselves.
Do they ask for approval on large capital expense items?
Capital expense items are often large purchases that permanently add value to the property. Many owners have a set dollar amount above which they require approval, leaving smaller amounts to the discretion of the property manager. However, there are many projects for which you as an owner should have final say. Discussing the benefits of the projects with the property or project manager is helpful to understanding why certain expenses are necessary. Coordinating with the vendor(s) who plan to complete the project is even better. This way you can ask specifically how they intend to do it and the costs/options involved. This will help you understand the purpose of potentially expensive capital projects.
Do they provide at least 2-3 bids from separate vendors on each project?
While on the subject of capital expenses, does your management company provide you with at least 2-3 bids from separate vendors? It is typical for companies to have a preferred vendor list. These are vendors they used in the past from whom they receive potential price cuts due to the business they provide. It is always important that managers provide owners several bids. This is especially true for large ticket items where the scope of work and materials can vary. Therefore, if your manager is not getting at least 2-3 bids for larger projects you may be losing out on potential savings!
These three questions are vital to ensuring the success and profitability of your rental property. Requesting these services is as easy as contacting your account executive or property manager. Accordingly, if they do not honor these basic and important services it may be time to look for a replacement.
