A good painter will tell you a good paint job is all about the prep work. Do a bad job making the walls paintable, and the paint job will look horrible. Paint can only hide so much.
Prep work is time-consuming and usually the least fun part of the job. This is why it often isn’t done well, if at all.
The same goes for a good property manager. If they don’t do a good job finding good tenants, the investment property will become a nightmare and less profitable. Bad tenants will kill an investment.
If you’re going to invest in residential real estate, do yourself a big favor and find a property manager that has a knack for finding good tenants.
This may not be easy, but it’s worth it.
Good Property Managers and Good Tenants Are Highly Profitable
Why you should listen to me:
- I’ve been a landlord/owner of multiple investment properties.
- My kid just signed a lease on an apartment.
- I’ve signed three residential leases in the last three years.
- I just did five property manager interviews in the last 30 days.
- About a third of my client base owns investment property.
What I see too often is people investing in residential real estate, hiring a property manager, and then thinking they can sit back and collect checks.
When that happens, it’s super fun.
When it doesn’t, it’s not fun.
When property owners have to come out-of-pocket with expenses when the property is vacant, that is even more not fun.
You want to avoid this situation because — in case it’s not obvious — you want your income to exceed your expenses. We call this profit. Profit is very fun.
Where Did All the Good Property Managers Go?
If you ask those in the industry, the consensus seems to be that good property managers are hard to find because:
- Profit margins are small.
- Property management is often an adjunct to another highly profitable business (typically real estate brokerage).
- As a result, property management is an afterthought and often neglected.
- Hiring good people to run the property management firm is difficult.
- Dealing with tenants is inherently difficult. It’s a lot of humanity to manage around a basic living need (shelter).
As a result, property managers have gotten a bad reputation, perhaps deservedly so.
However, there are good apples in every barrel.
How Do You Find a Good Property Manager?
Your biggest assets here will be patience and perseverance.
Start here:
- Get referrals, preferably from people with direct experience.
- Do an online search with your favorite search engine.
- Start doing phone interviews. Limit them to 20 minutes.
- Whatever candidates rise to the top you will meet in person. Several times.
- Ask good questions.
- Make sure you understand the manager’s values, processes, deadlines, reports, and how they will meet your needs as a landlord.
- Then go do research. Into your favorite web browser, put in their name and the word “reviews” after it and see what comes up.
This last piece will be tricky.
Online reviews have to be taken with a grain of salt. Is this reviewer someone with an axe to grind? Who just needs to vent? Who is a terrible tenant? Who was paid to say good things?
Property managers are also not great curators of their online presence. The lack of positive reviews might be more about their failure to manage their reputation than their ability to rent out property.
By reading through the reviews and not just looking at the overall rating or number of ratings, you can get a sense of whether this is a manager you want representing you and if they’re any good at finding good tenants.
How Do You Find Good Tenants?
Despite what you’ve heard or negative predispositions you have toward tenants, there are lots of good tenants out there who take good care of other people’s property, pay rent and bills on time, report broken items in a timely way, often do their own small repairs, and leave the property easily rentable to the next person.
You or your property manager just need to find them.
Sensing “good vibes” about a potential tenant is not enough. You want a reliable process to skim the cream off the top of the tenant pool and avoid the dregs at the bottom. A good manager will have a process for doing this and be able to articulate exactly what that is.
I’ve got clients who have very successfully and very profitably rented out their investment properties in some of the toughest landlord markets in the country with few headaches. They would not tell you it was always easy. Most of them worked quite hard at it.
The hard work pays off.
Good tenants tend to beget good tenants. A strong online reputation will also draw good tenants.
Why?
Because people who do their due diligence tend to also be the ones that make good renters. They want to be treated fairly in exchange for taking good care of someone’s property. They won’t rent from just anyone, much in the same way you won’t just rent to anyone off the street.
Ask yourself this question when employing a property manager: Would I want to rent from this person? If the answer is no, go find someone else.
If you want to chat about my recent interviews with property managers and the questions I asked, please reach out.
Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
