Property Management Kit For Dummies. Robert S. Griswold
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property manager and the management company have current licenses that are in good standing. You can call or go online to double-check. Most states require property managers to have a real estate license and/or a property manager’s license. Simply holding a license doesn’t ensure exceptional service, but it does show that the property manager is motivated enough to comply with state law. The pandemic contributed to a recent significant rise in unemployment, which led to increases in the number of unlicensed people offering their services as property managers. Often, they may be managing properties that they partially own themselves and are exempt from state licensing laws, but they’re breaking the law in most states if they manage a rental property that they don’t own. Working with one of these people can lead to serious liability for you if a problem arises and it turns out that you used an unlicensed property manager. Always, always make sure that the property manager you’re considering has a current license, designations/certifications, and proper insurance coverage.
Examine the property manager’s credentials. The Institute of Real Estate Management (IREM) provides professional designations and certifications, including the Certified Property Manager (CPM) designation and the Accredited Residential Manager (ARM) certification. A select group of management firms have earned the Accredited Management Organization (AMO) accreditation. These designations and certifications signify excellence and dedication. Go online to www.wiley.com/go/propertymanagementkitfd4e for a full overview of IREM’s professional credentials and designations.
Confirm that the company is properly insured. The management company should carry insurance for general liability, automobile liability (owned and non-owned), workers’ compensation, and professional liability. The company is your agent and will collect your rents and security deposits, so it should have a fidelity bond to protect you in case an employee embezzles or mishandles your money.
Ensure that the company has separate bank trust accounts for each client. State licensing agencies perform detailed accounting and bank record audits upon receiving complaints, but they also perform routine audits. The most common scenario involves finding missing or commingled client funds when property managers use a master trust account (a single bank account for multiple unrelated clients). Although this practice is legal in most states, look for a company that has a separate bank account for each client and can offer separate accounting for each property it manages. Even though it is widely known that single master trust bank accounts can easily result in unintentional commingling or have trust fund shortages, many property managers use such accounts for all their managed properties to minimize their bank charges. Avoid any property management company that follows this practice, because the risk is not worth the savings of a monthly bank account charge. Typically, property management companies don’t pass these bank fees on to their clients, so there is no reason not to insist that your property manager keep all your funds in a separate bank trust account exclusively for your rental properties.
Check references, particularly the company’s other clients. Don’t sign a management contract until you feel confident that the company you hire has a sound track record. Checking with the company’s chosen referrals isn’t enough; also ask for a list of all its current and past clients, and contact the ones with rental properties similar in size and type to your own. Make certain that the rental owners you contact have been with the company long enough to have a meaningful opinion of the quality of the service and are truly unbiased.
The quality of your property management company directly affects the success of your real estate investments and your peace of mind. Visit the company’s office prepared to discuss these important questions:
Can you give me a breakdown or list of what management services you provide and a breakdown of management fees/costs?
Is your firm an AMO recognized by IREM?
Is your firm an active member in good standing with a local affiliate of the National Apartment Association (NAA), and does it hold any NAA designations?
Is your firm an active member in good standing with the National Association of Residential Property Managers (NARPM), and do any of its property managers hold NARPM designations?
Are your legally required state and/or local licenses current and without any history of violations?
Do you carry errors and omissions coverage of at least $500,000, plus general liability coverage of at least $2 million?
Do you have a $500,000 fidelity bond and a forgery and alterations policy of at least $25,000 for all employees?
Do you have separate bank trust accounts for each client rather than a single master trust bank account containing multiple owners’ funds?
Can you communicate via email with your clients, your contractors/suppliers, and your tenants to be responsive and efficient, providing excellent customer service?
Do you retain copies of all written communications and maintenance or service requests in case a tenant were to file a claim or lawsuit, so that you can prove in court that you responded in a timely and proper manner?
Can you explain your methods of advertising or generating interest in my rental property and of selecting tenants in compliance with all fair-housing laws?
How do you screen prospective tenants? Do you use an outside firm? Who pays for the service, and how much does it cost?
Do all funds that you collect from applicant screening fees, tenant late charges, and other administrative charges go directly to the owner, not the manager?
Do you provide 24/7/365 on-call maintenance services through a live person who answers the calls and also has email capability?
Whether you provide maintenance in-house or use an affiliated firm, do you charge only the actual cost of labor and materials, without any surcharges, markups, administrative fees, and other such add-ons?
Do you pass along any volume-purchasing discounts fully and directly to clients for appliances, carpeting, and other items, without any markups?
If allowed by law, do you give all employees screenings that include thorough credit and criminal-record background checks by an independent employment screening consultant, as well as drug and alcohol testing by a certified lab?
Can I contact several of your current and former clients who own rental properties that are similar in type, size, and location to mine?
If at all possible, also try to secure a meeting with the person who would have control of the day-to-day, hands-on management of your property so that you can ask these questions:
How many years have you been in the property management business? Do you manage real estate exclusively?
What are your qualifications? Do you hold IREM’s CPM or ARM certification? Do you hold NARPM designations such as Residential Management Professional (RMP) or Master Property Manager (MPM)? Have you earned NAA credentials such as Certified Apartment Manager (CAM) or Certificate for Apartment Maintenance Technician (CAMT)?
How many other properties does your company manage? How many properties does the manager assigned to my rental property manage? Where are these properties located? Can I contact any of your current clients as references?
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