Owner Resources

Property Management & Real Estate Investing

  • Video Transcript

    So the other day we received an email at our office and it was from a prospective owner client. And he said, I'm thinking of hiring you to manage my rental property, but I'd like you to send me your property management agreement. And I want to compare that agreement to some other companies in town to make a determination on who I want to hire to manage my property. And that is good due diligence, because you as a property owner, want to know who you're working with. Well, I'm Mark Cunningham with great property management. Let me share with you what I believe are the eight most important parts of a property management agreement that you as an owner want to review to make a determination on who you want to work with. Number one, and this is in order of importance. And most importantly, number one, I would say is how easy is it to cancel that agreement if there's nothing else, you know, to make your decision upon it? This could be it. They say, well, what difference does that make? How easy it is to cancel, because at some point time you're going to want to walk away from that agreement. And if the P.M. company is doing a good job, I believe they should be earning your business every day. They shouldn't be handcuffing you into working with them and you can't leave. So if it's a 12 month agreement, is there something like a termination fee or termination penalty? Because I don't believe there should be. It should be. Ideally, you want a month to month agreement, meaning you can leave anytime you want, the day they stop satisfying you or the day you decide to sell. You can leave without termination fees or penalties. That's a very important part. If they believe in themselves and if they're doing a good job for you, then you should have the ability to walk away without fees or penalties. Number two, what are the fees hidden? Of course there are fees. You're going to pay to have professional property management service done. But where are those fees in the agreement? C Fees that are transparent are going to be in one little section of the agreement and it's going to list out what those fees and charges are versus a company that's going to try to hide them all over the agreement. And it talks about something over here and there's another fee hidden page 17 on paragraph five. That's a sign the company you're working with may not be transparent. You want a broken down in a clear, concise section. Number three, was it prepared by an attorney? Here's why that's important. The state of Colorado requires by law that an attorney prepare a property management agreement specific for your company, for our company, for grace management. And that has to be disclosed in the property management agreement. Now, I see a lot of p_m_ companies that just don't do this. So it's a good way. It's a good indicator on whether or not your P.M. company is in full compliance. And are they operating under the law requirements? So where's the section in the agreement that says, for example, this agreement was prepared by such and such a law firm, specific for Grace property management? If that language isn't in there, you may be working with a company that isn't as professional as they should be. No.4 How much is the escrow reserve? So when you work with the company and you sign the agreement, they're going to collect from you an escrow reserve and escrow reserve is your money, but it goes into your account to fund that account and to pay for expenses that may be incurred every month. Between the time you get your rent and the time that rent comes in the following month, if something breaks and a repair has to be made. How does that get paid? It gets paid out of your escrow reserve. So how much is that escrow reserve? And that's not a right or wrong. But make sure you know that before you enter in to the relationship. Number five, how fast do I get my money? I've seen companies that will take the rent from the tenant and they don't pay that out to the owner until the following month to run it through their accounting system. That's a long time for the PM company to be sitting on your money. You want that money and you want it quickly. So, for example, when we collect our rents from the tenants early in the month, we close out our accounting cycle and that money gets sent out and dispersed to our owner clients around the 10th day of each month. The faster you can get it, the better. But how quickly will you get it? Number six. What is the maintenance trigger? What we mean by maintenance trigger is at what point does the PM company involve you in spending money decisions on maintenance? Now you don't want to be bothered for every little thing that happens. For example, if the toilet is leaking from the base which you don't want, is the PM company calling you and saying, hey, the toilets leaking from the base? What? What do you think we should do? Well, I'll tell you what we should do. We need to fix the leak. So we're not going to call you in advance of that and say, gosh, can we spend eighty five dollars to have the wax ring replaced? No, it's going to get done. It needs to get done quickly. For the preservation of the property, the safety of the property and the convenience of the tenant. But at what point are we going to involve you in? Every company has a different threshold on that. While you don't wanna be bothered all the time, you also don't want a company potentially spending your money that you're not made aware that to make sure they're communicating with you effectively and when appropriate, bringing you into the decision making process on Manus. Number seven. Are there guarantees? If the PM company places a tenant in that tenant has to be evicted. Does the PM company step up and say, hey, we kind of messed up. We let somebody in that maybe I guess we shouldn't have because they're getting evicted. But sorry, Mr. Owner, now you're stuck with an attorney fee as well as no rental income. So, for example, if we place a tenant and if we have to evict that tenant because of non. Payment of rent. We grace manage. We pay the attorney fee on your behalf. Why? Because we want to step up. We have some skin in the game. We believe we have an obligation to place a good tenant. That doesn't always happen most of the time it does. We've got a good screening process, but we're going to pay that attorney fee on your behalf. If we place a tenant in that tenant has a pet that we approve and that does damage above the amount of the deposit we grace management will pay up to a thousand dollars of that damage for you. Why? Because we believe we have an obligation to do so. So what are those guarantees, especially as relates to things like pet damage and evictions? Because those are the two most scary, potentially unexpected costs you could be incurred. You could be incurring as a landlord. So ask your p_m_ company if they help out in either those ways in a brate who handles evictions. There's a trend in the industry, a bad trend that p_m_ companies are becoming more and more lower levels of service. And if something goes wrong, what we're seeing as they just push the problem back to the owner. Oh, sorry, Mr. Owner. The the tenant didn't pay rent this month. Here's an attorney we recommend. Good luck. Hope it works out for you. That's not a proper property management company. In our view, you want a company that's going to handle the problems. That's the reason you're hiring a property management company is to fix the problems when they come up. So make sure that the p_m_ company is doing all of those things on your behalf and not having to make you take care of the problems that they may have created. If you pay attention to those eight things, you're going to be able to make a good decision. But here's the most important thing. The management agreement doesn't tell you. What doesn't it tell you? It doesn't measure things like integrity, things like honesty, professionalism, response, times. I recommend it to owners. These are the things you really want to look at in making a decision because of the fact that in Colorado, the property management agreements have to be written by an attorney. What that means is 90 percent of our agreement is going to look like every other company in town. And so it's hard to make a decision. So look, beyond the management agreements, don't only look at the management agreement to make your decision. Look at things like online reviews. Has the company been audited by the real estate commission? Have there been complaints with the real estate commission? What is the average lease renewal rate of the company? What's the rent collection rate? How quickly do they respond? How long have they been in business? Those are things that the management agreement isn't going to address. Our management agreement looks 90 percent exactly the same as another company here in town that I think does rare, very bad service. But you wouldn't know it from our management agreements. You wouldn't know it from that. So don't only look at the management agreement. Look at these things as well. These are the important intangible things. They're going to make the difference between a successful relationship and then doing a good job, making you a lot of money on your property versus you doing them doing a bad job and you thinking I made a mistake, I shouldn't have hired that company. If you've got questions on that, we are happy to be a resource. Whether you work with us or not, Grace property management reaches out to us at rentgrace.com. We will provide any information we can to help you make your property a successful investment.

"Since 1978 our family owned business has improved lives through real estate. We will provide a solution for whatever your real estate needs - leasing, management, buying or selling, inspections, tenant screening, evictions, and more.


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