Make Finding a Property Management Co. Easier on Yourself by Asking the Right Questions, Part 4 of 4

This is Part 4 of a 4 Part Series where we have outlined important questions to ask a property management company before hiring them.

Part 1 Companies Credentials

Part 2 Property Management Services
Part 3 Property Management Fees
Part 4 Tenant Screening Process

Property management companies come in all sizes, capabilities and expertise. Just because one works for one investor does not necessarily mean they will work for you. Below we have outlined some important questions to ask a company during your initial interview process regarding their tenant screening process. Their answers to these questions will give insight into their business capabilities and can provide you with an understanding of the type of services they offer which are important to you.

Part 4 - Tenant Screening Process

Your new tenants moved into your vacant apartment last month and everything seems okay so far. She works and he has his own business, a consultant of some sort so he works out of the apartment. You like the fact of having an adult around your premises because you have had some issues with neighbor kids being rowdy and figure the kids will be less of a problem with an adult being around during the day. On their application they showed ample income to afford the rent and they seem like a really nice couple so you decided there was no need verifying credit history, previous rental history or if any evictions were recorded against them.

Now read below the different types of background checks that you should have performed and using the scenario above you will quickly understand what unfavorable consequences could occur if this is not done.


Credit check
A thorough credit check report will show past to present payment history of applicant. This will give you good insight into an applicants ability to manage money and debt. All credit score reports come with what is called a "FICO" rating. The "FICO" rating or score runs between 305 and 850, with 850 being the best. A general rule of thumb is 650 and up is good, 550 to 649 is open for review, and 549 or less may not be a suitable applicant. Evictions, bankruptcies, mortgage defaults and judgements may also show up on a thorough credit check report.
Note, Individual landlords may no longer receive copies of credit reports, or actual credit scores, of an applicant. The Tenant Credit Check report will simply inform you when an applicant passes your minimum credit grade that you have chosen for your property. A good alternative is to use a property management company or real estate agent to perform this for you.

Employment verification
Never assume an applicant will tell you the truth whether it be verbal or written down on an application form. It's your responsibility to verify this information with the proper source. In this case it would need to be verified through the companies human resource department or other employment authority. Also you may verify employment income by requesting to see their last few months pay stubs. This can confirm income is from legitimate sources and not illegal activities.

Criminal background check
Criminal Report includes felonies, misdemeanors, traffic violations, and incarcerations. The information in a Criminal Report comes from State records, Court records, and Departments of Correction records. Searches are made using first name, last name, and date of birth. A sex offender or drug trafficking could jeopardized a whole community especially in a multi-family atmosphere where you must make your property safe and habitable for all.

Eviction check
This report is run by using the applicants SS# and name. It pulls the past addresses associated to him/her and searches the housing courts database for any filings or evictions matching the name of your applicant. Evictions Report can include all court-reported evictions for all 50 states.

Rental history
It's always good practice to contact any previous landlord. Sometimes if the landlord is trying to get a tenant to leave their apartment they may say favorable things about the tenant only so that you will take them. But, you can at least verify the accuracy of the information such as lease terms, rent amount, occupants living there etc. Also drive by previous living quarters for further verification.

Karen McDaniel

Property Management and Vendor Network

Make Finding a Property Management Co. Easier on Yourself by Asking the Right Questions, Part 3 of 4

This is Part 3 of a 4 Part Series where we have outlined important questions to ask a property management company before hiring them.





Part 1 Company Credentials
Part 2 Property Management Services

Part 3 Property Management Fees

Part 4 Tenant Screening Process

Rental management companies come in all sizes, capabilities and expertise. Just because one works for one investor does not necessarily mean they will work for you. You need to know some important questions to ask a company during your initial interview process regarding fees they charge for their services. The answers to these questions will give you a good grasp of the total management costs you will incur in exchange for the managing of your rental property. By knowing the answer to these questions before hiring them could prevent future misunderstandings and unforeseen expenses.

Part 3 - Property Management Fees

Unlike a real estate sales commission, there is no standard commission that is charged for rental management services. Usually you will see commissions ranging from 4-15% of the gross monthly rental income. In addition to a commission fee you could be looking at any or all of the following fees:

-Lease-up or set-up fee

-Lease renewal fee

-Advertising fees

-Mark up charges on repair work

-Early cancellation fee

-Service call fees..etc


Do yourself a favor and get familiar with asking the questions below when interviewing a property management company. After you are under contract with a management company is not the time too find out how much your expenses will be. And some of these fees can be negotiated to meet your needs.


Commission
How much do you charge as a monthly commission? Do you charge this if my property is vacant or only when occupied?


Lease-Up or Setup Fee
Do you charge an initial set-up fee, and when do I need to pay this? If I cancel prior to you placing a tenant in my property is this fee refundable?


Lease Renewal Fee
Do you charge me a fee when you renew a tenants annual lease that is soon to expire?


Advertising Costs
Who pays for advertising costs? If the property manager does, ask where they will advertise. If it means placing your listing on their own web site and other free online classified sites you may not be getting your monies worth. There are many good online rental or tenant resources that will bring in qualified tenants for a reasonable fee and you will want to consider these. Nothing is worst than having your property vacant, bringing in no money only because you or your property manager skimped on advertising.


Maintenance Mark-up Charges
Do you charge a "mark-up" or percentage over the actual costs of any repair work, service calls etc?
Just one of those things to be aware of, as these all eat into your profits.


Early Cancellation Fee
Is there a cancellation fee if I decide to cancel my contract with your company if after 3 months no tenant?
Note: If the management company has invested advertising dollars and lots of time and effort in searching for a tenant, they may well deserve to be reimbursed for their out-of-pocket expense.


All of the above are the most common fees to be charged for property management services. Asking these questions will make your job a lot easier when it comes down to hiring a company to manage your rental property.


For a detailed explanation of all of the above fee terms go to Property Management Fees

Karen McDaniel

Property Management and Vendor Network