Many property owners hire a property manager to manage the operations of a rental property. The scope of a property manager’s obligations depends on the terms of the property management agreement. It usually consists of locating tenants, handling rent, disbursing payments, responding to complaints, overseeing property repairs, and enforcing tenant lease obligations. Owners and investors who live a long distance away from the property often rely heavily on property managers to conduct business.
How does an owner know if the property manager is not doing a good job? Symptoms of a property manager not doing an adequate job include two or more of the following:
1. Mishandles security deposit. The security deposit should be deposited into a separate account not commingled with any other funds. It should be refunded to the tenant when the lease terminates by the lease deadline, less amounts deducted for repairs or other charges allowed by the lease terms.
2. Mishandles rent collection. The property manager should know what rent the market can bear and sets the rent amount appropriately. Each year, the rent should increase a small amount (within the limits of applicable law and the lease terms) to ensure that the rent being paid is a market rate. The property manager collects all rent timely and enforces applicable late fees for late payments.
3. Inadequate property management software. Property managers need to keep up with the tenant rent obligations and property maintenance. Good property management software will ensure that nothing is overlooked.
4. Inadequate record keeping. Few professional property managers are using paper files anymore due to problems with storage and risk of damage and loss. Cloud storage is the safest and most efficient means of recordkeeping. Storing data online is the most reliable and simplest method to store important files. Property management software provides users with the extra security and redundancy to store unlimited files securely online.
All property managers and owners should keep comprehensive records of the tenant-landlord relationship. The records should include everything beginning with the tenant’s application, all emails and correspondence, lease agreements and all amendments and updates, payment records, fees, notices of violations or any other notices, work and repair records, termination notices, move-in and move-out paperwork, inspection records and photos, marketing information, and legal notices. The records kept should also include records pertaining to people who inquired about the property or were screened as potential tenants but never moved in, just in case a dispute later arises.
Property managers should also maintain records pertaining to their relationships with the property owners. Records include all correspondence and emails, property management agreement amendments and updates, financial records, insurance documents, payment records, notices, use of owner funds, and property maintenance (including bids, invoices, and work orders). Owners and property managers need to make sure they agree on all terms and conditions for the property manager to spend funds for property maintenance. In case of ambiguities, the property manager should discuss the matter with the owner before proceeding, if practicable.
Property managers should make sure they understand and comply with the management agreement and state laws concerning their obligations for record retention time periods.
5. Disrespect tenant’s privacy by making impromptu or unannounced visits. If the property manager needs to carry out inspections or maintenance, the property manager should be polite enough to give the residents a fair notice to enable them to prepare for it. At a minimum, the notice must comply with applicable laws.
6. Inadequate tenant management. Most property managers are responsible for finding good, creditworthy tenants and making sure the tenant pays rent timely and otherwise complies with the tenant’s lease obligations. Those other lease obligations include such things as keeping the property clean and in good repair. Tenants who are excessively loud, causing complaints from neighbors, or causing property damage need attention from the property manager. The property manager will need to conduct inspections, give notice to the tenant of necessary repairs, and often will have to make the repairs. Sometimes the property manager will have to evict a tenant.
7. Property is in a chronic state of disrepair. The property manager is responsible for keeping the property in good repair if the tenant fails to do so. If the property is vacant, the property manager needs to look it to make sure there has been no vandalism and perform routine maintenance. They also make sure contractors and other repairmen are completing their work in a timely manner. Beyond the responsibility of the tenant, the property manager is responsible for keeping the property in a safe condition. For example, if a tree falls on the property due to a lightning strike, the property manager needs to go into action and have it removed as quickly as possible.
8. Ignorance of applicable laws and covenants. A good property manager will know the laws and the covenants applicable to the property under management. That knowledge includes, at a minimum, the rules governing each of the responsibilities outlined above.
If your property manager is failing in one or more of these areas, you need to remedy it quickly. Ultimately, the owner is responsible for the keeping the property in decent condition and keeping good business records pertaining to the income it generates. Do not let a poor performing property manager put you or your finances at risk.