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Myths About Managing Commercial Income Properties

Myths About Managing Commercial Income Properties

Hiring a property manager who treats your investment as his own isn’t easy to find.

Amid war stories of managers who’ve faked rentals, absconded with the rental money, failed to make timely repairs until it was too late, or worse… you may be wondering if it’s truly possible to find a reliable manager.

It’s definitely possible – and in fact, finding a good property manager is a necessity if you plan on becoming a successful commercial property investor.

Before you start looking for a property manager, however, it’s wise to ensure you have a business plan that includes sensible exit strategies for the property.

ensure you have a business plan

A business plan will help you determine your property’s strengths and weaknesses, so you can capitalize on the former and minimize the latter. It will provide you with a reasonable picture of the competition so you can set performance benchmarks that can be used to measure not just your property’s performance, but the property manager as well.

Once you’ve written a business plan and shown it to the rest of the members of your team, it’s time to start searching for a property manager. Below are several crucial tips to consider before you hire a property management company.

Verify they have experience with your property type.

When hiring a property manager, make sure they are licensed and have experience in managing your specific type of property. Don’t rely on their word, however. Ask to see proof.

There are two types of licenses; one is a Property Manager, and the second is a PMIC – a licensed property manager in charge. A PMIC is licensed to run their own company and supervise other property managers; both will have a state-regulated procedure in place to handle your rental income and security deposits.

Check references, and ask for the address of other properties managed by the company and the individual property manager who will be handling your property. Drive by and take note of the condition of the property. Is the building in good repair? Is the landscaping neat and taken care of?

Walk around in the building to get a feel of how the building is being managed, and ask the tenants if they are happy with the property and how it is managed.

Check the rate of eviction and the vacancy rate for the tenants in their current properties.
A higher than normal eviction rate could point to a failure to properly vet tenants. The same is true for a higher than normal turnover rate.

Beware of property managers who charge for finding a new tenant; some unscrupulous ones making money on the evicting and finding of new tenants, and have little incentive for long-term tenants.

Ask how repairs and maintenance issues are handled.

Do they hold back a designated sum of money from the rental income collected money? Or do they send you a bill each time a repair is made?

Decide on how much money the manager may spend on a repair without contacting you; anything above that amount will require the manager to contact you for approval.

Don’t drop the ball after the property manager is hired.

property manager

Even after deciding to hire a manager, it’s a smart idea to include a three month trial period. Here are some things to watch out for:

  • The company isn’t meeting with on-site management regularly
  • Late or non-existent property reports
  • Higher than market vacancies
  • Higher expenses
  • Poor communication
  • Arguments

Don’t wait to remedy the situation: meet with the company’s management immediately. Be specific about your concerns, and demand a written solution, the date the solution will be implemented by, and the exact name of the person who is responsible for implementing the solution.

Is the management fee consistent with the market?
While there is no standard management free, generally fees range from 8-10% of the monthly rental amount of the tenants. If the proposed fee is drastically higher or lower, ask why.

Make sure regular property inspections are carried out.

Properties should be inspected four times a year, and internally at least once a year. Although the property manager should always check a property after a tenant vacates the property, long-term tenants also need regular inspections as they might not always notice or report a major problem. This is particularly the case with multifamilies.

One of the best ways to find a reliable property manager is through other investors. Even if you don’t live in the same area as your property, you can probably find someone who does by asking around, either in person or online. An experienced commercial real estate broker is also likely to know trustworthy property managers.

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Tags: commercial income properties, commercial property investment, Commercial Property Investors, commercial property manager, commercial real estate income properties, property management