Property management is a crucial part of any rental investment strategy. A lot of people will do the property management themselves, and many people will also hire a professional property manager. I’ve seen the whole gamut of results with both approaches.

In my opinion, property management is the single biggest factor in determining the ultimate success for a particular investment. You could buy a great property at a great price and lose money because you operate it poorly.

For this post we are going to focus on hiring a property manager and what the top 4 questions to ask. The key for all of these questions is to make sure to ask lots of follow up questions. If you don’t understand a term or something they are saying seems questionable, then make sure to clarify with the property management company.

Four Questions You Need to Ask Prospective Property Managers

1. What is the market like?

This is a question that you should know yourself, but it’s always good to get the opinion of someone who is handling tenants all day. It also gives you an idea of their mindset.

If the property manager answers that the market is seeing declining rents, but everyone else you talk to says that rents are going up, then you may have a problem. Many of the property managers will try to manage expectations on rent growth and vacancy rates. By asking what the market is like you, should get some color on how aggressively and proactively they are going to manage your property.

The other thing that this question does is allow you to gauge their knowledge of the market. Are they talking from lots of experience or just reciting the latest REIS market report? Don’t interrupt them and bail them out. Allow them to talk as long as they like. The good property managers are a wealth of information and are usually glad to share it.

2. What fees will you charge me?

Fees are a big way that sleazy property managers will try to trick owners. There are fees for lease ups, fees for turns, fees for applications, fees for collecting rent and fees for them breathing air (or at least it seems like). The problem with fees is that they can create a conflict of interest.

I always suggest trying to get a flat rate payment structure. Usually 8%-10% for single-family homes and 4%-5% for apartments. This is not an area where I’m trying to save money necessarily. Having a good property manager is more valuable than gold. If you find a good one make sure to compensate and incentivize them — it will make you way more money in the long run.

3. Can you send me some referrals?

This is huge. Before you hire a property manager, do all the possible research on them that you can.

Look on Google, Yahoo and Yelp, talk to the residents at a different properties they manage — and certainly contact other owners. If the property manager is hesitant to connect you to other owners they work for, then you should be hesitant to hire them.

4. What is your plan for my property?

Sounds like a simple question, but it’s surprisingly complex.

Are they just going to sit there and collect rents? Are they going to try and improve the property and raise rents? Will they be aggressive in evicting problem tenants? This is huge for you as an owner, and you need to understand the strategy for your property.

The other important part about this question is to make sure that your plan for the property is feasible. You my plan was to fix it up, bump rents and then refinance it at a higher value. After talking to your property manager, you may realized that your being too aggressive on my rent estimates and decided to take a different financing option.

As a follow up question, you should also ask what the plan is if things go wrong. How would you lease the property if five tenants all left at once? Put them on the market one at a time? Drop the price for all of them and put them on simultaneously?

The point isn’t to figure out every single situation, but to get a gauge on how the property manager operates and thinks.

But most importantly, make sure to hire the highest quality property manager in the end. Don’t be penny wise and pound foolish.