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The best income properties aren’t always down the street, or even across town. Sometimes, they’re halfway around the world.
“When the average person buys an investment home, they want it to be in the backyard so they can personally manage it,” says Jeffrey King, co-founder of Meridian Pacific Properties, Inc., a San Diego-based company that specializes in purchasing, renovating, managing and selling out-of-state investment properties. “However, the best investments don’t always sit in your backyard.”
Whether an individual already owns a foreign property or is planning to purchase one, it’s important to consider how to protect the investment from afar. Oftentimes, the answer is a local property manager.
— Jeffrey King, co-founder of Meridian Pacific Properties, Inc.
An individual’s first step toward finding the right property manager is to understand his or her needs regarding the foreign property. Someone who owns a vacation home, for example, may need a caretaker who periodically checks on the property and takes care of upkeep and home maintenance costs, such as any repair issues that arise. Someone who owns an income property, on the other hand, will likely need a property manager who takes care of maintenance issues or tenant concerns, such as rent collection. Finally, someone who’s looking for a potential income property, but doesn’t yet own one, may need a property manager who not only manages an income property, but can also find potential properties.
Jackie Fitzgerald, director at Homes or Houses Ltd., a U.K. firm that provides property sourcing and letting services to expatriates and foreign investors, says a reputable company may offer the following range of services:
· Ensuring management practices are legal and compliant with regulations
· Collecting rent and sending it to the owner at his or her preferred timing and frequency
· Ensuring the owner is aware of his or her tax obligations (while not actually providing tax advice)
· Addressing maintenance issues and tenant concerns
· Performing tenant evictions, if necessary
King recommends starting one’s search online. “Any good company these days should have an online presence,” he says.
Another option is trade associations, which often have member directories listing property managers by location or specialty. In the United States, for instance, there’s the National Association of Residential Property Managers or the Institute of Real Estate Management. In the United Kingdom, meanwhile, there’s the Residential Landlords Association or the National Landlords Association.
Perhaps the best way to locate a property manager, however, is through referrals, which can provide peace of mind. Along with friends and colleagues, King says a good source of referrals are the professionals who helped individuals purchase their properties in the first place — for instance, local real estate agents, mortgage brokers and attorneys.
Before hiring a property management company, it’s critical to vet it. Individuals should start by reviewing the firm’s formal credentials, which may include a government-issued license or voluntary certifications. To find out what’s required in a given area, one should check with relevant trade associations or the local government’s licensing bureau.
Assuming the firm is legal, an interview with its principal is in order. King and Fitzgerald recommend questions such as:
· What’s your property management rate? “Property management rates definitely differ throughout the nation and world,” King says. “Generally, they range from 6 to 15 percent and average around 10 percent. Typically you will find when rents are higher, the rate is lower, and vice versa.”
· What are your fees? “Usually property management companies will charge an override for services they outsource,” King says. “That override ranges from 5 to 20 percent. Thus if they hired an outside contractor to fix the plumbing on a rental home, they’d mark up the plumbers invoice by 10 percent in order to cover the costs for coordinating the repair. When property management companies get bigger, they typically have an internal-service team, which they use for most home maintenance issues. When this is the case, they typically publish their service rates.”
· What’s your vacancy rate? Some firms may report physical vacancy (i.e., properties without tenants) and also economic vacancy (i.e., properties with delinquent tenants).
· How quickly do you deposit rent? Property managers who collect tenant rent should pass it on to the owners at a frequency of their choice. Generally, rent is deposited immediately and paid to the owner within 15 to 30 days. (A convenient, fast and easy online foreign exchange service can help with money transfers to owners.)
· What’s your typical lease length? Because property managers make higher margins on leasing properties than managing them, beware of those who push for short-term leases. Those with long average lease terms — 12, 18 or even 24 months — may be more likely to place the property owner’s best interests ahead of theirs.
· How often do you inspect the property? Property managers should regularly inspect the property for damage — typically every three to six months.
· If there’s a maintenance problem, will you handle it? Property managers should be able to receive and execute all maintenance requests from both tenants and owners.
· How do you vet tenants? Most property managers qualify tenants based on a rent-to-income ratio; if they make three times the rent in income, they qualify. The best companies, however, also take into account tenants’ debt, and include references from the previous landlord and their employer, along with credit references.
· What hours are you available? Foreign property owners, especially, should expect their property manager to be reachable 24/7 by phone or email.
· Can you provide references? Individuals should ask for three or four references — preferably from long-term clients and clients who have multiple properties under management, as they will have more history and experience to draw from.
In the end, it’s important to listen to one’s gut — whether onsite or 5,000 miles away. “Pick up the telephone and talk to an agent,” Fitzgerald says. “Whatever your instincts tell you is usually right.”
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