I'm looking at some turnkey properties. I see property managers charging just 8% of rent and thats not much considering rent can be less than a 1k a month. I also seen turnkey rentals where they even set up the LLC and do all the work for you. I just have a hard time believing $50-$100 a month in fees is really worth it for them.

@Jimmy Klein

Hi Jimmy,

Many property mangers assist with maintenance and put margins on top of the work done.

I consider this a maintenance scam.

Too many operate in this way.

Lets say they manage 100 houses and each has 10 maintenance requests per year. If they put a $50 margin on ever repair $500 x 100 = $50,000 lollol

Then you can include the costs to lease a property and also the monthly management the get.

Thanks.

@Jimmy Klein

PMs very often also charge initial rental fee (50-100% of first monthly rent) and/or lease contract renewal fee (25-50% of first rent). Plus often, an up-charge (10%) for maintenance, repair, and rent-ready work.

I just received a contract where they get all late fees. Has anyone else ever seen that?

I manage close to 300 homes. We make a little juice off the 15% maintenance mark up, but that barley covers the General Liability and Workers Comp insurance which cost me close to $15,000 last year. We charge 75% of the first months rent, but with a vacancy rate of 3.5%, we don't get to lease up that many properties, plus part of that 75% is used to cover leasing agent commissions and marketing cost. We do keep late fees, so that helps. But the bulk of our bottom line is made up of the 8% maintenance fee. I am staffed to cover 500 properties as I am pretty confident I will be there by the end of next year--I would rather have the pieces in place now and be ready as business grows. I am a turnkey provider and with that, having a well oiled machine on the PM side is very important for the growth of that business. So for now, I barely turn a profit--last year, the bottom line was around $25,000. That is a ton of work for that type of margin.

As to Engelo's comment about having 10 maintenance calls on each house a year--I can tell you that any savy investor would call BS on that. I would be fired in a second if we billed out that much maintenance. We have very little maintenance on the properties we manage, but then again, most houses I manage are properties we sell. Since all the properties were sold turnkey and our buyers get inspection reports, which we fix 90% of the issues found on the report, maintenance calls are just not that much.

Basically there are 2 ways to run a PM company. The first way is to run it right, carry the right insurance and licenses and staff it so that the tenants and investor owners receive excellent customer service. The other way is to run lean, run it without a license, carry $0 in insurance, etc. The second way is no doubt more profitable, but maybe not sustainable. I came across 4 local property managers in the past 2 weeks where I am hearing they are hoarding rents or stealing from investors. That is a likely outcome in my scenario # 2.

Jerry, we collect the late fees too. I spent this evening texting and calling 13 investors to see when they are going to pay. Tomorrow morning, my outside project manager will stop by each of the houses we do not make contact with today. There is a lot of work that goes into collecting a debt from a tenant.

I did a comparative analysis last year in my own market and found that most companies do collect late fees.

The one thing I would say that I see is gouging from a Property Manager is the re-lease fee. Some companies will charge the property owner a fee to get a tenant to re-sign a lease. We don't do that b/c the amount of time that goes into a release is very minimal. Basically we make a call to ask the tenant their intentions 60 days before the lease is up--if they want to re-sign, we draw up a new lease and set an appointment to resign. Entire process takes about 10 minutes. I can't see charging for something that takes little time or effort.

@Alex Craig

Awesome information. I sent you a colleague request.

One other thing I would like to add. When I did our cost analysis of other PM companies in my market, no matter what the fee structure was (lease up fees, re-lease fees, monthly fee, etc.), most PM companies all evened out to a very close bottom line cost to the property owner.

There were a few bottom feeders leading the pack with low cost services, but those are the ones you have to be the most skeptical about. You really have to question how effective a Property Manager can be with cost that are considerably lower then their competition. Save you money on generic mustard and pickles, but don't save your money on a low cost leader in Property Management. The Wal-Mart approach does not work in this space. After all, would you invest your money with a unlicensed Stock/Fund Planner running his business out of his house? Of course not, Property Management should be no different.

@Jimmy Klein

Got it and thanks!

Originally posted by @Jimmy Klein :
I'm looking at some turnkey properties. I see property managers charging just 8% of rent and thats not much considering rent can be less than a 1k a month. I also seen turnkey rentals where they even set up the LLC and do all the work for you. I just have a hard time believing $50-$100 a month in fees is really worth it for them.

Jimmy -

I think it is important to read what @Alex Craig said and choose a property management company that understands business. You are right to be concerned about the financial side. You want to be confident that the PM company (whether it is Turnkey or not) is stable and financially secure. You do not want to be over-charged and under-served so just ask a lot of questions. How do they provide service? How many employees? How do you get ahold of them? What is their full list of revenue streams (hint: there should be anywhere from 7-10 each month)?

Again, you do not want to be over-charged, but a well-run property management company will carry a full staff to provide great service not only to you but also to your tenants. That takes staffing, training and commitment and that takes revenue.

best of luck as you get started -

Chris