At what size is it necessary to find a property manager to run the property for you? Also, what is a typical rate/what are their responsibilities? (I've seen 10-15% of NOI but not sure if that's true). How do you go about finding property managers that are reliable and experienced?
Andrew, You can get a management company to manage as little as one door. I have a management company handle my SFHs and it is worth it to me. Yes, they take a percentage of the gross rent/month but I do not have to deal with the showings/evictions etc. Most management companies in my area are around 10%, and I think that is about standard, but you can negotiate them down if you have more than one property. I would ask for referrals to get a good company. You can ask around and see what other landlords are doing in your area. Once you find a few good management companies, call them and see what kind of rate they will give you.
I hope this helps
@Andrew Moran - it really depends on your situation and what systems & processes you have in place. Here is an example from my situation, I use to manage 24 units myself, while working a full time job. I could have easily managed another 15-20 tenants. I used Buildium for property management software, used a call center for taking & screening incoming calls, and had a reliable maintenance person. My general time for managing those units, plus admin/accounting work took me about 2-5 hours a week. I also did affordable housing which can be a more challenging and time intensive tenant base. Now, if we were renovating a building, or turning a unit, my time would go up. I found it ended up being more mentally draining than it was the actual time spent.
Currently I have 12 tenants in one state, which I could manage, but since I am out of state I use a property manager. Then in my current state where I live, I only have two tenants, which I self manage, but I also have a short term rental which I use a management company for all the screening & marketing. The two tenants I manage myself takes about 15 minutes a month. I could easily manage the short term rental, but I don't want to spend the mental capacity on it.
Rates - they really vary depending on the type of property and tenant base. You can see rates typically between 6-10% and up. When I turned over my 24+ units I was at 6%, simply from the volume I had. Now I currently pay 7% with no lease up fees. Some managers also charge a lease up fee that can be a portion of the rent. As an example, if they place a new tenant they could take half up to a full months rent for finding the tenant on top of the monthly percentage. There are some management companies, as an example down on the NC coast, where you have weekly turn over, that charge 20% of the rate.
The best place to find a good property manager is from existing investors. Network with then at a local meetup or REIA meeting. Ask who they use. You can do a Google search and find property managers and read reviews online. But I rather have another experienced investor give me a referral.
Cheers - AK
@Bruce Morris that helps a ton actually! I've tried to do my research online and in books but it's nice to hear from a real life experience. Thank you!
Most investors turn to management companies when they no longer can or want to manage the investment(s) themselves. Many companies charge 10%. Be sure that that is 10% of collected rent. If a tenant is not paying, the manager should not be charging, imho. Some companies will charge a lower rate, say 5-6%, but will charge it whether the unit is rented or not. That doesn't provide much motivation for them to fill vacancies. Most importantly, speak personally with the people in charge of the company. You must feel comfortable and have a sense of confidence with them, and check references.
@Andrew Kerr wow that's fantastic! Thank you for sharing that information with me
@Andrew Moran Depending on where you are investing you could have a property manager for as little as a one family. Most property managers I have come across charge about 8-10%. I would say use BP to network or talk to neighbors in the area you plan to invest in to get referrals. If someone has had a great or terrible experience with a property manager, they will probably be happy to share with you.
@Andrew Moran In the past, I had a property management company manage a couple small rentals for me because I had a very demanding day job and traveled a lot. They focused on managing single-family and small multifamily buildings. I believe they managed 500+ units with more than a couple hundred owners. They had multiple property managers at the company and assigned you one. I met with the owner of the company but not the person that ended up managing my units. Overall, her performance was sub par and she wasn't great at customer service/getting along with the tenants. Eventually, I asked for a different manager at the same company. His communication was great and he provided great customer service. If I were to do it again, I would absolutely meet with the person that was going to manage my units directly, not just the owner. Just something to keep in mind when you are interviewing PMs.