Low Rent Rates and Hiring a P.M.

3 Replies

Next Tuesday I am meeting with an owner of 2 small 6-plex units. They are 1/1 with one of the 12 units being a 2/2, and are all currently rented. The average monthly rental is around $350 (I think, I’ll know more info after meeting with the owner.) I’ve had a few self-managed properties a few years ago, but currently don’t have any investment property. From talking to other investors, I’ve heard that most PMs charge about 10% of the monthly rents, plus 1/2 of the first month rent. My main question is, do property managers typically charge a higher percentage on units that have lower rents? This is in rural Arkansas. Secondly is the profit per door the most important? If I can get numbers to $50/door ($600/month), that will equate to a 15% cash on cash return.

Pat Alford

    @Pat Alford im not sure i understand your qwestion re "If I can get numbers to $50/door ($600/month), that will equate to a 15% cash on cash return."

    what is $50/ door? are you paying 50k per door for 1 bedroom unit in Rural AR??? 

    Some managers that charge 10% don't charge half a month letting fee.

    All currently rented means nothing. 1 bed units turn over faster than 2 beds. Some exceptions are seniors who do not need more space or college town with students.

    Rest of population tends to outgrow the space quickly. 

    So look at the books of the owner to see how long tenants have been there in years, pay history, amount of turnover each year,etc.

    On low end rentals management of 10% is common and sometime can be 12% or 14% in rougher areas.

    Think about this.

    350 a month times 12 units = 4,200 X 12 = 50,400 gross income 

    That is in a perfect world. At 10% that is about 5,000 a year to manage such a property. Would that low amount get you motivated? You would need a PM company who is local and wants to absorb more units in the area because they are already there.   

      

    @Pat Alford

    Hey Pat, property management companies will not charge you a higher % based upon the rent amount. It is more so based on the size and class of the property. Keep in mind (and be prepared) that 1/1 units with low rents often have high turnover. Make sure to factor increased turnover, high repairs and maintenance, and bad debt into your analysis.

    To answer your second question, yes profit/cash flow per door is one of many important figures to factor in. Ensure you really analyze the competition and that there is demand for 1/1 units in a rural area. Run some test ads on Craigslist, and if very rural, possibly even put out some "for rent" bandit signs leading up to the property. 

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