Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
I'm interested in comparing fees with other areas of the country when it comes to the management of smaller multi-family units (anywhere from 5-50 units). What type of fees are you guys getting for the buildings you own and what comes with it? I own a property management company in Central NJ and in addition to managing your typical 1-4 family property we also manage small multi-family complexes. The answer obviously varies based on where the property is located and what type of tenant is in place (student rental, senior living, yuppies, low income, etc) but we typically will charge 6-10% with a $100 leasing fee per door. The larger the unit, the lower the fee for us. I have seen some fees at 6% in Arizona and Texas for 50 units and some at 10% plus first month rent for 15 units in NJ.
What type of fees are you guys getting for the buildings you own and what comes with it?
My first deal in Austin 7 years ago was a 48 unit and I paid 4%.
We third party manage ourselves now and we have a minimum of $1,200-1,500 or 6% whichever is higher.
Also, we don't charge any other fees unless on an a la carte basis they want help with construction management, or tax protest or insurance help. Construction is 10-20% depending on how much of the project you want us to handle and tax protest/insurance is 10% of the premium or tax savings.
@Peter T., I pay 6% in one market and they do not charge a la carte for maintenance, lease renewal, etc. They do charge backs for court costs as related to evictions and they take first months rent for new tenants. In another market, I pay 10% and they charge for lease renewal, 10% to manage contractors, and some other fees. For instance, they charge me 10% for coordinating lawn care. The big difference between both are the 10% PM offers better service and works well for out of town investors who don’t want to be hands on.
Note, when you add of the few hundred in PM fees each month, you may start to wonder, do I want to start a PM company. I used to think they were very lean as Ken McElroy states, but is it? If you have very high standards and you want to be involved in many decisions and are constantly being let down because no one carries about your properties more than you, PM sounds more appealing.
My first deal in Austin 7 years ago was a 48 unit and I paid 4%.
We third party manage ourselves now and we have a minimum of $1,200-1,500 or 6% whichever is higher.
Also, we don't charge any other fees unless on an a la carte basis they want help with construction management, or tax protest or insurance help. Construction is 10-20% depending on how much of the project you want us to handle and tax protest/insurance is 10% of the premium or tax savings.
4%? Oof, they worked for nothing. We like doing no fees as well. Flat fees are easy to understand and frankly I have to spend several minutes explaining to clients that there is nothing else hidden haha. We charge a very modest $100 fee per door for Leasing but that's the only additional fee in our package.
We also do construction project management like you, we're a bit on the lower end, we'll only add on 10% of the total cost to project manage it all.
Tax protest and insurance is an interesting value add for larger scale buildings. Not sure it's worth our time for the 1-4 family stuff.
@Peter T., I pay 6% in one market and they do not charge a la carte for maintenance, lease renewal, etc. They do charge backs for court costs as related to evictions and they take first months rent for new tenants. In another market, I pay 10% and they charge for lease renewal, 10% to manage contractors, and some other fees. For instance, they charge me 10% for coordinating lawn care. The big difference between both are the 10% PM offers better service and works well for out of town investors who don’t want to be hands on.
Note, when you add of the few hundred in PM fees each month, you may start to wonder, do I want to start a PM company. I used to think they were very lean as Ken McElroy states, but is it? If you have very high standards and you want to be involved in many decisions and are constantly being let down because no one carries about your properties more than you, PM sounds more appealing.
How many doors are they managing for each of those fee structures?
For construction managment, the 20% is only if they want us to do it all meaning procure all materials, gather all of the bids and manage the entire project on-site as well.
if the management company is performing to your satisfaction they are worth every nickel they make. typically a crappy business but should be profitable as the daily tenant/owner whining if they manage a large portfolio is brain damage. add that to finding, keeping and managing good employees/contractors and maintenance people, maintaining multiple escrow accounts, getting audited occasionally etc... they certainly arent doing it for the sheer pleasure and adoration lol.
the most important issue with property management is ARE YOUR UNITS PERFORMING as they should be? do they communicate, place good tenants, collect rents on time, get the units turned and re-rented quickly?
property management is typically the weakest link in real estate investing and is the primary complaint when talking to investors.
cost, value and performance rarely relate to price.
I just don't see how a company turns a profit sub 5% fees unless they're making up for it on the back end with lots of added fees.
PM's can make money charging 3-5% on larger properties because there is scale. They have a lot of income coming in, so 3-5% ends up being a big number. On larger properties there is also on site payroll employees that the owner pays for. For each 100 units, you will have an on-site leasing person and maintenance tech. The other thing they typically do is pass on the admin costs.
For smaller properties, the PM is collecting a lot less, for a similar amount of work, even with the larger percentages. They also have to do a lot more on site visits, scheduling, etc because there is no one on-site each day.
The big thing that is often missed with PM's is that they may charge 8-10%, but they also charge leasing fees. If you have typical turn over of 40% of your building, this could end up being around $250-$500+/unit, which on a 10 unit building would be $1000-$2000/year.
Lease extension fees are another big one. Many companies charge a fee to renew leases, so if 60% sign again and they charge $100, that would be $600 on a 10 unit. They also usually charge more for maintenance because they aren't on-site at the property all day like a larger building.
@Todd Dexheimer, yes, my PM charges $150 for lease renewal. That does eat into profits but they are highly professional. I had a cheaper company and they were substandard and that’s why I switched
For clarification, I believe the % of PM fee this post is referring to is the EGR (Effective Gross Revenue), which is total potential income minus vacancy.
So a 10% PM fee means 10%*("Potential Gross Income" - "Rent Abatement" - "Vacancy")
I typically use 8% for my underwriting, but this depends on your market area. The actual cost can differ by a little bit.
@Jay Chang, how is rent abatement related to the PM fee for the investor? “Rent abatement is a provision that may be included in a commercial or residential property lease. It entitles the tenant to suspend rent payments or pay only a portion of the rent until a landlord completes property repairs.”
@Jay Chang, how is rent abatement related to the PM fee for the investor? “Rent abatement is a provision that may be included in a commercial or residential property lease. It entitles the tenant to suspend rent payments or pay only a portion of the rent until a landlord completes property repairs.”
Not sure how this relates to the question.
I think he was just demonstrating how they get to 10%. A 10% fee doesn't always mean 10% of rent. Sometimes there is vacancy, sometimes the tenant wants a rent credit (abatement).
@Peter T., I didn’t realize there was a formula. I’ll go ask my 2x PMs about this.
As a reference, we use X% of gross rent collected for the month (we exclude late fees from that), so if for some reason we didn't collect all of the rent for the month, we're not charging you X% of what the rent SHOULD be, we're charging X% of the rent you received that month. I presume many other companies are similar.
@Peter T., I didn’t realize there was a formula. I’ll go ask my 2x PMs about this.
As a reference, we use X% of gross rent collected for the month (we exclude late fees from that), so if for some reason we didn't collect all of the rent for the month, we're not charging you X% of what the rent SHOULD be, we're charging X% of the rent you received that month. I presume many other companies are similar.
Peter,
Exactly what I meant Peter, thank you for clarification. This incentivizes the PM to collect as much rent as possible.
@Peter T., I couldn’t imagine it any other way. It just seems logical to charge X% for rents received. There’s no incentive for the PM get the entire rent owed if they’ve already made their money.
The PM I use charges 10% of collected rent and no lease-up fees. Question: Is it typical for PM to keep tenant late fees? My PM doesn't do that, but I spoke w/a turnkey company provider that does. It seemed strange to me, but I don't have enough experience to know how common or uncommon that is.