Cost of property management company

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Cost of property management company

Samir Shahani

Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes

I just engaged my first property management company.

They suggested that to find a tenant it will cost 1 months rent for commission split.

AND

On an on-going basis, we will be putting the property under their management, which will cost 10% of revenue (rent).

Does this sound reasonable for SFH's?

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

@Samir Shahani this is why it is important to investigate before you start investing. You can't buy a property without knowing all the costs, to include taxes, insurance, management, maintenance, etc. When you set aside funds for maintenance, you need to actually know what it costs to replace a water heater or change the locks or snake the sewer line. When you budget for property management, you need to actually know what property management will cost.

Property management is worth its weight in gold if you find the right company/manager. I recommend people look for the right manager before they look for property. Otherwise, you may panic after closing and just go with the one that has the flashiest web site or the lowest (advertised) fees.

That said, it is common for a manager to charge up to one month's rent to place the tenant and then a percentage of the rent collected after that. Shop around before locking yourself into an agreement. but also understand that the cheapest isn't necessarily the one that will make you the most money.

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Samir Shahani
OP
Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
9y
In my initial calculations I only accounted for 10% of rent.
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Clay O.
Investor · Tulsa, OK · Member since 2017 · 102 posts · 88 votes
9y
The two that I have engaged in the past charged 75% of the first months rent and then 10% of rent there after.
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Samir Shahani
OP
Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
9y
@Clay O. What happens when a new tenant is required after yr 1? Do they make you pay 75% first months rent again?
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Clay O.
Investor · Tulsa, OK · Member since 2017 · 102 posts · 88 votes
9y
Yes - Whenever they place a new tenant they charge the 75% fee.
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Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
9y
Place your own tenant and just give them 10% to manage thereafter.
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Justin B.
Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes
9y
In most places, Yes, 1 month's rent + 10% is the norm for Property Management. Yes, in some areas it can be better than that, but if you are looking for the answer "most" of the time, yes, that is the norm. And please don't someone speak up and say I've never paid that, because you are in one of those areas. If you have 100 properties in one of those areas, it may be true, but I'm speaking solely to the majority of areas (and only for SFR's, MFR's can be a different story).
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Christopher B.
Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
9y
I said I wanted to help hardworking family and friends along my endeavor to be truly wealthy. So, I was thinking of having a family handyman take Maintenance calls from tenants at maybe 5% of the rent per month, as they would not be collecting rent, or placing tenants. Maybe at some point, they could show the property during vacancy, after having accompanied me some amount of times. I would need to think through further if they would be paid for all repairs they actually perform; Or would I do all repairs beyond 2 hours, and of course I pay for parts. If they bring in a Specialty Contractor, then they collect nothing additional to their 5%. The part I worry about is insurance, in them somehow getting hurt in any of this. This would be for Sfr, and 1-4 unit properties. If I scale further up, then it might require an actual Property Manager, because I can't be there to screen that many tenants.
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Franco Li
Vendor · New York, NY · Member since 2017 · 217 posts · 88 votes
9y
That is market, and I'm not sure where you would find something less. Perhaps if there rental rates were higher in that area, you can argue for a lower % so the notional is average.
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Christine Kankowski
Real Estate Broker · Temecula, CA · Member since 2014 · 992 posts · 782 votes
9y
markets differ. CAll around in your area to get some pricing. Make sure they do a full photo inspection of the property prior to tenant moving in.
In my area it is less, but in another area where I own, it is about what you indicated.
Ask if they are a member of NARPM? How many hoses they manage, how they handle maintenance - is there an upcharge? Is there a charge to you for lease renewal? Who gets any late fees collected? Lots of questions to find the right manager for you.
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Christopher B.
Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
9y
Originally posted by @Christopher B.:

I said I wanted to help hardworking family and friends along my endeavor to be truly wealthy. So, I was thinking of having a family handyman take Maintenance calls from tenants at maybe 5% of the rent per month, as they would not be collecting rent, or placing tenants. Maybe at some point, they could show the property during vacancy, after having accompanied me some amount of times. I would need to think through further if they would be paid for all repairs they actually perform; Or would I do all repairs beyond 2 hours, and of course I pay for parts. If they bring in a Specialty Contractor, then they collect nothing additional to their 5%. The part I worry about is insurance, in them somehow getting hurt in any of this. This would be for Sfr, and 1-4 unit properties. If I scale further up, then it might require an actual Property Manager, because I can't be there to screen that many tenants.
Bump
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
9y
@Samir Shahani this is why it is important to investigate before you start investing. You can't buy a property without knowing all the costs, to include taxes, insurance, management, maintenance, etc. When you set aside funds for maintenance, you need to actually know what it costs to replace a water heater or change the locks or snake the sewer line. When you budget for property management, you need to actually know what property management will cost.
Property management is worth its weight in gold if you find the right company/manager. I recommend people look for the right manager before they look for property. Otherwise, you may panic after closing and just go with the one that has the flashiest web site or the lowest (advertised) fees.
That said, it is common for a manager to charge up to one month's rent to place the tenant and then a percentage of the rent collected after that. Shop around before locking yourself into an agreement. but also understand that the cheapest isn't necessarily the one that will make you the most money.
The DIY Landlord Book4.7248 Reviews
Website View Page
3 Reply
Samir Shahani
OP
Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
9y
@Nathan Gesner thank you. Well written and duly acknowledged.
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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Don't forget to also add maintenance mark ups, both above the table and below the table ... of course they will not tell you about the mark ups below the table but if they regularly charge 2x market rate for standard repairs, you know the invoices are being marked up ... you may ask them for a list of repair costs for standard visits/repairs and compare to market rates. Also you have cancellation fees, they keep late fees, and lots of other garbage fees so read the fine print in the contract and ask lots of questions. Another cute one that I've seen is that some PMs will actually charge the tenants garbage fees on their application and/or on top of rent and argue that it should not matter to you the owner since you don't have to pay them, as if that income doesn't affect the rentability of the property or wouldn't otherwise go into your pocket if the tenants didn't pay it out to the PM. Lot's of devils in the details and lots of ways to get ripped off by a PM ... caveat emptor.
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