How to negotiate terms with a property management company?

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How to negotiate terms with a property management company?

Patrick OrahPro Member
Investor · MD · Member since 2020 · 58 posts · 22 votes

Hello BP community, I am looking for a property management company to help me manage part of my portfolio and future properties. I have been managing my properties by myself up to this point and as you know it can be a lot. Does anyone know what to expect when discussing terms for property management? 

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
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@Patrick Orah

Pay an attorney to review their agreement. One of the biggest things to look at is the indemnification agreement. Many are written that even if the manager does something unlawful you have to pay their legal bills.. let that sink in.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
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    Most have standard terms of how they operate. They may do slight discounts on their monthly fee if you have multiple properties.  Find out how much they charge each month, their placement fee, their renewal fee, how long it takes for them to pay you the rent and how it works for repairs (over what $ amount do they need your permission to do repairs).  Ask general questions about how long they've been in business, how many properties they manage, how long places are vacant at turnover, etc.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
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    @Patrick Orah

    Pay an attorney to review their agreement. One of the biggest things to look at is the indemnification agreement. Many are written that even if the manager does something unlawful you have to pay their legal bills.. let that sink in.

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Chris Seveney

    That is wild. Yea I plan to read the fine print and I will take your advice and get with an attorney to review their agreement. Thanks for you for your response. 

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Theresa Harris

    Thank you for your response. I always wondered if there are PM companies that offer  a-la-cart services. For instance at one of my properties, I have a duplex, and I have a handle on rent collection and other services but I need most of my help with maintenance calls. 

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  • Nathan GesnerBusiness Member
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    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
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    Quote from @Patrick Orah:

    @Theresa Harris

    Thank you for your response. I always wondered if there are PM companies that offer  a-la-cart services. For instance at one of my properties, I have a duplex, and I have a handle on rent collection and other services but I need most of my help with maintenance calls. 

    I don't know any successful property management companies that provide ala carte services or that customize their fees for each owner. It's just not a sustainable business plan. I have a standardized policy with standardized rates. My only change is that I reduce the management fee for owners with eight or more units under my management.
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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
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    Originally posted by @Patrick Orah:

    @Theresa Harris

    Thank you for your response. I always wondered if there are PM companies that offer  a-la-cart services. For instance at one of my properties, I have a duplex, and I have a handle on rent collection and other services but I need most of my help with maintenance calls. 

     I'm sure there are.  Usually it is with finding tenants, but it never hurts to ask.  You could also have a handyman (or woman) you work with.

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Nathan Gesner

    Thanks for your input. I thought it was a reach to think that.

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Theresa Harris

    Finding a handyman/woman has been my biggest issue. I thought about going the route of building my own team of maintenance people but I am having trouble in that department. 

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  • Phong Thanh Ngo
    New to Real Estate · Portland, OR · Member since 2021 · 9 posts · 0 votes
    4y

    @Patrick Orah Specific to your difficulty in finding a handy-person, have you tried using services such as Angi or Thumbtack to source some based on reviews of their previous work within their community?  This is assuming that they have coverage in your market, but generally they do or it could be another similar service.  On a personal note, I've only had great experiences using them to find a handy-person where I could see contacting them and possibly establishing a more working relationship for all your properties.  It's unlikely that any would shy away from the potential of having consistent work.

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Phong Thanh Ngo

    Yes I have looked at thumbtack and continue to look for contractors that meet my need. I once relied solely on referrals but it has been hard to find contractors to consistently service my property especially if the work does not meet a big enough scope. I will keep searching. Thanks for your response. 

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  • Laura MarksBusiness Member
    Real Estate Broker · Independence, MO · Member since 2020 · 127 posts · 111 votes
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    Originally posted by @Patrick Orah:

    @Theresa Harris

    Thank you for your response. I always wondered if there are PM companies that offer  a-la-cart services. For instance at one of my properties, I have a duplex, and I have a handle on rent collection and other services but I need most of my help with maintenance calls. 

    Interview, interview, interview. I do al-a-carte services but it'll cost you a lot more than using us as your PM. We'll find a tenant for you at 100% vs 65%, if we're your emergency line, it's $50 per call with a mark up on the vendor bill. 

    816-592-1185
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  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    4y

    A lot of them stink which is why I started our own PM company years ago. It's a thin margin business and we are picky now so there really is nothing to negotiate. You're exchanging money for time and stress. It's a no brainer to do it if you want to grow. 

    My suggestion would be to talk to 2-3 companies and ask them questions. It's not all about fees. Occupancy rate is very important, do they get a fee on late fees (because if they do then what is the incentive for tenants to pay on time?). Do they know the procedures in your town for a rental? Like a fire safety inspection or landlord registration or CO inspection? Every town is different.

    Overall, it's a lot of work as a PM. A thankless business. This site is filled with do it yourself landlords who crap on the industry but there are plenty of really great companies, you just need to find them. 

    [email protected]732-289-3823
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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Laura Marks interesting… I didn’t think this type of service was available. I can see your point on how it can be more expensive. I figured all PM companies mark up on the vendor bills anyway.  Thanks for your response. 

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Peter Tverdov thanks for your response. I am compiling my questions now in preparation to interview a few companies. 

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  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
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    @Patrick Orah management is one of those things where I’d actually prefer to pay a premium and get the desired results rather than go bargain shopping. It’s a very low margin business to begin with and good managers are hard to come by. If you manage to find a good one, pay them a commensurate amount for their hard work so they can stay in business and keep taking care of your properties. My manager takes a lower percentage for clients with a higher number of units, but other than that their fees are what they are and there isn’t much to negotiate.

    1Reply
  • John Leake
    Rental Property Investor · Normal, IL · Member since 2016 · 170 posts · 85 votes
    4y

    @Patrick Orah I also self manage and am looking into software solutions to try and help make my life easier! I hope to wait until I have enough to have some negotiation power when the time comes. They will likely work with you more if you have volume I’m guessing smaller number of units is going to be a disadvantage so I would want to know what volume discounts look like going on so you have benchmarks to aim for!

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  • Patrick OrahPro Member
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    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @Steve K. thanks for your response and I totally agree with you. I have management fees factored into my variable expenses so the money is not the issue. My initial post really is about how the vet property management properly as I am in experience in that area. Based on the response in this thread and what I have read about mixed reviews about property management, when I find a good one I will definitely pay the fee and do what I can to be the best client. 

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  • Patrick OrahPro Member
    OP
    Investor · MD · Member since 2020 · 58 posts · 22 votes
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    @John Leake thanks for your response. It sounds like we are in the same boat and you are probably right about having volume. I will end up paying the highest rate if they even accept my Busniess. My problem is that I have small portfolio and I have been managing them myself without much trouble. I pray that continues. What this has done is trap me into believing that self management is not a big deal and I may not need a PM company but I want to cut that cord so that I scale so now I am in the search of a good PM company. 

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  • John Leake
    Rental Property Investor · Normal, IL · Member since 2016 · 170 posts · 85 votes
    4y

    @Patrick Orah

    My thinking is that with the 16 units I have I might as well save the money for now. I’m looking for a larger property this year if I can find something around where I live. Ideally I’d like to have about 50 units when I hand off management or build my own business of management.

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  • Joseph Gozlan
    Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
    4y

    A few things to pay attention to:

    • Are they managing properties of the same type as yours? Big difference between SFR, MF, commercial, short term rentals, etc. the most common mistake is to assume that a company managing 400 SFRs is capable of managing a 40 units apartment complex or the other way around. We manage large apartment communities but just not structured to manage SFRs and we won't take those on.
    • What’s included in the fee and what’s going to be extra? May management companies have fees for eviction, project management, late fees split, etc.
    • Are there any up charges? Some companies will sub a job (say rehab a unit) and up charge what the contractor charged them.
    • Do they do evictions? Sounds weird but I came across a few PMs that won’t do evictions 
    • Do they have their own crew or do the outsource everything. For example, a PM that has a certified AC guy on payroll would save you a ton of money on calling AC techs. 
      ask for references and actually call them!

    I’m sure there’s plenty more things to cover but these are the most important ones I could think of.

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  • Patrick OrahPro Member
    OP
    Investor · MD · Member since 2020 · 58 posts · 22 votes
    4y

    @Joseph Gozlan great advise and insight. I will add these to my list of questions. 

    1Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    4y

    If you have a 100 units then maybe you can get a deal. Or set up your own company. But as a typical Mom and Pop investor you are at the PM's mercy. Id say look for honesty and efficiency as the most important characteristics. Cost will not vary much on paper but in real life how they  screen, reduce turnover, handle maintenance, and evictions and rent increases will truly determine their cost and value.

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    4y

    @Patrick Orah As others have mentioned most have standard fees. Make sure overall you get a sense for their communication and make sure it meets your expectation. Also, make sure your expectation for communication is in line with the norm. Always remember they aren’t your personal PM, they manage a portfolio. 

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    The true cost is not the fee...it's the management of vacancy and maintenance and those are hard to assess during interviews.  Best source is referrals (and that's not a slam dunk).

    The truth - scale matters in REI. It's exponentially easier to manage a 30 unit property than 30 individual properties. Management fees and attention are better with 10 properties than a couple. It's easier to get contractor maintenance and rehab attention with scale (and less expensive)...and a big struggle without it. To combat these challenges, we either need to scale quickly or purchase properties with fat margins that allow for management inefficiencies.

    2Reply
  • Sandra Regnell
    Rental Property Investor · Vancouver, WA · Member since 2014 · 68 posts · 37 votes
    4y

    @Chris Seveney I just hired one on a trial basis and they asked to be named as additional insured on my homeowners insurance.

    That was a hard no from my end. They said it was “industry standard” which,after some calls, I found to not be verifiable.

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