General Landlording & Rental Properties

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Eric Sebast
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30% property management fee on long term properties?

Eric Sebast
Posted Jun 15 2022, 11:23

Was hanging out with a friend of mine in Nashville TN a couple of days ago, and I knew he had investment properties, but it's not something we've ever really talked about. Mentioned to him that we were under contract for our first (a duplex) and was just running through the numbers with him and he stopped me and said "You're only planning 10% for management fees", I was thinking he thought that was high and said yes, but once we got our door counts up we were expecting to be able to find a company that did it for 8%. He said I was way low and he's paying 30%, I asked if he was talking about an apartment complex or short term and he said no, multifamily buildings.

So my question is, is the Nashville area just crazy expensive for a property management company, is my 10% that I'm planning super low (I'm planning on managing it for a few months just to see how it goes before finding a PM, and I'm in upstate NY). Or is he being ripped off? I wouldn't think he's being ripped off, he's been doing it for a long time, and he runs a couple other businesses that do really well, but 30% sounds crazy to me as a newbie.

Nashville, Tennessee

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Zachary Cummings
  • Real Estate Broker
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Zachary Cummings
  • Real Estate Broker
  • Berkley, MI
Replied Jun 15 2022, 11:43

Hey @Eric Sebast

This does sound crazy high. Maybe he is taking into account capex and repairs too? I don't live in TN but ive never heard of anyone in any state paying anything over 12% for traditional property management. If I were you, I would call around to a few companies to get a feel for it. I like to say, trust, but VERIFY.

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Nathan Grabau
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Nathan Grabau
  • Realtor
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Replied Jun 15 2022, 11:44

30% sounds really high to me. I pay 10% plus a renewal/ placement fee of a couple hundred dollars. This comes down to what is being offered though. The PM service could include things like "free" maintenance or accounting. This seems unlikely but it could be justified if they are getting a lot for that 30%. In my underwriting I put 10% in for management, 5% for maintenance, 5% for capex, 5% for vacancy, so they could some how be charging for all 4 of those things. Seems unlikely at best, I doubt the property manager pays the owner when the unit is empty or if it needs a new roof. 

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Trey Schaefer
  • Birmingham, AL
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Trey Schaefer
  • Birmingham, AL
Replied Jun 15 2022, 11:57

Do you know if they require someone on-site? 30% is crazy high for traditional property management, maybe he's getting some additional services for that.

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Luka Milicevic
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Luka Milicevic
  • Real Estate Agent
  • Nashville, TN
Replied Jun 15 2022, 13:04

@Eric Sebast

I know many property managers in Nashville and can tell you that not a single one charges 30% in management fees for multi family LTR. 

He must be talking about an overall expense ratio of some sort, or including other expenses in that figure. If you own multi family buildings you are savvy enough to not be paying 30% in mgt fees. 

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Wayne Woodson
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Wayne Woodson
  • Investor
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Replied Jun 15 2022, 13:14

Let me manage the property and I'll only charge you 29.9% in management fees.

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Mike D'Arrigo
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Mike D'Arrigo
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Replied Jun 15 2022, 15:23

@Eric Sebast Ask him what that consists of. There would be no way to make any money with 30% management fee's. Something isn't right.

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Royce Talbo
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Royce Talbo
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Replied Jun 15 2022, 16:08

@Eric Sebast i dont know nashville but i have seen PM add on a bunch after the 10% so he is probably including everything that the management company handles. I agree with him though 10% is too low. say you are renting for $1000/month. PM charge 10% or $1200/year just to manage, then 1st month rent for placement so another $1000, then they upcharge you for any repair calls. with out repairs you are already looking at 18%/year, including repairs and upcharge on those repairs could come out to 30%. remember property management companies dont have your best interest in mind they are looking to make money off of you anyway they can. if not they would go out of business trying to find the best tenant that pays rent on time doesnt leave and takes care of the place so it doesnt need fixing.

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Bill Brandt#3 Home Owner Association (HOA) Issues & Problems Contributor
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Bill Brandt#3 Home Owner Association (HOA) Issues & Problems Contributor
  • Investor
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Replied Jun 15 2022, 18:41

8% plus $300 placement charge total. Less than 8.2% all said and done. Stupid $150 renewal fee that really grates one me. But 10% total would be my hard pass. I was assuming STR when you said 30%. That's why I clicked on the thread. I thought that was reasonable/cheap.

Time for them to shop around and buy you a steak after they start saving $200-300/mo per unit. How are they not broke? I assume there was some miscommunication in there somewhere. 

Renters warehouse has a flat monthly fee ($89 last I used them) that worked out real well on expensive properties. But those tenants tend to do just fine without a PM soI still let them go. 

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James Hamling#1 Real Estate News & Current Events Contributor
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James Hamling#1 Real Estate News & Current Events Contributor
  • Realtor
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Replied Jun 15 2022, 21:50

@Eric Sebast 30% is completely bonkers insane, it's gotta be a factoring there using for the total outlay but even then that's a bit much. 

As @Bill Brandt touched on, our offices are nowhere close too 30%. And guess what, about 20-30% of our clients use us just for Tenant Placement services; creating listing, marketing, showings, application screening, lease writing, collecting funds, the whole 9 from 0 too tenant moved in, and self-manage. It's an "EZ" button for some property types and market areas that the Pm runs rather easy to be honest, with right tenant placed. So right there, done, 30% does not apply. 

And come on @Royce Talbo that's so extreme to say all PM's are just focused on how they can F the property owner. Know what makes $ in PM, getting a best quality tenant set in unit on a 3yr lease renewal cycle, in a quality condition home, that's how PM makes $, "cruise control". Ideal tenant is one we hear nothing from until time to renew. So ugly truth of PM biz is we make best $ when we are not actually needed, were a lot like insurance companies actually, because those we do have to be active in burn $ in admin hours like crazy, way beyond what any PM fee covers. It's only the pooled $ effect that makes it work. 

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Jonathan Hulen
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Jonathan Hulen
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Replied Jun 16 2022, 05:41

@Eric Sebast I pay 10% that’s the industry standard. 30% is more in line with vacation rentals.

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Nathan G.
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Nathan G.
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ModeratorReplied Jun 16 2022, 05:58

There's a major misunderstanding here. 30% is what one could expect to pay for management of a vacation rental with heavy turnover.

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Replied Jun 16 2022, 10:07

30% is the rate of 24hour front-desk hotel property management but I guess you don't purchase a hotel room ;-)

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Luka Milicevic
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Luka Milicevic
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Replied Jun 16 2022, 13:58
Quote from @Royce Talbo:

@Eric Sebast i dont know nashville but i have seen PM add on a bunch after the 10% so he is probably including everything that the management company handles. I agree with him though 10% is too low. say you are renting for $1000/month. PM charge 10% or $1200/year just to manage, then 1st month rent for placement so another $1000, then they upcharge you for any repair calls. with out repairs you are already looking at 18%/year, including repairs and upcharge on those repairs could come out to 30%. remember property management companies dont have your best interest in mind they are looking to make money off of you anyway they can. if not they would go out of business trying to find the best tenant that pays rent on time doesnt leave and takes care of the place so it doesnt need fixing.

Just need to put this out there for anyone that read this absurd post - if you ever find yourself in a situation where a property manager doesn't have your best interest in mind, fire them immediately and find one that does. A property manager that places crappy tenants so there is a lot of turnover and so they can get more repair calls? THEY are the ones that won't stay in business. 

As a realtor that represents many clients, I can tell you I always have their best interest in mind, and yes.....that means sometimes I won't make as much money from the deal. Having your client's best interest and providing them the fiduciary duty you owe them is the only way you stay in this business over the long run. 

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Eric Sebast
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Eric Sebast
Replied Jun 17 2022, 02:57

Hey all, first I apologize, I didn’t mean to cause such a stir. Second, I messaged back and forth with him yesterday, and we were both a bit confused, so he doesn’t use a property management company, he has one of his employees handle the management of his properties. He said that number was from when he called around a few years ago and that is the number that stuck in his head, so I’m assuming it must have been him putting all the numbers together for management, repairs and reserves. 
very sorry for the misunderstanding.

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Drew Sygit#3 Managing Your Property Contributor
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Drew Sygit#3 Managing Your Property Contributor
  • Property Manager
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Replied Jun 17 2022, 06:07

@Eric Sebast thanks for taking the time to clarify:)

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Joseph R. Smith
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Joseph R. Smith
  • Rental Property Investor
  • Carthage, NY
Replied Jul 4 2022, 21:20

He must be talking 30% of net operating income. Of positive cash flow. This is what I was getting at earlier about what 10% of total rents collected for property management fees can do. To a valuation.  :/ 

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Anthony Phillips
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Anthony Phillips
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Replied Jul 31 2022, 11:33
If that's what the going rate is in Nashville I am saving myself alot of money self managing. Yah but he must be using some other metric of 30% other then monthly rent.

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David Goodman
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David Goodman
  • Property Manager
  • Nashville, TN
Replied Aug 3 2022, 07:57

Most of the management companies I've replaced for my clients actually do end up costing them more than 10% due to the many fees and unethical maintenance charges they charge. The bar for management companies here is not high.

Real Estate Agent Tennessee (#355813)