Typical to take first payment?
I recently bought and rented my first rental investment property. I hired a property manager that my real estate agent recommended to me. I interviewed the property manager and it seemed like a good fit. The rental now has a tenant and this is when I reached out to ask for payment. I was told that the first month's rent is for themselves and then they also charge 10% property management fees on each additional month's rent. I was aware of the 10% management fee but not the whole taking my entire first month's rent. I reviewed my contract and I did find it in there so that's a lesson on me. However, I would like to know how typical this is since I have never heard of it before? Is this a common practice? I'm frustrated because that just shot up my management fee to 21.7% for the year and am now cash negative because of it and also frustrated at myself for not catching it earlier. This is also a new build so very little maintenance will even need to be done with it. They have not been easy to communicate with and are slow to respond but now I feel obligated to continue with them since they already took the first month's rent. He also pocketed the two application fees. Please share you experiences and thoughts.
#1 Tenant Screening Contributor
- Property Manager
- Honolulu, HI
Different markets have different norms. Although we do not charge that way, I have seen many that do. You absolutely must take the time to read before you sign, whether real estate or other business transactions. It is nearly impossible to negotiate AFTER signing!
Quote from @Richard F.:Yes you are right. I read it but clearly not near well enough. Lesson learned on that! I don't see how they can justify the expense of over 20% of the rental income on a single family new build. I know I should have been more aware but I also suspect this high amount can't be common. Is this one of those things you typically see get negotiated down when you have multiple properties you're bringing to the table?
Aloha,
Different markets have different norms. Although we do not charge that way, I have seen many that do. You absolutely must take the time to read before you sign, whether real estate or other business transactions. It is nearly impossible to negotiate AFTER signing!
#3 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
Most charge this way. Many have the following charges:
1. Monthly management fee.
2. Finding a tenant fee.
3. Mark up on all work to be completed during ownership.
4. Lease renewals.
5. Sometimes I have seen them even keep the late fees.
So even though typically the PM fees might be around 10% of the rents, in actuality it is closer to 15%-18%.
@James Fife - Where I live, it is typical for a listing agent or property management company to get some portion of the first months rent for filling the unit, be in half or the full first month. I typically pay $1,000-1,500 to have one of my units listed by an agent. I'll pay that all day, finding a good tenant is a time consuming process and I'd rather leverage the time to grow my business elsewhere.
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Quote from @Rick Albert:Thank you for that breakdown. That certainly makes it far more difficulty to cash flow positively so I’ll need to factor those fees in for the next ones.
Most charge this way. Many have the following charges:
1. Monthly management fee.
2. Finding a tenant fee.
3. Mark up on all work to be completed during ownership.
4. Lease renewals.
5. Sometimes I have seen them even keep the late fees.
So even though typically the PM fees might be around 10% of the rents, in actuality it is closer to 15%-18%.
Quote from @Andrew Freed:Good info, that helps me get a better idea, thanks
@James Fife - Where I live, it is typical for a listing agent or property management company to get some portion of the first months rent for filling the unit, be in half or the full first month. I typically pay $1,000-1,500 to have one of my units listed by an agent. I'll pay that all day, finding a good tenant is a time consuming process and I'd rather leverage the time to grow my business elsewhere.
@James Fifebe very careful with PMs. You need to vet properly.
Quote from @Bud Gaffney:
@James Fifebe very careful with PMs. You need to vet properly.
Do you have any tips that will help me be more effective? I started with my real estate agent’s recommendation because she is also an investor and we worked well together. I then called and talked to him on multiple occasions. What else should I be doing?
It's increasingly common for property managers to charge additional fees on top of the monthly management fee. It's very important to read and understand the agreement before signing. I'm sure you can find other managers that don't charge this fee, but you may not get the same level of service.
Every market is different but it is not uncommon for that to be the case. There is work in getting a tenant in place such as putting it in the local MLS, marketing the property, showing the property, getting the lease together, etc... however a good property manager should disclose that upfront. Asking a property manager what their fees are upfront is always a good idea. Good property managers won't hesitate to disclose that. Also check your cancellation fees should you want to switch, I know some property managers require 60 days notice vs the usually 30 but don't point that out.