23% management fee

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23% management fee

Angu Krishna
Member since 2024 · 4 posts · 0 votes

Hi Everyone,

I recently ventured into real estate investing and purchased my first property a few months ago. As my current property management contract is up for renewal and also my tenants leases is ending by end of this month, I reached out to them for new offers. To my surprise, they provided a quote for a 23% management fee per month rent, which includes a one-year rent guarantee (regardless of whether tenants pay or not) and a maintenance credit of 2.5k per year.

I must admit, I was taken aback by the figure. It seems quite high to me, especially considering I'm still relatively new to this field. I wanted to seek some advice and opinions from this community before making a decision.

Do you think the management fee and the additional services provided justify the cost? Have any of you encountered similar situations in your real estate investing journey? Any insights or experiences you could share would be greatly appreciated.

Thank you in advance for your help.

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  • Bryan F.
    Member since 2020 · 38 posts · 22 votes
    2y

    What are vacancy rates in your market and does the current tenant plan to re-up for another year? I read that rate as paying an extra month and half worth of your annual rent collection to buy income insurance for the year. Seems like expensive insurance to me, and if the tenant is already planning to re-up, then it's definitely not worth the premium.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    How much is the rent and what is the $2.5K maintenance credit?  If the house attracts the type of tenant who is likely to skip out on rent or cause damages, it could be worth it.    I've not heard of anything similar. My PM does do pet insurance and covers damages from pets, but that is part of the regular monthly fee.

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y

    How much is the rent? What is the city/state?

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  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Angu Krishna guessing that this PMC is trying to sell you all their "bells & whistles". 

    They only do that to make more money under the guise of protecting you - pretty much like a store offering additional warranty protection on electronics. Have never seen a consumer expert endorsing these.

    What is their fee without these protections?

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  • Angu Krishna
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Bryan F.:

    What are vacancy rates in your market and does the current tenant plan to re-up for another year? I read that rate as paying an extra month and half worth of your annual rent collection to buy income insurance for the year. Seems like expensive insurance to me, and if the tenant is already planning to re-up, then it's definitely not worth the premium.


     Based on my research, the vacancy rate at Fort Worth, TX was 9 %. I have asked my PM whether current tenants plan to re-up. Tenants have a 60-day notice period before the lease ends, but the PM has not notified me of that yet. 

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  • Angu Krishna
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Theresa Harris:

    How much is the rent and what is the $2.5K maintenance credit?  If the house attracts the type of tenant who is likely to skip out on rent or cause damages, it could be worth it.    I've not heard of anything similar. My PM does do pet insurance and covers damages from pets, but that is part of the regular monthly fee.

     @Theresa Harris around 1.8 K per month. Any repair or maintenance needed for the home up to 2.5K is free in a year. Beyond that, I need to cover the cost.  

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  • Angu Krishna
    OP
    Member since 2024 · 4 posts · 0 votes
    2y
    Quote from @Michael Smythe:

    @Angu Krishna guessing that this PMC is trying to sell you all their "bells & whistles". 

    They only do that to make more money under the guise of protecting you - pretty much like a store offering additional warranty protection on electronics. Have never seen a consumer expert endorsing these.

    What is their fee without these protections?

     @Michael Smythe: The basic plan has an 8% fee. 

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  • Quinton Thomas
    Member since 2023 · 32 posts · 16 votes
    2y

     @Michael Smythe: The basic plan has an 8% fee. 


     The 8-10% management fee is normal for PM. depending on how long you lease and the state that you are in would be the biggest factor. My PM have the same thing that comes in 3 different packages, including if the tenant doesn't pay...etc. which is basically them just giving you the money, then they go after the tenant. However, I only rent month to month and in AL if they don't pay give 7-day notice and they are out, and I have all tenant caused damages covered by tenants in my leases. With longer leases it might be worth it. all comes down to your investment style. eats into the cashflow but you are more protected.


    also, my situation is different due to mortgage cost. your one properties rent is 2.5 of my properties. my average mortgage is around 650.  

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  • Dale K Poyser
    Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
    2y

    23% - 30% is normal for a mid term rental or short term rental. Although, some property managers are charging around 10% for midterm rentals.


    Is your lease term 1yr or more? Is your unit being rented as a furnished unit?

    If this is a long term unfurnished rental then find another property management company with rates you're ok with. If you find better rates you can ask current PM to match or beat it. If they don't, move on from them.

    Also, while "most" PMs charge a fee on "collected rent" there are some that charge a fee whether rent is collected or not. Stick with the ones that charge a fee on collected rent.

    Do you have a lot of turnover with your unit? How long has it been rented? If there is a lot of turnover then the guaranteed rent would justify the price.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    2y

    In chicago north side management fees run 4-5%. In the south and west side 7-10%. Suburbs typically 8%. It depends on grade of property but would never recommend going over 10%.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Angu Krishna

    This a short term rental? I know in OBX the rental rates are insane

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