Should Property Managers charge an additional fee to find tenants?

General Landlording & Rental Properties
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Should Property Managers charge an additional fee to find tenants?

Nathan J.
Saugerties, NY · Member since 2014 · 98 posts · 32 votes

Hi all,

It seems some property managers look to charge one months rent to find a tenant, on top of the 10% of rent collected. Is that normal? It seems that a property manager should be incentivised to keep tenants long term, rather than get paid for regular turnover?

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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
11y

People who do not go through the process of getting good tenants do not know what it is like -- advertising, returning calls and emails, having showings, taking applications, screening, calling those who are denied back, calling those who are approved, collecting security deposits and first month's rent, etc.

It's a lot of work and I can't imagine anyone who would do it for free.

That being said, the PM should be able to justify in writing why they think the applicant would be a good tenant for the rental.  They should have written screening criteria and the applicant should meet all the criteria.  E.G. Credit score of X, or no money judgements, no evictions, etc.

You literally cannot predict human behavior ... a good tenant can turn into a bad tenant through no fault of the PM.  If the PM turns over the unit once a year then they don't seem to be a very good PM -- unless yearly turnovers are common for the area (for example, student housing).

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y

    @Account Closed -

    That is great information on a completely different market.  Surely you recognize that you are in a totally different asset class and a substantially higher rent base.  What you are paying for your management may - or may not - be a good value.  Only you would know that.  But the number of doors under management alone is what drives down the management fees.  

    When talking single-family homes in the midwest with rent ranges from $700 to $1200, a 5% management fee is what puts companies out of business!  

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y

    @Account Closed - not to mention...we don't get too many Google engineers renting single families in Tennessee and Texas!

    Have a good one - 

    Chris

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  • Account Closed
    Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    11y

    @Chris Clothier ,

    I have no clue which market Nathan is talking about, but the fees sound excessive compared to MY market. In MY market, you can find a PM charging 6%-7% flat fee all day long.  I haven't seen a PM charging a tenant placement fee yet. That doesn't mean they don't exist. I'm just sharing notes. 

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  • Account Closed
    Property Manager · Big Bear Lake, CA · Member since 2013 · 585 posts · 330 votes
    11y

    @Chris Clothier Thank you for explaining so well the fees and business model of a PM company. I don't have as many units as you do, but your info is pretty on target. 10% is normal for my area + 1/2 of the 1st month's rent. I work really hard for my clients and earn that money. I would love to know how you add 25-35 units every month. I'm in a small town, so that is not going to happen here, but would love some insight that might help my company grow.

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  • Michael Tempel
    Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes
    11y

    I think 10% and a placement fee is extremely high.

    We only manage apartment communities.  If we charged this and a placement fee on 300 units we would make a killing at the properties expense.   Sometimes have up to 40 turns a month, plus 10% on 300 units with a $830.00 average rent would be $24,900.00 a month, not counting the one month placement fee on up to 40 units which could be another $33,200.00 or a total of $58,100.00 for one months worth of work.  I am amazed that smaller investors owners don't realize how expensive these fee really are simply because they have fewer units. 

    I am happy to work any owners or investors that are okay with this level of compensation however :-).  On larger properties 3% or around that amount is fairly common, but it is in one spot verses 300 units all over the place as the single family market is.  Still think many companies take owners to the cleaners with fees.....not even getting into the upcharge on maintenance etc.  

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  • Nathan J.
    OP
    Saugerties, NY · Member since 2014 · 98 posts · 32 votes
    11y

    Thanks everyone for the replies. That's very informative. To clarify, the market I am talking about is Philadelphia Single Family Homes. The three companies I have spoken to have that 10% plus one month rent for finding a tenant; the only exception was one that charged 7% but they had some bad reviews that put me off. If anyone wants to recommend a good PM for philly then I would love to hear. 

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  • Rameh Khazen
    Mobile, AL · Member since 2013 · 9 posts · 4 votes
    10y

    I do property management and sales and in prop mngmt we charge a $350 tenant placement fee and 10% of gross rent. Even though we get paid more money when we find a tenant, we still want good tenants who will stay as long as possible. Think about all the time, money and energy it takes to open doors for tenants and show tenants around. We do a key check out service as well, but for occupied properties or higher end properties key check out isn't a good idea. We even do open houses for our rentals. 

    This conversation reminds me of that book Freakonomics. I remember it said that your real estate agent is not motivated to get you a good deal as a buyers agent because our pay is based on a percentage of the price. It totally leaves out the element of wanting future business, pride in your job and having to resell the property later and wanting to be able to make the future seller money.

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  • Rameh Khazen
    Mobile, AL · Member since 2013 · 9 posts · 4 votes
    10y

    @Chris Clothier The San Jose market @Account Closed is talking about is crazy good. I've seen one bedrooms rent for 1800-2200 there. In my town, that will get you 3,500 square feet, four bed and four bath. If your making that much on one tenant your managing I would take 5% all day and night. 

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  • Dawn BrenengenBusiness Member
    Moderator
    Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @Rameh Khazen As much as I love Freakonomics, I think they missed a few points on that section too. You also have to remember that when we have a client to answer to, we have to SELL the house, so our ability to perform counts on that major thing happening.  If I'm selling my own house, and it takes longer, no one cares but me.  There is no pressure.  

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  • Keira Ingram
    Real Estate Broker · Drexel Hill, PA · Member since 2014 · 82 posts · 21 votes
    10y

    As a property manager my fees depend on the condition of the property and the mindset of the owner.  If a property is in bad condition I charge a higher management fee because that property and its tenants are going to need more time and attention.  For properties in average to good condition we charge around 5%-8% per month depending on the services required by the owner. For finding a tenant we charge 50%-75% which covers eviction, credit, criminal reports, marketing, enployment verification, rental history verification, and paying a leasing agent.  We also provide discounts for owners with muliple units. We do not charge a service fee on top of maintenance charges unless we are overseeing a rehab or major project.  

    Communication is key, your property manager should be considered "apart of your team" just like your investor friendly attorney, cpa, realtor, etc. Find one that understands your goals and plans as an investor.  Many will be willing to work with you and to negotiate fees as long as it can be a win win situation for all.  At the end of the day the right property manager can help improve your bottom line and your peace of mind.

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  • Suzane Ivas
    Investor · Saint Petersburg, FL · Member since 2016 · 29 posts · 14 votes
    9y

    @Chris Clothier  Which Property management company is the one you are referring to?

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Suzane Ivas:

    @Chris Clothier  Which Property management company is the one you are referring to?

     Hi Suzane,

    Since this is an old thread, I'm not sure which of my posts you are referring to.  Can you copy me on the response you are asking about?

    Best - Chris

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