Turnkey Properties: What EXACTLY are the duties/responsibilities of a PM?

Question

Hi BP Nation,

I understand that this might sound all too basic but I need to know ALL the responsibilities and duties of a PM in a TK setting. I just purchased a property and will be having a formal meeting with the PM shortly to set expectations right to all parties.

Aside the usual due diligence/screening and placement of tenants, payment of property taxes etc, what are other items I need to point out to him during our meeting?

Property is located at Manchester Ave, KC, MO and PM rate is $75/month. Is this reasonable?

of note: I have already indicated that all utilities should be in the name of the tenant. Hope this is a fair position?

Thoughts, suggestions?

Thanks all.

Larry Fried · Answer

NA Onyido On #4, I totally agree.  One has to ask if the provider inflated the rent amount to justify the selling price to you.  This is why a true TK will already have a renter in place at a rate (or small rent range) agreed to before you close on the property.

Larry Fried · Answer

NA Onyido

Curt is exactly correct on the re-sign fee.  Some will have a fee.  Some will not.  It is good to know going in.  Is that $75 management fee a flat rate, no matter what the rent is?  It is so low, that I would be very cautious as to whether the PM company can really provide professional management services at the level you want. Be very cautious.

Larry Fried · Answer

NA Onyido

Hi, first it is not the duty of the PM to pay property taxes, that would be your responsibility, and if you financed the property, then it is likely the lender will be collecting impounds for both property tax and home insurance (unless you chose to opt out of impounds).

On SFH, tenants usually do pay all utilities, so it is very fair. What is the rent on the home?  If $75/mo is 10% of the rent then that is a typical rate.

Hopefully you fully vetted the PM prior to purchasing the house, as this can be the most important part of long term success.  A bad PM can make even a good investment go south.  Is the PM in house to the company you bought the TK property from?  If not, is it closely affiliated?

What you want to know about the PM, includes how they obtain, screen, and place tenants - including criteria.  How long the lease is for.  What their rates are for placement (1/2 to 1 month rent is typical, but many TKs will not charge for the first placement). What their vacancy and eviction rates are?  Do they have a resigning fee for renewal of lease. They have to provide monthly reports by law.  How do they provide these reports along with the rent payments to you (-PM fees).  I prefer electronic, as there is really good software for PMs now.  Hopefully they are using it.  Also, ask how long they have been in business as PMs.

Ned Carey · Answer

A property manager has whatever responsibilities that are outlined in your PM contract.

If you ask 5 investors and 5 property managers exactly what the PM should be responsible for you wold probably get 10 different answers. That is why you have contract in the first place to make it clear exactly what is expected.

Ndy Onyido · Answer

Thanks, Larry. I have confirmed to the provider that I would not close if rent is not guaranteed for at least $1,000. 700-1100 is a wide range...

Thanks for your support.

Ndy Onyido · Answer

@Larry Fried Thank you.

Its $75 monthly and includes the following terms:

1.For each time a unit is leased (on a 12 month lease) REALTOR© shall receive $750 of the first full month’s rent.

2.For each additional 12 month extension REALTOR© shall receive $99 upon an executed lease extension.

3.Initial Start-Up or Initiation Fee- Upon execution of the contract Owner shall pay REALTOR© a fee of $99 to begin the relationship: This fee is a non-refundable fee.

4. No payment if house is not leased

Another concern is that the TK provider confirmed rent of $1050. However, when I recieved the prepared document to execute, it says $700-1100. This will mess up my cashflow if it falls within the lower range and I do not plan to do any out of pocket expense to sustain this treansaction. I will insist in a minimum if $1k ( $1000-1100). PM fee is fixed, irrespective of rent amount and this might provide an incentive for slakness on his part.

What are your thoughts here?

Thanks

Ndy Onyido · Answer

@Curt Davis

Thanks for the explanation. I will go through your podcast shortly.

Curt Davis · Answer

@Ndy Onyido

A re-sign fee is simply if the tenant is in good standing and the PM company can get them to renew for another lease term there is usually a nominal fee as opposed to charging you another placement fee.  Fee on average can range in the $250 range. I would pay this all day long as opposed to the tenant moving out and moving a new one in.

Here is a podcast I did regarding some characteristics to make sure the property management company meets.

Good luck

Ndy Onyido · Answer

Hi Larry,

It rents for $1050 and the PM is an affiliate of the TK operator.

Exactly what do you mean 'a resigning fee for renewal of lease.?'

As always, thanks for your support.

Thanks again