Flat fee Property management vs. percentage base Property Management

6 Replies

Hi,

My name is Sohrab and I am from Houston. I Invest in rental properties and I want to expand my business as a property management company, when I research Houston market for management company I can find out two ways that campaign are marketing:

1- Flat fee per month plus first month full rent (half will be for the tenant agent if exist)

2-percentage of the gross rent amount.

I want to know what people thinking about this, and like to see which way is the better way to go.

Thank you in advance for all of your help.

Do whatever you think will align your goals the most with the owners goals.

I hate the first months rent for this reason it makes rapid turnover a benefit to the manager when its a huge problem for the owner.

Most managers charge both. The first scenario is in the lease up fee, and the second in the month-to-month management fee. Generally lease ups are first month rent, and month-to-month rates are somewhere in the neighborhood of 8-10% of the gross rents (totally negotiable).

As a former PM myself, as well as a customer of PM for years, I can assure you that if a PM's goals are rapid turnover just to obtain the lease up fee, then they will either not be in business very long (due to poor referrals), or they will be shooting themselves in the foot with the inability to collect their monthly fee, since they will be placing tenants who stop paying at some point during the lease term.

As a landlord, have protection clauses for yourself, such as no lease up fee if tenant moves during lease term. And since you want to become a PM, then make it a priority to find the best tenants possible for your clients, and you will soon have a lot of repeat and referral business. 

Also, I'm sure you know in order to conduct PM services for clients, you need a real estate license in Texas. Good luck!

Originally posted by @Sharon Tzib :

Most managers charge both. The first scenario is in the lease up fee, and the second in the month-to-month management fee. Generally lease ups are first month rent, and month-to-month rates are somewhere in the neighborhood of 8-10% of the gross rents (totally negotiable).

As a former PM myself, as well as a customer of PM for years, I can assure you that if a PM's goals are rapid turnover just to obtain the lease up fee, then they will either not be in business very long (due to poor referrals), or they will be shooting themselves in the foot with the inability to collect their monthly fee, since they will be placing tenants who stop paying at some point during the lease term.

As a landlord, have protection clauses for yourself, such as no lease up fee if tenant moves during lease term. And since you want to become a PM, then make it a priority to find the best tenants possible for your clients, and you will soon have a lot of repeat and referral business. 

Also, I'm sure you know in order to conduct PM services for clients, you need a real estate license in Texas. Good luck!

 Thank you so much for your input.

I 100% agree with you on the turnover and this is not the way I want to run my business.

They are companies in TX that just charge the first month rent plus a flat fee per month ($ 75)

This is how they advertise It

Fees:

Leasing: 1st month’s rent for any new lease with a new tenant

$99 for renewing any existing lease with an existing tenant

Property Management: $75 per month when the property is occupied. ($65 for Multiple Properties.)

We Guarantee our Services*:

If We place a tenant who does not financially fulfill their lease obligations, and they require eviction, we will pay for the court cost and represent you in court, where allowed by law, at no charge to you. Additionally, we will find a replacement tenant for the remainder of the agreement term at no additional charge to you. We are confident in our tenant screening process, and believe that property managers should not benefit from that rare occasion that things do not go as planned. We are in this together!*Guarantee only applies when we accept a tenant based on our selection criteria. Should the owner select a lower criteria, the guarantee shall not apply.

I like this idea and that's why I want to get more information.I want to know how many property I need in this case to make a good business. Second, why other property management does not offer this and what are the advantages and disadvantages.

Thank you so much for your help and looking forward to hear from everybody's opinion about this.

Originally posted by @Phillip Syrios :

Do whatever you think will align your goals the most with the owners goals.

I hate the first months rent for this reason it makes rapid turnover a benefit to the manager when its a huge problem for the owner.

 Thank you so much for your reply could you please read the previous post reply I put and give me your feedback.

Thank you

@Sohrab Khosravi I have seen the flat fee model before, and it can work in some situations. If the majority of your competition is using the flat fee model, then you probably will need to as well. Having said that, the inherent problem with it is that it does not take into consideration the size and amenities of the asset. It treats each asset identically and assumes the workload associated with it will be the same as well. It also ignores location and type of asset, i.e. "A" class assets are much easier to manage than "C", and an apartment vs. a triplex vs. a SFH all have their unique nuances as well.

Lastly, making 7.5% for a $1000/month rental vs. 4.2% for an $1800 rental demonstrates how this model dictates that you are exceedingly good at placing low maintenance tenants, and let's hope your units are the same, because the minute you have to go over and above the call of duty, you are probably operating in the red. This model works well once you hit a certain amount of doors, but could be rough in the beginning until you scale up and the inequities balance out. 

I do like the $99 lease up fee for existing tenants, however - that seems fair.

@Sharon Tzib Thank you so much for the added info.

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