I currently own and manage 7 single family properties. I've thought about getting a property manager in the future, but I really don't understand why they require a percentage as opposed to a fee for the work done. The obvious answer is because that's the way it's always been done and the PMs make more money that way. That only answers the question why DO they get a percentage rather than why they SHOULD. I have two major problems with this payment structure. The first is that I see the value in a PM just as I do a plumber. If my property has a plumbing issue, I will call my plumber and he will fix it. I will then pay him for his services based on the effort of the job. I do not pay my plumber a percentage of gross rent collected. Why shouldn't I be able to pay a PM based on the work done on the property rather than based on a percentage of what I am able to charge rent? For my next issue with this structure, consider two properties, both of which are in similar, good condition and are 1500 sqft 3 bed 2 baths, but are in different locations. One property is $1000/month while the other is $1600/month. I was able to acquire a property in a great location which allows me to charge a higher rent. The higher rent will also tend to get me a better tenant. What warrants the PM to the additional $60/month for my better location and better tenant? They will likely have to do less work! I've not come here to rant, but rather inquire to the nature of this pay structure to and to find out if anyone has been able to set up a fee based pay structure as to percentage based. Based on my two scenarios above, why do you think PMs should get a percentage of the gross rent collected?

@Jason Rector, My answer would be that you can rail against the system or make it work to your advantage. Depending on your skills as a negotiator, your portfolio may eventually reach the size where you can negotiate a fee based structure rather than percentages. Until then, play the game by the rules and you'll do well. My $0.02 ...

I really appreciated this discussion because I am in the process of handing over a property to PM for the first time. Reason: it's more than a 15 minute drive from my house. But I have a hunch I'm going to love it and will hand my nearby properties over to them in a year or so. Thanks, especially, for listing all that a PM does. It informed how I interviewed the companies that I was considering.

Find a PM with whom you can align goals, i.e. they make money when you make money, they make more when you make more. If you don't like leasing fees or a percentage of rent, work out a bonus structure for keeping vacancy under a certain threshold across your portfolio or escalating bonuses for tenants that renew multiple times. A good business owner is going to work with you to find a payment structure that you're comfortable with and it still fair to them. If their fee structure is set in stone, just find someone more flexible. I'm with @Joe Villeneuve. Worrying over a percentage point or two of PM fees is a dime holding up a dollar. If you do your numbers right, the tenants are paying for the PM to take all of that hassle off your plate so you can focus on activities that pay far more per hour than you're paying your PM.

@Joe Villeneuve Babysitters make some good money now a days, I'm glad my kids are past that age for needing one, Haha. Jason, how many tenants do you pay for background checks and how many hours does it take you to screen all those tenants to find the right one ? All done by my PM while i sit home and have a nice cold one or two or more. You may find someone willing to do on a fee base, but they will be hard to find and will not give you the service as Joe said

@Jason Rector @William Walker there are plenty of companies who charge a flat fee but this is just a work around to unbundling the services a fee based manager charges. Great; they only charge you $99mo. flat BUT they charge extra for everything else. The % based model was born out of keeping it simple. If PM's charged for everything they did you would never be able to afford one. The #1 reason behind % based pricing is human nature and self interest. If they charge you 10% of rent as the mgmt. fee then they're incentivized to get you the highest rent possible right? If they get a flat fee then what do they care what it rents for? That alone could mean a huge difference in yearly return. Think about you getting an extra $75-$100/mo X 12 mos just because someone is motivated to make themselves more $$. Fast forward to lease renewals; everybody complains about paying a fee for this when it should be the exact opposite! Flat fee for renewal or no fee = they could care less if the tenant moves out and in fact they want them too! How motivated is a PM to get you a 5% rent increase each year if they get nothing or some tiny fee? Answer: they're not.

Why Should Property Managers Get a Percentage?

Todd Austin

Investor · VT · Member since 2016 · 2 posts · 0 votes

9y

There lies the reason I manage my own properties. Lets not forget that most will also charge a percent fee of all repair bills as well.

0 Reply

Rich N.Pro Member

Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes

9y

and they tend to charge a month fee to place a tenant....oh and charge a fee for the re-up of the same tenant the following term.

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

They're worth every penny

4 Reply

Patrick LiskaPro Member

Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes

9y

@Joe Villeneuve they are worth the money as long as you figure the costs in your numbers. Jason, i understand what you are saying and it makes sense. I had a similar argument with my PM over Student rentals. They were charging me $300 / lease signing. most of the times the kids rent in a group of 4, one lease, $300. but if the 4 rooms get rented separately, that's 4 leases and $1200. Either way they had to run credit checks on all 4 and cosigners and keep track of 4 rents, so nothing was different. and there was nothing that could stop them from doing that, so i told them i would agree to $300/ lease for a group and $100 / person if separate leases, so they make $100 more on a group of 4, not $900. but they do a lot of other things that free up my time and i do not have to worry about, listing, background checks, leases, maintenance issues, collecting rents, etc. they are worth it for me since my properties are 3 hours away.

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

Originally posted by @Patrick Liska:

@Joe Villeneuve they are worth the money as long as you figure the costs in your numbers. Jason, i understand what you are saying and it makes sense. I had a similar argument with my PM over Student rentals. They were charging me $300 / lease signing. most of the times the kids rent in a group of 4, one lease, $300. but if the 4 rooms get rented separately, that's 4 leases and $1200. Either way they had to run credit checks on all 4 and cosigners and keep track of 4 rents, so nothing was different. and there was nothing that could stop them from doing that, so i told them i would agree to $300/ lease for a group and $100 / person if separate leases, so they make $100 more on a group of 4, not $900. but they do a lot of other things that free up my time and i do not have to worry about, listing, background checks, leases, maintenance issues, collecting rents, etc. they are worth it for me since my properties are 3 hours away.

I always figure their cost in my numbers. I won't leave home without them.

0 Reply

Julie MarquezPro Member

Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes

9y

@Jason Rector Sounds like a good deal for C class properties, maybe not so much for high end rentals. I have the same questions, but it just seems like the way it is and way it always has been. Unless you have your own in house management and can create your own fee structure. Or negotiate with them?

1 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

Here's what my PM does for me:

1 - Fills vacancies
2 - Handles the advertising
3 - Does the interviewing including background checks, credit checks, rental histories, income verification, NSF check research, etc...
4 - Does the inspections
5 - Does the walkthru before and after
6 - Guarantees the first 6 months of a tenant they placed, or they refill the property at their cost
7 - Handles all problems, including maintenance...with no markup charges
8 - Handles all incoming calls and emails, so the tenant has no idea who we are
9 - Contacts, and extends lease at no extra charge to us
10 - Knows market, so gets us the highest possible rents
11 - 35 years of experience as a full time PM service
12 - Will garnish wages if needed
13 - Handles entire eviction process (keeping us up to date), from beginning of letters of notice to court....to eviction. Our cost = $75 one time attorney fee.
14 - Handles everything online with immediate up to date access.
15 - Auto deposits into account of choice
16 - Sets up auto collection of rent online.
17 - Provides our tenants with online access to their account so they can make payments, see repair status, make complaints or reports, etc...
18 - Pays for any overages on maintenance not covered by cash reserve, and allows us to reimburse with cash flow
19 - Handles an Annual property inspection for us at no extra charge.
20 - Gives us a volume discount

...like I said, I won't analyze a property without them, and won't leave home without them.

11 Reply

Jason Rector

OP

Investor · Bella Vista, AR · Member since 2016 · 12 posts · 3 votes

9y

@Julie Marquez I suppose that is fair. However, I would assume that C class properties would require much more work from the PM than the high end properties, which would result in more fees. Also, under a fee structure, I would expect my fees to be much higher as they are one off services which is the same as a plumber. Because my properties don't demand the same amount of effort as a C class, I should not have to pay as much as a C class property.

@Patrick Liska I definitely understand their value, especially when your properties are 3 hours away.

I'm sure there is an intersection point in which a percentage structure is more cost effective than a fee structure, but not for my situation at 7 properties with hardly any upkeep. I would be much more comfortable with a fee structure similar to the following:

Listing Fee = $50
Showing Property Fee = $50 a showing
Application Fee = $20
Background/Credit Check = $50
Maintenance Issue = $50 an inquiry

If I had the property shown 4 times with 2 applications processed I would owe $340. I've had a PM tell me that they could get a signed lease for half of months rent with no additional services. That might be a better route, but that's still a percentage of what I'm able to charge for rent and not a fee structure.

@Joe Villeneuve I do understand the value a PM brings. I've also worked with lawyers that bring a lot of value, but they charge me fees for their services when I need something done. If your plumber charged you a percentage of your rent as opposed to a fee I'm sure you'd be flabbergasted.

1 Reply

Julie MarquezPro Member

Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes

9y

@Jason Rector www.hemlane.com Like this?

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

Its very common for PM to negotiate off of the 10% industry norm for better class less work properties.. 6 to 8% is common.

with A class multi being 3 to 4% .. ( however owner has to pay for a on site manager who is on salary) but this is true professional management and the owner may Never set foot on the proeprty

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

2 Reply

Jason Rector

OP

Investor · Bella Vista, AR · Member since 2016 · 12 posts · 3 votes

9y

@Julie Marquez Looks interesting, thanks! Not entirely sure what all services they offer but I'll look into it some more.

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

Originally posted by @Jason Rector:

@Julie Marquez I suppose that is fair. However, I would assume that C class properties would require much more work from the PM than the high end properties, which would result in more fees. Also, under a fee structure, I would expect my fees to be much higher as they are one off services which is the same as a plumber. Because my properties don't demand the same amount of effort as a C class, I should not have to pay as much as a C class property.

@Patrick Liska I definitely understand their value, especially when your properties are 3 hours away.

I'm sure there is an intersection point in which a percentage structure is more cost effective than a fee structure, but not for my situation at 7 properties with hardly any upkeep. I would be much more comfortable with a fee structure similar to the following:

Listing Fee = $50
Showing Property Fee = $50 a showing
Application Fee = $20
Background/Credit Check = $50
Maintenance Issue = $50 an inquiry

If I had the property shown 4 times with 2 applications processed I would owe $340. I've had a PM tell me that they could get a signed lease for half of months rent with no additional services. That might be a better route, but that's still a percentage of what I'm able to charge for rent and not a fee structure.

@Joe Villeneuve I do understand the value a PM brings. I've also worked with lawyers that bring a lot of value, but they charge me fees for their services when I need something done. If your plumber charged you a percentage of your rent as opposed to a fee I'm sure you'd be flabbergasted.

Can't compare a plumber to a PM. A PM's job is continuous, and the same services occur every month...thus the monthly charge. A plumber charges for one event. It's not the same thing.

Would you rather your PM charged you for every event that they did?

0 Reply

Dave Charron

Real Estate Investor · Cicero, NY · Member since 2010 · 25 posts · 1 vote

9y

Probably the most valuable thing they bring is to answer the dumb phone calls in the middle of the night!!

0 Reply

Jason Rector

OP

Investor · Bella Vista, AR · Member since 2016 · 12 posts · 3 votes

9y

@Joe Villeneuve Exactly, I want them to charge me a fee for everything they do. I'm sure your properties are different than mine, but as I manage them myself, I can tell you it is very rare that I have to do anything at all. I am certainly not doing something on a monthly basis...

0 Reply

Patrick LiskaPro Member

Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes

9y

@Joe Villeneuve you forgot, 21 - handles Snow removal and lawn maintenance. And Jason, that brings up a point, lets say your property is $1600 per month, PM fee of 10% and their fee of $300 / lease signing, that would cost you $185 / month for their service ($300 / 12)+160. Now you say you wouldn't mind being charged $50 per showing fee, they show it 4 times your already at $200 ($16/m)+ background checks, $200 ( $16/m) + maintenance issue ( if that includes lawn and snow) that's easily $200 / month there, etc.. are they going to charge you for collecting the rent and depositing the rent ? will they charge you for renewing your rental license, will they charge you for scheduling and paying for trash pick up ? If you think the best way is to pay by each thing they do, be careful, because they will. having a flat percentage takes care of things that they will not do for free, they will want to get paid for that stuff and the percentage way pays them for their work.

1 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

Originally posted by @Patrick Liska:

@Joe Villeneuve you forgot, 21 - handles Snow removal and lawn maintenance. And Jason, that brings up a point, lets say your property is $1600 per month, PM fee of 10% and their fee of $300 / lease signing, that would cost you $185 / month for their service ($300 / 12)+160. Now you say you wouldn't mind being charged $50 per showing fee, they show it 4 times your already at $200 ($16/m)+ background checks, $200 ( $16/m) + maintenance issue ( if that includes lawn and snow) that's easily $200 / month there, etc.. are they going to charge you for collecting the rent and depositing the rent ? will they charge you for renewing your rental license, will they charge you for scheduling and paying for trash pick up ? If you think the best way is to pay by each thing they do, be careful, because they will. having a flat percentage takes care of things that they will not do for free, they will want to get paid for that stuff and the percentage way pays them for their work.

Actually, I forgot #21...and more. LOL

0 Reply

Anthony GaydenPro Member

Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes

9y

@Jason Rector

I'm sorry, but I'm with @Joe Villeneuve here. Property management is invaluable. I have budgeted all of my properties to use it, and it allows me the ability to own two investment properties 1000+ miles away from where I live.

I actually did come across a PM in Phoenix who charged a flat rate depending on the number of units managed. I did the math and it would have cost me more on average.

Podcast Guest on Show #21

2 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

There is a difference between cheap and cost effective.

Sorry, but not using a PM is like stepping over a dollar to pick up a dime.

1 Reply

Rich N.Pro Member

Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes

9y

@Joe Villeneuve @Patrick Liska

Are you both saying that they will do all that work including #21 (snow and lawn) for just the 10% monthly charge ?

Is that the norm out there for everyone or is there additional charges from their PM for #1, 4, 12, 13 and 21. Also re-up of leases (no charge) ?

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

9y

Originally posted by @Rich N.:

@Joe Villeneuve @Patrick Liska

Are you both saying that they will do all that work including #21 (snow and lawn) for just the 10% monthly charge ?

Is that the norm out there for everyone or is there additional charges from their PM for #1, 4, 12, 13 and 21. Also re-up of leases (no charge) ?

I'm describing my PM service. Not all PM's do the same thing. A lot do...find those that do.

0 Reply

Rich N.Pro Member

Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes

9y

You have a good PM. All I find around here in MA is uptick charges for all the above I mentioned. Each snow storm can be 40-75 and that is for the driveway and not even the steps or sidewalk.
Each weekly lawn cut can be 30-50 and that does not include and treatments or landscaping those are more charges!

0 Reply

Patrick LiskaPro Member

Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes

9y

@Rich N. NO, they will charge you for the service of lawn cutting / snow removal, but they call the companies to send them, especially for me, 3 hrs away, they know when the snow needs to be removed or the ice needs salt on the walks. i do get charged for that, but the fee you pay your PM takes care of all those calls they do. if i am correct Jason (OP) is saying, is it better to not pay PM fee of 10% and pay every time the PM has to do something. if it snows 8 days during the month and they charge to make that call 8 times ( they will not do it for free if you are not paying for their service monthly ) that could cost you a lot, on top of the cost from the person doing the work. Rich, those charges are right in line with what i get charged each time it's done. and agree completely with @Joe Villeneuve on this, they save a lot of time and are an invaluable part of my team ( she also is my Realtor). Everything in the contract can be negotiated, just don't try to beat them up too much because you will not get the service you expect from then then.

1 Reply

Phil Earley

Property Manager · Cumming, GA · Member since 2015 · 261 posts · 199 votes

9y

My Dad tried this with us back in the 70's. He didn't see the value in paying us $5 a month in allowance and wanted to teach us how the world worked. He put in a fee structure for all the chores around the house and made us turn in our list at the end of the month.

We all made over $20 a piece so he went back to how it was always done.

2 Reply

Rich N.Pro Member

Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes

9y

@Patrick Liska

Thanks for the info. It makes sense if you invest outside of your area. I have thought of investing in other states but held off because of the PM charges.

My properties are local and therefore do my own PM. For example, lawn cutting - I can cut three lawns in 1-1.5 hours, if I hired a service, that's 30 x 3 = 90 dollars a week x 16 weeks = $1,440.

0 Reply

Chuy Gonzalez

Investor · Long Beach, CA · Member since 2012 · 313 posts · 190 votes

9y

I had a crappy PM company that required me managing them. Dumped the crappy PM got a good PM company. Good PM company is great. If they had a la carte pricing, It would be a lot more expensive, in my case. If its working for you not to have a pm company, rock on bro.

0 Reply

Why Should Property Managers Get a Percentage?

Why Should Property Managers Get a Percentage?

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