My $8000 problem. Do agents really deserve $200+/hr

General Landlording & Rental Properties
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My $8000 problem. Do agents really deserve $200+/hr

Joe Kim
Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes

I have a problem with paying people by percentage rather than pay per hour.

For example, nearly every single property manager charges a percentage of the rent 6% to 10% of the monthly rent for property management fees.

However, if a property rents for $2000/month vs. $1000/month - the property manager makes double!  But is it double the work for the property manager?   No way.   In fact, it may take more work to manage a tenant/home that pays $1000/month versus a tenant that pays $2000/month.

I finally found a property manager who charges a flat fee of $75/month!!   So instead of paying $200/month (10% of $2000/month), I saved $125/month.

Now, let's translate that to the lease up fee.   It's the EXACT same problem.

If something rents for $1000/month vs. $3000/month - does the agent/property manager do 3X the work to get $3000 for lease up or finding a tenant who is willing to pay $3000/month versus getting paid $1000 (1 months fee) for leasing up a tenant for $1000/month?

It's the same work but the agent/property manager is make 3X the amount of money.

So here is my specific problem.   I have several properties that need to be leased up and I"m calculating that it will costs me around $8000 in lease up fees!!   

These are higher end properties with fairly high rents.    

So here are my calculations

$8000/3 properties =  $2600/per property

How long do you think a property manager spends to advertise your property, do background checks, and finally lease it up for you?   10 hours total, 20 hours, 30 hours, 40 hours? 

I want to SHOUT out to BP to property managers/agents.

How many HOURS do you think you typically spend in order to find a tenant for a property?

Paperwork = hours

Advertising = hours

Showings = hours

background check = hours

miscellaneous = hours

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Mike CumbieBusiness Member
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y

I paid for some professional painters. They estimated the job would take 3 days with the both of them for $1200. I said go for it. They worked late and were done in 2 days. If we tallied up the hours I suppose they may have owed me some back but I was happy they did a Rockstar job, worked through their mealtimes and cut out early for a long weekend. I was happy as a clam and don't care what they made per hour. If they accomplished what they did in 10 minutes I would have paid it again.

When your mindset is "What is this person making per hour" you tend to find a lot of people that seem to take twice as long to accomplish a job half as good. I pay for a job done right, granted I don't often pay retail, but I don't watch any ones hours either.

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    Was part of a post very similar to this:

    https://www.biggerpockets.com/forums/52/topics/409...

    you can read that post, here is one posters list of things a PM does for you to be worth the money:

    Originally posted by @Joe Villeneuve:

    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.

    6Reply
  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    @JD Martin, well said, as a contractor i can relate to that, i use to pump gas too when i was younger, and found the same results. I'm sure i am going to offend some investors here, but that is one reason i do not work for investors, because they try to beat you up. I do not even do work on my own investment properties, I hire local contractors and they all know me by now, i do not try to beat them up on price, they know that i know what i am doing, what should be done and the quality of the work i want, I also pay them, on time and right away. always good to have people that will want to work for/ with you, especially in an emergency. Just like i do not mind paying my PM for all the work they do, it leaves me to run my businesses' and spend time with my family, which is more valuable than saving 100 or 200 dollars a month, my time is more valuable than that for all the things they do and well worth it to me.

    5Reply
  • Amit Kal
    Investor · Sunnyside, Queens, NY · Member since 2015 · 213 posts · 159 votes
    9y

    PM's who are on your TEAM will be critical to determining market conditions and helping you retain tenants and increasing rents over time. With a % of rent as their fee, they grow as you do. I think it's a fair trade off. The leasing fee itself can be negotiated. 

    1Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    So if I tell you I spent 1 hour and found you a tenant moving in next week you would be pissed ?

    But....if I spent 50 hours and it took me two months to rent your vacant property you would be happy?

    Which scenario would work out better for you ?

    9Reply
  • Joe Kim
    OP
    Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
    9y
    Originally posted by @Patrick Connell:
    Originally posted by @Joe Kim:
    Originally posted by @Patrick Connell:

    Joe Kim to answer some of your questions, yes, you will spend more money marketing and finding tenants for a high-end lease than a lower-end one.

     Really?  Name 3 reasons why you will spend more money marketing and finding tenants for high-end lease than a lower-end one.

    If you are saying it costs 3X more to rent a $3000/month versus $1000/month rental, I would like to know.   

    thanks

     Professional pictures, additional marketing to higher-end clientele, most higher-end tenants use agents which means there is a compensation on the other side of the transaction that has to be paid, and higher-end tenants usually have attorneys on hand that they like to use to review contract and such, which means more of my time dealing with the attorney and explaining to them the in's and out's of our leases (because they often don't understand)

    You said, 

    #1 professional pictures  (I expect good or professional pictures on all my listings whether it's $1500/month property or $3000/month)

    #2 Agents who represent the tenant get paid by the tenant - not by the landlord or the listing agent.  So that's a moot point.

    If my listing agent said, they are going to pay $1000 finders fee to all other agents who bring a tenant, then that kind of money makes more sense.   I doubt many agents do that even at the $3000/month price point.  

    So far you haven't told me one good reason why it takes so much more work to put a tenant who is willing to pay  $3000/month vs $1000/month?   

    0Reply
  • Joe Kim
    OP
    Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
    9y
    Originally posted by @Patrick Liska:

    Was part of a post very similar to this:

    https://www.biggerpockets.com/forums/52/topics/409...

    you can read that post, here is one posters list of things a PM does for you to be worth the money:

    Originally posted by @Joe Villeneuve:

    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.

     wow, does your PM work in Atlanta??

    1Reply
  • Kenneth Mooney
    Rental Property Investor · Augusta, GA · Member since 2016 · 348 posts · 171 votes
    9y
    Company I work for is mainly property management. This answer will vary from company to company and their systems. I've seen over 200 hours go into leasing up a property. I've also seen as few as 3-5. Best advice I have is that if you can find a property management company to find you a solid tenant that is going to stay a while, don't short them.
    2Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    9y

    I need 2 holes dug , 10ft square , 10 ft deep .  Each hole pays $ 500  .    the first guy comes in with a backhoe and does the job in 2 hours .  The second guy comes in with a shovel and takes 2 days .   Both made the same money for the work involved . Do I pay the guy with the backhoe less because he was faster , and pay the guy with the shovel more because it took him longer .   No , it was a $ 500 hole .  I paid for results , not methods 

    8Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    If you don't like the idea of $200 an hour, you'd probably really hate to pay my consulting fee of $350 an hour.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
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    2Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Joe Kim - Like Patrick said, if you hire a Real Estate Agent to market the property and pay her 1 month's rent, 95% of the time she's paying 1/2 month's rent to the renter's real estate agent. 

    So, in exchange for 1/2 month's rent (of which her brokerage company keeps 20-50%), she's taking pictures, writing up nice descriptions of your property, screening tenants, and preparing a good lease. She may potentially hold 'open houses' too. 

    So, of your $8,000, usually $4000 goes to 3 other agents, and the brokerage takes another $500-2000, so your hired agent actually gets paid $2000-3500 for leasing your 3 properties which bring you $8000/month in rent.

    PMs are different. You've been given a lot of advice about choosing one. Often they are not paying a commission to a real estate agent. Fees are entirely negotiable, whether that's a % or fixed.

    However, WHAT IF the PM has a qualified tenant and is choosing where to direct that person's attention? Let's say they have one $3000/mo rental offering a 1 month's commission bonus and your $3000/mo unit, offering a fixed fee of ~$500-1000. Which property do you think the PM will encourage that tenant to sign for first, all else equal? Will a couple weeks of extra vacancy for you be ultimately worth it?

    2Reply
  • Brandon Hall
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
    9y

    @Joe Kim I'm with you on the seemingly high fees. However, I'm not keen on the hourly rate.

    Hourly rates are not value add focused. They don't encourage efficiency or effectiveness. They are cost focused (what's my cost per hour and what do I want my profit to be) and as a result they don't help the consumer at all.

    Maybe fixed pricing is the answer. A firm that builds in tech efficiencies and can easily and quickly get it done. So they charge you half the price a normal firm would charge, but they are really making $1,000 per hour due to how efficient they are.

    5Reply
  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    Sorry Joe, my PM is in PA. @Natalie Schanne your last paragraph was well said and exactly to the point. I would rather have my rental properties rented rather than sit vacant making nothing. then again you will not be paying your PM any monthly payment, that's always a way to go if you do not like to pay your PM. 

    I will give you an example of exactly what Natalie was saying. i own 3 student rentals, in a college town of course, the college added housing, student enrollment went down. The college decided to mandate that no longer would just Freshman be required to live in dorms but Freshman and Sophomores. what do you think that has done to student rentals ? right now there are places that are trying to rent for $300/ room and can not get the renters. mine rent for $450/ room and mine are full, why do you think that is ? ( besides me keeping them nice ) , i give them what they want, they know they will make more money with mine. They know i stay on top of everything they do with my properties and i do question them at times, but i do not try to beat them up on price and i still continually buy properties for them to manage.

    2Reply
  • Joe Kim
    OP
    Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
    9y
    Originally posted by @Russell Brazil:

    If you don't like the idea of $200 an hour, you'd probably really hate to pay my consulting fee of $350 an hour.

     I would gladly pay you $350/hr.   if you are worth it.  

    Why all the negative answers to a honest question.   Is there a NEW way to do this, then the traditional method. 

    If you have an answer for me.  I've got a little money left over to spend at your $350/hr rate since I've got $8000 to play with.

    0Reply
  • Joe Kim
    OP
    Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
    9y

    Basically, i've got a lot of differences responses to my honest question.   I really love the  "let me tell you a story"  type of answers which is pretty useless.

    From do it all yourself on one end of the spectrum, then $99 SnapFlatFee for listing, ask for discounts/flat fee, to ..90% of you all saying "just shut up and pay...like the rest of us"

    Nobody knows a better, more novel way of doing this?

    It looks like the best answer is the simple one - find the best agent/PM, pay them well.

    1Reply
  • Mark H.
    SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
    9y

    I got my own re license, so I could do my own listings (ensure the pics & description were good, use the MLS to accurately value the properties, access the local standardized rental agreement & most recently, dispose of a unit @ full-pop retail for 1/2 commission)..

    If you feel you can't trust anyone but yourself to do the job right, there's your answer. That said, even with a license, I had to pay a pimp-fee to my broker & 1/2 month's rent to the tenant's agent (and pay for pro photos, MLS fees, nar dues, lockbox fees, etc.). So I only end up saving a little money (fortunately, I've always picked tenants who lasted for multiple years, so re-leasing hasn't been an issue). The only eye-popping savings was when I tried to list one of my rentals for sale (just didn't feel like doing it), and the local high-volume , highly regarded agent tried to get me to list for $35,000 under what I eventually closed the deal at.

    1Reply
  • Lara Pavanelli
    Real Estate Agent · Austin, TX · Member since 2017 · 1 post · 1 vote
    9y

    It's not just the # of hours they spend on your properties, you're also paying for them to be licensed and insured, you're paying them to be on call 24/7 in case of emergencies, you're paying them for their connections to good repair people, etc... 

    There's the Realtor dues with local MLS, State association and National association of Realtors which is mandatory, lockboxes, signs, professional photos, staging, E&O insurance, broker fees and more...

    The list is never ending of what Realtors have to pay...

    1Reply
  • Jack R.
    Flipper/Rehabber · Las Vegas, NV · Member since 2014 · 124 posts · 35 votes
    9y

    A few points

    1. A great property manager is and can be a tremendous asset.
    2. A bad property manager can ruin you. I have several investors, property owners you can speak to who will attest to this.
    3. You can DIY. I know many property owners who do this and are very successful.

    Remember, you typically get what you pay for. At the end of the day, what is Your time Worth?

    2Reply
  • Steven Leigh
    Wholesaler · Dayton, OH · Member since 2016 · 252 posts · 227 votes
    9y

    This lack mindset is going to keep holding you back until you let it go. It doesn't matter in the slightest what someone else is making. Do the numbers work for you and are you happy with your profit? Then everyone else should be well-paid too and everyone wins!

    When you start counting other people's money you are going to waste time and effort that could be spent on the next deal. If the next deal makes you $50,000 profit does it really matter whether you pay someone $8,000 or not? Sure, you can save some of that money if you work hard at it, but while you're working hard at counting your pennies, did you just miss out on another $50,000 deal, and another, and another???

    1Reply
  • Heather Colley
    Rental Property Investor · Nashville, TN · Member since 2015 · 20 posts · 11 votes
    9y
    Joe Kim I thought your question was a valid one....Why are you paying a PM so much more than, say, I would pay, with my $750/month tenants. I do not have a PM at this time. (bc I wanted to learn what it took to manage a property, and also avoid the expense). However, going forward with more properties I will hire a PM. Which is why I happened upon this thread. So, my take home, I'll be interviewing and negotiating with PMs when I get more properties. Thanks for the post. Heather
    0Reply
  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    9y

    I see your point, but I think some of your advantage is if they are paid on commission irather tham flat rate, it is in their best interest to get top dollar for you.  If they are flat rate, they get paid no matter what the sale price or rental rate is, so they are more likely to be on buyer's side, not your sode that wants top dollar.

    1Reply
  • Adam Christopher Zaleski
    Investor · Pueblo West, CO · Member since 2014 · 310 posts · 213 votes
    9y

    I have one property in Colorado and the property management fees are around 8%. I have another property in Florida and the property managements rates are around 12%. Each property consumes about 20 hours/year of my time. Because of I self-manage, I pay myself approximately $110/hr. I pretty much hire all the repairs out, unless I want to learn something. I do the showings myself.

    1Reply
  • Joe Kim
    OP
    Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
    9y
    Originally posted by @Steven Leigh:

    This lack mindset is going to keep holding you back until you let it go. It doesn't matter in the slightest what someone else is making. Do the numbers work for you and are you happy with your profit? Then everyone else should be well-paid too and everyone wins!

    When you start counting other people's money you are going to waste time and effort that could be spent on the next deal. If the next deal makes you $50,000 profit does it really matter whether you pay someone $8,000 or not? Sure, you can save some of that money if you work hard at it, but while you're working hard at counting your pennies, did you just miss out on another $50,000 deal, and another, and another???

     Sure you have a valid point.   I'm getting value when I pay an agent to find me a tenant.

    But I have no idea what you are talking about "lack mindset".   I have a tremendous "abundance mindset".   But that doesn't mean I don't try to find ways to save money.  

    I should have framed the question better.   If can get an agent to work at their FULL potential for the full price of 1 months rent ($3000), then that would work great for me.

    However, paying someone $3000, doesn't mean that they are doing their best to find me the best tenant.  

    How to maximize the help I'm getting is probably the better way to frame the question.

    Also, unlike 99% of investors, I'm not quitting my day job.  So not everyone is looking to move on to the next deal immediately.   I'll be putting hat up to rest for next 2-3 years after this season.

    I don't need any more deals honestly.

    0Reply
  • Tim S.
    Northeast, WI · Member since 2016 · 44 posts · 13 votes
    9y
    Personally I wouldn't want to pay someone a finders fee to find me tenants on a place that I'm going to be self managing. Why would you want to do that? Say you do as you suggest. Offer $1000 finders fee but no continued business for them to manage. What do they care who they put in your property? They won't have to deal with the problems. I would much prefer to find my own tenants if I am to self manage the property.
    1Reply
  • Neil Goradia
    Developer · Indianapolis, IN · Member since 2012 · 259 posts · 129 votes
    9y

    I honestly think it's more important to find a PM that does what you want them to, the way you want them to, then try to reduce their fees. Just make sure they are somewhat standard or a little lower than average and then focus your energy on finding someone that is high quality. You will be happier in the end I think. If you're still in the stage where every dollar counts, then do the PM yourself until you decide it's the right time to move on. Good luck!

    1Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    9y

    I totally agree with the OP.  I searched until I found professional management that agrees with us as well.  They manage my out-of-state property, including tenant screening and placement when vacant, for 8% of rents collected and a $150 per year admin fee.   This aligns their interest with the property owner, screening for well-qualified, longer-term tenants, as non-payers and vacancies hurt their bottom line as well (instead of benefiting them by getting to charge for another tenant screening).   I've used them for years now, and they are better by far than the others who charged me a large fee for tenant placement.  

    As far as the posts stating someone is somehow cheap by expecting a reasonable rate for the service being rendered, good business is knowing when you are spending too much for a service and taking steps to reduce expenses, especially when they are unreasonable. 

    Those who think paying the most means getting the best quality will learn the hard way that, in many instances, it does not.  I recently needed trees/shrubs removed, and had quotes from $750 thru $3000. The $750 business did a good, clean job, on-time and efficient, hauled everything away, and was happy for the business.  While the $3000 guy may have been just as good (although he wouldn't even agree to do the work on the weekend I needed it done), I saved my business over $2000, about 7 months of cash flow for that unit, on the same exact service.   

    1Reply
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