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

Joe Kim · 2017-02-19T22:06:19-08:00

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 propertyHow 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 = hoursAdvertising = hoursShowings = hoursbackground check = hoursmiscellaneous = hours

Herman Herrera

Real Estate Broker · New York, NY · Member since 2016 · 30 posts · 22 votes

9y

You can belittle anyone's job. If you think it's easy and you have the know how, do it yourself and stop bitching about it.

2 Reply

Steven Hamilton IIPro Member

Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes

9y

What does your job pay you an hour?

Keep in mind they are self employed and have marketing costs, travel costs etc. All of the overhead that an employee working at a 9-5 doesn't have.

If you have someone screening your tenants who has experience and does a great job it can be well worth the fees to avoid a vacancy every other year.

I'm an accountant, my clients don't pay me just to prepare a tax return. They pay for the knowledge and education I have to help them save money and make smart educated decisions.

[email protected]224-381-2660

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Matt M.

Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes

9y

Do agents really deserve $200+/hr

Yes.

2 Reply

Marvin Stewart

Real Estate Agent · Aubrey, TX · Member since 2014 · 51 posts · 13 votes

9y

Joe Kim I believe Patrick Liska provided some excellent feedback. I understand what your concerns are but I would definitely consider the benefits of having a PM, and see what else they can offer you. After listening to several BP podcast, PMs' seem to have a ton of valuable information and can provide you with intel on other markets or contacts to other PMs' in other markets you may be considering to invest in, in the future. Hope you were able to negotiate a good deal!

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Denziel Maynard

Real Estate Broker · South Florida · Member since 2016 · 15 posts · 6 votes

9y

I once took a listing and had a 95% asking price offer a few hours after putting it on the MLS only. The seller felt they shouldn't have to pay the full 6% commission as per the listing contract. They stated that I didn't REALLY do anything! I stated Would it make you feel better if I brought this same OFFER back in 30 days after placing a yard sign, showing the property and holding open houses every weekend; only to end up where we started! Think about what you want to do to get what you want. It's your time, how do you want to $pend it!

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Chad Hale

Property Manager / Investor · San Jose, CA · Member since 2013 · 780 posts · 302 votes

9y

@Joe Kim Regarding your reframed question. Thanks.

"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."

In my view it comes down to finding someone you trust, who operates with integrity and is working their best for you, their client (partner) whether you are "watching" or not. Their goal is to make you successful. Which turns out will also make them successful.

As a PM, I typically charge a flat percentage of gross rents for PM services with a monthly minimum. It covers everything. There are no other fees, no hidden fees, no account setup fees, no leasing fees or other extra fees for various services or items. I do not mark up maintenance/work invoices. The only thing not included is eviction costs. Lawyer and court costs would be separate for example. I try to make this as simple and transparent as possible. I get paid when you get paid.

Regarding the number of hours to find a qualified tenant. It can vary quite a bit. At a minimum:6-8 hours. You get a qualified tenant immediately that passes all application/screening/background checks, with a single showing, no other inquiries to handle and a quick lease signing. On the other extreme, it is December, qualified applicants are not showing up requiring lots of additional phone calls / emails / advertising and showings, etc. This could easily consume 35-50 hours. Call it an average of 20 hours. Your three properties divided by 60 hours (20 each) at $8k = $133/hour. Good money sure but there is a lot of variability/risk. Also, a PM assumes the tenant liability in terms of fair housing and other constantly changing laws. As an aside in an ever increasing scam prevalent culture, several tenants that I've placed were more comfortable knowing that they were working with a licensed professional using standard forms. There are lots of other posts/forums for/against using PM's so I won't delve further on that topic.

Property management is a lot like being a pilot. It is easy and straightforward until it is not. Then the training, skills, ability, and experience are worth everything.

Chad

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Judy Marszalek

Dallas, GA · Member since 2017 · 1 post · 0 votes

9y

@JoeKim - the question isn't "Is the PM making too much money", but rather how much money can YOU make in the time it takes the PM to handle the advertising, fielding the phone calls, showing the property, screening tenants, etc.? You WILL NOT do it better, or more efficiently than the PM does.

As an investor you're probably going to make over $8,000 in the same amount of time that it takes to do all of this tedious nonsense. It's the same reason why an excellent Executive Secretary/ Personal Assistant will make $75,000-$85,000.

Pick your poison - get caught up & distracted by all the details of leasing your properties, or pay the PM what they charge & make more money focusing on your business.

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Patrick LiskaPro Member

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

9y

Originally posted by @Joe Kim:

This thread is getting out of hand...a bit.

I think my initial post was misleading. I"m not just trying to "save money". But the flip side of the coin is getting the most for your buck. - VALUE. Am I getting the best service for what I"m paying for. That's it.

So let's reframe my question: How do you motivate your agent/PM to provide the best service to you?

I already know most of those answers. I was trying to see if anyone else had other ways to motivate the people they are working with.

At the end of the day, I was really asking for more novel ways to MARKET my properties (and not your DYI type of way), but by paying good people to work for me.

I'm a big believer in paying people well for good work. In many cases, you cannot know if someone is going to do good work or not until AFTER the fact.

By the way, I really like my agent. I'm just looking for a NEW way of doing it.

Why do we all have be like sheep and follow conventional wisdom?

Lastly, I don't think any or most of the respondents have owned expensive SFR for buy/hold.

That move of buying SFR >300K is something I'm trying for the first time when most investors are buying at 50K - 150K range.

I'm not trying to pose this question for my 125K properties. But 300K+ value properties which is in a different category with more risk, more cost, but hopefully some equal benefit.

Joe,

You state that it seems most of the posters here seem to have properties in the 50 - 150k range and that there is a difference because you are talking about houses in the 300k range. the answer to that is yes and no, houses in the 50 to 150k range may rent for $800 to $1200/ month ( so a PM commission at 10% would be 80 - $120) where as the 300k property may rent for $1200 - $1800 and the PM would get 120 - $180 / month. so the 300k property would bring in more money to you then the properties that are bought at the 50 - 150k range. so that spread in income should cover the PM'S costs no matter what price range you buy at and still leave a considerable profit after ( more with the $300k+ houses). you also have to deal with different "class" of people at the different price ranges. and as explained in an earlier post sometimes the people with more means can be the biggest pain. but no matter what price range you buy a house and rent it at, there is a lot of work that goes into managing that property, one that i gladly pay my PM for. If there was a better way to have a steady price for everything that a PM does and have it be equaled out for every property, i think that could be something that can be discussed and worked out with a PM company. maybe put together a few investors and try and come up with a plan to present to PM'S where they would feel they could make money as well. you almost need a sliding scale cost.

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David Grabiner

Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes

9y

For all the time spent back and forth on this forum you could have already created a listing on Zillow, Craigslist, and put a sign at the main rd intersection and one in the yard. It doesn't take much work and in my area even higher end ($2000 per month is higher end in my area) I haven't had a problem getting applications using this technique. It is amazing how many calls a sign at the road and in the yard will generate because people often drive by the areas they want to live in.

If you don't have time to show the property just pay someone you know and trust open the doors and let the people see the property. He/she doesn't have to answer any questions just give them the link to fill out the application and do the credit report.

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Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

9y

Industry standard for leasing is one months rent. It is pretty much across the board in our market.

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Lynn McGeein

Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes

9y

Originally posted by @JD Martin:

Thoughts on the second part of your post:

1. The standard split generally works 3% each way, with the broker & agent splitting 1.5% (on a 6% commission). Am I following this correctly: your deals work out where the opposing agency splits their 3%, but you are splitting 1 or 2% between yourself and the broker? Or you are still working on a 6% split, but your broker takes 2% and you take 1%? Or your broker takes everything on your split but your flat fee of (for example) $500? I can't fathom too many brokers that are going to agree to a lesser split.

2. The homeowner that is making significant money has rarely invested anything beyond their mortgage and a few upgrades. More common is that they are beneficiaries of a rising market, that has lifted their boat with little input required. A home that was bought for $50k and later sold for $200k, it is virtually guaranteed the homeowner did not put $150k into this home.

As with the OP, I, too, believe in finding fair value for the service offered. Luckily, the "standard split" you discuss is no longer such a "standard," and there are brokers (not many, but growing) that can "fathom" a much lesser split, actually have reasonable fees for their agents, who can pass that huge savings onto their clients. I am not undervaluing my services. I just found more value elsewhere, both for me and my clients, which I believe fits in with the overall theme of this thread. The bloated 50/50 split, 6-7% commission system needs to change.

I find your statements in your No. 2 more concerning, "more common is they are beneficiaries ... lifted their boat with little input" My experience is that most homeowners aren't making "significant money." Many are just trying to move for work or would like a larger home for a growing family. For them, paying $15K commission to sell the average $250K home in our area is a significant expense, especially if they've purchased with FHA and put in some new flooring or appliances. In many cases, the brokers involved walk away with more cash than the homeowner, who did invest their small savings hoping to build some value in a few years rather than paying a landlord, only to hand most of it over in commissions. And a home that was "bought for $50K and later sold for $200K," for the average homeowner means they've lived there a long time, invested in the time and care and maintenance along with the mortgage. I don't consider that "little input required."

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Tim VandenToorn

Real Estate Professional · Rockford, MI · Member since 2015 · 301 posts · 138 votes

9y

@Joe Kim I recently sent this to an investor complaining about out "leasing up" fees. We charge 60% of one months rent.

-Marketing- We pay an employee to take pictures, measurements, write an advertisement upload pictures etc to market your property on nearly 50 sites. This process alone takes a couple hours per unit. At $25.00 a hour. This cost around $100.00 If we hire a professional photographer (which we do on higher end units) and pay extra for this. Between $70-$100.00. We still write the add, coordinate the pictures etc. Higher end units cost about $150.00 to market

-Calls- we generally take dozen of calls on properties answering numerous questions prior to scheduling a showing. There is labor time involved here and requires office staff. $100.00

-Showings- we send a leasing agent to show your properties every time a person calls to schedule. We do same day showings. On lower end units the cost of this is even higher as lower end distressed properties are hard to rent. Our leasing agent likely spent 5 -10 hours showing each unit of your prior to renting. This cost $100 to $200.00

-Leasing bonus - we pay our leasing agent a bonus when they place a qualified tenant $75.00

-Background- We check employee references, landlord references, draft lease documents (containing roughly 15 pages of customized documents) prior to moving a tenant in. Along with supplying keys and explaining the lease, this is an hour long process. $25.00.

-Move in pictures/video- Upon completion of the rent ready we take move in pictures and or a video of your property. We generally take 25-50 pictures per unit prior to move-in that is billed for in the placement fee. This requires an employee to make a trip to the house and to upload the pictures which are stored on our hard drive.

-Signs- we have cost associated with purchasing, maintaining and placing signs at each property we advertise. These signs cost $50-$75.

-Website- we maintain a website to advertise and pay for a service to syndicate the listings.

I would rather renew a lease, then place a new tenant any day of the week.

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Chris K.

Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes

9y

Hi @Joe Kim:

I think @Brandon Hall got to the heart of your question. The basic issue you describe applies to all professionals --- how should professionals charge for the work that they do? Some common options include: (1) hourly based (e.g. most lawyers); (2) percentage based (e.g. realtors, brokers, etc.); and (3) fixed fee (e.g. lot of examples to list). Economists and other academics have argued about this issue for many years and will continue to do so until we are all dead.

All options have pros and cons for both the professional and the client. I can give you hundreds of examples.

Unfortunately, the other systems have many problems as well. As a lawyer, I can tell you the horrors of the hourly system. Long story short, it’s unlikely you will find a perfect solution. If you do, you’ll have a very strong chance of winning the Noble Prize in Economics. :)

Here’s what I would say: figure out why exactly you need a property manager and whether you are willing to pay the amount of money that you do for such services. Also try to decide what you would like to do in the long-term as a real-estate investor. Do you want to own 300 units? At that point, you are probably better off having employees to handle your property management services. By contrast, are you happy to own just 10 or 20 units? At that scale, efficient self-management can go a long way. I can't recall the gentlemen's name, but one of the BP Podcasts featured an investor who was a full-time wealth adviser but also self-managed around 100 units with one employee. I've seen many other examples where investors use creative methods to reduce their operating expenses.

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Amber Gonion

Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes

9y

We do property management for our investors that use us as their re agent. I don't ever apologize for our fees, people say owners will be more selective than a pm, well that's not legal and it will end up costing more in the long run in lawsuits. We work with our investors to have strong criteria for renters to qualify for rents that are appropriate. Without discriminating we end up with a better pool of renters. When we help a investor find a property we work many hours before ever talking to our investors about a property, we are spending hours each day finding deals, writing up offers, counter offers, contingencies, attending inspections, showing properties, speaking with listing agents, loan officers, etc. We steer them to properties that will make money and stand behind our choice as their pm if they choose. We also know the other agents and often can negotiate much better than an investor because this is what we do every day. Good agents make good money, bad ones may get a deal here and there before going out of business. What would you pay per hour for someone that guides you and negotiates for you a 100k-10 million dollar investment deal? Should I charge like an attorney for every email, research, and travel? The law states if I buy or sell a house for myself I MUST disclose this because being a re agent is a perceived unfair advantage. It's described as a wolf in a chicken coop.

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Deanna O.

Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes

9y

So, few thoughts;

a) "Higher end". Are you looking at tenants who are Doctors, lawyers & dentists & other professionals, or are you looking at teachers and bus drivers?

b) Fair Market Rent. Are the rents you are charging above, same as, or below the rates for similar houses in the area? If you are expecting top dollar rents for the area your agent is going to have to work a LOT harder to get a tenant than if the rent is a screaming good deal for the area.

c) Curb appeal -- do these houses look top-of-the-line when you pull up to them? Just a tad better than the rest of the neighborhood? No peeling paint, nothing faded or broken, landscaping is attractive and well-maintained? Clean, newly painted, house looks well-maintained? Again, easy-to-rent vs just-another-house.

Outside the box;

As others said, approach other GOOD property management companies or realtors with the package and see if they are interested. Talk to friends with nicer rentals to see who they use.

If these are truly exceptional homes for the area (Company CEO/heart surgeon/society entertainment home caliber) maybe approach the top tier realtors in the area & see what you can negotiate. There may be a market for corporate homes or short-term housing for relocated professionals while shopping for a permanent residence. Offer shorter/flexible leases in exchange for slightly higher rent &/or no placement fees (with the bonus that most CEOs looking to buy a new home have too much to lose to go trashing the place). In large metro areas insurance companies frequently have to relocate clients while repairs are being done. High end construction companies might have clients who need to relocate for major remodels. If you are near a hospital consider marketing to traveling nurses/medical staff. Universities have professors for short stints (think 9 months and CLOSE to university -- bike or walk preferred).

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Tyler Howell

Property Manager · Denver, CO · Member since 2016 · 107 posts · 43 votes

9y

@Joe Kim - have you looked into Hemlane? It's a semi-DIY landlord platform I think is right up your alley. Something like $50/mo. Company is based there in SF run by a Harvard MBA.

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

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

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94 Replies

Yes.