Investor · Winston-Salem Greensboro Lexington, NC · Member since 2016 · 4 posts · 2 votes
Looking into what could be a great deal but really need to nail down what market rents should be going for to determine if current rent rolls are in fact below market. Is a property management company the best place to ask, what rents should be going for? On that note, wondering if anyone could recommend a good property manager in the Winston-Salem, Greensboro area? Are they the best people to ask about rental rates before the deal?
@Darek Zurawski If you're paying a PM a % of rent then you wouldn't experience what @Wesley H.has. That way the PM is incented to get the highest possible rent. Always structure compensation aligned with how human nature works and it's tough to lose.
I do not agree that in practice that's how many/most respond to incentives. Say a PM makes 10%, market rent is $1,000, pricing under market at $900 costs the PM a measly $10/mo and may take significantly less effort to get it rented.
Same goes for purchases/sales. If a realtor makes 3% as a sellers agent, they are generally incentivized to get a quick sale at a lower price than hold out for a slightly higher commission ... IME a sellers agent is ALWAYS more eager to cut the price or accept a lower offer than the seller is.
You are assuming an agent always wants to maximize commission, IMO that assumption is usually wrong and in reality if that last 10% of commission dollars takes significantly more effort most will take the easy $.90 over a more difficult buck.
Investor · Auckland, Cockle Bay · Member since 2017 · 12 posts · 4 votes
9y
Hi Darek
From my experience, property managers tend to put rents a little lower to make it quicker/easier for them to rent. Id highly recommend you do your research and compare rentals in the neighborhood.
When comparing, also take notice of how many days that particular place has been on the market and why? (eg. rent too high). Trulia/Zillow is what i recommend.
Yes id definitely ask for rental rates & management contract prior to signing with anyone...at this point you have some negotiation options. Once you sign, you will less likely have any negotiation room.
Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
9y
@Darek Zurawski If you're paying a PM a % of rent then you wouldn't experience what @Wesley H.has. That way the PM is incented to get the highest possible rent. Always structure compensation aligned with how human nature works and it's tough to lose.
As far as who knows market rents better? You've got to be kidding right? Does a professional manager who rents hundreds of properties day in an day out know what market rents are? OF COURSE! Does a doctor know about health? Does a trainer know about fitness? You always seek out expert advice and expert advice is worth every penny it costs.
@Darek Zurawski If you're paying a PM a % of rent then you wouldn't experience what @Wesley H.has. That way the PM is incented to get the highest possible rent. Always structure compensation aligned with how human nature works and it's tough to lose.
I do not agree that in practice that's how many/most respond to incentives. Say a PM makes 10%, market rent is $1,000, pricing under market at $900 costs the PM a measly $10/mo and may take significantly less effort to get it rented.
Same goes for purchases/sales. If a realtor makes 3% as a sellers agent, they are generally incentivized to get a quick sale at a lower price than hold out for a slightly higher commission ... IME a sellers agent is ALWAYS more eager to cut the price or accept a lower offer than the seller is.
You are assuming an agent always wants to maximize commission, IMO that assumption is usually wrong and in reality if that last 10% of commission dollars takes significantly more effort most will take the easy $.90 over a more difficult buck.
Residential Real Estate Broker · Cartersville, GA · Member since 2015 · 575 posts · 581 votes
9y
I suppose if you're dealing with non-professionals then you are right you will get subpar results. Real professionals represent their clients just like it was their money and commission is the last thing on their mind. I would add that it's a statistical fact that Realtor represented properties sell for higher amounts and faster so there must be good agents out there.
I suppose if you're dealing with non-professionals then you are right you will get subpar results. Real professionals represent their clients just like it was their money and commission is the last thing on their mind. I would add that it's a statistical fact that Realtor represented properties sell for higher amounts and faster so there must be good agents out there.
Professionalism or lack thereof has nothing to do with it, you specifically brought up incentives and the incentives don't work the way you claimed they did. That professionalism may lead good agents to act other than what's purely incentive driven doesn't change the incentive.
Commissions being "the last thing on an agents mind" is wishful thinking to the point of naivety. Of course there are plenty of good/professional agents out there who will put their clients interest first, this does not mean commissions aren't on their mind.
I never made any claim one way or another wrt sales prices being higher or lower with an agent, I said agents are almost always more eager to cut the price or agree to a lower offer than the seller. Good agents still bring plenty of value to the table though.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
You could use sites like zillow, rentometer, hotpads and do your own market research... then discuss with PM. If one of you are off ask why and depending on explanation either get a new PM or take their word.
Property Manager · West Palm Beach, FL · Member since 2012 · 296 posts · 143 votes
9y
If you dont trust what a PM says and you want to find out yourself. its kind of simple. Just call around to different places for rent and ask them what they are renting for and what the lowest they will take. If your a realtor just check the MLS in your area and it will show you what the listings that have closed went for. If your not ask a few different realtors and PM's to give you their rental analysis. I dont like using zillow since in some areas it will be way off what the rents are actually going for. Looking online also doesn't help because its just asking rents not what the rents they are actually getting.
Investor · Winston-Salem Greensboro Lexington, NC · Member since 2016 · 4 posts · 2 votes
9y
@Robert Gilstrap No I'm afraid I'm not kidding. In theory, your logic is spot on. In practice, the real world doesn't work as cut and dry as you describe. I know a plumber that has over 30 years experience and routinely has to do things twice because his work doesn't pass inspection. Inspectors themselves are part of the problem but that's a whole different topic. Yes a doctor should know about health. But I can sit here and state numerous cases where someone I know went to get a second opinion, only to get a different prognosis and one involved life and death. It actually happened to me personally when I was 11 years old too. In my experience, finding smart experts is extremely difficult. Sadly, human nature is to make the money and run.
@Walt Dockery I think more often than not, in your scenario, the PM would choose $900 and move on to whatever other work they had on their desk. I would guess that volume wins the game. Spending time and effort to squeeze every last Benjamin out of the deal quickly reaches a point of diminishing returns.
This is exactly what my original post was eluding to. Is asking a property manager what rent should go for, the standard operating procedure? The most reliable? Or is it similar to asking the fox to guard the henhouse?
The rent roll of the deal in question is on average $431. It's a 24 unit complex, each unit is a 2/1.5, 1,140 sq. ft. and I found several comp rents of $700 and they are smaller units. There are some for $725 and one for $750 within a 5 mile radius. Conditions are similar. So, this begs the question, is the current PM who has been managing it for a decade correct? And will another PM do just as good/poor of a job?
In my area, EVERYONE I talk to says they don't know of a good PM they can recommend. Of the few investors I know, they ended up handling it themselves. And they can because they don't have a W-2. It's just hard to find good help these days.
@Shaun Patterson I agree, I don't like using those online sites either. Those rent estimates are all over the ballpark and don't hold much value. Zillow I think is the worst, I would never recommend that one. I only use current advertised rents as a comp on those sites.
Thanks to all for chiming in but until I get the experience, I need to find a reliable resource to price rents. A little difference can make a huge impact on a deal. Especialy when dealing with dozens of units.
Property Manager · West Palm Beach, FL · Member since 2012 · 296 posts · 143 votes
9y
You also have to take into account the state of the units your buying and the area that your buying in. If the units your buying are totally run down and the one across the street are getting 725 because they are updated you have to take that into account. The other thing is the area that you are in. A one mile difference can be a ghetto and a upscale neighborhood so understanding the area that you are in would be a first before looking at the rents in that area. You might have bought a 24 unit in the ghetto and the tenants might not be able to afford more then the 431 average that the pm is currently charging. There are alot of what ifs that you have to find the answer for.
Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
9y
I don't know why property manager would give you the lower rent estimate.
PM is not responsible for your vacancies if you choose higher than market rent.
I usually give my clients estimate "to rent now" and "highest I can get".
They always choose "rent now".
I like the highest because my lease usually for 2 years and I want to maximaze the income. Well, I learn from my mistake: I was trying to rent my own properties this way and had 2-4 months vacancies. (It was January through April). I wish I wouldn't do it - my clients had 100% occupancy and zero turnover, my own properties rented $75 higher ($925 vs $850) but it cost me dearly.
I think it's up to the owner to assume the risk but I always disclose the risks to the owners.
If you don't trust PM, check out CL and Zillow, Realtor.com - just make sure it's exactly the same area and type of the property.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Yes, PMs worth anything should be well versed in market rents. IMO, though, you may be going at things backwards.
1)Get familiar with the market, neighborhoods, pricing, rents, etc.
2)Find a great PM if you are going to use one
3)Find a great deal on a property
If you don't do #1 first then you won't know if you have a great deal in #3, and the greatest deal in the world means nothing if you don't have a great team to manage it for you (#2) ... all are important and order is important to because you can't spot a great deal without knowing the market, a horrible PM can ruin a great deal, but a great PM can't save a horrible deal.
Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
9y
I agree with David Faulkner
Use free tools at your disposal such as Zillow and Rentometer to determine market rent. These tools will at least get you in the right range. Nicer, newer units will obviously rent for the top end of the range.
Most property managers will ask you first if you have a number in mind for what you want to rent for. If you don't have that number ready, and instead ask for their opinion, most times they will come in low (that's been my experience). As others have said, PMs are incentivized to fill the vacancy fast and not so much to get the maximum rent possible.
Perfect example - in the beginning of this year I had a vacancy in my 4-plex, PM wanted to list it at $595 and I pushed back and said let's try for $625. Vacancy was filled in less than a week. I think that was a bit eye opening for the PM!