How Much Do You Pay Your Property Manager?
Pretty simple question... but:
1) I know that some/many of you self-manage. You don't need to tell me "ZERO" and elaborate on how great you are. I get it.
2) I'm sure someone out there still uses a PM or PM company for onesie/twosie type deals. This is more what I'm looking for, not the guy who manages your 96 unit apartment building or condo complex.
RI rates seem to be about 10-12% if you have no placement fee but when I bought my property the mortgage company listed the cost at 5%. she didn't need to make the numbers work but suggested that on larger properties that you could get that number. I don't see that in this thread so I am thinking it is not correct.
A few general thoughts:
- PMs rarely meet the investors' expectations for service, quality, finances, etc. I firmly feel that this is a mix of unrealistic expectations from investors who want the vendor to value the property like its their own, and a thankless profession that needs high volumes to make ends meet (and still doesn't pay well).
- I've never seen a PM act in an unethical way. I'm sure they exist - they are just not as common as some imply. Though idiots do abound...
- I've only worked with a few companies, but I've got myself in trouble when I've used fees as the primary decision maker! Understand the size of the team, track a few properties from the company, get some referrals, etc.
- Fees consist of a few components. Here they are, and what is normally paid:
- Placement fee: 1/2 of first month rent is normal. A full month's rent is common in some areas.
- Monthly fee of 6%-12% of collected rents. 8% is the norm.
- Renewal fees are a huge one! Be careful, as some charge as much as 1 month for this.
- Set-up fee of $100.
- Maintenance is a big one - be sure you understand it!!! 0% isn't rare but 10% on all services is probably the most common. Some companies have 'in house' teams that charge high amounts for things like paintings/carpet.
Low end is about 5%.
High end such as Trump takes 45% plus other fees.
I have 2 houses and a small apt building with a PM that is the realtor I bought the properties through. They charge 10% of rent collected. They screen tenants, they show properties, inspect them when they move out and hire cleaners, and call the handyman when a problem develops. They call me if anything major happens if they can reach me. If they cannot reach me they do what it takes to patch it until they reach me. Some places have the same tenant for 10 or more years some roll over 2 or more times a year. No extra fee for placing a tenant and no fee for calling my handyman.
I forgot to add that I also manage about 10 SFR houses in the same town myself. I think my property managers do slightly better than me most of the time, but I am getting better.
@Jerry W. - that's a terrific deal. 10% w/ no extra tenant placement fee, and coordinating with your handyman for nothing? Those terms would be unheard of in my part of the country (and most parts, from what I've gathered), and frankly, your folks are working for peanuts. Sometimes when it's not their sole source of income (ie. they're doing transaction real estate as well), they probably don't sharpen their pencils. But they almost might use the PM business to generate other real estate transaction business, so there are some synergies there as well. Anyway, congrats on a great setup.
Thank @David Beard , I don't want to hijack this thread but I have to tell the story of how I got my property managers. I was in a small RE investing company and we had bought a small apartment house, that was one of 3 built at the same time about 90 years ago. After about 7 years we had a buyer offer us a price that the others thought was great and they said lets sell. I set down and analysed the cash flow and compared it to our SFR houses, I then told them we need to buy not sell because it has the best cash flow. I knew this realty company managed the other 2 buildings so we offered them about $5K more per building than the offer was to us and we bought them and gave management of our apt building to them also. I have bought or sold about 10 houses through them since then.
8 to 10 percent plus FULL month's rent is typical here in central maine.
CA properties: 9-10% of gross rent including 50% of first rent check (i.e. placement fee)
Memphis properties: 8%
I wouldn't pay more than 10% of the gross rent.
Yesterday I called a few property managers I found on google to see what's on offer in the area where I invest in TN.
#1: Answered the phone "Hello." I asked him if I'd gotten the right number and his response was "Yep."
#2: Didn't actually know what his rates were. He'd have to check with his boss and call me back.
#3: About half way into our conversation he said someone had just walked into the office and he'd have to call me back. (Apparently walk-ins get priority over someone trying to find a manager for 4 primo, tenanted properties in good neighborhoods.)
#4: 10% and 1st month's rent. There is no flexibility on pricing.
#5: I had to call 4 times to get someone to answer and was then told 10% and 1st month's rent.
I have a caretaker that cleans the (11 unit apartment building) building and mows the grass and shovels snow. The gross monthly rent (not including laundry? $150/month) is $8905. They are paid 4% of gross rents. I do all other management issues (renting, arranging/paying for repair/maintenance).
Other response were from 6.65%-11% but that was when they did everything.
Does 4% seem resonable?
Thanks
Jeff
@Jeff Johnson Cutting someone in on a percentage of gross seems like a partnership deal to me and is honestly something I wouldn't feel comfortable doing if I were doing everything except mowing grass and shoveling snow. I may be a bit more of a stickler, but I'd be much more inclined to give someone reduced rent or a flat rate for this kind of work. $350 for mowing and shoveling may be reasonable there, but it seems very high to me. Just my $.02.
On your question #3 they might consider a person that walk into the office is a serious landlord verse one on the phone that might be shopping around.
Joe Gore
Thanks Ben,
The 4% goes to reduced rent for the caretaker.
@Jeff Johnson There's added value there because you know he'll stick around because he feels he's getting a good deal. As long as the grounds look good and his remaining rent is paid on time, $90/week might be a good deal? If there are a lot of vacancies/cleaning... that would be a good rate. I've found many cleaning outfits now want a ton of money to clean a house after a vacancy.
I'm a big believer in you get what you pay for. If you pay too little the PM won't care about your property as much. I always find it funny that someone will spend hundreds of thousands on an investment property and then complain or try to get the PM to lower their fees. You're literally talking about pennies compared to the actual investment. I myself will not ever lower my costs on what I charge someone to manager their property. I always have charged a flat 10% of the gross rent. If it's rented I get paid if not I don't get paid. A good PM is worth every penny. They can ultimately be the difference between a good investment that profits you or not.
I have 4 different SFR
N.C 10% rent
LA 10%
Colorado 10%
Georgia - 10% 1/2 month new tenant fee
Since I lived in all those areas before moving and renting out my then primary residence, did the research on the local PM firms. most were around the 10% range for SFHs. Concur with the statement you get what you pay for , and the good ones are in the 8-10 % range
In California to be a legal functioning manager, a real estate license is required, in order to qualify the manager to negotiate contracts: explaining the rental terms & condition and getting into a binding agreement with the new tenants, releasing tenants, or adding tenants to an existing rented property and MAYBE evicting a tenant. From what I understand one can have a relative, another tenant show the place, manage the physical repairs, and collect rent. That relative with no real estate license just cannot sign or even advise on what the rental agreement means to new renters.
So the loop hole is to manage filling out the unit/property yourself (even without a license but as a property owner) and once someone is in there, a grounds man, handy man, relative, or another tenant can do the day to day NON-contract duties.
A Fresno PM is asking 8-9%.
Originally posted by @Mitch Kronowit:
Originally posted by Steve Babiak:
In some areas, a property manager is required to have a real estate license. I believe there are some exemptions to this such as employees (like buildings with lots of units under one roof). A property owner can always serve as property manager of course.Good advice. In California, you have to have a real estate license to manage somebody else's property, but what if they're a family member?
My parents are thinking of renting their house and scaling down. They would like me to take care of their house for them since they don't trust anybody else. Would I need a RE license in California to manage my parent's property? The house is held in a living trust with me as the successor trustee if that makes any difference.
Thanks BP team.