20% premium of repair costs, $65 per hour for unlicensed repair work, really?

Question

My property manager charges me with 20% premium of any repair costs when they act as general contractor to sub contractors.

On top of that, I received a letter that they hired an inhouse handyman for unlicensed minor repair work. They charge $65 per hour for such work.

What do you all think?  Seems to me these charges are excessive, and give pm an incentive to have as much repair work as possible (in fact, there have been numerous repair works on my property so far.)

The property is old (built in 1958) located in Atlanta.

Naga A. · Answer

Obviously, it was a dumb mistake for me to sign the agreement as is.

As much as I want to cut a tie with this group now, I do not think it is financially a smart decision to cut my losses and give up $800 or so.

Since I set $100 as a max amount that pm can do repair works without my prior approval, I probably will reject their request for repair as much as possible (except for emergency) and wait for the end of agreement before firing this unscrupulous pm.

Joel Owens · Answer

It sounds like you bought a crap hole in the city of Atlanta for cheap.

I really hope that's not the case.High taxes and bad rehab jobs make these properties real losers.I looked at the 2 years ago for a few months traveling all over the area.At the time they were priced at about 30,000 a house.I was looking at the area because my area in the burbs 45 minutes out was dropping but still at about 85,000 a property which was too high for me.

Now in Atlanta some of these places are going for 5,000 and in my area which is much nicer has gone down to the 30's to 50's a property.

I specifically do not buy older places in Atlanta.If you know the market there were these groups say 4 to 5 years ago.They came in and did hack jobs and then flipped these properties for crazy amounts.They took the money and ran making over 100k a property and the appraisers were involved to.They did nothing but put pretty lipstick on a turd.

Now these properties have galvanized pipes,foundation issues,lead based paint,asbestos,mold,knob and tube wiring mix with current wiring,radon,etc.

It sounds like with this turn key company they are padding fees on the back end.Real estate brokers that sold REO used to do this kind of stuff.They would only be making say 2% on the sale of the property.So for the trash out the REO broker would use a company that had ownership in and make up the money over billing the servicer or bank.

This lasted for about 6 months to 1 year and banks caught onto it which is why they use third parties to ensure they get the best pricing now for all of the steps in selling an REO.

Anytime I hear "turn-key" I would run away.I have not had experience with  them but have heard nightmare story after nightmare story on here.It sounds easier for a company to dupe an out of state investor than one on the ground that can watch what they are doing like a hawk.

This property management company knows they are padding.Why else would they put a clause if you cancel you pay all of this money?? It's obvious it has happened to them before with a previous client.

All I say is let common sense prevail in these situations.I am sorry to hear you are having this experience.Many insurance companies won't write insurance policies on these really older homes unless documentation has been shown that all major electrical,plumbing,rood,etc. has been replaced.

The insurance company knows just like you are experiencing that if they are not replaced repair after repair will drain them dry in payouts.

Matt T. · Answer

I pay a $50 call out for the first hour and then $20 an hour.  Are you local or an out of town investor?  Could make a difference in your options.  I'd probably tell that "turn key" operation where they can turn their key.

Mitch Kronowit · Answer

$60 for the FIRST hour (call out fee) here in California is about normal, then $25-35/hour after that (for a handyman). After all, you can't expect them to drive all the way over to your property and back for a 10 minute job and only make five bucks.

Michael R. · Answer

While lots of pms here mark up repairs 10% what is the incentive for them to accept the best bid on a job? The higher the bid the more they make in terms of mark up. For this reason if I use a PM I always use my own handyman. This way the pm knows he cant make up repairs and I cut my repairs and maintenance costs significantly.

Naga A. · Answer

Aaron,

Thanks for your comments.  What this PM does is to markup 20% of any repair bills they receive from subcontractors on any repair work.

aren't all they do is to pick up subcontractor's namecard from Rolodex and make a call?  I don't know how they justify charging 20% surcharge for that.

If it is a renovation work on a flip property, I understand GC charge some profit for ensuring the project being done correctly per spec and on time.

I still feel like this is unreasonable and that should be part of the monthly PM fee.

I have asked around other PMs that I do/did business with and they all said they never mark up any repair cost (they just pass through to the owner).

Aaron McGinnis · Answer

I somehow missed this conversation the first time around...

To me, paying 20% overhead on a self-managing process isn't unreasonable. I'd rather see 15%, but 20% isn't usury. Bottom line is that management costs money, and a good manager can mean the difference between a contractor working effectively and doing a job to spec and doing sloppy work because they know nobody is watching them.

Now, $65/hr for unlicensed work is probably high.

Unless, of course, this is a PM with a lot of things like... General Liability insurance; vehicle insurance; surety bonds; fleet tracking; cell phones; W-2 employees that have social security, medicaire, medicaid, benefits, and taxes. And a building. And a dispatcher. And, and, and... well, you get the point.

(Anyone remember that thread where everyone was saying that a contractor needed 100 different kinds of insurance? And I said not to complain when the contractor billed $45/hr for his cheapest board hauler due to insurance and W-2 issues? Yeeaaahhh....)

If you're hiring a legitimate business to help you run your legitimate business, don't be shocked when they charge you the overhead to make sure that the business is running correctly and legally.

I think the question you need to ask yourself is this - is this PM handling your 1958, broken down and badly renovated house inhabited by the world's finest renters in a way that is keeping things smooth from your perspective? Are the toilets staying functional and the roofs repaired? Is the check coming in on time?

In that case, suck it up and accept that the business has costs associated with it.

Now with all that being said - next time go forth and do a bit more cost comparison shopping. Also, I'd be reaaaallllyy interested to know which PM you have...

Phillip Gainey · Answer

Nate,

It could be worse.  You could have bought a "turnkey" property, and ended up needing to replace an entire roof after a couple years!

The consensus is that it is NOT a good idea to buy properties to hold and rent remotely.  Hard enough being a landlord in your own back yard.

PG

Naga A. · Answer

Joel,

Thanks for your comments.

>This property management company knows they are padding.Why else would they put a clause if you cancel you pay all of this money??

Yes, after this experience, every time I see this clause requiring  a landlord to pay the remaining lease term if he fires a pm, I would not hire that pm.  That would just raise a red flag for me.

That property is located in the older part of Decatur.  Joel, which area you are focusing?

George P. · Answer

If it's a friend or relative that the PM used for the job, maybe $65/hr isn't that big of a charge. Depends how you look at it.

20% premium of repair costs, $65 per hour for unlicensed repair work, really?

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