Still 7-12% Mgmt Fee for $600 Rent?

General Landlording & Rental Properties
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Still 7-12% Mgmt Fee for $600 Rent?

Aaron Moayed
Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes

If a rental property has $600-700 in rent coming in, is it standard for property management companies/people to take 10% of that ($60-70) or is it common for them to have like a $100 minimum? Just getting a feel for standard practice here to determine CFs.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

depends on the company .. but if I owned it I would have a 100 dollar minimum

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  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y

    @Steve Rozenberg - What form did that staff take? If they have their own maintenance people, then they could monetize on repairs on old or smaller dwellings vs newer homes not needing as much work (I.e., lower-end might be more workers, but higher income)? Just a thought.

    0Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    7y

    @Aaron Moayed  8% seems to be the norm

    0Reply
  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y

    @Bob Prisco - LOL at your website link’s redirect URL.

    1Reply
  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:

    @Jay Hinrichs - More like $30-45, but maybe.

     Ok gotcha your focus on the pennies I focus on the dollars   .. :)  good luck with your rentals.. 

    I have to start somewhere. Ha

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    @Aaron Moayed I stay away from properties that rent for $600 a month. I like to see over $1200 a month. They are just as easy to manage and expenses are a smaller percentage of rent. For example, replace a stove in at $450 and in a $600 unit, that is 75% of one months rent. In a $1200 unit, that is 37.5% of one months rent. Figure in more serious items like HVAC or sewer pipes and the cost could equal almost a years worth of rents! 

    If the $600 rents are in a large multifamily, that is better because of scale, but if it is a small multi or single family, it is tough. Forget what it says in your spreadsheet, because one major problem can eat up years of cash flow. 

    5Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    Aaron,

    Lower income rentals the owner investors tend to be HYPER sensitive to cash flows. That means even though property manager is making next to nothing the owner investors scrutinizes every line item and gives PM a hard time about everything. They get that from the owner landlord and then the other side the low income tenant wishes they lived in the Taj Mahal but can't so they make all kind of ridiculous requests to over-improve the property to make it nicer than what is should be for the price point.

    Often management staff has to go out multiple times to try to collect the rent in pieces etc. The companies trying to make money through charging upcharging to landlords with maintenance requests to make up for low fees they are working for doesn't usually work out.

    People on the forum some have decades of experience. Often people newer to BP or investing have all of these thoughts on what else could be tried besides the status quo. The experienced investors have already tried these things and then some. There is a difference between theory with little to no experience and reality and knowledge that comes from actual experience.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Aaron Moayed:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:

    @Jay Hinrichs - More like $30-45, but maybe.

     Ok gotcha your focus on the pennies I focus on the dollars   .. :)  good luck with your rentals.. 

    I have to start somewhere. Ha

     well then since this is an ask and advice site..  skip the 600 to 750 rental altogether especially out of state.. and jump right into the 1000 to 1500 dollar rental over the long haul you will make more return than on the cheaper one even though today the paper returns say not.

    those are paper tigers all blue sky .. your like a test pilot you simply don't know what the plane is going to do until you fly it.

    these debates are done every day on BP..   having owned 350 C class 600 to 800 dollar rentals.. and selling out 4 years ago.. its a tough business.. So I just speak from my personal experience..   now if you live in market and its your day job to manage your lower end rentals and you self manage or can assist the PM in real time.. it can work we see a lot of mom and pop landlords on this site that are successful or at least they say they are.. but the one's that are honest will tell you its not a bed of roses and these lower end rentals carry risk.. 

    Returns on real estate almost always price for risk.. that's one thing folks don't quite get it seems. 

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    If you want to look at 600 a month rentals then I have seen student housing and also multifamily that is retirement type communites for lower income seniors work well.

    Students the parents are often on the hook for the lease guarantee and with seniors most stay a really long time as the small space is something easy to manage and they do not like moving at their ages.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Joe Splitrock:

    @Aaron Moayed I stay away from properties that rent for $600 a month. I like to see over $1200 a month. They are just as easy to manage and expenses are a smaller percentage of rent. For example, replace a stove in at $450 and in a $600 unit, that is 75% of one months rent. In a $1200 unit, that is 37.5% of one months rent. Figure in more serious items like HVAC or sewer pipes and the cost could equal almost a years worth of rents! 

    If the $600 rents are in a large multifamily, that is better because of scale, but if it is a small multi or single family, it is tough. Forget what it says in your spreadsheet, because one major problem can eat up years of cash flow. 

    Amen.. not to mention lets look at the 600 dollar renters stability.. what do they need to qualify  3X rent.. that's 1800 a month gross .. all of us investors have no clue how anyone lives on 1,800 a month gross ??  now back out 600 for rent back out 200 for utls cable etc. back that leaves your tenant with 1000 a month before any tax's taken out.. to pay for car  gas  insurance clothing food kiddos dog dog food.

    etc etc.. you can see why the 600 dollar renter by and large is one flat tire from missing rent.. or say Christmas comes around.. 

    now lets take the 1200 dollar renter run the same math.. 3X 3600 a month to qualify.. 1400 for rent and utls. leaves 2,200 a month to live on etc.. or double the stability.. this is why the risk is so high.. now apartments that's different you expect turn over in apartments and the turnover costs are a fraction of a SFR because as Joe pointed out scale no yard etc.

    So in essence investors  only focus on their side of the ledger and not who is going to actually pay them.. and their financial ability.. other than the 3X no molesters and a fair to midland fico.. your simply not going to get highly qualified renters in low value and low rent numbers.. you need scale 

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  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y

    @Jay Hinrichs - Good point. How about if their income is beyond 3x for $600 (it’s my understanding the 3x is an absolute minimum number). Section 8 renters make a difference?

    0Reply
  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y

    For the record, they’re not my portfolio goal — I’d be more like the $900-1800 range, but I didn’t want to eliminate the possibility if a good deal presents itself.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Aaron Moayed:

    @Jay Hinrichs - Good point. How about if their income is beyond 3x for $600 (it’s my understanding the 3x is an absolute minimum number). Section 8 renters make a difference?

     renters being renters   if they make 2100 a month they want a nicer 700 dollar unit.. just human nature.

    section 8 has its own challenges. Bottom line as JOe mentioned above you simply don't have enough GROSS income on a 600 dollar rental to keep a SFR in good shape.. you will be lucky not to lose money each month over a 5 to 7 year hold maybe not the first year but once you get into capex and multiple tenant turn over your going to be giving what little cash flow you made right back..

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  • Aaron Moayed
    OP
    Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:

    @Jay Hinrichs - More like $30-45, but maybe.

     Ok gotcha your focus on the pennies I focus on the dollars   .. :)  good luck with your rentals.. 

    I have to start somewhere. Ha

     well then since this is an ask and advice site..  skip the 600 to 750 rental altogether especially out of state.. and jump right into the 1000 to 1500 dollar rental over the long haul you will make more return than on the cheaper one even though today the paper returns say not.

    those are paper tigers all blue sky .. your like a test pilot you simply don't know what the plane is going to do until you fly it.

    these debates are done every day on BP..   having owned 350 C class 600 to 800 dollar rentals.. and selling out 4 years ago.. its a tough business.. So I just speak from my personal experience..   now if you live in market and its your day job to manage your lower end rentals and you self manage or can assist the PM in real time.. it can work we see a lot of mom and pop landlords on this site that are successful or at least they say they are.. but the one's that are honest will tell you its not a bed of roses and these lower end rentals carry risk.. 

    Returns on real estate almost always price for risk.. that's one thing folks don't quite get it seems. 

    Thanks for the advice/wisdom. I'll stay away from the $600 to $800 rentals.

    Would you say it's still important to have at least positive cash flow on the $1000-1500, or does the "it will pay off later" still apply? How much cash flow do you aim for with those $1000-1500?

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Aaron Moayed:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Aaron Moayed:

    @Jay Hinrichs - More like $30-45, but maybe.

     Ok gotcha your focus on the pennies I focus on the dollars   .. :)  good luck with your rentals.. 

    I have to start somewhere. Ha

     well then since this is an ask and advice site..  skip the 600 to 750 rental altogether especially out of state.. and jump right into the 1000 to 1500 dollar rental over the long haul you will make more return than on the cheaper one even though today the paper returns say not.

    those are paper tigers all blue sky .. your like a test pilot you simply don't know what the plane is going to do until you fly it.

    these debates are done every day on BP..   having owned 350 C class 600 to 800 dollar rentals.. and selling out 4 years ago.. its a tough business.. So I just speak from my personal experience..   now if you live in market and its your day job to manage your lower end rentals and you self manage or can assist the PM in real time.. it can work we see a lot of mom and pop landlords on this site that are successful or at least they say they are.. but the one's that are honest will tell you its not a bed of roses and these lower end rentals carry risk.. 

    Returns on real estate almost always price for risk.. that's one thing folks don't quite get it seems. 

    Thanks for the advice/wisdom. I'll stay away from the $600 to $800 rentals.

    Would you say it's still important to have at least positive cash flow on the $1000-1500, or does the "it will pay off later" still apply? How much cash flow do you aim for with those $1000-1500?

    depends on where the property is and were we are at in the cycle and if its in an area of regentrification ( which is the only area we work in these days) we want to know there Is going to be appreciation or a good logical chance at it..  That's were the money is made in smaller portfolios..  if you have the wherewithal to scale and get 10 to 20 homes pretty quickly then that's a different kettle of fish.. 

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    2Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    7y

    @Aaron Moayed I bought it as a goof, never really use it. But my clients wanted something to show others. I really do not update it much. Hey nobody forgets it :) 

    0Reply
  • Kenny Dahill
    Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
    7y

    @Aaron Moayed, a little late to the party but nonetheless...

    I view properties as one of two types: Make money on their own or work to make money.

    • Make Money on their Own:  These assets require very little effort to manage.  They're often located in good markets that tenants choose to live in.  They're often newer or remodeled, still newer appliances.  Overall these properties are easy to rent out and easy to manage.  You should expect to make 90-100% of your max Gross Income.
    • Work to Make Money:  As you've probably figured out, these assets require a lot more effort to manage.  Often they're in areas tenants don't desire to live but must.  Older homes that aren't very well maintained.  It's a struggle to find tenants who qualify.  It's a struggle to collect rent each month.  You should expect to make 50-80% of your max Gross Income.

    Why am I bringing this up?  Because the type of property you have should dictate what you're willing to pay for a PM!  

    • Okay to be cheap, only once!:  If you purchased the 'Work' property, you went cheap.  That's alright.  But don't go cheap again!  The worst move you can make is hiring cheap management and expecting them to produce at the top standard.  Hire a great PM who will work to earn you more money.
    • Hire a PM Asset, not PM Liability:  Ties into the previous point.  If you went cheap asset, pay your PM!  A cheap asset with cheap management will get you 50% of your max Gross Income.  A cheap asset with good management will get your 80% of your max Gross Income.  Hiring a good PM is an investment move that will generate you more income.  They're an asset!  Cheap PM's are liabilities.
    • More than PM Fees:  When it's a 'Work' asset there's more than just monthly rent collection and occasional maintenance.  'Work' assets has legitimate risk of vacancies and evictions.  Make sure you are comparing more than monthly fees as some PM's include Eviction expenses (paperwork, court appearances, etc.) into their guarantees.  They might earn fees based on rent collected and not expected, helps align your incentives.  There's more than fees that you should analyze for PM's when you're dealing with lower rent assets.

    Hope this helps!

    1Reply
  • Andre' Arceneaux
    Rental Property Investor · Orange County, CA · Member since 2019 · 151 posts · 92 votes
    7y

    @Aaron Moayed For rents typically in that range I see a contract minimum exercised instead of the contract stated percentage, which is usually $100

    0Reply
  • Rhonda McDaniel
    Realtor · Tulsa, OK · Member since 2019 · 76 posts · 42 votes
    7y

    I know two companies in Tulsa who take 10%.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    I'd also have a minimum.  Often the lower the rent, the more work it is to manage.

    0Reply
  • Ian Dulan
    Wholesaler · Springville, UT · Member since 2015 · 7 posts · 1 vote
    7y

    @Jay Hinrichs

    I agree

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y
    Originally posted by @Joe Splitrock:

    @Aaron Moayed I stay away from properties that rent for $600 a month. I like to see over $1200 a month. They are just as easy to manage and expenses are a smaller percentage of rent. For example, replace a stove in at $450 and in a $600 unit, that is 75% of one months rent. In a $1200 unit, that is 37.5% of one months rent. Figure in more serious items like HVAC or sewer pipes and the cost could equal almost a years worth of rents! 

    If the $600 rents are in a large multifamily, that is better because of scale, but if it is a small multi or single family, it is tough. Forget what it says in your spreadsheet, because one major problem can eat up years of cash flow. 

    To be fair, we put scratch and dent $200 stoves in our $600 units and $600 stoves in our $1200 units. 

    So I find our appliances as a % of rent are less on our cheap units

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    At that price point many management companies will charge a minimum rate.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Cody L.:
    Originally posted by @Joe Splitrock:

    @Aaron Moayed I stay away from properties that rent for $600 a month. I like to see over $1200 a month. They are just as easy to manage and expenses are a smaller percentage of rent. For example, replace a stove in at $450 and in a $600 unit, that is 75% of one months rent. In a $1200 unit, that is 37.5% of one months rent. Figure in more serious items like HVAC or sewer pipes and the cost could equal almost a years worth of rents! 

    If the $600 rents are in a large multifamily, that is better because of scale, but if it is a small multi or single family, it is tough. Forget what it says in your spreadsheet, because one major problem can eat up years of cash flow. 

    To be fair, we put scratch and dent $200 stoves in our $600 units and $600 stoves in our $1200 units. 

    So I find our appliances as a % of rent are less on our cheap units

    That is one option to buy scratch and dent. I used to buy used appliances for my low rent properties, but I found older used appliances didn't make the property look great. Double edge sword, because quality of finishes does affect rent value. Of course in a low end unit, stainless steel appliances are not practical either, so it is a balance. 

    Even setting aside appliances; other things like furnace, plumbing fixtures, toilets, etc when you have lower rent, everything is a higher percentage of the rent. That is really my point. I would rather have one unit renting for $1200 versus two renting for $600. Half the tenants, half the trouble.

    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Joel Owens

    That is so true

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    There is a vast difference from a 1000$ tenant compared to a 5-600$ tenant . Typically The cheaper the rent the more headache collecting it . You’d think it would be opposite , but it’s not . Most Lower income people have chaotic lives and have no concept of saving or budgeting out expenses . If they got the flu the week before the first you can bet they won’t have all the rent money . If they had a car repair , a big heating bill in the mail ,or they hosted a drinking party with friends you can bet they will be short on The first . However if the fridge dies or the toilet is leaking they will call within 5 minutes and expect services to get things fixed immediately lol I honestly don’t know how you people use a pm service from far distances and make it work especially in lower income areas . If I had to pay a pm I’d sell everything and buy a easy 7% return safe mutual fund like most dummies

    3Reply
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