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

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

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

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Aaron Moayed
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Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
7y
@Dennis M. - PMs are paid to let the investment be passive. Rentals = appreciation, principal pay off, cash flow, and tax benefits, soooo the PM payment, while high, is not going to eat the entirety of the deal. TBH, I don’t understand the people who DONT get a PM — that’s where the headache is. Also, on average, your mutual fund will perform less than 7%/yr.
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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:

@Dennis M. - PMs are paid to let the investment be passive. Rentals = appreciation, principal pay off, cash flow, and tax benefits, soooo the PM payment, while high, is not going to eat the entirety of the deal. TBH, I don’t understand the people who DONT get a PM — that’s where the headache is. Also, on average, your mutual fund will perform less than 7%/yr.
the pm is on the front lines yes but you still have to manage the PM.. your only one person removed from the day to day drama.
like one of our hold over props we have tenant in.. yesterday for some reason the bottom of the shower cracked and the whole pan moved down an inch.. causing her to have a slip fall in the shower she says.. and of course off to the doctor and I am sure a lawyer after that.. I already put my insurance on notice.. but the PM just sends us pics and we have to deal with it.. rentals are work PM or not..
this is a 925 renter.. houses is clean but stuff happens..
the issue like Dennis stated is you simply will NOT collect 600 a month over any extended period of time.. so that will lead to a loss.. for Dennis who does it himself he is saving at least 20% off the top self managing that's the difference between positive cash flow and break even or loss.. But like I have said you simply wont know till you try it..
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Account Closed
Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
7y
@Aaron Moayed is this property in Sacramento? Interesting coincidence, btw.. I'm from Sacramento as well.
10% is pretty standard in markets where lower rents are commonplace. My property manager in Indiana usually charges 10% to most of her clients, even on lower rent units rather than a minimum fee. I could see a minimum fee of $100 being the case in a market like Sacramento, however.
In most higher priced markets we've observed an 8% management fee.
Also, pay close attention to maintenance and repair costs charged by the management companies. I've seen some companies charge a lower management fee that appears attractive, but use repair as a major profit center that more than makes up for the lower management fee.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
Buy some properties. Try out your analysis and theories. Then come back on here in a few years with the results.
Proof is in the pudding as they say.
Good luck and I hope what you want to happen with investing comes to fruition.
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Alpesh Parmar
Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes
7y
@Aaron Moayed One advice, don't buy a rental with $600 rent unless it's a duplex or more and rents for $600 a door. I have leaned that an SFR renting for less than $750 anywhere in the county would be in a C- or D neighborhood. PM may have it carry gun in that area and each bullet adds up. 😄
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Jim Biggs
Investor/Syndicator · North Aurora, IL · Member since 2013 · 167 posts · 70 votes
7y
"PROFESSIONAL" PM's in larger multifamily (100 units or >) typically charge 3 to 5 % and no lease up fee or any of the other phantom fees. Stop worrying about these small out of state "so called" turnkeys and jump straight into large multifamily. Everybody eventually does so why wait?
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Alan Grobmeier
Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes
7y
@Aaron Moayed, You probably bought a crap property in a crap hood and dont understand why it's costing you to get someone to PM it.
If I were you I'd PM the property myself and SAVE. As many have stated, that amount rent is usually a lower class type of property.
C, D & F style properties have LOTS of problems and lots of turnover.
If I was PMing it for you I'd charge you for a flack jacket and bodyguard in addition to the highest fee I can. And THAT is why I'm not in the PM business. ;-)
My prediction: You will lose your A$$.
Best of luck.
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Aaron Moayed
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Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
7y
@Alan Grobmeier - A lot of hostility and assumptions there. No, I didn’t purchase it. No, I’m not going to lose my a$$ on a property I didn’t purchase. I’m sure your presumptuous nature and professionalism has gotten you far in life.
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Aaron Moayed
OP
Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
7y
UPDATE:
I will not be purchasing a property in this range. I figured $800 or so was a possibility, but I’ll heed all your guys’ wisdom through forum-osmosis. My new target is $1,150+ only. Originally started this thread to set some IF functions in excel to keep $100 minimum payment per month for PM services when analyzing properties lol.
Cheers.
PS - Any way to close a thread?
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Alan Grobmeier
Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes
7y
@Aaron Moayed, not hostile. As MANY others told you on this thread, you can't go 'cheap' all the way around. You will get 'screwed' somewhere.
You just need to 'pick your poison'. If you buy a C,D, F property, EXPECT issues. And a LOT of them.
I owned a 4 Plex with a former business partner. At the same time I owned 9 SFR. Where was I spending my time? On the 4 Plex. Think Junior high, but an 'adult' version.
We sold the 4 Plex. I still have my SFR's. My former partner now has 32 doors and is on eviction 60-something.
Best of luck.
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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:

@Alan Grobmeier - A lot of hostility and assumptions there. No, I didn’t purchase it. No, I’m not going to lose my a$$ on a property I didn’t purchase. I’m sure your presumptuous nature and professionalism has gotten you far in life.
I think Alan was maybe be factious.. although reading the response I think they are pretty universal .. unless your going to live there and change your day job to baby sitting 600 dollar renters in SFR's
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Ryan Betzing
Rental Property Investor · Round Rock, TX · Member since 2016 · 24 posts · 22 votes
7y
@Aaron Moayed
I have a tiny little “efficiency “ house I bought at a tax sale for 5 grand. I rent it for $425 and pay a $50 management fee which is the minimum for my manager. Let me tell you they earn that $50. You’re not finding long term tenants in the $400-$600 a month range, so either you put up with a bunch of turn over and finding new tenants, or you happily pay someone to do it.
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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
7y
Originally posted by @Joe Splitrock:

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.
I agree 100%! I’d rather have 1 unit renting for $1200 than two renting for $600. No disagreement. And hell, I have a lot of both types.
But what I’ve seen are my $1200/month units sell for $150k/door while my $600/month units sell for $50k/door. So when it comes to buying , it’s hard to justify the higher rent units as you get a smaller return. Also I feel you have less upside. That $600/month unit can be sold for 20% more and still make money where as the $1200/month unit is already at a low cap.
anyway. Luckily everyone looks for different products. Something for everyone
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Aaron Moayed
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Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
7y
@Ryan Betzing - Does the high turnover lead to a bunch of leasing fees for you?
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Ryan Betzing
Rental Property Investor · Round Rock, TX · Member since 2016 · 24 posts · 22 votes
7y
They charge me 25% of one months rent for a leasing fee...but they bump the rent to $500 a month for anything less than a 12 month lease. At the end of the day, my average cash flow after all expenses has been just over $200 a month on a $5,000 investment so...home run
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Aaron Moayed
OP
Real Estate Broker · Sacramento, CA · Member since 2019 · 198 posts · 46 votes
7y
@Ryan Betzing - Is that 25% for a lease renewal or a new tenant lease?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Ryan Betzing:

They charge me 25% of one months rent for a leasing fee...but they bump the rent to $500 a month for anything less than a 12 month lease. At the end of the day, my average cash flow after all expenses has been just over $200 a month on a $5,000 investment so...home run
obvious no debt right ?
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Ryan Betzing
Rental Property Investor · Round Rock, TX · Member since 2016 · 24 posts · 22 votes
7y
@aaron
@Aaron Moayed just for new lease. They won’t charge me for renewal but honestly no ones renewed. Turns out 12 months of living in 186 square feet is enough.
@Jay Hinrichs definitely no debt - bought it with cash at a tax sale
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Ryan Betzing
Rental Property Investor · Round Rock, TX · Member since 2016 · 24 posts · 22 votes
7y
Since there seems to be some curiosity - This is what a $5,000 house looks like in West Texas. County actually has it appraised for 18K. Not great but not terrible. I've spent exactly $110 on maintenance and capex in over 2 years lol. Also, it's been vacant for a total of 2 weeks. I think the fenced yard sells it, tough to find a place to live with your dog for under $500 a month.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Ryan Betzing:

Since there seems to be some curiosity - This is what a $5,000 house looks like in West Texas. County actually has it appraised for 18K. Not great but not terrible. I've spent exactly $110 on maintenance and capex in over 2 years lol. Also, it's been vacant for a total of 2 weeks. I think the fenced yard sells it, tough to find a place to live with your dog for under $500 a month.
Looks like a single wide on a foundation ?? anyway for you local folks cant go wrong with these that's for sure.
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