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Updated over 5 years ago on . Most recent reply

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Aaron Moayed
  • Real Estate Broker
  • Sacramento, CA
46
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Property Management Keep These?

Aaron Moayed
  • Real Estate Broker
  • Sacramento, CA
Posted

If a tenant breaks a lease/wants to leave early, do I keep the deposit or does the property management company?

How about late rent fees? Pet fees/rents? Security Deposits if damage is done to the property?

I’m just trying to get a feel for what money goes in the PMs pocket vs mine? Do they strictly get leasing fees, and PM management % fee??

Thanks!

Most Popular Reply

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Kenny Dahill
  • Investor
  • Tempe, AZ
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Kenny Dahill
  • Investor
  • Tempe, AZ
Replied

@Aaron Moayed, it all varies on the PM.  You will need to interview several to find out your regions norms.

It's extremely important to know every way your PM can earn fees!  Here are common factors for how property managers can earn a fee:

  • Monthly Fee: Flat rate or percentage of rent.  If percentage, Gross rent vs. Expected rent.  When it's based on Expected, you still pay them even if vacant!
  • Leasing: Often this is 100% of first months rent check.  Some will do a flat rate of $500+ or even 75%.  100% is most common.
  • Lease Renewal: Ranges from 50-100% of monthly rent or a flat rate of $200-500.  Although there are some who do it free of charge.
  • Maintenance Markup:  Your repairs will take time to coordinate and it's important to know how they mark up on vendors.
    • Pass Thru:  No mark up and they simply pay the total
    • Percentage:  A percentage of the work.  They shouldn't do this but it's also not uncommon for larger repairs or renovations if they take several days or cost more than $1,500
    • Flat Rate:  A simple flat fee added regardless of size
    • Invoice:  It's also important to ask if you get to see the contractors invoice or do they hide that and provide it on their own invoice.  They might have a 'pass thru' policy but add the markup onto their invoice so it's top line.  This really angers landlords if they're unaware!
    • Minimum Charges:  If they use an internal maintenance time, make sure they define their minimum trip charge, hourly rate and if you pay OT.

Late Fees:  This is negotiated but majority of PM's keep 100% of late fees.  A decent amount will split.  Very few pass it to the landlord.

Security Deposit: Your PM will want to hold onto this in their trust account.  Legally they must keep it in their trust account, although landlords are also legally allowed to hold onto it.

You should expect your management fees to be 20% of NOI, which covers some unexpected expenses. It could be higher depending on the quantity of repairs. The best advice: make sure you completely understand every way they can earn revenue!  Don't assume, have them go through their Management Agreement and indicate each clause.

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