what's your property management fee?

56 Replies

Hi All, I'm curious what kind of property management fees everyone is getting. can you let me know 1) where you invest, 2) how many properties you have (and approximate combined gross rent if possible), 3) what your management fee is vs what the "quoted" management fee is (aka are you getting a batch discount), and 4) how many units did you have when you got to your current fee structure.  Thank you.

just wanted to provide additional color to this. I am currently trying to renegotiate my PM fee.  In @David Greene 's BRRRR book, i saw that he usually starts at 10%, then goes down by 1% when he has 3~4 properties, another when hes around 7 properties, and ultimately down to 7% when he has more than 10. I currently have 10 properties, but PM is not budging on the fees, so I am trying to see what people are experiencing (Yes i understand the fees can vary by locations). Thank you for your inputs in advance.

@Michinori Kaneko my company has a similar structure to what you describe. To answer your question we manage in Middlesex, Somerset and Union Counties in NJ. For 1-4 family houses we are 10% for one property, 9% for two, 8% for three, four or more 7%. The only additional fee we charge is a $100 Leasing Fee per door. 5-30 unit apartment complexes it would depend on the situation/location. I don't know your situation but I will say PMs don't make as much as you think and after a certain percentage it is a losing proposition. 

I pay 10% of rent in St Louis no matter the number of properties but my manager is full service and worth every penny. Does everything except pay sewage and taxes for me. He regularly finds me new properties to purchase at rock bottom prices and will rehab them with a full service rehab group that he has a relationship with. He gets them past inspection and has a great relationship with most of the inspectors in the city. I'm sure he is making something on rehab and maybe sales transactions as well but the cost is so low and he does so much for me that he deserves it. The demographic most of these properties service are low income and high maintenance as well so it is not easy to find a manager willing to service those genre of properties.

@Peter T. is your company managing properties in NJ? Sounds pretty awesome.  so you are giving discount already on the second property wow!

@Caleb Heimsoth is the 1000 units all yours, or how many units do you have with them to get the 7%.  or do they charge only 7% to new investor with only 1 property as well?

@Daniel Ditto Do they charge any other fees (Placement Fees, keep late fees, surcharge on paying for maintenance fee)?

Originally posted by @Michinori Kaneko :

@Peter T. is your company managing properties in NJ? Sounds pretty awesome.  so you are giving discount already on the second property wow!

@Caleb Heimsoth is the 1000 units all yours, or how many units do you have with them to get the 7%.  or do they charge only 7% to new investor with only 1 property as well?

@Daniel Ditto Do they charge any other fees (Placement Fees, keep late fees, surcharge on paying for maintenance fee)?

If you read my comment it says “manage”.  They manage over 1000.  Could be a lot more, I’m not entire sure.  As far as I can tell it’s 7 percent regardless of number of properties 

 

Originally posted by @Michinori Kaneko :

@Peter T. is your company managing properties in NJ? Sounds pretty awesome.  so you are giving discount already on the second property wow!

@Caleb Heimsoth is the 1000 units all yours, or how many units do you have with them to get the 7%.  or do they charge only 7% to new investor with only 1 property as well?

@Daniel Ditto Do they charge any other fees (Placement Fees, keep late fees, surcharge on paying for maintenance fee)?

Yes we manage in NJ and yes, the fee starts to drop with the 2nd property. We have several clients with only one and a few clients with handfuls. 

 

@Caleb Heimsoth Thanks. Yes on your original post it was unclear if they manage 1000 of YOUR properties or just overall.  I needed to know if you were getting the 7% because you had over certain number of doors, or because everyone gets 7% treatment.  Thanks for clarifying. 7%, 1000 doors, 3 staff, that's pretty darn amazing. Is this in NC where you are from?

@Peter T. thank you this was helpful! Do you disclose the Fee discounts in your website, or do you only quote the 10% on your website? Thank you!

@Michinori Kaneko that is the only fee I am aware of. I would guess he builds some pricing into the maintenance work his guys do. They are the same guys he has do rehabs for me and they are very reasonable so the costs don't seem outrageous.

@Michinori Kaneko . I pay 7% for my A or B class depends on you. I pay 8% for my C class just because of the distance he told me when I get into multifamily he will do 100 a door leasing fee and 7 percent of gross monthly income but I always negotiate he is used to it and he has many other clients he isn’t worried about me. He calls me baby trump not sure if that’s good or bad I’m not into politics so idk.

I have six units under the same management company (three duplexes).  I pay about 6.5% of gross revenue across the portfolio (they charge a flat per unit price for monthly management).  If I were to pay full price with the current level of rent revenue, I would be paying about 7.8%.  This only includes monthly management, and doesn't include tenant placement.  That is an additional 1 months' rent.

Nobody can manage 1,000 units with three people unless their only service is to process rent payments. It would take three people just to handle showings. They would need 2-3 people to process applications. 2-3 people to coordinate maintenance. Plus property managers, accountants, office administrators, etc. One of the most successful PM companies I know has 900 units under management and he has 16 employees. I have six people managing 350 units and we are looking to expand.

No property management company can survive by charging 3% or even 5%. If their fees are that low, they are either making it up for it somewhere else or they are preparing to go out of business. I would argue it's the latter.

Let me explain.

The average single-family rents for $1,000 a month and I charge a 10% fee ($100) per home. 100 homes would earn me $10,000 a month income.

An investor like David Greene walks in the door and asks me to manage 100 homes at a discounted rate of 7%. 100 homes would earn me $7,000 a month income.

In both cases, my workload is the same. My expenses are the same. Yet I'm earning 30% less with David Greene! Every time he brings me a property at 7%, it's actually costing me money instead of making me money!

Can any of you name a successful business model that discounts rates by 30% for a repeat client? It's untenable.

@Nathan G. I don’t know about property management but if some people are doing it, then maybe they have a more automated or efficient process. Maybe they have payment process and accounting software linked so when they receive a payment everything gets recorded automatically so they need less administrative staff. Instead of saying it can’t be done, you ask how can it be done. That’s how successful people think, right? :) having said that I am also surprised about some of the things mentioned in this thread. But if they are doing it, they must be doing it somehow, and you can probably agree that while your business is successful there is always room for improvement. 

In terms of your comment about not accepting a client with 100 properties, why wouldn’t you? I don’t know the % but Costco buys and  sells things in big batches and that’s how they are selling volumes at lower price than their competitors. You said you manage 350 units and 100 brings in 10k revenue.by accepting a client with 100 properties at 7% you’ve increased your monthly revenue by 20%. As long as your additional expenses are lower than 7k why wouldn’t you? Because if you didn’t, he’s just going to a different PM that will, and seems like there are quite a few PM that does give 7% based on this thread.

@Michinori Kaneko What does the brrr lending fees look like if I am going with a hard money lender for a hold property deal to do something similar. I have already bothered the hard money lender with so many questions that he referred me to this platform. Any any insight would help.

@Michinori Kaneko your advice would make sense if I were an amateur that didn't know what I was talking about. I'm a professional property manager that networks with hundreds of professionals around the country, many of whom manage 1,000 units or more. I understand efficiency and economy of scale, as do these professionals. NARPM members are generally more professional than your average property manager yet a recent study of NARPM members revealed that half of them are earning less than 1% profit and 25% of them are losing money. Many of them don't realize they're losing money because they make up for it in sales.

I'm a perfect example of how difficult the industry is. I recently completed an audit of my company and discovered we're making about 1% profit from property management. Even that is inaccurate because I'm paying myself half of what I'm actually worth. I thought we were doing great but it's only because we're making so much in sales commission. If sales dried up tomorrow or I started paying myself a fair-market wage, my company would be losing money.

NARPM does an annual survey of PM brokerages. Out of more than 350 respondents, 50 companies were managing 500 or more units and only five of those reported fewer than six full-time employees. Out of those managing 1,000 units or more, all but two of them report more than 15 full-time employees.

If anyone cares to share the name of a company claiming to manage 1,000 units with only three full-time employees, I'll happily investigate and report back.

@Nathan G.

I agree Nathan. Unless a big client was bringing in value in some additional manner that the small clients aren’t, or saving you $$$ in some other manner, that wouldn’t make sense to give a huge discount.

@S Cutsail did you mean to write in different thread? i'm not sure i've never got hard money loans, but i would imagine the interests are going to be north of 8%.  I think I've seen many threads about hard money lenders though you can probably search for them.

@Nathan G. Thanks for the feedback, yes i will say 3 employees with 1000 unit does sound pretty much impossible even with a streamlined process, unless they manage huge buildings and they actually just outsource the management to on sight manager (so in reality they don't really manage anything). 

When you say 1% profitability, can you explain 1% of what? revenue? Do you have a clear distinction of how many staffs (and your time) is only dedicated to each side of the business though? Also, it's hard for you to really quantify that right? How much of your sales is actually coming from your existing investors? Sure you may say you make lots of sales, but if you didn't have your PM side business, how many of those sales would go away?  Does the NARPM studies incorporate that into account? that would explain why 25% of the manager still choose to do property management even if they are losing money there because they get more out of sales from their investors. 

@Kris L. it does. as in any business, there will always be economy of scale.  bring investor bringing in more revenue allows you to scale more, perhaps gives you the fund to invest in streamlining your process and automating where it can be. I understand lots of the PM business requires in-person labor, but a lot especially on administrative side can be automated or outsourced. increase in revenue and volume allows that. 

@Nathan G. Sorry one more thing. you mentioned you charge 10% management fee. what other fees do you charge in our business? 

I'm curious you said your business makes about 1% profit, and half of the members of NARPM makes less than 1%.  that means other half makes more than 1%.  what is the determining factor of managers that are more profitable than others? that data point alone tells me nothing, because i don't know what the "Great" PM that distinguishes themselves from others are profiting. maybe the top 5% is making 20% profit or everyone is making 2% or less, i can't tell that from your comment.  i think it would be better if you shared the whole picture instead of just the lower end of the spectrum.  Thanks for the valuable data. 

@Michinori Kaneko

4 SFRs in Memphis, TN All C class.

3 SFRs with one company at 10%, $200 lease renewal fee, 1/2 month rent tenant placement fee after initial tenant. If tenant moves out within first year (breaking lease), placement fee is waived.

1 SFR with another company at 8%. They also charge $65/every 6 months as a maintenance up charge (profit center for them). You can request walk-through inspection at no additional cost as part of the $65. Equates to effectively 9.25% management fee. No lease renewal fees. I believe 1/2 month's rent for tenant placement (could be full month, I'd have to go back and re-read PM agreement).

@Michinori Kaneko

Every market is different in my market 8% is the norm.

I’m in 2 cities I will provide CLT as my example

8% is monthly fee as mentioned

At first full month rent was my turn over fee but recently I was able to negotiate it down to 1/2 month rent

I have 4 properties w this PM, I have 6 in total..

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@Nathan G. given that you work in property management I'm sure you know the industry better than most of us but I thought I would make one comment. If the margins are so low, which I believe you that they are, then why is anyone doing it? Maybe this will add some insight @Michinori Kaneko . From my observation most small management groups fall into managing other peoples property because they are already managing their own robust portfolio and they see the big cash in the power that bigger management comes with. 

Since property managers usually manage their own property they get the cost of what paying someone else for management would be returned to them. That could be reason alone but it isn't. It also means that they sit at a great pivot point for economies of scale on all kinds of things and they are a magnet for good deals. By the time you have hundreds of properties and units you manage/own it starts to become cheaper to hire your own handymen, plumbers, rehab guys, etc. You can pay them a wage for their work and then charge extra on their services to your clients so that you are making income off of every service that is provided. You have control of their labors so that if there is an emergency at your own properties or those you manage you can direct them there instantly, saving time, damages and money and keeping tenants happy. You can also more effectively develop relationships with suppliers, titling companies, real estate agents, banks, wholesalers, insurance agents, law firms, service providers, government housing authorities, inspectors etc etc. 

There in lies the true power of economies of scale. Hypothetically If I own 5-15 duplexes representing 20-60 tenants in a community and especially in a city, very few service providers and suppliers care about what I am doing. On the other hand if I represent 400 units and thousands of tenants I've become a relevant factor in almost any market and people are seeking my business which gives me negotiation power.

IMO the biggest benefit to property managers appear to be the ability to naturally land lucrative deals on properties that only come to them because others in the market know they have influence over a large group of investors. They get approached by bankers, wholesalers and brokers looking to unload numerous foreclosed or brokered properties quickly. This benefit cannot be overstated because managers attract these deals like flies and they can pivot to either collecting the most lucrative deals for themselves or making margin in wholesaling to their clients.

I was with one property manager when he got a call and email from a bank that they wanted him to bid on 20 residential duplexes and single homes. We went and looked at about 10 of them together. It was like a million dollar deal but he was confident that he could turn around and resell them to his clients before the deal even closed while keep a couple for himself. The same day we had to visit one of this guy's personal property for a showing. It was a huge 3 unit apartment building where each apartment was about 2500 square feet. He had bought the property for something like $60000-70000 and each unit was making around to $2000 rent. He told me his return was about 50%. I was blown away on how he could get that deal and he just said contacts come to him with deals all the time and now he doesn't even keep anything that isn't going give him a 30% ROI. Anything less he just resold to his clients.

Years ago I wondered how property managers can do what they do on the small fees their receive. Now I see management and associated fees as the tie between the manager and the investor which enable them to take advantage of the market in all kinds of ways. This probably isn't true for all managers but I don't know how many of them are even making it otherwise.

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