what's your property management fee?

Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes

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.

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

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.

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Danielle Wolter
Rental Property Investor · San Diego, CA · Member since 2019 · 290 posts · 254 votes
7y
I'm in 2 markets:
San Diego: 8% of rents. No tenant placement fee or lease renewal fee.
Memphis: 10% of rents with both a tenant placement and lease renewal fee.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
@Daniel Ditto you are correct that my property management may not make a big profit directly but it indirectly feeds my sales and personal investments. I've purchased 21 units in the past year and every single one of them was off-market. Some sellers wanted to sell privately without anyone knowing. One came to me for management and ended up selling to me at 15% below market with owner financing and great terms. Another sold to me below market because he wanted out of the game and is a friend.
Again, my company is making a killing overall. The property management side is just scraping by but it is feeding my other income streams. It would be better if all three streams were individually strong.
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
@Michinori Kaneko

@Nathan Gesner has been made some pretty amazing points regarding this subject.
For us, we are seeing 3-7% across the markets we invest in (Baltimore and Houston), and it really depends on the unit count.
If your PM is doing a terrific job, you might want to seriously consider if changing them will be a good decision in the long term. The fee structure is just one part of investing and optimizing your portfolio.
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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
7y
If it helps I can tell you what I charge my own properties internally for accounting when it comes to property management:
When there is no onsite manager (thus managed by someone in our main HQ), I charge 6% to the management arm
When there IS an onsite manager, the property pays that salary directly plus 4% to the management arm
Doing this makes it so my management company about breaks even (it doesn't matter if my management arm makes or loses a ton, if they make a ton it just means I overcharged my own properties. So it's the same $ to me). Tax wise I'm charged differently on the money made by my management arm so I try to target a % that results in break even.

Which means if I was to mange for someone, anything I charge over 6% for no onsite manager or 4% + their manager, would be profit.
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Dakari Franklin
Member since 2019 · 1 post · 0 votes
7y
@Daniel Ditto Hi Daniel, Do you mine sharing your property manager's company name?
0 Reply
Sanjeev Thakur
Herndon, VA · Member since 2017 · 5 posts · 0 votes
7y
@Roni Elias Share your property manager’s contact with me please. How’s their service?
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@Nathan Gesner I am still curious where the 1% number is from. Are you making 1% of grosscollected rents? 1% of your gross management revenue? Or does the 1% number represent something else.
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Mark F.
Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
7y
@Nathan G. Newbie question but what is sales in regards to a PM company?
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Peter TverdovBusiness Member
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
7y
If your margins are that thin, sell the business IMO. Something is wrong then. Curious what the average PM revenue is per door. Ex: $90 per door, $150 per door, etc. Not sure if NARPM could quantify that. My company is doing well, but I have low overhead (hopefully staying low by acquiring a commercial property to house our new office in).
[email protected]732-289-3823
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
Originally posted by @Ned Carey:
@Nathan Gesner I am still curious where the 1% number is from. Are you making 1% of grosscollected rents? 1% of your gross management revenue? Or does the 1% number represent something else.

Profit is a very simple calculation: Income - Expenses = Profit

Company pulls in $100,000 and spends $90,000 leaving a profit of $10,000 or 10%.

@Peter Tverdov I wouldn't sell the company because it does feed my sales business and overall we are making really good money. I also have a solution for the PM side that will increase revenue by more than 50% and make it a successful stand-alone business which is important if I ever decide to sell it.
Property management fees are generally around 10%. An ordinary PM will earn $100 a month on a $1,000 rental. There are ways to increase that 50% with little effort, earning the PM $150 per door instead of just $100. I know some managers that are charging $100 per unit but they're earning over $200 per unit because of additional fees and services provided.

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Barbara A.
Puerto Rico/Budapest · Member since 2018 · 4 posts · 1 vote
7y
I would like opinions especially from property managers about a property manager's fee structure.
It's in the Atlanta area, around Marietta. The fee is 8% but the management company keeps everything else: late charges, fees for returned checks, an additional amount of rent they charge people with lower credit (0.085 x rent), plus $40 out of the rent for a Resident benefit Package that gives the tenant Liability Insurance and they get a new HVAC filter every other month.. This company really believes in all their new programs and offerings and goes to PM conferences and thinks they are on the cutting edge and doing a great job. This is all new to me. If they are able to keep things running well and keep the house occupied does this sound reasonable?
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Account Closed
Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
7y
@Nathan G. Thanks for all the real info! Should someone watch out for high placement fees? Like 1/2 months rent for placement or full months rent for placement? Wouldn’t this incentivize the pm to have high turnover? How common is that, and what would be the norm for placing a tenant?
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Bobby Valcin
Investor · Austell, FL · Member since 2014 · 110 posts · 19 votes
7y
@Michinori Kaneko the answer to that question is...it depends. I’ve been doing property management for about 5 years and the general consensus seems to be 8%-12% in my area. However, as technology continues improve processes and lower cost I think we will see those percentage get lower as I’ve noticed with some of the responders to this thread.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
@Barbara A. this discussion could go on forever because there's a lot of variety out there.

PM is a nickel-and-dime business. We get paid small amounts for each service and it hopefully adds up to a paycheck. For example, I could charge an owner $5 a month to be enrolled in my Eviction Protection Plan where I will cover all eviction costs up to $1,600 no matter how many times it happens. Serving a 3-Day Pay or Quit cost $50 so just one notice every 10 months is a break-even proposition for the owner. If it costs $300 to evict someone, that's equal to 60 months worth of that $5 fee.

How does $5 help me? Because I manage 300 rentals. If every owner pays me $5 a month, that's an extra $1,500 a month income. Of course, I have to cover the cost of evictions so I try to screen tenants hard and run a tight ship so that my eviction expenses are low and can earn more profit. It's a win-win.

Pet rent is another example. Owner charges $25 a month extra for a small dog. In one year's time, that earns the owner $250 extra income which won't cover squat regarding damages. Property Manager says, "Let me keep the $25 pet rent and I will cover you for up to $2,500 if the pet damages the property." $2,500 is equivalent to ten years of $25 pet rent so this is a good deal for the owner! The PM benefits because he has 200 pet rentals and is making $5,000 a month income. Again, he screens the tenants/pets well and runs a tight ship, keeping expenses as low as possible. In one year, the PM collects $60,000 in pet rent but he only pays out $6,000 towards pet damages, creating a 90% profit stream.

It's very similar to insurance. Owners pay a small amount every month and the PM provides significant benefits to the Owner in exchange. It enables the PM to be profitable (assuming they do their job right) and the owner gets piece of mind regarding stable income stream and protection of their asset.

@Account Closed that depends on what your market supports. In some markets it is very common to pay 50% or more every time your property turns over. It's not used at all in my market. You've just got to compare what everyone is charging and what services they provide in exchange.
Fees can seem exorbitant but it really depends on who you're hiring. I charge 10% and so does my closest competitor. The difference is that my closest competitor has little experience, takes no education classes, doesn't network with other managers to improve her business, doesn't have an emergency maintenance line, doesn't accept online payments, doesn't market properties online, doesn't do periodic inspection, doesn't lock tenants into lease renewals, doesn't have a solid eviction policy or process, doesn't screen animals, etc. I could probably list 50 different things my company does that hers doesn't, yet we're charging the same price.
It's the Landlord's responsibility to investigate and see what you are getting for your money. If you hire me, you'll get a ton of benefits that nobody else can provide while paying the same in fees, earning as much or more in rent, and losing a lot less to vacancy, damages, unpaid rent, evictions, etc.
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Michinori Kaneko
OP
Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
7y
@Nathan Gesner you mentioned top 25% is making 25% profit. which means top 10% is making way more than 25% profit. you said this is because they are inappropriately adding profit from other part of their business, unfortunately to me this sounds like you are just "rationalizing" that they are including profits they shouldn't be, because your profitability is lower. You have no way to prove that they are in fact including non-PM profits, and on the contrary maybe the PM thats reporting losses are including losses from their business too. Unless you have financial statements of all of those companies and have analyzed it, I have no reason to believe that those companies aren't truly profitable. On top of that, you mentioned that you are going to change your structure that makes you 20% profitable. sorry for saying it so directly, but maybe the other firms are already doing what you are planning to do plus more and that's why they are more profitable than you currently are.

Like i said, a lot of your sales is also driven from your investors, so your 1% profit is not an accurate picture at all. your investors would have taken their business elsewhere if you were not their PM. Maybe your company as a whole wouldn't even look healthy if it weren't for your PM business. The only way for you to be sure is for you to close down your PM business, and if you are convinced its a nickle and dime business and not worth it, why haven't you yet? However, i would encourage you that if you make changes to your fee structure make sure you point out the changes you are making to all of your existing investor before you make the change and make your current investors sign a new agreement. My PM tried to do that and sneak in new fees and term changes, and this is what upset me so much and now I am asking for more discounts.

Whether they are combining profits from other business or not, if they are getting 25% profitability that's a very solid profit rate. How many big corporations do you know has 25% profitability annually? again, i don't know what you mean by 1% profitability (1% of what?) but looking at S&P over the years, the avg growth of the company is 6~7%.

@Bobby Valcin is the 8~12% in your area the stated value, but what is the effective rate of the fee when you consider that some investors are most likely getting a size discount? or do you believe there are no size discounts in your area?
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Account Closed
Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
7y
@Nathan G. Ok, for sure only an idiot would hire the other company you talked about. So there’s much to be considered in a detail oriented PM business structure. Thanks
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Michinori Kaneko
OP
Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
7y
@Nathan Gesner Btw, thanks for all the info, i don't mean to bash you on anything, but from investor perspective, your argument doesn't really convince me about my concerns, so im' just pointing out my concerns. I'm not here to bash on anyone, just trying to get more clear pictures. thanks for your contribution in the discussion.
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Bobby Valcin
Investor · Austell, FL · Member since 2014 · 110 posts · 19 votes
7y
@Michinori Kaneko at the end of the day, the terms are always negotiable. The amount of doors factors in, the age and location of the properties factors in, and so on and so forth. I don’t own the company I work for, but I would lean more towards an a la cart model personally. I’ve seen on company recently that charges a flat $90 a month with no other costs, not even for leasing. I think that is the direction things are heading in.
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Bryan Devitt
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
7y
Even if a bigger company only makes 1% profit and a 1 man show makes 25% that doesn't mean it is better. I would rather take 1% of Nike's gross as profits than 25% of Joe's T-shirt shack. Single numbers from the equation don't usually mean much compared to the big picture
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John BucciPro Member
Real Estate Agent · Tarrytown, NY · Member since 2016 · 149 posts · 63 votes
7y
8% of rent
[email protected]914-420-8497
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Josh Johnson
Rental Property Investor · Houston, TX · Member since 2019 · 7 posts · 2 votes
7y
@Nathan G. Very informative responses.
Best of luck to you.
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George H.
Member since 2018 · 7 posts · 0 votes
7y
Anybody investing in metro Detroit care to share the fee arrangement with their property management company?
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Erik B.
Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
7y
@S Cutsail
Go do some reading on this forum. There is tons of info on the hard money subject. After you have read everything if you still have a question then should prob read a lil more then start your own thread.
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Mike Giallanza
Property Manager · Centennial, CO · Member since 2019 · 95 posts · 63 votes
7y
@Michinori Kaneko One thing you may not have mentioned, unless I missed it, is what are the pain points you're having with your current PM other than the price? As a property manager myself, typically the first question a prospective client asks is "what are your fees" which is fair, but there's so much more to it than that. Or course there are tangible benefits that can be easily quantified, e.g. my management fee is xx% or a flat $xx per unit, but I think the true "grit" of a PM is the intangible benefits that are hard to quantify. For example, a lot of my clients are overseas (many in Europe) and they don't want to wait a day to hear back on an email. My early morning emails will get to them usually around end of business or dinner time (their time), and they're happy to be kept in the loop whether it's just a simple reply or one that has an attached photo or unlisted YouTube video to watch. Communication is #1 for many clients, after of course making sure they're not working with a poorly-reviewed PM company.
Another example is one I had about a month ago with a new client who insisted his HVAC company maintain and repair the furnace and AC. I honored the request and the "routine maintenance visit" turned into a whole mess of making it sound like his 8 year old Carrier unit needed a lot of extra work, mind you at rates higher than my HVAC tech. Having my new client see the value my HVAC tech brought to the table, on a project that he wasn't even getting paid for, made him realize the value that I brought to the table, because of the vested relationships I've built over time.
So, not trying to get too long-winded with this, but is the PM fee that you're seeking truly the most important factor for you? Sure another PM company may gladly offer you a "bulk discount rate" but what will the service be like from the PM, the vendors this PM sends out, etc. Some PMs are performing amazing service for their clients, and like @Nathan G mentioned this leads to sales with clients seeking to buy more rentals, or selling. But some PM companies are focused heavily on growth, and not that this is necessarily a bad thing, but will your properties receive the same level of attention that you want and deserve? No right or wrong, but perhaps a different way to look at the analysis of the value-add your PM vs another PM. Good luck with your decision!
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Peter TverdovBusiness Member
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
7y
Originally posted by @Bobby Valcin:
@Michinori Kaneko at the end of the day, the terms are always negotiable. The amount of doors factors in, the age and location of the properties factors in, and so on and so forth. I don’t own the company I work for, but I would lean more towards an a la cart model personally. I’ve seen on company recently that charges a flat $90 a month with no other costs, not even for leasing. I think that is the direction things are heading in.

That company will go out of business, unless they are trying the VC Model of "make costs as low as possible, drive away all competition and then once you have market share, increase prices and scale". A PM company is not going to have the cash to burn through that method.
[email protected]732-289-3823
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