what's your property management fee?
Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
what's your property management fee?
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7yNobody 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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56 Replies
- Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes7y
@Mike Giallanza fair point. Yes i have numerous pain points about my PM which is the reason this is probably coming up. you are probably right, my current management fee is 10% and i'm trying to negotiate down to 8 (with 10 properties 13 doors). you are right, if everything was going smoothly and i had zero complaints, i'd probably still be happy to pay 12%.
First, i realized that my PM raised their application fee to $50, while all their competitors are still only charging $25. Not only does this reduce the number of applicants, but probably also lower the quality, because responsible people who will be a good tenant will most likely do their research first, and realized that my PM is trying to rip them off on application fee so they will go find a different listing.
Second i realized my PM is keeping all late fees. I recently had a tenant who didn't pay for 3 months. the lease clearly says rents are due on the 5th, and if they fail to pay by 5th they get a 10 day notice. no 10 day notice until 3 months later when i complained. they kept the late fee because it was on the contract. 3 months, i gave my tenants 0% free loan while my PM got to collect close to $500 of late fee. Fortunately, the tenants paid so i didn't have to go through eviction, but that raised my eyebrows. I'm the one that has to pay all the bills even while tenants are not paying, but they still keep the late fees? not only that, they were the one that didn't follow their own lease...
Third, i realized my PM is charging me 10% on top of maintenance charge. I have several vacant properties right now, because they are going through rehab. my lawn care bill 2 months ago was $600. they charged me 10% on top of that. but why? how long does it take to pick up the phone and pay the bill on my behalf then charge my account? I almost had to pay $160 on top of my repair that cost me $1600.
and finally, the most frustrating part, I have a property sitting vacant for 3 months. Fortunately, this was one of properties i was able to pull off a BRRRR and was able to pull out more cash than i put in, but still, eating 3 months of expenses... this goes back to my argument about application fees. If my properties were rented within 2 weeks every time, heck i'd pay 12% management fee for that!
These are all things if i were resigning the agreement i would really read into. I was a noobie a year ago and i didn't read as carefully as i should and didn't realize these. Back to the reason why i am asking everyone what fees they are seeing, I basically put this in a long e-mail to the owner of the PM firm. she said the national average of PM fee is 12%. 1) i didn't believe that because 12% is the highest i've seen so far, and 2) even if that were true, the 12% is probably only the face rate, and most bigger investors probably get a size discount. I only know what David Greene wrote on his book. Maybe he gets his rate because he's David Greene. So, trying to figure out if what i'm asking to my PM (reduce rate from 10% to 8% with 10 properties) is out of line or not. Sorry, my explanation ended up being WAY longer than yours haha.
@Peter Tverdov I don't think what he was saying is that they are artificially lowering the price temporary to drive competition out. i think what he's saying is the industry is heading towards a flat fee instead of % base fee structure.
- Rental Property Investor · Member since 2019 · 93 posts · 110 votes7y
I have three property managers in three states at three different rates. They run anywhere from 4% to 6% but I do have hundreds of doors. The bigger issue I see is mark up from third party service. Look at total cost and what the do with late fees and notices for eviction. My goal is to hand over the asset and let the managers do what they do. We set our expectations before we enter into a contract with them.
- Property Manager · Centennial, CO · Member since 2019 · 95 posts · 63 votes7y
^ Third, i realized my PM is charging me 10% on top of maintenance charge.
A lot of PM companies mark-up or receive kickbacks for maintenance, and I am in the camp of not doing this. I recommend creating a spreadsheet that will let you check "Yes" or "No" to questions like "maintenance mark-up/profit center" when interviewing other PMs.
^ And finally, the most frustrating part, I have a property sitting vacant for 3 months. Fortunately, this was one of properties i was able to pull off a BRRRR and was able to pull out more cash than i put in, but still, eating 3 months of expenses... this goes back to my argument about application fees. If my properties were rented within 2 weeks every time, heck i'd pay 12% management fee for that!
I don't think it's an application fee issue; however, sitting vacant this long during peak renting season is unacceptable. With schools in session and Labor Day past us, the rental market slows down. I'm not familiar with the area(s) your rentals are in, but I can't imagine it's that much different than where I am in the South Denver metro area. Oh, and I wouldn't pay a higher mgmt fee for renting homes quickly but instead a better leasing fee as there's a lot of time that goes into the leasing phase.
So for these aforementioned reasons you've brought to the table here, the 10% management fee isn't the only issue and I think you should research other PMs to see if there's a better fit.
- Investor · Austell, FL · Member since 2014 · 110 posts · 19 votes7y
@Peter T. I’m not so sure about that, but you may know something I don’t. Do you have some evidence to back that assertion?
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