Fair rate and fee increases from your PM

59 Replies

My PM firm is located in NC and we manage just over 800 doors. Our management fees have gone basically untouched for the better part of 10 years. Our firm has a very simple fee structure that includes 8-10% of RENT COLLECTED and a set-up fee at signing of $125. That's it. Nothing on top of maintenance, no leasing or renewal fee, and no fee for inspections. We do, however, have 1 maintenance tech that owners can use at a rate of $40 per hr plus materials. Below is a list of services provided that are currently covered by our monthly commission:

Tenant Application & Screening

Rent Collection

Evictions Including Court Fillings and Appearance 

ACH Owner Payments

Monthly Statements

Property Marketing

Move In / Move Out Photo Documentations and Reports

Maintenance Coordination

24/7 Emergency Call Center

Access To Preferred Vendor Pricing

Lease Renewals

Online Tenant & Owner Portals

Online Rent Payments For Tenants 

Online Maintenance Request

Financial Reporting

While we have continued to grow our doors, this also requires us to grow our staff. It has become apparent to me that we need to find new revenue aside from simply adding to our doors. I would like to know how the BP investors/property owners feel about fees outside of the monthly commission rate. I would appreciate any feedback or positive/negative experience you have had with the following fees: 

-Leasing Fees: PMs work harder to secure a tenant than any other time during the tenancy but receive the same commission rate after a unit is rented without this fee. Also, during this time, you are in essence "working for free" while you show the unit, run apps, keep an eye on the property, and sign the new lease. 

-Lease Renewal Fee: While the renewal is not has much work as the initial lease up, still there is some chasing to do which includes letters to tenants, new lease sent out, and possible inspection of the property. Without keeping renewals up to date, the owner has a big liability hanging over their head since a tenant could move at any point once the lease goes month-to-month. 

-Annual Property Inspection: A full interior/exterior inspection of the property. This is to ensure there are no ongoing, unreported maintenance items that could be causing damage to the property and/or the general condition the current tenants are keeping it in. These inspections also help us to confirm there are no unwanted pets or occupants living in the property. This inspection also comes with a full report with photos sent to the owner electronically. 

-Vacancy Turnover Oversight Fee: Owners typically want a PM to manage the unit turnover in between tenants. This includes move out inspections, managing utilities, getting quotes on work needed, and scheduling vendors. During this time, the PM is not able to collect a fee if the contract is based solely on a percent of rent collected. Similar to the lease up, the PM is working for free.  

I know I have not listed the proposed amount of these fees but the point of this post is to gauge initial reaction to additional fees on top of a monthly commission rate. I also understand that every dollar counts for property owners bottom line. However, the reason an owner hires a PM in the first place is do those things which they do not want to bother with. These things take resources on the part of the PM and resources cost money.                                   

I wouldn't blink at a leasing fee or a vacancy turnover oversight fee. We pay a leasing agent the equivalent of the first month's rent. I also wouldn't expect a PM to work for free because the unit was vacant; however, I'd expect that to be lower, as I want the PM to have incentive to get it filled.

Leasing fee: $125 is low and I don't see any big problems raising that

Lease Renewal fee: Nope, hate it

Annual inspection: I'll deal with it but I don't like it

Vacancy turnover oversight fee:  If I was charged this I'd switch companies, you get 8-10% of rent because there isn't a ton to do the rest of the time, it also provides an incentive for PMs to not renew leases depending on how big it is, can be considered in how high you set your leasing fee though.

Originally posted by @Anna Sagatelova :

@Brandon Sowers do you manage apartments or SFRs, primarily?

Are you paying your maintenance tech an hourly wage even when there is nothing scheduled? 

We manage a pretty good mix of multi-family and single family. Our maintenance tech is part time and at the moment that keeps him busy enough. He does not have "down time." 

 

@Brandon Sowers I think the running around between showings that comes with the territory of managing SFRs absolutely makes a leasing fee reasonable - I'd start there.

Truthfully, I think you could "reasonably" implement a few more fees, but your clients are probably used to your structure (even if it is below the norm of pricing for your market) and won't like too many new fees introduced at once. If you plan on rolling this out across the board, I'd say start with just the leasing fee. But if you are implementing the fee structure with new clients only, you could add a few.

It really depends on your internal processes and costs for each one, as you do have to justify the cost to your clients. For lease renewal fees - I get it, investors don't like them. But some leases "auto-renew" per a clause that requires absolutely no action on behalf of the PM, and others go month-to-month, sometimes with a rent premium. Renewals that take more work - CMA, inspections, etc... those warrant some cost as opposed to some more "automated" system, although both do result in more stable tenancy for the owner.

Just wondering, do you offset any of your costs via tenant charges for some of the amenities/services you provide them?

Do you mark up repairs? 

You have a simple fee structure, keep it that way. Increase monthly by 1-2%. Other PMs will tell you to add/increase fee for filling a vacancy but educated consumers wont like that. They don't want to feed incentive for creating a vacancy and filling it.

It depends if you think your consumers are educated or not. My doors always have little/no fees for filling a vacancy. I'd rather pay more in monthly % but also I have more experience than your average investor.

Another thing I've noticed is don't take advice from the cleveland PMs they can charge whatever they want since theyre getting paid by out of state investors who usually aren't too savvy/don't have the best PM options so their market favors PMs more than the consumer.  No offence to cleveland PMs every market is different.

Originally posted by @Anna Sagatelova :

@Brandon Sowers I think the running around between showings that comes with the territory of managing SFRs absolutely makes a leasing fee reasonable - I'd start there.

Truthfully, I think you could "reasonably" implement a few more fees, but your clients are probably used to your structure (even if it is below the norm of pricing for your market) and won't like too many new fees introduced at once. If you plan on rolling this out across the board, I'd say start with just the leasing fee. But if you are implementing the fee structure with new clients only, you could add a few.

It really depends on your internal processes and costs for each one, as you do have to justify the cost to your clients. For lease renewal fees - I get it, investors don't like them. But some leases "auto-renew" per a clause that requires absolutely no action on behalf of the PM, and others go month-to-month, sometimes with a rent premium. Renewals that take more work - CMA, inspections, etc... those warrant some cost as opposed to some more "automated" system, although both do result in more stable tenancy for the owner.

Just wondering, do you offset any of your costs via tenant charges for some of the amenities/services you provide them?

Thanks for the insight, Anna! We do not charge tenants for anything other than late fees.

 

Originally posted by @Caleb Heimsoth :

@Brandon Sowers do you keep late fees?

Yes, we do keep late fees. Our owners are paid in the middle of the month which means that late payments don't effect their payments. If owners choose to work with tenants past that point, that is a decision they have made.

@Sant Li it’s fair to say that I am not familiar with what the standard is in other markets. Of course the first thing OP would want to do is research his own market.

With that said, although a market like Cleveland does attract out of state investors of varying sophistication, including beginners, please also realize that we have plenty of experienced investors, including those with multiple portfolios across the country and internationally. Furthermore, the influx of investment in our market means that PM firms are a dime a dozen, with many offering cut rate service at cut rate prices because they won’t hire the necessary staff or pay for professional software. There’s quite a bit of competition here.

If we tried to increase our fees by 1-2% month, our clients would flip. It is much easier to see that leasing, for example, requires additional work and thus is paid separately. We don’t collect management fees on vacant properties.

And of course that doesn’t incentivize us to have high turnover because our business model rewards high occupancy: clients are happy, cash flowing, and hopefully doing more deals and recommending us to others.

I appreciate your point of view and of course OP will have to decide what works for his market and his client base.

Originally posted by @Sant Li :

Do you mark up repairs? 

You have a simple fee structure, keep it that way. Increase monthly by 1-2%. Other PMs will tell you to add/increase fee for filling a vacancy but educated consumers wont like that. They don't want to feed incentive for creating a vacancy and filling it.

It depends if you think your consumers are educated or not. My doors always have little/no fees for filling a vacancy. I'd rather pay more in monthly % but also I have more experience than your average investor.

Another thing I've noticed is don't take advice from the cleveland PMs they can charge whatever they want since theyre getting paid by out of state investors who usually aren't too savvy/don't have the best PM options so their market favors PMs more than the consumer.  No offence to cleveland PMs every market is different. We do not make anything on top of repairs. I can understand the concern owners would have a PM being motived to constantly turn units to rack up on leasing fees. 

 We do not make anything on top of repairs. I can understand the concern owners would have a PM being motived to constantly turn units to rack up on leasing fees. However, if a PM does not earn commission while the property is vacant and does not mark up maintenance during the turn, the PM is not making a dime during the vacancy. 

Originally posted by @Anna Sagatelova :

@Sant Li it’s fair to say that I am not familiar with what the standard is in other markets. Of course the first thing OP would want to do is research his own market.

With that said, although a market like Cleveland does attract out of state investors of varying sophistication, including beginners, please also realize that we have plenty of experienced investors, including those with multiple portfolios across the country and internationally. Furthermore, the influx of investment in our market means that PM firms are a dime a dozen, with many offering cut rate service at cut rate prices because they won’t hire the necessary staff or pay for professional software. There’s quite a bit of competition here.

If we tried to increase our fees by 1-2% month, our clients would flip. It is much easier to see that leasing, for example, requires additional work and thus is paid separately. We don’t collect management fees on vacant properties.

I totally agree, Anna. Raising rates does not go over well at all. I have gotten push back on raising rate even less than 1%. Most owners give the commission rate the most attention as this effects the numbers on a monthly basis. 

Originally posted by @Brandon Sowers :
Originally posted by @Anna Sagatelova:

@Brandon Sowers I think the running around between showings that comes with the territory of managing SFRs absolutely makes a leasing fee reasonable - I'd start there.

Truthfully, I think you could "reasonably" implement a few more fees, but your clients are probably used to your structure (even if it is below the norm of pricing for your market) and won't like too many new fees introduced at once. If you plan on rolling this out across the board, I'd say start with just the leasing fee. But if you are implementing the fee structure with new clients only, you could add a few.

It really depends on your internal processes and costs for each one, as you do have to justify the cost to your clients. For lease renewal fees - I get it, investors don't like them. But some leases "auto-renew" per a clause that requires absolutely no action on behalf of the PM, and others go month-to-month, sometimes with a rent premium. Renewals that take more work - CMA, inspections, etc... those warrant some cost as opposed to some more "automated" system, although both do result in more stable tenancy for the owner.

Just wondering, do you offset any of your costs via tenant charges for some of the amenities/services you provide them?

Thanks for the insight, Anna! We do not charge tenants for anything other than late fees.

 

From what I’ve seen in most markets PMs basically copy each other’s fee schedules.  How do you compare to other PMs in Burlington? 

I own stuff in rocky mount and I can tell you if you added most the fees you’re talking about you’d become the most Expensive option in town.

 

Originally posted by @Nicole Heasley :

I wouldn't blink at a leasing fee or a vacancy turnover oversight fee. We pay a leasing agent the equivalent of the first month's rent. I also wouldn't expect a PM to work for free because the unit was vacant; however, I'd expect that to be lower, as I want the PM to have incentive to get it filled. 

Thanks for the feedback, Nicole! First months rent for a fee is strong. Our surrounding markets typically charge 1/2 first months rent but I still think that is tough on an owner. However, on a $750 single family home at 10% commission rate, that earns the PM 75 for an awful lot of work for placing a tenant. Still sorting out what is fair for our owners... 

 

Originally posted by @Caleb Heimsoth :
 

From what I’ve seen in most markets PMs basically copy each other’s fee schedules.  How do you compare to other PMs in Burlington? 

I own stuff in rocky mount and I can tell you if you added most the fees you’re talking about you’d become the most Expensive option in town.

 

That is the real tricky part, Caleb. There are not many PMs here in the Burlington area and while we are the "biggest", some of these fees could make us the most expensive. However, the idea behind these fees is to give us the resources/funds to continue to be the best at what we do. Just as important as gaining or losing clients, my focus is to create true value for our owners. For some, the bare bones management approach is enough and there is nothing wrong with that per se. Our firm is trying to maximize all the tools at our disposal to enhance the rental experience for our residents and protect the investment of our owners. 

@Brandon Sowers I don't think I can tell you the maximum you can get away with in Burlington, but I do think, at a minimum, your set up fee seems low.

I can tell you what I paid for a PM in Raleigh a few years ago though, for comparison. Mind you Raleigh and Burlington are worlds apart, but it should give you an idea. I'll caution you by saying after getting hit with the fees of this PM I fired them and self managed, but just so you know. The other PM charged 10% of rent collected, plus 50% of the first month's rent as a set up fee. They also kept all application fees (I think they charged $50-100 per application). In addition, we were required to use their contracted repair people, and they added a 15% mark up on all repair costs. 

In practice, the 50% of first month's rent seemed crazy, and I wasn't a fan of being forced to use their contractors, but my other investor insisted on using them. I ended up firing them because it took them 4 months to find a tenant, and even then would only push it if we agreed to drop rent below market. The tenant they found would only agree to a 6 month term (but still took the full fees). The PM had a clause that if a repair came up, they would call us and give us 2 hours to authorize the repair. If we didn't give them direction, or if they disagreed with the necessity of the repair (or they deemed it an "emergency"), they contracted for the repairs anyway and charged us accordingly. We got hit with a few repair bills that, upon closer inspection, were something like $600 for an hours worth of work in replacing a PVC pipe part that costs $2. Plus their 15% mark up. Its no wonder we fired them after the 6 month rental expired.

Originally posted by @Brandon Sowers :
Originally posted by @Caleb Heimsoth:
 

From what I’ve seen in most markets PMs basically copy each other’s fee schedules.  How do you compare to other PMs in Burlington? 

I own stuff in rocky mount and I can tell you if you added most the fees you’re talking about you’d become the most Expensive option in town.

 

That is the real tricky part, Caleb. There are not many PMs here in the Burlington area and while we are the "biggest", some of these fees could make us the most expensive. However, the idea behind these fees is to give us the resources/funds to continue to be the best at what we do. Just as important as gaining or losing clients, my focus is to create true value for our owners. For some, the bare bones management approach is enough and there is nothing wrong with that per se. Our firm is trying to maximize all the tools at our disposal to enhance the rental experience for our residents and protect the investment of our owners. 

In rocky mount most the PMs are also investors.  Are you also an investor? I would be okay with paying higher fees if it got me better service, especially around vacancies.  

 

@Brandon Sowers   I would look at how much time some of the things take.  For lease renewal, how much time does that take.  My PM doesn't charge owners a fee as it is all done online.  I would also look at what you are doing for the 8-10%/month that you collect.  I pay for my PM to rent the place, oversee repairs and collect the rent.

You could reasonably add a small fee for maintenance calls where you have to arrange for the repair person and ensure the repairs were done.

Obviously, your local situation is what matters most.  I happen to know that in Burlington, other PMs also do not charge lease up fees, so if you were to implement one, then that would put you at an immediate disadvantage.  Also consider that adding a full month lease up fee will potentially more than double the  cost for your landlords (unless you are fortunate enough to find tenants who stay for a long time).  That said, in MY neck of the woods a lease up fee is pretty standard (though often 1/2 month).

I would consider many of the other fees you listed as “gimmicks” - seems like those activities should be covered by your 8-10%.

Personally, I have always considered a PM maintaining "in house maintenance staff" a problem. At a minimum, it creates conflict of interest. My direct experience with that lasted exactly one turnover - quality of work was low, price was high because of overhead. Yet, I was going to be stuck using the same crew again and again. I fired that company after 2 months and will not ever hire another PM with in house maintenance staff.

Rather than increasing revenue, you could consider streamlining expenses.  What have you done to reduce your operating cost?  Are all your processes as streamlined as they could be?  In your OP, you suggest that you have not increased any fees for many years.  However, since the fees are tied to rents, your revenues have likely increased significantly over time (and will continue to increase as your market is about to explode because of all the growth driven by people flocking to RTP).

@Brandon Sowers there are a few good ideas on here but what you really need is a comprehensive over-haul. Are you willing to invest $10,000 to make $100,000?

I know a company (PM Profit Coach) that helps property managers increase revenue per door and sky-rocket company growth. Send me a PM with your phone number and I'll give you the basics and then you can investigate.

I am in now way affiliated with them and I don't benefit in any way by referring you. This is free advice from one professional to another.

Anyone that is interested in learning more can PM me.

Originally posted by @Andrew S. :

Obviously, your local situation is what matters most.  I happen to know that in Burlington, other PMs also do not charge lease up fees, so if you were to implement one, then that would put you at an immediate disadvantage.

Not necessarily true. I'm in a town of 9,500 and a county of 25,000. I manage 350 units while my largest "competitor" has 100. A few others manage around 50.

I was the first to charge application fees and screen every adult. Four years ago I introduced a leasing fee, lease renewal fee, and I started keeping 100% of the late fees. At the time those fees were introduced, I lost two owners. I was actually happy to see them go because they were terrible properties and the Landlords refused to maintain them.

Here's my point: if you demonstrate your value, or justify the fees, then clients will stay with you. If you just throw out fees so you can afford a Tesla and the client doesn't see any value in paying a higher rate, they will eventually walk down the street to your competitor. 

Someone opened a "gourmet" hamburger joint in my town two years ago. They were really good hamburgers for $15. However, there were two other joints in town that sold hamburgers that were just as good for $9 and $10. The new joint only lasted a few months because they couldn't demonstrate value to the customer.

Originally posted by @Justin Kay :

@Brandon Sowers I don't think I can tell you the maximum you can get away with in Burlington, but I do think, at a minimum, your set up fee seems low.

I can tell you what I paid for a PM in Raleigh a few years ago though, for comparison. Mind you Raleigh and Burlington are worlds apart, but it should give you an idea. I'll caution you by saying after getting hit with the fees of this PM I fired them and self managed, but just so you know. The other PM charged 10% of rent collected, plus 50% of the first month's rent as a set up fee. They also kept all application fees (I think they charged $50-100 per application). In addition, we were required to use their contracted repair people, and they added a 15% mark up on all repair costs. 

In practice, the 50% of first month's rent seemed crazy, and I wasn't a fan of being forced to use their contractors, but my other investor insisted on using them. I ended up firing them because it took them 4 months to find a tenant, and even then would only push it if we agreed to drop rent below market. The tenant they found would only agree to a 6 month term (but still took the full fees). The PM had a clause that if a repair came up, they would call us and give us 2 hours to authorize the repair. If we didn't give them direction, or if they disagreed with the necessity of the repair (or they deemed it an "emergency"), they contracted for the repairs anyway and charged us accordingly. We got hit with a few repair bills that, upon closer inspection, were something like $600 for an hours worth of work in replacing a PVC pipe part that costs $2. Plus their 15% mark up. Its no wonder we fired them after the 6 month rental expired.

I would never dream of requiring an owner to use our preferred vendors. For starters, we make nothing on the maintenance when they do use one of our vendors and it is a huge help to use when the owners us their own vendor and handle repairs themselves. I have never liked the idea of making money on routine maintenance especially while a PM is collecting a commission. However, coordinating a full turnover including repairs, painting, cleaning,  and flooring replacement while no rent is being collected is different story. 

Originally posted by @Caleb Heimsoth :
Originally posted by @Brandon Sowers:
Originally posted by @Caleb Heimsoth:
 

From what I’ve seen in most markets PMs basically copy each other’s fee schedules.  How do you compare to other PMs in Burlington? 

I own stuff in rocky mount and I can tell you if you added most the fees you’re talking about you’d become the most Expensive option in town.

 

That is the real tricky part, Caleb. There are not many PMs here in the Burlington area and while we are the "biggest", some of these fees could make us the most expensive. However, the idea behind these fees is to give us the resources/funds to continue to be the best at what we do. Just as important as gaining or losing clients, my focus is to create true value for our owners. For some, the bare bones management approach is enough and there is nothing wrong with that per se. Our firm is trying to maximize all the tools at our disposal to enhance the rental experience for our residents and protect the investment of our owners. 

In rocky mount most the PMs are also investors.  Are you also an investor? I would be okay with paying higher fees if it got me better service, especially around vacancies.  

 

I am not an investor and our firm has never owned anything we manage. I agree that with a higher price, better service should be expected. 

 

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