Why do property managers charge 8-10%?

General Landlording & Rental Properties
6yFollow

Why do property managers charge 8-10%?

Jordan Meyer
Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes

In a day where technology is pushing down transaction fees for purchases (i.e. Redfin, Homie, etc.) is this happening in property management anywhere? It seems like there should be a tech-first property management company out there that charges a lower, flatter price (i.e. 5%). Does this exist?

0Reply
135 views

Most Popular Reply

Kim Meredith HamptonBusiness Member
Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
6y

Jordan,

As a professional property manager with over 1000 units, that 8-10% comes out to about $3 to $5 a day to pay for technology, staff, rent, insurance (which is outrageous), MLS (also outrageous), lockboxes, gas, telephone, software, computers, inspections, payroll, taxes, health insurance, I could go on and on...... but its not ok for us to make $3 to $5 a day to care for one of your most important assets 24/7, 365. I think I missing something. We actually dont get paid enough for everything we deal with on a daily basis.

[email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
Compass | St. Pete514 Reviews
WebsiteView Page
31Reply
See this reply in the discussion

40 Replies

Jump to latestLatest
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    6y

    Jordan,

    As a professional property manager with over 1000 units, that 8-10% comes out to about $3 to $5 a day to pay for technology, staff, rent, insurance (which is outrageous), MLS (also outrageous), lockboxes, gas, telephone, software, computers, inspections, payroll, taxes, health insurance, I could go on and on...... but its not ok for us to make $3 to $5 a day to care for one of your most important assets 24/7, 365. I think I missing something. We actually dont get paid enough for everything we deal with on a daily basis.

    [email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
    Compass | St. Pete514 Reviews
    WebsiteView Page
    31Reply
  • Glen Mitchell
    Involved In Real Estate · Half Moon Bay, CA · Member since 2014 · 17 posts · 34 votes
    6y

    Dicount groups like Redfin are the first to let people go in times like this.  They are currently laying agents off as are many other discount groups.  Compass isn't a discounter but they have thrown so much money at the business in an attempt to buy it all, they too are laying people off.  Its not a good business plan to only be able to make money when times are good.  That's what discounters do.  Here is the other interesting thing to note.  (I do both property management and real estate sales)  Profit margins and not just what I see but what is posted by other companies, coaches,  Gary Keller in his millionaire real estate agent book etc are higher for real estate than property management.  The business as a whole has got more expensive, more tech needed (these guys aren't cheap) more work to be legally compliant etc.  In Gary's new book coming out soon he has further reduced the profit margin in the books formulas.  So I don't think the numbers are far off if you look at the bigger picture and long term risk factors.  (speaking of risk we didn't even go into that aspect of things here too.  IE how much should you be charging to cover all the things that could go wrong.)

    The bottom line is this is not a get rich quick business.  If times get bad do you want your property manager to have such a low margin that they go out of business?  Investors pro tip, don't buy stock in a discount real estate anything company.

    PS one more side note here.  In many cases when I have been hired to be an owner's property manager I have been able to get them more rent than they were charging.  Enough to pay my fee.  In those cases, in theory, they got me for 0%.  And I do all the work??  How good a deal is that.  Interview some managers, see what they do, and how they can help you, what their business plan is etc and hire on those skills versus fees.  Property management is the type of business that many owners will say I can do that.  And some of them really can.  They just need to factor in do I make more money for working extra hours at ABC company or do I enjoy my time off versus spending on rental needs.

    Hope that helps.  Happy to expand or explain anything further.

    12Reply
  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    6y

    @Kim Meredith Hampton I think the point is that a property manager does not add value daily, acting more like a combo insurance policy and a mortgage servicer...actual mortgage servicers charge less to service a mortgage and also take on some risk...whereas property managers have no skin in the game.

    2Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    6y

    @Jordan Meyer  I'm not a property manager so take what I say with a grain of salt.  However, I don't think a full service property management company could even do it for 8-10%, much less 5%.  That's why it's common to see them adding in other fees and making money in other areas besides the advertised base of 8-10% of the monthly rent.  Things like leasing fees, lease renewal fees, keeping late fees, marking up repair work, etc.  

    The only way I could see a company being able to do it for 5% (which is a mere $25/mo on a $500/mo apartment) is #1 - Scale (have a lot of customers paying that small fee); and #2 - Provide extremely limited/barebones service (nothing in person, so no showing of property, essentially they'd just be a call center that a tenant could call when they have a repair request and then the company would in turn call/dispatch a repair company to handle it).  I just don't see that low of a fee being able to support any hands-on/in-person service though.

    Just my two cents.

    2Reply
  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes
    6y
    Originally posted by @Marian Smith:

    @Kim Meredith Hampton I think the point is that a property manager does not add value daily, acting more like a combo insurance policy and a mortgage servicer...actual mortgage servicers charge less to service a mortgage and also take on some risk...whereas property managers have no skin in the game.

    No skin in the game because the software is free? Or is it the lockboxes and MLS that are free? Payroll? Help us understand.

    3Reply
  • Glen Mitchell
    Involved In Real Estate · Half Moon Bay, CA · Member since 2014 · 17 posts · 34 votes
    6y

    @Marian Smith  no skin in the game??  I'm there every day for my properties.  I've had to visit properties in the middle of all this Covid stuff, how much is that worth to an owner to not have to do??  I personally paid a plumber $50 yesterday to do something for a tenant that was tenant's responsibility.  Sure I could be the bad guy and tell him he has to pay but there are relationship factors here that are so important in property management that you are not going to get from an all tech firm.  Tenants don't pay in a time like this, then I don't get paid.  Then who pays the technology companies?  It's a vicious circle.  If someone wants to start a cheaper all tech, computer run only company great they can try that.  As a full-service property manager of over 18 years, I know what profit margins they will get from it, and what service level owners will get so it doesn't impact my business.  In fact, it makes it better.  Property managers aren't for everyone and that's completely fine too, it's just important to understand that the fees companies charge are not arbitrary and the profit margins are small enough as they are, that at these rates you can't squeeze much more out of them.  Disclaimer I do not charge fees as high as those mentioned in the initial thread but I live in an area where rent prices are higher.  In the end its all a free market and supply and demand are what really control the fees charged.  There is a reason I have never been fired by an owner.  The only reason they have left us has been if they needed to move back in or sell. None of them have ever come and said you know what Glen you charge too much or I need you to reduce your fees.  Some have actually paid me bonuses so I guess they think I don't charge enough :)

    9Reply
  • Calvin Thomas
    Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    6y
    Originally posted by @Kim Meredith Hampton:

    Jordan,

    As a professional property manager with over 1000 units, that 8-10% comes out to about $3 to $5 a day to pay for technology, staff, rent, insurance (which is outrageous), MLS (also outrageous), lockboxes, gas, telephone, software, computers, inspections, payroll, taxes, health insurance, I could go on and on...... but its not ok for us to make $3 to $5 a day to care for one of your most important assets 24/7, 365. I think I missing something. We actually dont get paid enough for everything we deal with on a daily basis.

     Depends. Most prop. managers are worth their weight in debt.  Most are pure garbage and bag out the LL on BS fees.  If I told and shown you what a PM charged the previous LL on "management" and their piss poor "care" of the property; you'd be amazed.  Need more proof?  Just conduct a search on BP.  Regardless to say, it's one of the reasons why we manage our own and started a year or two ago to offer our management to others.  It's flat fee based, not based on percentage.

    4Reply
  • Calvin Thomas
    Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    6y
    Originally posted by @Jordan Meyer:

    In a day where technology is pushing down transaction fees for purchases (i.e. Redfin, Homie, etc.) is this happening in property management anywhere? It seems like there should be a tech-first property management company out there that charges a lower, flatter price (i.e. 5%). Does this exist?

    On the other hand, let's take it from the PM's POV.  Let's say, you are managing a 3 unit MF at 800.00 per month, per unit for a total of $2400.00 per month.  This includes dealing with tenant BS, collection, remitting payment to you, dealing with your BS, etc.  If they charge you 10%, and they do their job (yes, I know, big IF), are they worth $240.00?  Now, let's say it's 5%.  That seems like a lot of work with little reward for $120.00 a month.  Not sure where there is a happy medium, but would you do all that work for $120.00 bucks a month?  Yes, if a PM has 1000 units under management, they can scale.  So that $240.00 x 1000 units = $240,000, which seems like a lot.  However, you forget, chances are they have expenses too.  It is why I always recommend foe ppl to learn their own ropes and manage themselves.  In this day and age, it's really not hard to do.

    4Reply
  • Leonard Caron
    Member since 2020 · 11 posts · 11 votes
    6y

    When i first inherited my properties i was immediately over my head. I had no idea how to run rentals, how to manage and deal with the immediate repairs required, tenants wanted to complain about ongoing issues that existed before i inherited them, and of course it was all my fault.

    I looked into a property management company, they wanted 10%/month per unit, as well as an hourly rate($25/hour) regardless of what they did, so long as it was related to my property. Make a phone call? That's $25. Send paperwork? $25+cost of writing/sending. If they had to actually drive to my unit for some reason, they were covered under *my* insurance. That insurance thing was the final straw. 

    0Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    6y

    There is nothing FREE in this world. We pay over $2500 a month just for our software, lock-boxes are about $75.00 each for MLS, and another $25 dollars for combo boxes, The expenses are crazy. For any of you that actually run a professional business know that everything goes up, never comes down, but as PM our fees have remained the same for 20-30 years, never an increase, even though our expenses go up every year!

    Lets get into what we do everyday 24/7, and what about the COVID-19, we are considered essential and out there everyday dealing with everything, while everyone else gets to stay home and be safe. We are still showing properties, collecting rents, performing maintenance, dealing with emergencies, the list goes on....

    Please know that we do love what we do, but it really bothers me for someone to ask me to take a pay cut, but still want me to deliver the same level of service, hire good people, be up to day on all of the latest statutes, changes etc... I'm sure if your boss came to you and asked you to take a pay cut, but work just as hard, you would have a hard time accepting that.

    [email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
    Compass | St. Pete514 Reviews
    WebsiteView Page
    8Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    You should be getting what you pay for. If your PM isn't worth their cost, you probably need a better PM. 

    5Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    6y
    Originally posted by @Marian Smith:

    @Kim Meredith Hampton I think the point is that a property manager does not add value daily, acting more like a combo insurance policy and a mortgage servicer...actual mortgage servicers charge less to service a mortgage and also take on some risk...whereas property managers have no skin in the game.

    Marian,

    Not true..We have some of the most high risk responsibilities in RE, because we handle and take care of all of these assets, and take care of owners and tenants every day, 24/7. WE screen tenants, establish rental rates, collect rental, process leases, arrange maintenance, rehab houses, deal with evictions, posting legal notices, we wear many hats!!! This is a huge reason why most insurance companies don't even want to write insurance policies for our businesses, and if they do, the premiums are outrageous. In addition, most professional legitimate PM companies have professional liability, general liability, and E & O. In addition we need additional riders for employees, driving, technology etc.....

    [email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
    Compass | St. Pete514 Reviews
    WebsiteView Page
    3Reply
  • Marlen Weber
    Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    @Kim Meredith Hampton thank you for going into detail and educating us about what is covered on that 8-10% fee and also, thanks for all that you do as a property manager. 

    3Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    6y

     For low priced markets, 8-10% is peanuts. You try having the staff and infrastructure that is required to properly manage units, and you'll realize it costs 8-10% plus maintenance and other up-charges just to be somewhat profitable. 

    Now there are a lot of budget PMs that charge 5-7% that I have seen, but they do a **** job. That doesn't mean everyone who charges 10% does a good job, but you do get what you pay for in the PM business. 

    3Reply
  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    6y

    By skin in the game I meant 25% down on the property and responsibility for all damages, repairs, lost rent and or vacancies, and maintenance. PMs provide management and for many class b or above properties it may or may not involve enough work to justify 10% of rents.   In my case, it does not.  Last year I had no late fees, no turnovers, two hvac repairs, one replaced water heater and a fence repair.  4 sfh’s and a condo. Besides, don’t PMs charge extra to fill a vacancy?  So the cost of lock boxes should be covered in that fee, etc.

    1Reply
  • Jordan Meyer
    OP
    Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes
    6y

    I wasn't making any value judgments about the 8-10% being too much or too little. I only am wondering why the tech-first model hasn't been tried in property management. By tech-first I'm saying a company that owns its own technology and attempts to use it to reduce friction points. This allows greater scale, which can then be passed along as cost savings. Imagine the best property manager with 20 support staff, all coordinated by a platform. So the tenant isn't communicating with a single person, but with a platform or the 20 staff. How many doors could that person manage? 10,000?

    And whether or not you like Redfin, Homie, Zillow, the tech-first approach has begotten some very valuable companies. Technology has brought new business models for all the other areas of real estate: sales, closing (Qualia, JetClosing), lending (SoFi, Lightstream). 

    When is it coming for property management? And maybe you all just answered why it won't--the margins are too small to begin with. 

    1Reply
  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    6y
    Originally posted by @Jordan Meyer:

    I wasn't making any value judgments about the 8-10% being too much or too little. I only am wondering why the tech-first model hasn't been tried in property management. By tech-first I'm saying a company that owns its own technology and attempts to use it to reduce friction points. This allows greater scale, which can then be passed along as cost savings. Imagine the best property manager with 20 support staff, all coordinated by a platform. So the tenant isn't communicating with a single person, but with a platform or the 20 staff. How many doors could that person manage? 10,000?

    And whether or not you like Redfin, Homie, Zillow, the tech-first approach has begotten some very valuable companies. Technology has brought new business models for all the other areas of real estate: sales, closing (Qualia, JetClosing), lending (SoFi, Lightstream). 

    When is it coming for property management? And maybe you all just answered why it won't--the margins are too small to begin with. 

    Jordan, 

    I get the point you are trying to make, and yes we utilize the best technology has to offer, although none of it is free by any stretch of the imagination, nor does it all operate on its own, and lastly and most importantly, the boots on the ground and relationships that we foster with the vendors are worth their weight in gold. If everyone could manage from 2000 miles away and do it effectively and efficiently every time, then everyone would be doing that, it just does not equate 100% of the time. 

    [email protected]407-448-6679Podcast Guest on Show The Key to Scoring Discounted Deals in One of America’s Hottest Markets
    Compass | St. Pete514 Reviews
    WebsiteView Page
    4Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    6y
    @Kim Meredith Hampton:

    Please don't take this personal as I'm not trying to throw stones at you, but in my 9-5 I have had to write many reports to justify our pricing. Your reasoning reads very much like my reports. And my reports are full of ****. 

    Your hats include most things that take extremely little time or occur very rarely. On top of that, many PMs charge extra for a lot of these rare things (tenant screening, lease renewals, etc). I find value in PMs and use them for certain things, but the "we do so much work for only 8%-10%" line doesn't exactly smell right. Maybe for C/D properties, but no way for A/B properties. 

    BTW, professional liability insurance and E&O are the same thing.

    1Reply
  • Rob Hakes
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    6y

    @Jordan Meyer

    The reason we pay a PM is because we primarily need them to manage people.  This cant just be automated.  Any good PM already has a full array of automation in place for their systems, but a great one will know how to manage your tenants.  This takes a lot more than some fancy software.  I will gladly pay a PM 10% if they know how to manage my tenants.

    7Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    In my market, 10% property management fees would tend to be for class C apartment units.  These units take way more time, patience and even expertise.  In prime areas, the fees are much less.

    Keep in mind that low property management fees are loss leaders.  Property managers make money on leasing fees, which should be separate.  Also repairing and turning over units is another business line for property managers.  

    3Reply
  • Isaac S.
    Member since 2018 · 563 posts · 562 votes
    6y

    it's like investing in stocks, if you are smart enough and willing/able to do the work yourself, you can probably out perform an index fund...but, if you just want to spend a day or two picking and then a few hours every quarter, analyzing... you will probably not be able to out perform a decent mutual fund, even with the management fees/charges netted out.

    If you have a "day" job or other sources of income that generate more than the expense of the management, clearly your time is better spent doing other things.

    If you don't have other income, property management is not that hard for someone with average intelligence and decent work ethic. Of course, this can vary greatly if you have to deal with government oversight or problematic tenant types.

    End the of the day, I don't think their is "...an app for that" 

    1Reply
  • Mike Westen
    Investor · Chicago · Member since 2020 · 13 posts · 9 votes
    6y

    In my opinion it's a great deal.

    I'll gladly pay 10% not to deal with people. It's like hiring a manger for your day to day operations. 

    3Reply
  • Todd Rasmussen
    Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Jordan Meyer

    Our Indianapolis property management company seems to be doing that. They have centralized call center that handles all of their markets and at least a couple boots on the ground in each market. I'm guessing they have very small staff in the actual market or have a local property manager on a commission split. So far just as underwhelmed with follow through with my local mom and pop property manager I let go to switch to them. They aren't offering a discount service over what I was paying, just are trying to create a greater margin for themselves is my impression.

    0Reply
  • Nelson Van
    Rental Property Investor · Virginia Beach, VA · Member since 2019 · 23 posts · 25 votes
    6y

    I don’t think 8-10% is a bad deal for a property manager but I’ve never understood why real estate transactions and fees are percentage based.

    For instance my real estate agent is going to get 3%. More then likely he is going to do the same amount of work if I’m buying a 150k house vs a 400k house.

    Another example is if one of my units is a B class property renting for 2200 vs my D class renting at 600. The D class unit is more than likely going to be more work for my property manager but he’s getting paid less and vice Vera on the B class property.

    5Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Jordan Meyer well Redfin doesn’t make any money and is currently laying lots of people off. Are you in the real estate business to lose money and destroy jobs?

    I’m going to say not really, which means expecting people to mimic them is unreasonable and also poor business sense.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free