Why do property managers charge 8-10%?
Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes
Why do property managers charge 8-10%?
Most Popular Reply
Kim Meredith HamptonBusiness Member
Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votesJordan,
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.
40 Replies
- Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes6y
It is a lot of work the 8-10% is needed to run the business. The margin is very low. I am happy to pay a PM their rate to do a great job for me.
- Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes6y
Originally posted by @Nelson Van:
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.
You ask a very good question. The best answer I can give is this: our income is derived from averaging out the various deals we do and that's ok. Imagine going to the $150k buyer and requesting 8% because it's not as expensive as a $400k one. You wouldn't like that if you were the buyer, would you? Quite frankly, there's no knowing how difficult a transaction may be...sometimes it's fast and easy, other times it's a royal pain. And often it isn't cost dependent on home price. Then there are the deals that fall through and an agent gets nothing for the time and effort. If I am able to find a way to get that $400k purchase down to $395k, will you still be concerned that I'm getting 3%? Will you pass some of the savings to me? Rather than worry about what an agent is earning every single transaction, look for someone to do a good job for you. That would apply to property management as well.
- Rental Property Investor · SF Bay Area, CA · Member since 2015 · 206 posts · 156 votes6y
@Jordan Meyer - To answer your question, yes there are tech-driven property management companies with lower fees in the 5-6% range. Check out Onerent, for instance.
Unfortunately while their concept is a good one, they still have to streamline their operations IMO. If you do a search for Onerent on BP, you will find posts from myself and others.
- Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes6y
@Jordan Meyer
Pretty easy break down. 10%, 5% goes to dealing with unruly tenants and the other 5% goes to unruly property owners. Dealing with people isn’t easy and I’m surprised PMs don’t charge more.
- Specialist · Owings Mills, MD · Member since 2017 · 485 posts · 415 votes6y
As a former Computer Consultant and Business Owner, computer technology only gives an incremental reduction in costs over like minded tasks that require organic (human) input. Sending statements to Tenants is an example . A task that 15 years ago took 1 person 2 hours to do, now takes 2 minutes via eMail. However that savings is now offset by the Monthly fees associated with the cost of the software. and the cost of support personnel to keep that technology running.
Property Management only has limited applications where technology can reduce overhead costs.
I've found that the Lower the Fees charged by a PM, the worse the Management is of a property. - Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes6y
I have no problem with the 8-10%. Managing people and their expectations can be difficult for sure.
I've been self-managing for 18 years. Without fancy technology I have to pay for, my workload has dropped significantly with automatic payments, auto-deposits, collecting rents, communication with vendors, tenants, HUD.. via text and email, etc vs phone calls and mailing/dropping things off. I haven't been to the offices of HUD, the VA, etc in years to pick up a packet or sign something. If a tenant is late with rent a simple reminder text does the trick 9 times out of 10.
The problem is 8% - 10% is not reality. Placing a tenant alone will cost us 8% (1/12) generally so 16% is more realistic. The placement fee is paid by us upfront whether the tenant works out or not. Matter a fact, the PMs revenue model benefits if they place a turd that needs to be evicted or is consistently late or all 3, needs a lot of service calls to boot. Work overrides, late fees, turnover, new placement. All PM revenue streams.
Placing is easy and I've never used a lockbox. Pre-screen to limit wasted time and effort. Ask questions in your ad that need to be answered. A lot can be done before a showing is scheduled. My showing to placement ratio is about 80%. If you need to charge 8% to place a tenant because you have to pay a leasing agent a commission, get someone else to do it.
- 6yKristopher KyzarBusiness MemberRental Property Investor · Norfolk, VA · Member since 2017 · 260 posts · 174 votes
@Jordan Meyer I'm not a property manager (and for good reason). A good property manager not only gets/keeps your properties rented, but also adds a layer between you and your tenants. They execute lease agreements, collect rents, hold your tenants to the leases they signed, assesses late fees as necessary, and keeps your cash flowing. They take all of the 3am calls for clogged toilets and the like. They ensure your property is ready to rent between tenants. They plan and schedule any maintenance you have on the property. They assess and adjust your rent to keep you in line with the market.
@Marian Smith See above for the daily value add comment. Also, if you don't get paid, they don't get paid. I'd call that significant skin in the game. Besides that, the tenants who have issues with you as the owner are going after the PM to resolve the issues.
An additional benefit is that instead of doing all of the work my PM does, I can focus on more deals that I can have them manage for both our benefit. I'm happy to pay my 10% for all of that, in fact I started having a PM manage my units when I lived right next door for all the reasons stated above. In my opinion, PMs (the good ones) are the heroes of this industry. There should be a national holiday for PMs.
- Property Manager · Raleigh, NC · Member since 2015 · 21 posts · 5 votes6y
@Kim Meredith Hampton I am a property manager as well and thanks for attempting to explain SOME of the many values we give in the 8-10%. @Glen Mitchell thanks for asking where the iBuyer Programs are like Redfins, Zillow, Open Door during times like this. Like most businesses out there property management companies have many different fee models and I will encourage landlords who have a need for property managers to research different companies and make a decision based on the model that best fit your need and justify the fees. @Jordan Meyer I don't believe a "tech-first" model you're imagining at 5% or cheaper than current standard will provide the service you would be satisfied with. If the "tech first" takes 5%, what will they pay the actual boots on the ground that do the work for everyone to give a 100% of themselves. I believe good property managers dealing with landlords who are as COMMITTED to growth, provide an invaluable service and these types of landlords often offer to pay more in many different ways because they see our values as property managers.
- Involved In Real Estate · Half Moon Bay, CA · Member since 2014 · 17 posts · 34 votes6y
@Kristopher Kyzar ok that comment about national holiday made me laugh. maybe a little too much but if you get it started I'll go along with it :)
- Rental Property Investor · Columbia, SC · Member since 2019 · 38 posts · 10 votes6y
@Jordan Meyer I said this something! I have 2 properties and property managers aren't a good fit they charge to much and then cut you a check on your own property. They need all your information (i.e warrenties and insurance) I had a property manager tell me one thing to rent my place then try to renegotiate another price only because they confirmed a 2 year lease. I told him absolutely not we don't change contracts at the last minute because your thinking im getting more so you deserve more. But I'm done with them all together now and I was just about to make a 500k or 600k purchase...
- 6yJustin R.Pro MemberRental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
There are actually all types of property management models out there (depending on your market size.) You can find set fee based models, percentage based, marketing only, etc. For me personally, I will pay for the quality property manager because that "fee" lets ME do what I do best.....Look for additional deals, and maintain sanity.
My property manager is the most critical part of my team, I will rarely negotiate their fees.
- Rental Property Investor · Lehi, UT · Member since 2012 · 65 posts · 22 votes6y
@Steve Vaughan You hit on my number one problem with many (not all) property management pricing structures. It's a big principal-agent problem: the property manager has incentives that the owner doesn't have. The owner doesn't want vacancy, yet the PM makes 1/2 - 1 month of rent on a unit turn (which vastly outweighs the 8-10% missed). The owner doesn't want repairs and evictions, yet, the PM makes an override on service calls and evictions. The owner is price sensitive to repairs, the PM doesn't bear the cost and so is less price sensitive. Couldn't there be a structure that more closely aligns the incentives of the owner and manager?
@Ana Marie b. Thanks! You answered my original question. I wonder how Onerent is doing.
@Caleb Heimsoth Redfin etc, have created a lot of jobs as well, and kept a lot of money in consumers' hands. Most tech business models can scale, and scaling requires hiring and making assumptions about market conditions. Those conditions can change unpredictably, in which case you have to lay off. Local RE companies don't lay off because they never hired much to begin with.
@brian van pelt I agree that a 1 for 1 replacement of a manual process with a technology can yield incremental gain, but I'm talking about replacing manual process with technology AND business model innovation.
@Ana Marie B.undefined
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes6y
Originally posted by @Kim Meredith Hampton:
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.
You're paying way too much. You need to get your costs in line. If we can streamline over 600 of our own units, you can streamline yours. Happy to advise if you need any pointers on where to cut the fat.
- Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes6y
Originally posted by @Mike Westen:
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.
It's a waste of money and most property owners receive very little value from it. The majority of the interactions with tenants these days is via email or through our messaging app. Rarely do we have to call or visit unless there is an issue. From the buildings we've taken over from other PMs and acquired, the tenants said their buildings were ran like crap, and we changed that. Drives me crazy to learn that a PM takes advantage of property owners who know very little about the game. It's like when sharks see fresh meat in the waters. They do not even have a chance.
- Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes6y
Not a PM. So take my thoughts as you wish. My biggest question has to do with the financial model.
What I don't understand is the decision to be a low-margin high-volume business. If PM's believe they are worth their weight in gold and bring value to their clients, why not charge slightly higher rates and lower their volume. If clients truly value them, they would be willing to pay that adjustment for better service.
Landlords are cheap. Therefore they tend to hire the cheapest-best PM they can find. Understood. But there are plenty of wealthy investors who would pay for great management.
Instead this financial decision requires the PM industry to use silly clauses. Such as the commission if a house is sold, even by another agent. Or using their monthly rate to get clients in the door and charge them later for maintenance coordination, late notices, filings, etc.
True there is benefit of economy of scale. However, minimizing business fees to appease clients who will most likely be frustrated and move on is a weird choice.
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