Property Management Fee???

25 Replies

So considering a major life move :).  I'm new at this STVR biz (about 2 years) but feel I have a good handle on what it takes to make money in this space managing our 2 properties on our own.   As we continue to build our own portfolio of properties, I am considering opening my own property management company in my core market.

Based on my experience and study, I feel the local property management complanies are not that sophisticated and I have access to deed records and other resources that I can get to the owners of over 1500 properties on the platforms pretty easily.  Of course, I would need to energize homeowners of my value... not asking for advice necessarily there.  Just wondering what a typical fee would be for high level property management that would include:

  • Listing property on AirBnb, HomeAway, and Corporate Website
  • Manage calendar and booking process from start to end
  • Manage cleaning and basic maintenance (lawn/small repair)
  • Pay State sales tax and local hotel/motel tax on behalf of owner
  • Supply basic supplies (paper towels/toilet paper/coffee/etc.)

If I provide for a reasonable profit margin, I am thinking 40% of gross revenue would cover all of the above.  An example may look like this:

Total Revenue   $50,000

Cleaning Fees   $4,000

Taxes                  $6,500

Platform Fees   $1,500

Suppplies           $1,000

Maintenance     $2,000

Profit                   $5,000

Total Fees           $20,000   (40%)

Am I including too much? (paying taxes for instance).    Should I pass through supplies and lawn maintenance? Am I missing anything?  Is my profit margin off?  Would I be competitive?  I know I need to do more research, just asking for a quick view and comments if any to see if I'm on the right track.

We pay our property manager 30% of the nightly fee, they collect and keep the cleaning fee and taxes from the renter. The management company covers all of the supplies and handles all aspects of the rental process. They are incredibly good at what they do and keep our cabin rented all the time. In February it was rented 21 out of 28 days and has been rented all but 1 weekend since September. 

I'm taking a SWAG to say that your cleaning fees and supplies will be higher.  Scientific Wild Azz Guess.

So, if you are taking 40%, how much profit is left for the owner?

@Sean Wilt First thing you should do is look at what the norm is in your market.  I own one property where 20% is the norm.  I own others where it's 30-40%.  You can charge a LITTLE more than others if you're offering more services, but on a gut level, if you're 40% and your competitors are, say, 25%, nobody's gonna call you.  

Ditto for your services.  First learn what your competition provides and build off their model, especially in terms of which costs are absorbed and which are passed through.

And really, the FIRST first thing you should do is know your local laws regarding property management, to make sure you meet all the requirements to do it legally.  :)

I have heard  the norm on PM fees being around 30%.

I that is the norm for your area then you should be able to build a healthy business.

Try calling a couple of PM companies in your area and see what they say their rate is and what that includes.

@Sean Wilt - 40% sounds high to me for just about any market, although you might get 20-30% on true short-term rentals. I think the key to commanding high rates is maintaining much higher occupancy than the owner could achieve themself using the known platforms like AirBnB and VRBO/Homeaway. 

Check out what Evolve Vacation Rentals offers. They are growing rapidly and expanding into new markets. They charge 10% for the first 2 bullets on your list, and they offer additional services at additional cost. Some platforms in some areas (e.g. AirBnB in several major cities) pay the taxes already. 

I manage 12+ furnished rentals in the San Francisco area, and I also have a couple of "full service co-hosting" arrangements with homeowners. In one case, I do most of your listed VR services for a homeowner plus the initial 3-week set-up of the unit (design; procurement of furniture, kitchenwares, linens, etc.; photography, etc.). I am charging 20% gross revenues for year 1 only (largely as compensation for the set-up). In year 2 I plan to charge about 12%. To be fair, the big difference from what you are proposing is that this unit is mostly 30+ day rentals which require less work.

Good luck with your business! 

@Sean Wilt - I just had a little regurgitation and haven't even had my breakfast, thanks.  It's high season and I'm getting hammered with communication on just 4 properties.  You're getting some sound advice here, 30% does seem to be the norm.  I can't imagine receiving even 2x the number of messages, emails, and challenges that come along with this business.  @Ethan Cooke - do you use Evolve now or manage these properties yourself?  I have a colleague who manages 30 herself and has hired an assistant.  I would recommend adding some automation to your budget/plan, something that can at the least manage some communication.  Keep us posted on your journey and good luck!

Mike

@Michael Greenberg - I manage the properties myself. I appreciate your advice on setting up more automation and assistance. I am a bit of a control freak, and I actually enjoy most aspects of managing the business. But I’m reaching a tipping point where I’m willing to give up the joys of balancing my books and unclogging broken toilets!   ; )

Originally posted by @Ethan Cooke :

@Michael Greenberg - I manage the properties myself. I appreciate your advice on setting up more automation and assistance. I am a bit of a control freak, and I actually enjoy most aspects of managing the business. But I’m reaching a tipping point where I’m willing to give up the joys of balancing my books and unclogging broken toilets!   ; )

 Love the reference.... books and toilets.  So true!  Impressive that you can manage so many properties running solo.  I'm likely to be in SF in the coming months, one of my nieces is getting married and my wife is her God Mother.  Used to live in Corte Madera and Palo Alto in the late 80's early 90's.  I'll reach out before we book anywhere if we're not staying at the family hotel.

Sounds good @Michael Greenberg . If you're not too busy with family stuff, let's grab coffee!

Best,

Ethan

@Sean Wilt - Curious as to why you think "access to deed records and other resources" is valuable to vacation rental owners.  Not knowing what the "other resources" are, I'm interested to learn. 

Also, I own 3 STRs in Panama City, FL.  I manage them myself.  40% is super high in this market.  20-25% is the norm.

@January Johnson "deed records".  It's so that the OP can contact the true property owner, not the PM or some other non-decision making person.

When I show a house to a group of 3 or more guys, I try to figure out who the group leader is.  I show him the master bedroom (which is the best), and tell the other guys that they need to pick their own bedrooms.  

@Paul Sandhu - I understand the info available on a deed.  I'm just interested to know what the VALUE might be.  In my county in FL, for example, the deed records only show addresses, not phone or email contact info, rendering them less valuable for a quick contact. 

Also, in my county, EVERYONE has access to deed records - they are public record and easily accessed online. This wouldn't be an advantage a property management company would have.

@January Johnson We have the same access to deeds and property values in this county too.  It even shows the appraised value.  But it does not show the purchase price.  Zillow won't show it either on certain properties like foreclosures and delinquent property tax sales.

If you want the purchase price, you have to do what I do.  Go visit my bank v.p. friend that has access to that information.  He uses the same website, but has deeper access.  He can tell me the sale dates and the actual purchase prices for houses.  That info is not public info.

If the OP knows the purchase price, he can make a reasonable offer to the property owner.  The property owner knows how much he paid, so if he is making XX% return on the property it's a decent investment.

@Paul Sandhu Yes, there are definitely "nondisclosure states" that make Zillow a joke as they cannot access public records either.  (That, and the CEO of Zillow sold his OWN HOME for 40% below the "Zestimate", so I always tell everyone to take that site with a BIG grain of salt!) 

We can see purchase price on our property appraiser's website in FL, and I can access that as well as a Realtor on our MLS system. Our site is baypa.net if you are interested in looking at it.

@January Johnson   Yes, Zillow is a joke.  If I could sell any of my properties at their Zestimate, it would be more than double of what the real purchase price was.  Zestimate is like a MSRP for a new vehicle.  It's a starting price to go down from in a negotiation.  Nobody pays MSRP.

@January Johnson ; @Paul Sandhu

Paul is correct, deed records can help see who the owner of the home is.  Reason is not so much to purchase their home, knowing sale price... but to get the address (correct, no phone # or email) to write and see if they are happy with their current property management and would like to discuss another option.  I can specifically target properties I would be interested in.  I work for a company that I can get millions of deed records nationwide in every county/municipality coast to coast going back to 2005.

I was just pointing out a part of the strategy to help prospect for potential properties to manage....

@Sean Wilt 40% does not sound as attractive to me as 10%... Personally I wouldn't go over 25% unless the owner just doesn't gaf. I could be wrong but I believe that most savvy investors want quality and a good price for the service. That being said, once you have some years and a great reputation under your belt you can always raise the fees. Good luck and much success!

@Rachel Hunt Those things would be negotiated between the OP and the landlord.  Personally, the landlord should pay the insurance and taxes.  Those expenses should be factored in to the rent.  OP should be responsible for damages.

@Sean Wilt

Hi Sean,

Congratulations on starting this exciting journey!

The standard property management fee for single-family rentals up through small multifamily communities is between 7% and 10% of total monthly revenue. With the exception of select corporate expenses, all associated fees are passed through to the client. In effect, each client will be maintaining a P&L for their assets, and you will be managing it. The fees for larger multifamily communities range between 2.5% to 7%. The lenders on these deals can have significant influence over what managers they approve to manage the property.

Please feel at liberty to reach out to me directly if I may assist. I wish you well!

All the best,

Daniel Reyes

This is an important question... but just like everything it "depends".  The PMs fees tend to be regional (IMO) and next it depends on the level of service provided.  I would say next is the track record of the PM (regional footprint, nights over the year, own website,...)

My business partner does self manage and then utilize booking fees (negotiable) with other PMs like 360 Blue, Beach Reunion,... depending on location of the property, time of year,...

The other PMs in Destin / 30A that is they're primary business model vs developing, building new / reno...  Sooo I'd probably look at regional PM websites and directly inquire the packages they offer? 

In my area, property management for vacation rentals can be as much as 50% of gross income, so you've definitely gotten some solid advice to check around to see what others area charging. I also started managing other units in my area after successfully managing my own. I started with a pretty low percentage for our first management client (25% for full service, which is low in my area) because I wanted to build trust and learn the differences between managing my own units and managing others. As we grew and learned, got more feedback, it was easier to set fees and figure out what should be included and what shouldn't. Also, the first few clients we had were so thrilled about the good service they were getting at a lower price that they've given us rave reviews and brought us other clients by word of mouth.

All that to say I would start a little lower than what you think the market will bear to start off with some super stoked clients who will help you do all the advertising for you in the future :) Best of luck!

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