Hey y'all, I'm looking to buy my first rental property and have been analyzing deals for a few months now. I've mostly been finding deals through the MLS. Initially, i'd found properties that seemed to cash flow after accounting for vacancies, repairs/maintenance, cap ex, and 10% PM fees (I want to utilize a property management company). However, now that i've actually spoken with and researched PM companies, I find that PM fees are closer to 15-17% when accounting for annual/biannual inspections, lease renewal fees, and placement fees and this really eats into the cash flow on the majority of deals. I know that inspections are optional and also that some PM companies don't charge renewal fees, but outside of finding other companies who don't and/or just finding better deals, have y'all run into issue as well? Do y'all account for these other fees when analyzing deals? Seems like a lot of investors just budget 10% for PM.

@Taylor D. Jenkins this is the big problem with hiring a PM on smaller buildings. A lot of folks look to self manage for this very reason. I would start looking more closely into what type of areas you are researching. If you are in tougher areas, the PM fees will often times be quite a bit higher than they would be in cheaper areas. I used to own out of state in a C-/D+ class area and the PM fee was 10% with a whole bunch of other tac on stuff. Here locally in Chicago, our 5+ units that are professionally managed trend more towards 5-7%. This is due to the easier management in the area. 

I would like to point out that not all PM companies charge those extra fees. My company does not charge anything outside of our base management fee. I would highly recommend shopping around for the right company. Also, you should be looking at PM as a partnership and not an expense. Many investors need to begin searching for the right partner who is going to help them grow. A good PM should never feel like an expense. 

When you hire a PMC, you're basically buying someone else's time and expertise.

Class B properties/tenants take more time & expertise to manage than Class A. Class C more than Class D, etc.

A good PMC will charge accordingly, so their level of service will remain the same across the classes they manage.

A questionable PMC will not understand or care about the differences, so will either start cutting services or go bankrupt.

Keep this in mind when you thnk about just going with the cheapest PMC.

15%-17%!!! That's high if that was in KC. I typically see 7%-10%. Maybe my market is different but that's nuts. At the end of the day PM is very crucial if you have never done managing before. 

I appreciate everyone's responses. I want to point out that my question was not meant to complain about the fees but rather to say that the 10% of rent collected that a lot of people say to estimate is a higher when taking those other fees into account. Obviously the fees aren't as big of a factor the higher your rents are.

PMCs are definitely a necessary part of your investment (IMO) if you want it to be as passive as possible.

@Caleb Brown The management fees are 8-10%. The higher number that i stated is if you take into account lease renewal, optional inspections, etc.

@John Warren I'm assuming it's for the reasons that you mentioned why investors say MF properties 5 to 30-40 units are difficult to manage from PM standpoint

Originally posted by @Taylor D. Jenkins :

I appreciate everyone's responses. I want to point out that my question was not meant to complain about the fees but rather to say that the 10% of rent collected that a lot of people say to estimate is a higher when taking those other fees into account. Obviously the fees aren't as big of a factor the higher your rents are.

PMCs are definitely a necessary part of your investment (IMO) if you want it to be as passive as possible.

@Caleb Brown The management fees are 8-10%. The higher number that i stated is if you take into account lease renewal, optional inspections, etc.

@John Warren I'm assuming it's for the reasons that you mentioned why investors say MF properties 5 to 30-40 units are difficult to manage from PM standpoint

Actuall, inspections every 1-2 years not so necessary. 

New tenant lease don't happen so much eventhough one month rent fee is pretty much a lot. 

Renewal rent that is 0.25 of the rent every year looks too much indeed. 

People starting out even Oos need to find handymen and professinals and manage their own property 

@Taylor D. Jenkins

If possible , why not self manage your first rental just to feel things out and see if it’s something you can manage . There’s plenty of resources online teaching you how to. You’ll probably make a few mistakes along the way, but hey, we have to start somewhere . Maybe you’ll like certain parts of management, maybe you don’t .

By no means this is the way to scale , but being it’s your first property, I say give it a shot . When time to hire your first PM, you’ll know exactly .

@Rich Ramjatan I’d like to self manage but that’s not an option for me at the moment. I do hope to at some point, just to learn if nothing else. I don’t think I’d actually save money by self managing but knowing how each part of my business works is important imo even if I’m not the one ultimately doing it