Rookie Reply: How Much do Property Managers Charge?

Ashley:
This is Real Estate Rookie episode number 96.
My name is Ashley Kehr, and I am here with my cohost, Tony Robinson, Tony, how are you today?

Tony:
I’m actually doing not the best today.
because I just got some bad news. We had a property for sale. We were selling one of our Airbnbs in Joshua Tree and it was under contract and the buyer ended up canceling the contract to purchase it.
So a bunch of other properties, right after we listed ours, went onto the market and some were listed a little bit lower than ours was.
So the buyer statement was that they wanted to explore some of the other options and they did it within their due diligence periods, so we couldn’t even keep their EMD.
So now we’ve got to relist that property and hopefully find another buyer that, that sees some value in it.

Ashley:
Do you think, as a buyer or a seller, that when you see a property that was under contract and then it’s back on the market that maybe something is wrong with that?
Do you …

Tony:
Totally.

Ashley:
… have a little bit of that automatic assumption? Yeah. So that’s what really stinks about that. As people are going to see it was listed, then it went pending, and now it’s back on the market.

Tony:
And I was even talking to my partner, should we now relist it potentially at a lower price, but I think we’re both confident in the Joshua Tree market, kind of where it’s at right now.
And in the property that we’re selling, we’re providing actual financials with the property and then how well it’s done. So it might take a little while, but we feel fairly confident that we’ll find the right buyer for it.

Ashley:
Well, I’m sorry to hear that. Let’s think…

Tony:
Yeah.

Ashley:
It will sell right away again.

Tony:
Yeah, I know. Hopefully.

Ashley:
Yesterday I put in two offers on one property. I did one as conventional financing and then another one as seller financing.
And I heard back today that they would take my seller financing offer, but just change the terms on the seller financing and a little bit more down payment.
So I’m trying to get very, very creative with how I do this deal, because what he proposed back to me for the seller financing is really not that great of terms, but he wants the seller financing and he wants to do this deal and he wants to sell it right away.
So my thinking is that I’m going to try and work with the bank so that once I close doing seller financing, I can start the refinance process with the commercial lender, because there’s a bunch of value add for this property that can be done right away.
So I reached out to my lender today, emailed him and said, okay, how can I do the environmental study, the appraisal, everything during my due diligence and reuse that for when I refinance with you guys.
So I’m going to see what he says. I don’t think I really want the appraisal because I’ll want that after I do the [evalued 00:13:29], but the environmental study I will want, because on the property is a mechanic shop. So I want to make sure that there’s no environmental issues with that before I purchase the property.
And that is one thing to be careful of. If you purchase a property in cash or especially commercial, you’re purchasing a property in cash or doing seller financing, there’s no bank there to require you to do an environmental study. So if you’re going to BRRRR the property and you want to refinance later, the bank is going to do an environmental study.
And I’ve learned this lesson before. So this is why I know this not to take that risk. And actually it worked out okay for me. But just make sure that even if you’re doing a cash offer on a commercial property or seller financing, that in that due diligence period, you’re getting that environmental study done.
If you think there could be a hazard there. And even my other property where I didn’t do it, there was nothing at all. The property is, the building is on the only lot of land there is.
There’s no room for any guests they should [inaudible 00:03:55] or anything like that. But it still was flagged because a property adjacent to it had tanks underground at one point in 1917 that had had a leak. So it was going to trigger up to a phase three, I think.

Tony:
And that’s great advice. We’re not even into the question on today’s episode yet, and you’re already dropping some good knowledge, but I think that it’s a super valid point, right?
When you’re purchasing through traditional financing, they already know all the things they want to see, but if you’re a rookie investor and you’re buying outside of the traditional kind of infrastructure where you don’t have maybe an agent or you don’t have a bank kind of calling the shots is definitely helpful to make sure that you’re asking somebody, “Hey, what are some of the things I should be looking at?”
Whether it’s your escrow company, your title company, or maybe ask another more experienced investor, “Hey, what are the reports, inspections I should be doing to make sure that it’s still a good purchase.”

Ashley:
Right, especially on commercial. And you can just reach out to a commercial lender and say, “Hey, if I want to put financing on a property, what are you going to expect from me? What do you want from me?”
And common things are doing them by rental study, they’ll want an appraisal, but also to show that the property has income coming in, I tried to get bank financing on an old church camp.
Well, it was a nonprofit and there was never any income on it. So no bank wanted to go near it because it wasn’t generating revenue yet. Well, if I would’ve just went and bought that in cash and then went to refinance six months later and only had six months of revenue coming in, the bank probably wouldn’t have financed me yet until I had at least one year, two years of financing.
So just checking with lenders before you go and purchase something, if you plan on refinancing it, can save you a ton of money in the long run.

Tony:
So, today’s Rookie reply is like a double dip, right. They just got the whole rundown on how to buy a property without a bank in place. So Rookies, you guys are lucky this Saturday.

Ashley:
So Tony, what is our actual question this week?

Tony:
This question comes from Lisa Little. Who’s a member of the Real Estate Rookie Facebook group, where if you haven’t joined yet, I highly encourage all of you listening to join. We’re at 30 plus thousand members in there, and it’s a super active group, but Lisa’s question is about property management.
So here’s what she has to ask. “I’ve never had a property manager. What are the responsibilities of one? I was recommended a property manager, but was told that they charge 10%. What is the average pay for a property manager? And what are some of the questions I should ask when I speak with him?”
So Lisa, lots of really good questions here. And a lot of the same questions I had when I first kind of ventured into the world of real estate investing. I’ll kind of touch on the responsibilities first and then Ashley feel free to chime in as I’m going through this.
When you have a property manager, I think one of the biggest places that my property manager helped me was obtaining a better understanding of that market.
So this is big if you’re investing out of state, which I was doing, or you’re just not investing in your own backyard where you don’t have this really intimate knowledge of the local market, having a property manager who owns, or who manages 10, 20, 50, 100 units in that market, they’re really going to know what are the different pockets of that city, maybe where you should look to purchase your first rental, maybe where you shouldn’t. So they’re just going to kind of give you the lay of the land.
Another place where a property manager can help if you’re a long distance real estate investor, especially if you’re BRRRRing long distance is giving you a sense of what your rehab should look like.
For me, I was investing out of state and I had a general idea based on looking at some of the listings. You know, what are some things I should do? But my property manager during the rehab process told me, “Hey, you should go with this nicer flooring because we see a lot of tenants, a beat up carpet. And if you can invest upfront on getting some nicer flooring, you’ll save that money during the term when, when the next tenant comes out in the next one goes in.”
So giving you some guidance here, in terms of the level of rehab, then obviously when you first get started, they’re going to help you list the place to find your tenants. They’re going to screen those tenants for you. They’re going to manage getting those tenants moved in. And they’re really just going to be the face of your business in between you and your tenant.
The last thing for me, I never even saw my tenants. If we walked past each other on the street, we wouldn’t even recognize each other because my property manager was the face for all of that interaction. And I personally kind of liked that barrier because it lets me focus on the bigger parts of my business and not so much the small details that the tenants bring up.

Ashley:
All super great points, Tony.
I think the biggest thing for me was the laws and regulations of having to keep up with that and fair housing laws, especially if you are a new landlord and you’re thinking of growing a portfolio, do you want to take the time that’s needed to do the research and educate yourself on what the laws and regulations are in the market that you’re investing in, because you have to know them because you can open yourself up to lots of fun lawsuits. And I think that is a huge benefit of property management companies is that they know those, that’s what they’re doing every single day.
And that was part of the reason I self-managed was because I was running a property management company. So I had to know them anyways. So I self-managed my own properties, but if you are that doesn’t have the time to do that, and you’re just going to try and wing it, you would treat it as a hobby and not as a business, then you probably would be better off getting a property manager in place.
And even if you wanted to get a property manager, educate yourself, kind of learn from what they’re doing. And then later on self-manage you can always do that too.
You can negotiate with the property management company, how long their contract is for. It’s not like you’re set in stone that you have to have a property manager forever on your property.
The next thing that I think is a huge deal and a huge benefit of having a property manager is tenant communication, is that they’re fielding the calls. They’re taking requests, whether it’s your listing, your apartment, they’re handling showings and getting people approved. Or if it’s just the resident in general, [hats 00:09:44] calling with questions or calling with maintenance requests, calling with complaints.
I once had a tenant send me of video of the wall and she was complaining that the person who lived above her was slamming the toilet just to annoy her. And it would happen three nights in a row where I would get a text message from her of this video of the toilet slamming and blah, blah, blah.
So that is a huge benefit too. There are definitely ways to put systems in place so that you’re not getting those texts directly at night. I did have an emergency maintenance line set up.
So that doesn’t mean that just because of that doesn’t mean that you shouldn’t manage, but I think it’s a lot easier just to hand everything off to a property manager.
And then for fees. Let’s talk about that a little bit, Tony. what was the fee you were paying your property manager?

Tony:
Yeah, ours was a 10% fee as well, but it was capped at $100 per unit. So both of my rentals were above $1000. So we were paying $100 per door for hours, but that’s going to vary a lot by the market in vary a lot by the experience and skill sets and size of the property manager.
So I think 10% is fairly reasonable, but it could be more, could be less depending on the market that you’re in.

Ashley:
Yeah, for my property manager, I actually gave my units along with another investor. So we actually got a bulk discount as it’s called.
In the first year, we were paying 5.5%. And now I believe we’re either at 6% or 6.5%. It increased a little bit just because they added on kind of a full-time maintenance person that’s assigned just to our properties.
We also pay a $25 per a building fee too. So that $25 covers weekend and night calls. So if maintenance has to go out and make a repair on the weekends or night, there’s no upcharge or weekend rate or anything like that. That’s what that $25 fee covers.
And then for any remodels that are done, they do charge a project management fee on top of the remodel cost of the material and labors.
Oh, and then the leasing fee is one month’s rent for that unit. So it’s very important to know what these fees are and what they’re going to be and get that all written into your property management contract too.
So you know, advance what to expect.

Tony:
And that’s a good point on, on getting all those things into the contract.
And that actually takes us to the last part of Lisa’s question here, which is what questions should she ask when communicating with this property manager and your point about knowing the fees upfront is a big one?
I think the next thing that I would ask is, “At what point from a cost perspective, well, they need my approval before they go out and start spending money,” right?
Because if it’s a thousand dollars, right, that means you could have your property manager go out and spend $1000 in some expense that you don’t even know about. And you just get a bill for it at the end of the month, if you have it too low where maybe it’s $25 and your property manager is going to have to call you for everything.
So you want to understand where that threshold is and make sure you’re comfortable with that number.

Ashley:
Yeah, that is a great point.
One thing that I actually just discussed with my property management company yesterday was with that fee, we were kind of talking about maybe increasing it for the apartment complexes, but what we actually decided is if something is dead, so a washer isn’t working, dryer, it’s dead. The hot water tank is dead. We need to replace those. It’s not like I can sit and say, no, don’t replace that, or let me spend a couple of days getting another bid on it, or anything like that.
So I think what we did was put in place if an appliance or something is completely broken dead, they can go ahead and replace it and don’t need to get my request because our limit is also at 500 right now for that too.

Tony:
Yeah. I’m trying to think if there’s anything else.
When I was shopping around for property managers, I also wanted someone, especially because I was new, some of them had just kind of got the vibe from would be willing to educate me a little bit, I guess, right?
If some property managers have too many doors sometimes, and you only have one, you can fall kind of to the bottom of their totem pole, right. In terms of their priorities.
So I think for someone that’s new to investing, it might be beneficial to find someone that has the bandwidth to educate you a little bit along the way of, okay, here’s why we do this. Here’s why we do this. Here’s a benefit of doing it this way, but not so much someone that’s just going to do it and not talk to you about it.

Ashley:
Yeah.
One other fee I did think of right now while you’re talking, was the maintenance hourly rate too. How, when you have maintenance done, if the maintenance is in-house, what is that fee? The hourly rate too. That’s important to know ahead of time too.
And then if you do actually hire the property management company, you will get owner’s reports. And it’s very important that you go through those owner reports every single month and look at what you’re being billed for, what those receipts are for what the expenses are, what the maintenance is, and really go over it too.
And I’m not saying that a property management company is trying to scam you, but if you’re working with a big property management company, it could be one person in house that accidentally build something to your property instead of somebody else’s because the address was similar.
There’s so many different things that could happen. So one thing I’m a big believer in is property management takes a lot of weight off your shoulders and makes investing a lot more passive, but does not make it 100% passive. You still have to have your thumb on the pulse a little bit.

Tony:
You have to manage the manager, right. As the owner yourself, to manage the manager.

Ashley:
Asset management. I think is the…

Tony:
There you go.

Ashley:
… the title of that.

Tony:
The correct term.

Ashley:
Yeah.

Tony:
So Lisa I hope you got some value out of that.
I think Ash and I kind of hit all the major points and now Lisa, you can go out there and interview your property manager and find one that makes your job a little bit easier as the owner of the property.

Ashley:
Thank you guys so much for joining us this week.
I’m Ashley @WealthFromRentals and he’s Tony @TonyJRobinson on Instagram.
Tony, we need to get some TikToks going or something so we can start plugging something outside Instagram.
Thank you guys so much for joining us and we will be back next Wednesday.