How exactly do property manager's make a profit?

[Jimmy Klein]

I'm looking at some turnkey properties. I see property managers charging just 8% of rent and thats not much considering rent can be less than a 1k a month. I also seen turnkey rentals where they even set up the LLC and do all the work for you. I just have a hard time believing $50-$100 a month in fees is really worth it for them.

[Alex Craig]

I manage close to 300 homes. We make a little juice off the 15% maintenance mark up, but that barley covers the General Liability and Workers Comp insurance which cost me close to $15,000 last year. We charge 75% of the first months rent, but with a vacancy rate of 3.5%, we don't get to lease up that many properties, plus part of that 75% is used to cover leasing agent commissions and marketing cost. We do keep late fees, so that helps. But the bulk of our bottom line is made up of the 8% maintenance fee. I am staffed to cover 500 properties as I am pretty confident I will be there by the end of next year--I would rather have the pieces in place now and be ready as business grows. I am a turnkey provider and with that, having a well oiled machine on the PM side is very important for the growth of that business. So for now, I barely turn a profit--last year, the bottom line was around $25,000. That is a ton of work for that type of margin.

As to Engelo's comment about having 10 maintenance calls on each house a year--I can tell you that any savy investor would call BS on that. I would be fired in a second if we billed out that much maintenance. We have very little maintenance on the properties we manage, but then again, most houses I manage are properties we sell. Since all the properties were sold turnkey and our buyers get inspection reports, which we fix 90% of the issues found on the report, maintenance calls are just not that much.

Basically there are 2 ways to run a PM company. The first way is to run it right, carry the right insurance and licenses and staff it so that the tenants and investor owners receive excellent customer service. The other way is to run lean, run it without a license, carry $0 in insurance, etc. The second way is no doubt more profitable, but maybe not sustainable. I came across 4 local property managers in the past 2 weeks where I am hearing they are hoarding rents or stealing from investors. That is a likely outcome in my scenario # 2.