What management fees have you experienced?

Question

Hi BP,

I'm entertaining the idea of starting my own residential property management company. I currently work in commercial real estate as a property manager and I would like to take this experience and start my own practice. I live in MA so if you are aware of the fees here let me know (I'll be doing my own research as well). My main question is, what fees have you encountered as an investor/landlord? And which state are you in? Thanks in advance for your answers!

Tom V. · Answer

If you're main marketing point is that you're the cheapest manager in town, your clients will likely be the most cheapskate landlords in town. Personally, I would try to find a competitive advantage other than price.

Maybe your competitive advantage could be that since you are a small management firm, you are able to give your clients more personal (and thus better) customer service than they would get with some of the bigger property management companies. Just an idea.

You said you work for a property management company right now. I would try to figure out the things that clients don't like about that company, and then do those particular things better in your own company. That will set you apart from the competition and attract good quality clients. Good luck!

Joel Owens · Answer

Craig I don't know why you would want to go from commercial management to residential. Residential is more highly regulated. You have more issues during weekends and nights. Commercial you can have high income from one property at good lease rates per sq ft.

I don't do property management but if I did it would be commercial.

Sam Valme · Answer

@Craig Moore, We could have hours of conversation around this topic. As a newer Property Management Company ourselves. Establishing pricing and fee structures should be top of mind. I agree with @Tom V., being new and coming in with the lowest price might push some folks away. We approach our fees as a solution when speaking with clients. If the first thing a potential landlord wants to know is our fee percentage and that's all they're interested in. Then I don't see the relationship going far.

But if I can start a conversation with them and begin to understand the "why" behind why they reached out for our services then we can start to an agreement on where our company might fit. For example:

Landlord A - I want to transfer my 3 properties to a PM that actually answers the phone and responds to my calls. (To keep the math simple) They all have mortgage of $1200, Tenant pays utilities and currently rent for $1800.

In this scenario I know there are $1800 ($600*3) available in my Landlords potential cash-flow. In the back of my head I know I want at least $200 per door. So now I have to get an idea about the property and maintenance / capex schedule to estimate if they're still cash flowing.

From there it becomes fact finding and building a relationship. At the end of the day. The numbers may only workout so that there is $100 per door realistically on the table. Less $50 to my broker per door per month then that's $150 in my pocket. At first glance some companies might say "no" just for that fact. But there might be more to the story. Does this personal carry a lot of influence in the REI community? Do they have more potential properties if they like their experience with these?

There are just far too many scenarios in my opinion to have a blanket "This is our percentage. Take it or leave it." So older companies may disagree. But to me, pricing, should be a part of you coming to a solution for the client. But I digress...

TL/DL Version- We don't charge for most of these but they are common in my area. (Northern VA)

Leasing Fees - Typically one months rent. Up-charges to Maintenance - Typically seen if its in-house.Project Coordination Fees- Having folks oversee a renovation beyond a normal repair. Late Fees- Charged to TenantPrograms... Eviction Protection, Rent Protection, etc- Charged to Landlord. Be very careful here...Tenant Application Administration Fees- Charged to Potential tenantsTurnover Fees- Charged to Tenant out of security deposit typically.

Kerry Baird · Answer

The 6% PM takes a full months' rent for turnovers...which (in retrospect) encourages turnover, no?  And turnover is an expense I like to avoid.  The 10% PM doesn't charge that (though I can't remember details).  So it isn't exactly apples to apples.

It's not so much the cost of property management that I'm motivated by, it is the quality and length of stay of the tenant.  I'm not sure how to measure the PMs ability to manage that aspect, prior to it happening, if you know what I mean.

My PMs have been chosen by word of mouth recommendation from other investors.

Craig Moore · Answer

As high as 10%? If there were a company around that charged 3-4%, would that entice you to switch? I'm thinking one of my advantages (and I'm sure this is everyone else's), is to offer cheaper management, thus increasing take-home pay for landlords, etc. Thoughts?

Kerry Baird · Answer

We've paid between 6 and 10%, and have PMs for single family properties.

Zach Quick · Answer

@Brian Adams Just curious, how did you settle on the PM companies you chose for your properties? I'm sure all of them are at the least large regional players with north of 1,500 units that they manage.  Does this include them funding a maintenance tech and on site manager in each as well or was it different for each? Thanks for the info.

@Craig Moore I'm not quite on Brian's scale but I pay 8% collected.

Brian Adams · Answer

@Craig Moore, I own product in TX, GA and SC. All my deals are 100+ units and the fees range from 4 to 4.5% on total collected rents.

I am not sure about residential fees as I don't focus on anything less than a 100 units.

Good luck with your transition.

What management fees have you experienced?

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