property management fees

[Tab Teehee]

I own a small multifamily (20 units) property in a somewhat rural area. This is the first and only property I have hired professional management for and since I live in another state it was pretty much a "no brainer" to hire one. Since it's a rural area I didn't see many available management options, so I reached out to another property in town and worked out a deal with them to take mine on as a sister property. Their property is 100 units and has an on site manager as well as a seasoned maintenance staff of 3.

My property was completely vacant when I acquired it and went through a full rehab and value add. Our first units began leasing in march of this year and we are currently 80% occupied. The rehab is being completed on the very last unit now and should be complete by months end. My concern is this...I'm paying roughly $2400 a month in management fees and I'm concerned that I may be overpaying, especially for the service I've been receiving? I'd like some opinions or examples of what others are paying for similar sized properties.

[Joel Owens]

There is a difference in management for existing tenants and taking a vacant building and overseeing the lease up and rehab of all the units. The scope of work and fees are not the same.

So this property is in a rural area and they took a vacant building and are leasing it up for you and creating tons of value upside yet you possibly want to pinch them on the fees?

These smaller properties are harder to manage because they do not have scale. What I have seen before on these smaller properties to be turned around is paying higher fees upfront to get stabilized and then upon stabilization in the contract the fees drop down to a more normalized range for underwriting. Additionally I have seen investors give the turn around management company part of the deal like 5% ownership so they have an incentive to turn the property around.

If the management company is being squeezed for low fees in an area where the only competition is themselves then why would they want the business? I understand your concerns with fees. That is why the 100 unit owner has better scale than the 20 unit owner.

20 unit owner typically you are :

1. Using a handyman living on site that is working for other investors because not enough money to pay them a full salary.

2. Using retail trades plumber, electrician, etc.  that cost double to triple the price and suck down almost all the cash flow.

3. Doing it yourself and going to Home Depot etc. to provide the labor and buy the parts ( In this case you are buying yourself a job for the NOI ) which if you make much more than that annually at your job or business can be a losing proposition.

4. Your current option using another company that owns units close by to run and operate your investment.