Property Management fees

[Ryan Sawyer]

Do all Property managers charge the one month rent charge?  We have a PM that charges the 10% a month but also collects one months rent with each new contract.  Is this normal, and if not, how do I get rid of this? It really cuts into the cash flow of the property.

[Drew Sygit]

@Ryan Sawyer understand that you are trying to save money, but you should understand that there's a basic cost for property management. 

You can flip to a company that has a lower APPARENT cost in one area, but they will usually make up for it somewhere else - or you will get what you pay for and service will suffer.

Or you can get more involved to save money.

Someone suggested finding your own tenant and pointed out that can suck up a lot of time. What they didn't mention was that the PMC won't be responsible for you placing a bad tenant. So, they may charge you extra fees to chase nonpayments or to handle an eviction.

You may want to read below for a better understanding of PMC charges:

Many factors go into PMC pricing:

1) Locality (city/state)

2) Neighborhood & Property Class (time to manage Class A < Class B < Class C < Class D)

3) Property condition (slumlord properties hard to manage)

4) Number of units (some economies of scale, but not as much as owners think)

5) Owner expectations (some owners really want a personal assistant!)

Don't confuse SFR pricing with that of MF. It's always interesting when a newbie owner contacs us stating they saw 4% online and want that for a SFR! We've seen 3% for 100+ unit apartment complexes, but they also have onsite staff not included in the 3% management fee.

Two other pricing options to properly understand:

1) Fee charged based upon tenant payments or just occupancy. Some PMC's will charge a lower percentage fee, but will charge it whether tenant paying or not. Challenge is where is their motivation to properly screen applicants and get rid of nonpayers?

2) Many flat fee PMC's charge whether property vacant or occupied, tenant paying or not.

Lots of games also played with Maintenance fees. Many claim they do not charge a markup, but then aren't transparent with invoices, etc.

1) If a PMC charges $x hourly, their markup is built into that hourly rate as they are NOT paying their workers that hourly rate.

2) Many PMC's send you ONLY their invoice, or from their wholly owned maintenance company, not the underlying invoices from Home Depot and contractors. What markups do you think they may be hiding from you?

3) If their handyman can't handle a repair issue and they have to hire outside contractors, many PMC's will then charge a markup for their time - but they don't tell you this upfront or disclose in their management contract. NOTE: we agree with charging for their time, but not the lack of disclosure.

4) Some PMC's also get kickbacks from contractors, so the price you see on the contractor invoice sent to you, is really not the true price. Unless they cover this somehow in their contract, this is illegal.

Hope this helps!