Who provides more value, A good agent? Or a good PM company?

Question

As we all know, to be a good RE Investor you need a team to do it. This had me ask when I started investing, who should I prioritize getting on my team first? And who is easier to replace if I need to move on? In this example I wanted to compare a real estate agent and a PM company.

In my area real estate agents are paid 6% of a transaction. 3% to seller’s agent, 3% to buyer’s agent.

I also see most PM companies charge anywhere from 7-10% of rents to manage a property in my area.

Let’s look at an example of how each would be compensated on a deal.

I buy a house for $250,000. That means the agents would each get $7,500 for the sale (3% each) for a total of $15,000 paid in commissions. Ok now let’s say I rent the house at 1%, or $2,500 per month. That means the PM company would get paid anywhere from $175-$250/month to manage the property (7-10%). So, for a PM company to make the same amount of money on this property they would need to manage this property between 60-86 months, or 5-7 years. ($15,000/$250=60 mo. Or $15,000/$175=86 mo.)

This compensation structure clearly says that agents are worth WAY more than a property manager. Do you agree? I’d like to hear what everyone thinks.

Caleb Brown · Answer

Agents are paid by the seller(unless it's off market, pocket listing, etc) so as a buyer you are not paying the 3%. That technically means the PM is "valued" more. Both are important. Agent will bring you deals, PM will manage when you close. I would find a PM first but you won't know how good or bad they are till they manage your property. Agent is important but many investors source deals on their own

Bill B. · Answer

Cut your pm payback time in half as 90% of sales are split among two different realtors. Cut it even further as the realtor doesn’t get to keep it all. Cut it even further as almost every pm has a placement fee. Suddenly you’re at 1 year, maybe 2. And since you’ll be signing at least a 1 year contract with the pm it seems pretty even. Especially when you hold th property for 10-20 years and suddenly the pm makes 10x as much as the realtor.

But are you saying you’re going to go looking for a bad pm if you find a good realtor or a bad realtor if you find a good pm? That’s sounds kind of dumb.

Ps. While I would never hire a solo realtor to be my “PM”. My PM happens to have several realtors along with their Hoa, repair, placement, advertising, and billing people. And I’m happy to say they hire great realtors who are focused on investment properties and making you happy as you’re going to be with their company for 10+ years. Not a couple months like a regular realtor.

Michael Smythe · Answer

Your question is, "Who provides more value?".

Depends.

There's an old investor saying, "You make your money when you buy". A good agent should find an investor a good deal, setting them up for success. Of course, the investor should know more than the agent about screening a good deal.

Even if an agent gets an investor a screaming deal, a bad PMC can run it into the ground.

Another fact is that an agent is transaction-based - they find that deal, close it, get paid and walk away. A PMC is hands-on with a property day in and day out, until terminated by the investor or property is sold.

Lastly, even a great PMC can't really turn a bad purchase into a great investment - although time often, but not always, solves this problem.

Mike Dymski · Answer

Well said.  It's a flawed business model, often with misaligned interests.  The solution for me was to scale and invest in commercial instead (with on site management, on site maintenance, aligned compensation, buying power, efficiencies).  My remaining portfolio with residential 3rd party management goes through periods of good and bad staff assigned to my portfolio with staff transitions.

Corey Conklin · Answer

I've had the same issues with agents as well. They only care about getting the transaction done and paid out with as little work as possible. I haven't done as many deals as you but I have found every single one of my deals, the agent only set up the showing and some paperwork and got paid a commission. I know there are good agents out there but they are really hard to find.

I actually self manage my properties as I have a background in construction project management so it's fairly similar. There are way more headaches managing properties than there are in any other part of RE investing. That's why I've always thought, why would anyone manage properties for pennies while other services get paid very well? It doesn't seem like a sustainable model in my opinion.

Corey Conklin · Answer

It seems like you strategize your investing around the inefficiencies of less than adequate PM companies. This is a very common way I see investors deal with the same problem.

Do you think that you would pay a premium for a good PM company that can actually be an asset to your investing, rather than a liability that needs to be managed as such?

It seems to me that good PM companies are truly hard to find as they are compensated so little for handling majority of the headaches that come along with RE investing. I don't know many people that are lining up to get paid low wages to handle that kind of work.

Bob Stevens · Answer

Realtors IMO provide zero value. I do more work than them. I have done about 500, yes 500 deals in my market never using an agent, all off market cash. Even when I have purchased my personal property properties, I do all the work. I find them, they show up not knowing anything about the property.

I am currently looking for a new place in S FL, well guess who found 8 out of the 10 I am going to see tomorrow! As an investor, PM co is priceless I tell everyone never buy a rental without a team in place. Do not try and self-manage, it will not end well. Do you know how to evict, how to deal when the tenant falls behind? PM feels are meaningless. I read horror stories daily on BP . Real estate is just about numbers, so know your numbers. its not rocket science.

Good luck

Mike Dymski · Answer

Deal flow is real estate investing; so, a good agent is a necessity (absent direct marketing).  We have to buy right and add value to absorb the inefficiency of 3rd party management over the life cycle of the investment.  Otherwise, precise execution is required and that will not happen with other parties involved.

Who provides more value, A good agent? Or a good PM company?

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