Property management fees -- do these look average/fair?

Question

Hello,

I recently purchased my first rental property -- a 3/1 SFH in Detroit. These are the fees my property management company supplied in its contract. I'm curious if these seem reasonable/fair. Any thoughts are appreciated.

Nathan Gesner · Answer

There is no "standard" in the industry, so you'll get different answers from different people. There's nothing inherently wrong with any of the fees listed. It all depends on the level of service the PM is providing.

Here's an example. Ask your PM why they charge a vacancy fee.

"That's the standard in our market." This is the kind of answer given by an amateur or a crook. It indicates they charge it because they can, not because it pays for a service.

"We're working hard to fill your vacancy. For example, we pay $10 monthly to advertise your home on Zillow. This increases exposure and reduces vacancy time. We conduct safety inspections on vacant units, particularly in the winter with the threat of frozen pipes. If I inspect your home once a week, that's four hours of my agent's time spent protecting your property. When you consider the time and effort spent on a vacant home, we honestly aren't charging enough." That's the answer of a professional who provides a service and understands their value.

Leroy K. Williams · Answer

Well, as a Detroit property manager I can say that these fees are substantially higher than what is typical.

Our fee structure is as follows:

General onboarding fee of $399 for any size portfolio.  If you come to us with 10 properties, 20, 30 ...Its one fee and its one time ever.

$500.00 tenant placement fee

$100.00 lease renewal fee

10% per month of collected rent, if you have 3 -10 doors under management the fee drops to 9%, if you have 11 or more we drop it to 8%.

No charge for vacancy

No charge to arrange utility activation

No up charge for maintenance of construction repairs since we manage those in house.

Late fees are split with owners 50/50

Tyler Nelson · Answer

@Bill Brandt could not have said it better myself. More expensive definitely does not mean better.

(Doesn’t let me tag Michael).

Yes I am an agent, but more importantly I am an investor. I own 30 units and have 3 property management companies to test them out, plus managing myself. Marketing is extremely cheap, and the most expensive company I use has the highest vacancy, lowest communication, and lowest effectiveness.

Because of this I started my own property management company and as Bill said, automation, and utilizing technology, can significantly lower costs in the PM space. My fees are significantly lower

Regardless, to get back to the question the OP asked. I believe their services are expensive at face value. However, if they crush it and do a great job by getting good tenants, getting them fast, and helping preventative maintenance then it would be worth it in the long run. You just have to find the right fit.

Bill B. · Answer

I don’t like the vacant property charge, them keeping 100% of late fees (0-50% max) or the 10% charge on big repairs. Other than that get them to waive the first months rent for new tenants or at least reduce it to $300-$500 you don’t want them incentivized to turn over the tenants.

Bill B. · Answer

@Michael Smythe

I’ve only used my PM for 22 years but my longest vacancy is about 2 weeks so I guess they find enough incentive to show my properties. It’s almost like they went to collect a percent of the rent as profits. It’s nice when goals align.

No, I don’t expect them to spend a lot of time on make ready or major repairs. They make a call to 2 or 3 vendors and collect quotes. I make a decision and it’s done. It’s an average of less than 1 email per year from an automated system that might take 15 minutes to deal with responses.

Time for some reality:

You have to convince yourself that spending an extra $3,000+ per year per property is somehow worth it. Even with just a dozen properties I don’t see how I could spend $36,000/yr more on property management and make more money. Maybe your experience is with class c, multifamily or sub $2,000/mo rentals, but IMHO you’d just be flushing money down the drain if you paid those fees while renting out SFR in decent neighborhoods.i prefer to split the savings with my tenants. They save money and I make more.

I do appreciate that you agree the vacancy, and site visit charges are a ripoff, as is keeping all the late fees. But that just shows they don’t need those charges to stay in business. And as Nathan G said, they charge them, because they can

More expensive doesn’t mean better. Automated systems mean savings. Choosing newer properties, in good markets, in nicer neighborhoods means savings. More properties and larger volume means even more savings. I’m not saying you can flush your money, but telling other they should is like asking someone why they don’t drive a Mercedes when they say they like their Toyota.

V.G Jason · Answer

The market is the market, wherever you are. I would check the NARPM for Detroit, interview 3-5.

I will not pay when there is a vacancy-- this limits their eagerness.I need a copy of the tenant agreement with management, and management with me prior to me agreeing. Generic agreement-- I need to know the language. What am I at risk for?I need a copy of the lease when signed-- I need to know who is living in my house.I need to know the screening process-- this should be obvious.I need to gauge their idea of what makes a good rental-- this is key in new areas for gauging the right areas of interest.I ask what's the upcharge on repairs. And cost/willingness to work with me if i hire a 3rd party service for routine stuff that I will direct their way(bi-annual AC servicing, water flush, and maybe quarterly pest control if not originally covered).

Once I identify 3-5 properties i ask the following:- Conservative rental expectations- Tenure of length term- Expectation of tenant quality(from their screening process)- What will set me out to be of higher priority(as a customer of theirs). Is it the quality of residence(=higher rent), quantity of residences, a mix, or what?

I don't ask about placement fee, monthly fee, etc. I expect them provide that. I'm not going to fight over 1-2% of monthly fees, an 25-50% of monthly upfront rent to lease. I want the PM to view my properties as among their best, and worry more about retaining my business than just another investor on the books. Once they get that agreement/trust with you, I've seen PMs go above and beyond to make sure everything is great.

Michael Smythe · Answer

Just had time to read the other replies, seems some REALITY needs to be addressed.

1) Placement Fees - make sure you understand where the PMC will be advertising your rental. Most charging a flat fee only put it on their website. Metro Detroit agents expect half of one month's of rent and if that's not being offered, they won't waste their time showing it.

@Tyler Nelson surprised by your reply as you are an agent. Maybe your market is different than Metro Detroit's. When you take on a listing for a rental, how much do you offer another agent that brings you a prospect that the landlord accepts? How much does that leave you with?

Let's also turn the situation around - Tyler how often would you even show a prospective tenant a listing of @Bill Brandt or @Leroy K. Williams that offers to split their $300-500 or $500 fee?

2) Maintenance: almost impossible for a PMC to stay in business and not charge for their time to handle anything but the simplest maintenance issues. Many PMC's hide their markups by:

- Charging $60/hour or more (but only pay their workers $25-$40) - Or by sending you an invoice on their letterhead, so you have no idea how much they paid.

Leroy Williams - how much profit are you building into your in-house charges to the owner? DO you give owners all the material receipts? How do you disclose labor charges?

Bill Brandt - how much time do you think a PMC will spend on a major repair or RentReady project for free?

In general, owners should be asking a LOT of questions about how a PMC will specifically perform their services, so an owner can better evaluate what they are paying for.

@Nathan Gesner's response illustrates this.

Michael Smythe · Answer

The $50/month Vacancy Fee should have some better boundaries on it.---Our company only charges if owner is not allowing us to do maintenance to get ready for rent or advertise for rent.

We only charge 50% of late fees.

We don' charge for utility related site visits.

Bob Stevens · Answer

Yes, there meaningless. MUCH more costly when you go it alone,

Tyler Nelson · Answer

These are pretty standard, I think you could find someone that is good that does not take the full first month rent. That amount I think is unreasonable.

Property management fees -- do these look average/fair?

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