Property management rate. Does this seem typical??

Question

Hello again. I wanted to see if anyone could tell me if this seems like a typical management agreement.I won't bore you with all 7 pages... here is a brief description of the contract

8%/month

50% of first months rent

$50 monthly marketing fee/ if vacant

$125 lease renewal

$250 reserve for repairs, etc...

They handle all work requests, correspondence with tenants, HOA notices and send you a financial statement each month. Electronically send you funds each month.

Thanks,Dusty

Dusty Warner · Answer

Thanks guys... Shaun, the contract does not mention an up charge for maintenance, but I'll be sure to ask from now on...

I agree Rick... the only reason I'm considering a PM is just in case I find a good deal on a side of town that's too far or in a shady neighborhood.

Rick H. · Answer

If you consider the big expenses (and effort) to be related to vacancy and turnover, the rest is mostly service call management and accounting.

I've had rentals for many years and decided that I'd rather pay someone to advertise and market for new tenants that do that myself. I still have final say on choosing from vetted tenant prospects.

That's worth a month's rent (8%) to me.

Shaun Reilly · Answer

As others have said it is all what is normal in your local market.  However I can't imagine that you are going to see much better terms than that.  8% is pretty good, most people use 10% as a place holder unless they have something lined up that is better.  You often have to pay 100% of the first month's rent and you rarely hear less than 50%.  You also usually have the PMs recommend having a few hundred bucks on hand in a petty cash reserve so you can authorize small repairs and they can get paid for without the lag of collecting the next rent or you sending a $50 check.

For example I just hired a new PM for a rental a little out of the area I had been doing.  They are charging 10% (If I get to 50 doors with them it will be 9% and 100+ will be 8%), 100% of the 1st month (No added fee, but unless you are in the <$300/month rent price point you almost definitely will come out way ahead at only 50%).  They do only charge $50 for the lease modifications (renewals, rent increase notices etc.) so the $125 sounds a little high but not outlandish.

One thing you didn't mention was any markup they put on maintenance and repair services?  The company I mentioned does 5% if you use their vetted providers (no upcharge if you have your own people and they just make arrangements for them to get access).  Again I think that is pretty standard and not bad if they have a good group of contractors and service providers that give good pricing for them giving them volume.

That last point goes to the other thing people are saying.  It isn't as much about price as it is about quality.  If they are good at those prices then sounds like a good deal.  If they suck then it will cost you way more money than a company charging 10% and 100% of 1st months rent.

Andrew S. · Answer

@Dusty Warner   PM fees tend to different, depending on local markets but the numbers you listed would be pretty much right on the button for my area.  That said, within reason, you should probably pay less attention to the exact cost and more attention to the QUALITY (as judged by referrals, track record and personal conversations with the prospective PMs).  Yes, you may squeeze a half a percent or a percent, or a few bucks, out of the fees but if you end up with a less competent PM, it'll cost you way more than that over the long run.  As long as the fees are REASONABLY in line with the local market, assessing quality is all that matters, in my opinion.

Maurice Miller · Answer

You should definitely vet 2-3 prop companies.  Unfortunately many prop management have BAD reputations.

My advice would be to get a referral from another investor or trusted source.

Or attend a REIA in your area. they can provide some good resources.

Dusty Warner · Answer

Thanks Dan...

Dusty Warner · Answer

I just got this email this morning. But i do plan on contacting a few more. I guess I was just looking for advise on specific things I should be looking for or to avoid. I know Lisa Phillips mentioned on her podcast to try to avoid any company that charges you a termination fee if they can't rent your property......

Dan C. · Answer

For comparison, here is what I've seen from a couple PM's in my market: $75/month SF, $90/month duplex.  More than 2 units: add $35 per unit to the $90 for the first two.  No fee for lease renewal.  $500 repair reserve.

Jordan Thibodeau · Answer

Hi Dusty!

I'm sure someone else from the forum will be able to provide you with more information, but have you tried contacting other property managers to triangulate the norm for your market?