Fair property management percentage?

Question

I am closing on a 4 unit apartment and considering leaving the current propert manager in place since she has done very well there. She wants 10% of the monthly rent, which I think is fair, but also the first months rent from a new tenant. To me, that is a deal breaker but I just wanted to get some advice. Is that about the normal charge, or is that first months rent from new tenants a dealbreaker? Please only advice if you have actual experience. Thanks.

Joel Owens · Answer

Experience says that if you have a great PM manager they are hard to find. Don't get sucked in to squeezing a nickel here to lose dollars by getting a sh&tty PM. 10% on a 4 unit is normal, Getting 8% is not common on a 4 unit. Now it also depends on the rents we are talking about. A quad in a low income area at 400 to 500 a month per door is not much money at all at 10%. Conversely a quad with rents a 1,500 a door 10% is a different ball game. The areas make a difference also. Higher end tenants tend to be more well educated, have college degrees, salaried jobs, and income and life is more stable. All that usually but not always means less of a headache for a PM. I can see a PM in a very high rent area per door with affluent tenants and a nice area taking 9 or 8%. The ghetto I can see them taking 12%. Have in your contract that you only pay out one turn a year per unit for first months rent. The turns after that the PM gets nothing except monthly ongoing. You want to align your interests with the PM so that the most money is made when you both are happy.

Brant Richardson · Answer

I'm paying 9% monthly, 75% of one months rent for new tenant, 25% of one months rent for lease renewal. If the new tenant bails before the end of the lease there is no charge to get another tenant in. I started a similar post to yours when I first hired a PM and was surprised to find that paying 75-100% of a months rent for a new tenant was typical. I have read on BP over and over that quality PM is the key to success and you don't want to just go with the cheapest. I think an important part is how high demand is for rentals where your investment is. My PM put a lot of work into renting one of my units, easily worth the 75%.

Dan Pereda · Answer

I never used a PM before, but this is the same quotes I am getting here in NJ. 1 month's rent to fill a Vacant unit and 10% mgmt fee per month. that costs is probably why i did it my self. That said. I ruled out the idea of doing PM for other people because I don't feel it is enough compensation for my time. (not a scalable business model)

Jared K. · Answer

First off ... Location, location, location. Where the property is located will dictate what is fair and reasonable. Second, it appears as though there are two services here: (1) leasing the property - first months rent and (2) the property management. Typically (in Southern California, LA) leasing can cost you anywhere from the first two weeks of rent to the full first months rent. Management in a B or C area should be 5% to 8% of gross rents. Hopefully this helps? PM me if you want to discuss further.

Ted Jackson · Answer

great advice guys, I will certainly be calling around to see if I can find a better deal, or negotiate a better deal with the current manager. Either way, I will not be settling. I was leaning that way anyhow, just wanted to get advise from more experienced folks

Steven Stokes · Answer

I'm going to agree with you that's really expensive and the first month's rent sounds like overkill on an already expensive PM. Every market is different and every section of town may require different rates. But I would call around to different PMs and get Biggs from them. Check out their rreferences and go with the one you're the most comfortable with. Unless you're married to this person keep looking. Just my opinion.

Joey Dwyer · Answer

I pay 10% to three of our property managers. 5% to one because I bought 10 years ago.I have never heard of them keeping 1st months rent.I pay a $250 to $350 leasing fee.So that would be a dealbreaker for me. I'm just small time but thats my 2 cents. Good Luck.

Michael Seeker · Answer

The best way to see what is fair is to call around to other PM companies in the area. You'll run into different rates between various cities, so unless somebody has specific experience with PMs in the area you're investing you'll just get general comments. I've got a couple of them for you: 1. 10% + 1 mo rent is a little on the high side, but for 1 property I'd say that's pretty close to what you'll find. 2. Do you know why the previous owner sold? I've purchased several properties where the seller couldn't deal with the PM anymore. What is your evidence that they've been doing a good job? 3. If this PM is doing a good job as you allude to, then the additional 1 month rent might be worth it to keep them around. If it's a high turnover area, then you might have a hard time making any money paying out 1/12 months of rent plus 10% every month. Just some food for thought. Around here you can expect PM fees anywhere from 8% +first month rent to 10% flat or even higher depending on the area and number of units. Do you know of other PM companies in the area that you could call for competing estimates?