Property management fee "too good to be true?"

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Property management fee "too good to be true?"

Marcelino Chua
Member since 2008 · 5 posts · 0 votes

Hi All,

New to this forum... And a new "potential" investor to boot...

I'm in the process of purchasing a 6 unit property (target closing date is in Jan2008). So I don't actually own the building yet... Right now, I'm in the process of selecting a property management company. But I've got some questions...

I've read that PM fees should be around 5% of the monthly rental revenue - but is that the high end? or the average? Here's why I'm wondering...

The current PM for the building is charging $240 a month base fee (rents total $4275/month) so they're at 5.6% of rent - and I've met with them in person and it seems that they've kept the property in good condition (the sellers say that this PM has been managing the property since they bought it about 7 years ago). In addition to this base fee, they charge a full month's rent to find a tenant and $40 per hour for non-licensed maintenance.

Now, I've spoken with another PM in the town... and (over the phone) they said they charge $175 per month base fee, and half a months rent to find a tenant and $20 per hour for non-licensed maintenance.

So, I'm wondering if that sounds too good to be true... My dilemma is obviously the difference in fees (i.e. cheaper) vs. the "proven track record" of the PM... Granted, "past performance is no guarantee of future behavior" but, it's there for what it's worth.

I have no idea if it's a "you get what you pay for" situation or not... But I'd be more inclined to believe the "it's too good to be true" saying if the price is really too good to be true...

What's your experiences out there for management fees? Is 5% the high end? or is that the average?

Also, if anyone could recommend or point me to property management companies that handles 6 unit buildings in the Leominster, MA area, I'd appreciate it... I've only been able to find these 2... the others seem to only want to handle the large complexes...

Thanks!
Marcelino

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  • Richard F.
    Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
    18y

    Although I am not familiar with your specific area, for a small multi-unit building the BASIC fees you mention are in the right ballpark. You do need to look at the individual management contracts to see what OTHER fees may be involved. I would also look at the turnover rate and compare that with the norm, as "lease-up" fees can be abused. You also need to understand HOW they handle various issues, including late payments/evictions; financial reporting; change of occupancy; lease terms; maintenance and repairs; annual inspections; etc. etc. Oh, and also, re the monthly "base" fee you mention, is that based on COLLECTED rents, or a flat fee?

    I would also suggest looking at similar properties managed by the less expensive company- what is the quality of the curb appeal and repairs in comparison? You should also consider the potential cost of paying for a new company to "get up to speed" with tenant relations and the various idiosyncrasies of your property.

    Finally, be sure you have a clear understanding of the ramifications of using the "unlicensed" maintenance people. This is not necessarily a problem, you just need to know who you are dealing with, and how.

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  • Kimberly Anway-Morency
    Real Estate Investor · Millbrook, AL · Member since 2008 · 55 posts · 0 votes
    18y

    Beachbum is right you need to consider all of the areas he mentioned. I would also walk the new companys propertys to see whats going on. I myself think that they sound to good to be true, especially if they are providing the quallity of service I would want.
    I do not really like a flat fee that is not based on a percentage of rent collected. I have heard of numerous PM nightmares with companys that charge a flat fee and lock people into a few month minium contract.
    The property can remain vacant longer, no motivation to get it rented.
    Often sellect less qualified tenants, they still get paid.
    Spend more time on Maintenance, they still get paid. (What you think 10hrs to change out a toilet is excessive!!!)

    I would also find out what kind of reports, documentation and communication you can expect from each company.

    I would expect to receive a detailed deliquency report, vacancy /maintenace report, rent roll, traffic report etc.
    The new company maybe good but there are always strong advantages to keeping a good PM that already knows your property.

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  • Marcelino Chua
    OP
    Member since 2008 · 5 posts · 0 votes
    18y
    Originally posted by "Beachbum":
    Although I am not familiar with your specific area, for a small multi-unit building the BASIC fees you mention are in the right ballpark. You do need to look at the individual management contracts to see what OTHER fees may be involved. I would also look at the turnover rate and compare that with the norm, as "lease-up" fees can be abused. You also need to understand HOW they handle various issues, including late payments/evictions; financial reporting; change of occupancy; lease terms; maintenance and repairs; annual inspections; etc. etc.

    Hi Beachbum, Kimorents,

    Great info... I've at least verbally gotten the answers to the points you mentioned... but are they supposed to have all their policies and procedures documented such that I can ask for this... I know that the existing PM doesn't seem to have this info documented... all I have to go on are their verbals and the state of the existing property.

    I suppose I can ask for an example of their monthly/annual financial report.

    Originally posted by "Beachbum":

    Oh, and also, re the monthly "base" fee you mention, is that based on COLLECTED rents, or a flat fee?

    Well... neither PM mentioned the collected rents as being the basis of their Base fee... the current PM says it's $40 per unit (though I'm a little surprised that it doesn't matter whether the unit is a 3Br or a 1Br... I suppose the overhead of a 3Br vs 1Br isn't that much - so I guess that's ok) The new one just said $175 over the phone... didn't even ask about current rentals or anything like that...

    Originally posted by "Beachbum":

    I would also suggest looking at similar properties managed by the less expensive company- what is the quality of the curb appeal and repairs in comparison? You should also consider the potential cost of paying for a new company to "get up to speed" with tenant relations and the various idiosyncrasies of your property.

    Yeah... the "getting up to speed" is definitely one of my unknowns... I wonder how well property manager transitions usually go... I'm almost tempted to just go with the existing PM... I just wish I had more local PMs to at least compare prices with... if others are also charging around the same amount, then I'd feel better...
    Originally posted by "Beachbum":

    Finally, be sure you have a clear understanding of the ramifications of using the "unlicensed" maintenance people. This is not necessarily a problem, you just need to know who you are dealing with, and how.

    Well... what both the PMs said is that for things that don't need a licensed plumber or electrician, they have "handymen" that do this "unlicensed" work... for "licensed" work, they'll have the local plumber/electrician do the work at their rates (they gave a ballpark of anywhere from $60 to $120 per hour) and they said I can use my own plumber/electrician...

    Originally posted by "kimorents":

    Beachbum is right you need to consider all of the areas he mentioned. I would also walk the new companys propertys to see whats going on. I myself think that they sound to good to be true, especially if they are providing the quallity of service I would want.
    I do not really like a flat fee that is not based on a percentage of rent collected. I have heard of numerous PM nightmares with companys that charge a flat fee and lock people into a few month minium contract.
    The property can remain vacant longer, no motivation to get it rented.
    Often sellect less qualified tenants, they still get paid.
    Spend more time on Maintenance, they still get paid. (What you think 10hrs to change out a toilet is excessive!!!)

    I would also find out what kind of reports, documentation and communication you can expect from each company.

    I would expect to receive a detailed deliquency report, vacancy /maintenace report, rent roll, traffic report etc.
    The new company maybe good but there are always strong advantages to keeping a good PM that already knows your property

    Do the PMs generally give out examples of these types of reports? I suppose I can always ask... I can see the problems with abuse of the maintenance... though I've seen the last years bills from the current PM and they don't seem excessive (another track record thing). Though charging this out at $45 per hour does seem pricey to me for handyman work...

    Anyway, thanks for the great info! I'll definitely ask both companies for references and then do what you said... check out the properties in person to see what the curb appeal looks like...

    I don't seem to have much negotiating power as far as their fees go since I don't have too many other options for PMs in this area...

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  • Matt Batson
    Inspector · asheville, NC · Member since 2008 · 43 posts · 8 votes
    18y

    I have a property manager who charges a flat rate of 10% for single family homes. He does not charge anything extra for finding a tenant.

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  • N/A N/A
    Member since 2008 · 10 posts · 0 votes
    18y

    Just for comparison, I own a PM company in Indianapolis and we manage a little over 150 units. The charges in our area are pretty standard. I charge 10% of collected and one months rent to fill a unit, but its not charged again if the tenant doesnt stay 1 year. Our handyman work is $30 hr.

    Just an FYI, but around here, I've NEVER heard of anybody charging any kind of 'base fee' or whatever. Seems to me paying anything that isnt based upon performance isnt keeping the PM's focus 100% in line with yours. Just my 2 cents.

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