Property Manager Fees in Student Housing Market

[Joseph Jackson]

Hello all.  This is my first question posting on Bigger Pockets, and is a topic I've been wondering about for awhile now.

I bought a duplex while 20 years old in college, and am still holding it 7 years later.  I lived in the house for 2 years, and since then I have been renting it and managing it on my own, until this year when I decided I really would prefer to be arm's length away from the action and would rather hire a property manager full time.  

My house is near a university, and typically the house leases to college students.  Due to this, there tends to be higher-than-normal turnover (once a year or every 2-3 years).  

My concerns are related to the fees payable to the manager and making sure I'm keeping as much of my money as possible.  I paid the company 1-month's rent to lease the place out to new tenants, plus 10% per month to manage.  First of all, is 1-month's rent pretty typical in the industry?  I've asked around and it seems to be somewhat consistent.  What about lease renewals?  Should I expect to pay 1-month rent every time a lease is renewed, or is this typically a lesser one-time charge?  

As a follow-up, if the lease renewal charge is indeed expected to be less, how do you keep the manager incentivized to have the tenants renew, since the manager would earn much less if they stayed, versus if they left and they then were able to sign someone new for the full one-month's rent?

Finally, in a high-turnover neighborhood like mine, has anyone found that a property management company will work with you to lower their leasing fee with this in mind?  It's one thing for a management company to charge 1-month's rent to find a tenant that lives there for 10 years, but it's quite another to get charged 1-month's rent every single year for 10 years.  Quite a difference in cash flow.

Sorry for the long post.  Any thoughts would be extremely helpful.  Thank you!

[Dawn Brenengen]

@Joseph Jackson I can't really speak for your area, so I don't know what is customary there.  However, I can tell you how I charge in NC.  For me, it's 1/2 month's rent to find a tenant and 8% monthly management fee.  I don't typically charge anything upon renewal as my paperwork is set up to automatically renew the lease for a year in student areas, so I don't have to do any new paperwork.  If I have roommates moving out while some are staying, and I just have to make a few changes on the lease and resend (plus do background checks), then I charge $100 lease writing fee.

It does seem like it incentivizes property managers to have higher turnover, but at least for me, I'm always hoping tenants will stay.  I suppose I would rather not do the work of marketing and finding a new tenant if I can help it.  Maybe I'm not charging enough and I would prefer turnover if I was making more?  Who knows? I will say - I have no control over how long people stay.  There is really nothing I can do to attract long term tenants vs. shorter term tenants.  I'm definitely not encouraging people to move after a year, and my customer service is good to the tenant, so I'm doing what I can on my end to keep them happy.

Student focused rentals are simply going to have higher turnover.  So will high end rentals.  It's is just the nature of the type of tenant you are marketing to.  Students will graduate and move for employment.  High end tenants will eventually buy a home of their own.  It's just the nature of the beast, and something to factor into your returns.

I don't really have any advice other than to keep looking for someone who charges less.  One reason I am able to charge a little less than my competitors is that I own the company, I don't have an office outside of my home, etc.  My overhead is very low.  Other management companies in my area charge a full month's rent for lease ups, but they are almost all larger companies with lots of employees to pay and a building to upkeep.