How important are fees to you when shopping for a PM?

Question

Hi,

I'm a co-owner of a full service real estate brokerage in Tucson, AZ, and we have a property management division that is in the growth phase. We are at approx 270 units managed, with 100+ owners. We don't really take on the "slumlord" types of properties. We try to focus on quality rentals that attract good tenants.

We started out as a "low-fee" type of company that focused on trying to eliminate a lot of the fees that are common in the PM industry, such as marketing fee, placement fees, turnover fees, inspection fees, etc. However, we are finding that with PM being such a labor intensive industry, there's no way for us to provide excellent service without increasing our payroll and resource expenses.

My questions is this: How big of a factor are fees to a prospective property owner that's shopping around for property management services? Are low fees the number one factor that you would look at, or do you guys think owners would be willing to pay fees in exchange for a company that has a strong structure and business processes, and performance, which can be validated through online reviews, client testimonials & references, etc?

Before we make a big pivot in our pricing and business model, I was hoping to get some feedback from the BP community. Thank you!

Sharon Tzib · Answer

There are a lot of PM haters (many in this forum), thinking that only they can adequately manage their assets. That's fine and those folks definitely aren't your target market, but you'll know them the minute you meet them, since ALL they concentrate on is price.

A savvy investor who understands the principle of time vs. money and is willing to pay to have someone else competently oversee their investments will have a whole checklist of items that are important to them when interviewing for a PM, and price will be only one criteria among those. Also, most investors who use PMs know the market rate in the area they are buying and have built that cost in upfront when doing their initial analysis, so they are more than willing to pay you that rate if your skills, services, and reputation proceed you.

Don't be afraid to charge what you're worth - just make sure you give the client what's advertised, and they will have no problem paying it.

Steve Rozenberg · Answer

HI Yishi,

Funny me and my business partner started out  very similar to you, we owned a portfolio of SF homes and a couple of  larger MF complexes. We started a management company simply to manage our own portfolio and put some structure in place because we were making every mistake in the book and knew it.  After we followed our own policies and procedures our properties started to run like a business model that produced income and we had other investors approach us to manage their homes. Since we were investors and very mindful of cashflow we did not want to 'Rip off' fellow investors and we charged a very low flat fee of $50 per month.

The positive was that we grew exponentially for the first year with everyone throwing their properties at us because they loved the fact that we were investors walking the walk with our own properties and managing other properties just like our own. The negative was that we basically made no money and probably lost money on this business model. As we matured as a business we were told by many people and even our clients that if we did not raise our prices we would  be  out of business. We were probably the biggest chickens and we had every reason why we should not do it.

Finally we raised our prices to the industry average, and we lost zero clients because we kept them at that rate but anyone new was the higher price. To our surprise not one person flinched at that. In fact we realized that the clients that were on the old cheaper price actually we worse clients then the ones that paid the higher price. As time went on we realized it actually has nothing to do with the price, infact we manage properties 3 -4 times the rent amount and still charge the industry standard and we dont budge. They may ask but we say no, and explain the value of what we bring to the table, and if you would rather pay $3 per day as opposed to $4 or $5 per day then they may not be a client you want. We actually grade our clients now A-D and we try to bring the D's up to C's or we exit them from our company. The bad owners will take up too much of your valuable time and you will not be able to give the service you want to the A owners.

It is amazing how we were the biggest barrier to being a profitable company, we now manage over 400 homes in Houston and we have the most google reviews by owners, tenants, and vendors of anyone in the city, and we don't discount.

I am not sure if you have ever heard of NARPM, it is a great association for property managers. We have learned amaizing information on how to grow our business by learning thru them. My business partner is the president of the Houston Chapter, If you want to know more information about how we grew or NARPM please message me and I would be happy to share with you.

Account Closed · Answer

If you and your partner provide better than average service, than target better than average customers. It looks like you're taking that route. I definitely don't mind paying people/business for consistently above average service, because like Joel stated above, it's about the relationships and trust. What a relief it is to work with people you can rely on - your customers will know that.

Yishi Garrard · Answer

Thanks for the responses everyone, this gives us good validation of this revised pricing strategy, and gives us hope that our clients won't revolt if we make this change!

Yishi Garrard · Answer

Thank you for your responses. I agree, I think that investors (for the most part) will see the value in paying for quality. It seems to be the mom and pops and the homeowner turned accidental landlord types that seem to have a problem with fees and fight over every dollar spent on repairs. But as Steve said, those may very well be the types of owner clients that we don't want.

James Wise · Answer

@Steve Rozenberg & @Sharon Tzib

Agree with everything you said. Well said.

Joel Owens · Answer

Just like transactions where I work you CHOOSE who you want to work with.

I value the relationship the most.

I work with clients I enjoy and it is a pleasure to do business with. People that are brash and want to make money at all costs and do not care who they have to step on or how they interact with people are ###holes and I don't even talk to them.

I have clients that have lot's of money but are very cordial to work with and we have a great time doing business.

If you base your business on the lowest price there will always be someone else trying to gain business on the value of being cheap. Those customers are coming to you because of price only.

I would rather be fully compensated for my knowledge and experience, how effective I communicate, and the long term relationship of success I want to create with my clients.

I stand out by taking a different approach to business. Make yourself different but in a good way that is not based on being cheaper. People with lot's of money will pay for service because they make a higher return per hour doing other activities.

In residential you get a lot of investors who want to manage themselves and do not price in PM when they want to buy a property. I see it all the time. Then since they didn't price it in they go for the cheapest thing for PM and then the nightmare really begins.

PM is a volume business. It is very intensive with lot's of controls needed. You have to scale to make money.

I can't imagine that many properties to manage. In commercial real estate for PM it's about communication and showing the checklist of what you are getting done. An owner of a 30,000 sq ft center paying 4% a year PM fees does not mind for example if they make 1 million a year doing their own thing. They would gladly pay someone 40k a year etc. to do it.

The residential is where you get all these mickey mouse investors starting out with one 40k house trying to step over dollars to save pennies.

How important are fees to you when shopping for a PM?

Most Popular Reply