What is normal as far as fees from a property management company?

Question

I've been working with a "turn-key" real estate company that I've been very happy with up until this point, but today they gave me the actual agreement for the asset management on-going portion and there were a couple of surprises.

First, the company wants to garnish 12% of the rent into a trust that they manage in order to build up funds to pay for maintenance items, etc; this is of course still my money, just kept by them so there isn't a problem of maintenance needed but me not able to pay it.  Second, the company wants first a leasing fee any time they replace the tenant equivalent to 100% of a months rent and then a re-leasing fee each time they renew a lease of 50% of a months rent.  This seems awfully high for something that will require at worst a few hours of work.

Is this at all typical? I don't have a binding contract with this company; I've been happy with them so far, but I'm feeling like they are doing a bait and switch by springing this on me last minute and claiming it is standard, hoping I'll be too inexperienced (and I nearly am) to know the difference.

I'm in the "we all have to start somewhere" stage of real estate investing -- this is my first property.  Any advice?

Rocky V. · Answer

Run don't walk from this management company.  Fees are way to aggressive and will eat away at your cashflow.  Not sure what is typical in your area but this is what I'm accustomed to:

80% leasing fee, 8% management fee, 0% renewal fee

Find yourself another firm.

Curt Davis · Answer

I can tell you how our mgnt company operates so you have a little comparison:

first full month rent for leasing fee, 10% monthly mgnt fee, 15% for maintenance over-see, $250 lease renew fee.

I have never heard of a mgnt company withholding funds that are considered yours into an account.  What I would want to make sure if is that if its an escrow account bc if its not I would not feel comfortable.  In all reality this should not be done. I have heard of some mgnt companies asking clients to have on hand with them $500 but I dont hear of this too often.

Good luck

Jason Windholz · Answer

Thats pretty smart to charge a "reserve" fee, they don't want to manage for a slum lord. They are building a reserve for upcoming expenses which is what all investors should do, but most don't.

But it is your money, it reminds me of IRS tax refunds. People give their money to the IRS so they can get a big refund after the first of the year. This company is wanting to hold some of your money for a major upcoming expense that will come out of your money anyway.

I think they are trying to keep newbies from failing, and as an investor I wouldn't want them to hold my money, but I am not a newbie or a slumlord.

Here is the danger... If they are a new company and go out of businesses with your money reserves you will lose it. If they are well established and have a reputation, you are at less at risk of them losing your reserves.

Jerry W. · Answer

I pay 12% of gross rent for management fees, but they have a lot less in the way of charges for other services.  They keep $150 on hand of my money to pay for repairs.

Larry Fried · Answer

@Richard Bateman

I agree these PM fees are very high, and I wouldn't stay with this company if I were you.  PM companies I work with charge 8-10% monthly rents, 1/2 to 1 month's rent new lease fee (often waived for first tenant), $0 to $250 renew of lease fee, hold $0 to $400 in reserves for maintenance (this is combined for all properties being managed by them).  It sounds like you are being squeezed on every corner, and I wonder if this PM is the same company or owner, as sold you the property.  If so, they are not very smart about keeping their investors happy.

Curt Davis · Answer

the 15% for example a bill for $100 to unclog a toilet. The mgnt company charges 15% so in this case $15 so the owner will be billed $115 total

Martin Scherer · Answer

I pay a very small leasing fee for new leases only, no re-leasing fee.  8 % of collected rents monthly.  They do keep 1 month in reserve for maintenance.  It is rarely used as most maintenance comes out of monthly income.

What they are asking from you is very exorbitant.

Richard Bateman · Answer

On the bright side the fee is only 7%, but when you add in a pretty much guaranteed releasing fee each year it goes up to 11%, and the reserve (for a small duplex) is nearly $2K, which seems entirely beyond normal.

This is the same company that helped me find the property, and I haven't actually closed on it yet, so I still have some time to make changes. It's disappointing because I've been talking the company up to all of my friends, but now it looks like even though they did a great job of helping me find a property I won't be using them for any of their other services.

I'll give more details on who this is once I've finalized things and share how this turns out.  Time to learn how to pick my own property management company I guess =] At least I'm learning.

Richard Bateman · Answer

Would you mind explaining what the 15% for maintenance oversee is? Is that 15% of any maintenance costs, or how does that work?

$250 seems a little more reasonable for lease renew; in my case it would be over twice that, which seems a bit high.

I agree with you about the fund withholding; the amount in this case would be over 10% of the yearly rent which is significant and it doesn't seem to be an escrow. Very concerned about that.

What is normal as far as fees from a property management company?

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