Are These Property Management Fees Normal?

[Quan Chen]

I am looking for a property management firm for my rentals in Atlanta and many of the management company ask for 1st month of rent plus 8-10% of the monthly rents.  They'll continue to charge the 1st month rent for each new tenant or a fixed fee for lease renewal.  Is this normal? Seems like the fees could add up to more than 15% with 1 year leases... Thanks in advance.

[Filipe Pereira]

@Brent Coombs is right. A good PM will MAKE you money, not COST you money. 

I operate a small (but growing!) Property Management company in Connecticut. It doesn't matter if we get 1 call per month from your property, or 100 calls - our investors know what their PM expense will be before the year starts, barring an unforeseen vacancy. 

Our fees are pretty straight forward:

- 10% of monthly collected gross rents

- 1 month's rent for filling a vacancy

Our "brand differentiator", if you will, is that we always strive to sign a 2 year lease with tenants, but will only bill the investor for 1 month (rather than 2 as it is typically 1 month's rent per 12 month lease). We don't charge for lease renewals, simply because it's in our best interest not to. We want the tenant to stay, and we want our investors to make more money. Should a signature and 3 hours of my time be worth a $1000 fee? Absolutely not. 

In addition, we never up charge any maintenance work, repairs, etc. If the plumber tells us it's $100, that's how much will be expensed out. We don't "make a cut" on any incurred expenses. While it is true that some PMs charge in the 7-8% range, we have found that those companies have higher fees throughout the year. Our model is consistent and remains fixed for the investor, regardless of how many service calls we may or may not receive.

I know you didn't ask for it @Quan Chen , but my advice is to find a PM that is very organized and serves as true "boots on the ground". You want your tenants to know that someone IS watching over the property - this will go a long way in making sure things don't completely go off the rails. What this means is that ideally your tenants will see your PM or have a few "touches" (in terms of communication) with him or her at least a few times per month. I personally walk each of our properties once a month and send photos to the owners along with timely financial reports. 

I got into the business because I saw the need for an organized, efficient PM that understands RE Investing. After listening to all the BP podcasts, it became evident to me that a PM can make or break an investment property. To be quite honest, you can look at your PM as you do to your insurance policy. It might suck to pay them during the "good months" but as soon as something goes wrong, you're going to be glad that they are there! 

-Filipe
CT Property Management