Are These Property Management Fees Normal?

Question

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 · Answer

@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 vacancyOur "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! -FilipeCT Property Management

Brent Coombs · Answer

...But, if you have the right Property Manager, you won't need new tenants each year!

Joe Splitrock · Answer

@Quan Chen read the fine print and there may be even more. Typical leasing fees are three quarters or full months rent. Monthly management fees range from 8-10%. Some will discount leasing fees if you sign up for management. Some have "lease signing" documentation fees, as much as $250. Some have inspection fees and service call fees. Some mark up every repair or service performed.The issue I see with property management is very often they make MORE money if the unit goes vacant. Keep in mind that vacancy also means loss of rent, so on top of management fees, you are losing 1-2 months income. The more units you have, the better you can negotiation the fees with the PM. Beware of any PM that claim because they charge less (or more) that you are getting more. Performance is most important. Some low cost companies will outperform high cost companies, but some low cost companies will also do a horrible job. I would rather pay a full months leasing fee to a company that gets the unit rented quickly, versus paying a half months fee to one that lets the property sit.Ask questions about how they will get your units rented quickly. Do they have a no-cost re-rental guarantee if the tenant breaks the lease? Ask how they deal with lack of payment. Ask how fast the money makes it into your account. As if they markup service calls. Get a list of all landlord and tenant fees. Verify how long they have been in business. Find out how many employees they have. How many units do they manage? Due diligence is way more than just their fee structure.

Robert Gilstrap · Answer

@Quan Chen We have a saying in Georgia: "Good work ain't cheap and cheap work ain't good." Like most things in life you get what you pay for.Those fees are completely typical for the Atlanta market but if you're shopping prices only then you're going to be in for a world of hurt down the road. You need to be asking detailed questions about years of experience, how they handle certain situations, references, how many properties does the PM/Owner of the company personally own, ratio of staff to # of properties, industry credentials, how maintenance issues are handled, how inspections are handled, their average length of tenancy, % rate for tenant renewals, what is their turnover process, what guarantees if any are offered on tenant placement, etc.A good PM will save you FAR more money than they ever charge in fees and a bad PM will cost you 10X more than they charge in frustration, stupid decisions, and poor processes/procedures.

Oren K. · Answer

The one I nearly upchucked on (in the Cleveland Market) was a bill payment fee. That's right.. If they pay the property taxes on your behalf... Ding. If an occupancy permit is required... Ding. If they unit is vacant and they pay Water, Electrical and Gas.. Ding, Ding, Ding. On top of this, if they actually have to go and pay in person... Trip charge + per hour charge.... DING DING DING.The agreement was not clear what happens if they do some work and then pay themselves... Do I hear another Ding?They also charge a ridiculous amount for dealing with an Eviction. I know what other services providers charge (excluding filing fees) and they literally are 2x higher.And if you decide to sell but NOT through them, add $100/M in fees for which I'm not sure what they do. They explicitly exclude co-ordination of showings... DING DONG?One more from the same agreement... They charge 10% of scheduled rents (note: not collected) and then 10% of any Collections. So if a tenant does not pay their rent and it takes a month or three to get them out they still get paid and charge the eviction fee. In addition, if the money does eventually get collected, they get 10% of that. That works out to 20% of the funds collected in the case of an eviction.I highly respect what PM's do (I wouldn't put up with it!!) and they have every right to charge what the market will bear. Having said that, to me the above is just silly.Oren

Ryan Scott Isacksen · Answer

@Quan ChenI work in property management as well as some of the other people that responded.I think a full month of rent is pretty steep for a leasing fee. That is what I would expect on a single family home or duplex manager. You need to make sure you have a building that is attractive to long term stays with that kind of fee. Smaller 1 bedroom buildings or something in a more transient area will eat up your profits in regular turnover. I would strongly advise looking for someone that focuses on apartment buildings and the class of apartment buildings that matches yours. A small agent that manages houses needs those bigger margins to make the hassle worthwhile. A more established management company hopefully can do better for you than that.Someone that charges those fees had better be on top of current rents and be maximizing your returns. I would ask for client references and ask specifics about how often there are turnovers and the average length of tenancy. Check on the rate that companies are charging if they have an in-house maintenance person and what rates the companies they work with charge.I spoke to one company in the mid-west that charges more per hour for in-house maintenance than contractors that I work with charge in the hot bay area market of California. That company also rents the landlord the "for rent" sign that gets put out in front of the property. I would expect some kind of project management fee for something like a roofing project or other improvements that are outside of normal maintenance calls.The PM is an important person in your team.. talk to a lot of people and find what seems to be the trend for the area and find the balance of price and what your expectations are.

Anthony Gioia · Answer

Hello Quan, yes these fees are within reason. Just be careful of hidden fees, up charges on maintenance and other miscellaneous charges. We charge 3 simple fees: (1) Leasing fee = 1 months rent (2) Management fee = 8% of rent collected. (3) Renewal fee = $400, which of course includes a market analysis to assess rent increase opportunities, executing a new lease and a very detailed inspection with a formal report with tons of photos. Most important is level of service, you should be sure your management company proactively manages your property. Professional, responsive and transparent. You want management to build a relationship with the tenant while at the same time ensure tenants are aware PM is watching and operating in your best interest. Good luck and happy to connect to discuss further anytime. We are in Atlanta as well.Anthony

Brent Coombs · Answer

Fred Heller brought up an interesting point: some PMs charge that every year, just for renewing a lease with the same tenants?? That needs to be clarified up front with any PM - in writing!I would suggest: if they don't use Fred's approach of not doing that, ditch them before you start!

Fred Heller · Answer

Those fees are completely within reason. Keep in mind that the first month's leasing fee is split with the cooperating broker who brings the tenant to the table.I personally do not charge a fee when an existing tenant signs an extension or a new lease, but a lot of companies do.If your rentals are mostly single-family homes or duplexes, you shouldn't have much of a turnover. Those tenants tend to stay put for awhile. I've had exactly one turnover in my single-family homes in four years (knock on wood).Apartments are a little different animal and you may experience higher turnover, depending on how many units. The fee structure for larger apartment buildings is usually different based on the many factors that go into management and leasing those types of buildings.

Jason Hopkins · Answer

Sounds about right. Some will ask for half of first months rent and 8-10 percent of monthly rent.