Property Management Fees & Their Place in My Analysis

[Eric Telese]

Hi BP community,

I have always accounted for 10% property management when analyzing deals. I have learned this through @Brandon Turner webinars, podcasts, etc.

Now that I have seen other fees involved with hiring a property management company, it seems like that 10% will be much more. I added in leasing, renewal, and setup fees, in addition to the actual 6-10% management fee. Now after calculating, my entire property management costs are coming out to 15%-22.5% of rent, varying by company. 

Leasing fees are varying from 50-100% one month rent. Renewal fees from 35-75% one month rent and some charged every six months. Management from 6-10% and some companies charging setup fees. 

These are all expenses I will incur to have property management, therefore I feel I absolutely need to calculate these numbers into my analysis. This cuts the margins I was thinking I’d get or requires me to offer lower. 

Am I missing something? Is this usual and do people use these numbers when running their analysis? I have asked some who have said they do not include these fees in analysis. If not, why would’t you?

[Joe Hines]

Hi Eric,

I think you're on the right track.  

I do include an additional 3% management fees on top of my 10% (for a total of 13%).  I don't have a lot of turn over in my units, so the 13% came in about right.  Just to help verify this amount, I set up a separate account in my bookkeeping system to hold the additional charges.  In essence, I keep "Property Management" and "Property Management additional fees" as separate accounts.  That lets me keep precise accounting of them and understand how that plays out for each property.  Over the course of a few years, you have great baselines built up and can then more effectively negotiate with your property manager to reduce these fees, especially if you have a substantial number of units.  

Along those lines, I did take the time to negotiate some of these fees up front with my PM.  So, for example, worked with them to drop the lease renewal fees when I reached 5 units.  

Keeping good track of these fees helps in accounting and understanding property expenses!