Property Management Contracts & Questions

[Bryan McKeen]

Hi all!

I am a real estate agent in Rhode Island but about a year ago an opportunity presented itself to me to take over the property management role for 12 units in two neighboring buildings. It took some slight adjusting on my part but I have gained confidence and experience in the field. I have also build up my local contact database in the area doing so. 

I am at the point where I feel like I am ready to take on managing more properties, but before I start to market myself and reach out to other rental property owners I was hoping to reach out to the bigger pockets community and see if anyone has any sort of sample contracts or certain things to keep in mind when creating/signing a property management contract? As well as thoughts on pricing and what to charge?

My current gig is an informal one and is between my broker and I so a verbal contract worked for that scenario. Any other advice, guidance, and insight into the field would be greatly appreciated! Thanks in advance.

[Anthony Thompson]

@Bryan McKeen I've never seen a "standard" property management contract and given the liability involved in owning and managing properties, I'd even be reluctant to share the ones I've used.

I've seen longer management agreements and shorter ones, and off the top of my head I'm not sure which were better or worse.

You can probably find a few on the web for free or low cost, my recommendation would be to get those, and spend some time comparing them and seeing what they have in common, and what some have but others don't.

Then armed with that information, approach an attorney and describe what you're looking for in an agreement. S/he may have one that they can customize for you, or may draft it based on the points you raise, and of course will probably raise some points you hadn't thought of or seen in the sample contracts.

It will require more time but at least doing it that way, you can have a more informed/intelligent conversation about various issues with the attorney.

As far as pricing, I feel like this might be like real estate agents where there really isn't a "standard" price, and in fact you're probably not allowed to try to set a "standard" for the same reason that brokers aren't allowed to say/imply there is a "standard" commission (anti-competition).

However I can say that I have seen that very often property managers will charge 10% of collected rents. Why that is common, I can't tell you, maybe because the math is easy :)

I can also say that I have seen property managers charge less, particularly if you bring them a good number of units to manage, and I've seen them charge more.

I'd also advise to be aware of the rate charged by the manager (or rate you're going to charge, if you're the manager) for maintenance requests.

That is a hidden item in many property management contracts that can really add up in terms of costs for the owners, if it's not scrutinized at the beginning.

For example, some property managers charge only 8% management, but they really make it up when they up-charge on maintenance requests or have minimum charges (e.g., $100/hour, minimum of 1 hour no matter how short the service call is).

Lastly, even if you have in informal/verbal "contract", I'd urge you to put SOMETHING on paper outlining the agreement you have. A one page bulleted list, with simple language, outlining the points you agree on (sometimes called a "letter of understanding") can be invaluable down the road, when people's memories fade and there's misunderstanding on what was originally agreed to.