Property Management Companies - Is it better to use licensed realtors?

Question

We are beginning the process of renting our home and have decided that to hire a rental property manager to manage our townhome soup to nuts. However, we are conflicted on the pros and cons of using a comapny with licensed realtors or not.  Any advice is super helpful!

Joel Owens · Answer

A property management company IS worth it.You are focusing on the wrong costs.Damage from a professional tenant,free rent before eviction,pit bulls,etc.

The house being 2005 if you sell in 3 years it will be going on 10 years old.Your fixtures will likely need replacing and updating by then to get a retail price or buyers will pay fixer upper pricing only.

Your roof and mechanicals will be at 10 years old as well and some will be reaching the end of life expectancy.

You need to project how much under water you are today and what year you anticipate a break even or close to break even scenario with closing costs and commissions involved and repairs needed to get to a retail level.

Remember again that a RENTAL READY property and a RETAIL FOR SALE property are 2 very different things.Leave things old for now and only update when you are ready to sell.

Account Closed · Answer

This may not help, but, I've actually used a home warranty as my property manager. If they have a problem, I call the warranty company and pay the deductible, give them the tenants name and number and forget about it.
Of course, when it comes time to market and re-rent the property, you'll have to get involved until it's rented again.
I hope I'm not too far off base with my comment.

Chris Clothier · Answer

Stephen Masek, 12% would be the highest charge I have heard of in any city, not just Memphis.  I'm sure there are others somewhere higher.  There has to a tremendous amount of value added for that high of a property management charge and I can't imagine what that value would be.

I think that the management charge can go both ways.  Too low and it is hard for a company to be profitable, too high and it is hard for the owner to be as profitable.  It is still a low number ($8-$10 on average for each percentage point), but every dollar counts for an investor so you have to balance what you get for the price a company is charging.

As for the original question, there is a big difference in letting an agent, who is licensed, manage your property and hiring a licensed property management company.  They are not the same.  You want a company that has the licensing and insurance in place to manage your property - in my experience.

Stephen Masek · Answer

A few days ago we asked a management company in Memphis for a quote, and they wanted a full month's rent (capped at $1,000) to lease a property and 12% of the rent!  That is the highest quote for property management we have ever encountered!

The manager we have in Memphis uses a plumber and an electrician for routine repairs.  That is good from a quality viewpoint, but makes the repairs somewhat more expensive than companies with good handymen doing such work.  However, they only charge 6%.   We'll still consider switching, but not to a real estate agent with tremendously high fees!

People who charge less can and often do provide superior quality and low prices.  I own just such a company (this is not an ad, just an example).  Yesterday we won a state highway department bid for $55,000, when the high bid was $180,000.  It is the 13th such contract we have won, and we are happy with the money we make on them.  We produce top quality reports, but are very efficient and keep overhead low.

Chris Clothier · Answer

Dori Jamison - I would recommend that you ONLY use a property management company that is licensed.  In many instances, that licensing is having a licensed broker listed as running the company.  The legal and insurance requirements that will be in place will absolutely benefit you should something improper occur.

As far as managing and selling property, I do not see any conflict and this is exactly what we do.  We manage only properties we have sold to investors (with a very few, limited exceptions) and are managing over 1,200 homes in Memphis and another two dozen in Dallas.  It is a huge benefit to an investor because of our neighborhood knowledge and we are familiar with each property and what has been done.  I would agree that having a management company that is owned by investors can also be a plus.

However, I would say each of those are lower on the list of pluses for a management company and well behind the fact that they are licensed.

As far as costs, you will get what you pay for.  A company charging 6%, in my experience, is going to have a hard time providing consistent and transparent service to you as an investor.  You want a company that is set up to be successful and profitable so they can provide all of the attention and service you deserve as an investor.  I think 10% is a reasonable charge depending on what other possible charges come with lease up and continuing management.

All the best

Ray S. · Answer

Hi Dori,  In most states the property manager has to be licensed.  In Texas for sure.  We are property managers, but we didnt really start doing that for others until we had about 30 houses or so.   Also I don't charge more because I am licensed, but because that is the market fee.  In my experience the market kind of establishes what the price will be.  As a property manager I see my problem as not the going rate (8 to 10%) but how to systemise our processess and build in better effeciencies. Thats how we make more money.

I should be better at getting a place rented faster, for more money, and reducing turnover than someone who has just a few units or limited experience.  I am much less likely to waste time/money doing things that won't work than someone who has limited experience.  There is an advantage to having done hundreds of leases. If you have to make all of the same mistakes I have, plan on losing a lot of money.

Another issue is making sure we are complying with the rules.  We have been doing this business intensly for 20 plus years, and I am telling you, it's hard for us to stay on top of all the Rules and Liabilities.

One final thing,  if all things are equal no matter if it's a plumber, realtor, or whatever, always go with the licensed people.  You always have more leverage with a licenssee than you do with someone who doesnt have anything to lose.

Stephen Masek · Answer

You still have to manage the manager.  6% to 8% is normal, with 10% the maximum.

Edita D. · Answer

Joel Owens: Great input! So you want to hire a PM company that does rentals only and NOT sales. Good point, I agree. 
I would also dare to add it would be good if the PM owns properties several properties themselves, because that way they will understand the cash-flow better. Am I right?

Joel Owens · Answer

Here is an interesting article on licensing and property management for Georgia.

You need to do similar research for your state.

http://www.grec.state.ga.us/PDFS/About/newsarticles/2012MARCHGRECRENewsFinal.pdf

Steve L. · Answer

Out of curiosity what is the price difference?  Here management companies are cheap... Here 6-8% of rent is pretty common without much deviation.

I would pick whoever you think will do the best job.  I have a feeling they would be licensed but I wouldn't care too much.

Typically if someone is not willing to get their license it would mean they are small time or new, both of which would be negative in my books.

Property Management Companies - Is it better to use licensed realtors?

Most Popular Reply