Reasonable Property Management Fee Structure?

[Burke B.]

I have a question for any members that have a good amount of experience with property managers. I apologize for the length of the post.

I currently own a property in another state and have a property manager who manages that property. For managing the property, I pay a flat 10% of gross rent per month. The PM doesn't charge me any additional fees to locate and screen tenants or when they arrange for repair services. So far, I am fairly happy with their service and this fee structure seems to be reasonable and somewhat what I expected from the little bit of reading I had done online prior to enlisting their services.

I am considering purchasing a property in another location that is about 5 hours from me. It is a small town so property management services are very limited. My dad lives in this town and is serving as my "on the ground" person to do research on the properties and PM services. He is not comfortable serving as an actual PM for me and I don't want to put him in that position if it isn't something he feels comfortable doing or is interested in learning.

The one property manager that he has located that has been responsive to our inquiries sent us the following email to describe his fee structure:
"*I would help as requested to find the properties. If the property is listed, as a realtor, I would be compensated for this by the seller. If the property is unlisted, only the following hourly rate would apply.
*I would help secure pre-leasing repairs as needed. I would too handle all in-lease complaints and coordinate repairs. For this, $30 per hour.
*I would take pictures, present a write-up on/outline of the property on craigslist after having it approved by you. I would then meet/interview potential tenants and collect the deposit and present and deliver a lease agreement. For this, I would keep 1/2 of the security deposit - the total deposit being the equivalent of one month's lease. (This is consistent with what I do for the properties I currently manage.)
*Thereafter, for being the first point of contact, I would retain 10% of the lease money per month. Should a tenant fall behind, I would work with both parties to secure remedy. "

As you can see, this PM's fee structure is significantly different from that of what I am used to with my only other PM relationship and different from what I was expecting based on what little reading I have done on the internet concerning this topic. Our attempts to get a fee quote from other PM companies for comparison purposes has turned up nothing.

So...I am turning to the vast knowledge here for thoughts on this fee structure from those of you who have a bit more experience in this than me. I look forward to hearing your thoughts.

Thanks!

Burke

[Donald Leske]

Hello,

David and Michelle are correct. I have been dealing with rentals for over 30 years and have just about seen it all. I have also had a 400% increase in my company size in the past 7 years with the economy making it hard to sell homes, but we do sell as well as needed. 

The people who read these posts all have their own idea of what pricing should be, based solely on their own ideas of what they think is fair or right of course. An investor or home owner for instance who would like to get a property manager to work for 8% or less..., and have no other fees at all.., is simply ignorant about the value of having great service. They may say that "oh, all the property manager has to do is put a tenant in the rental and collect the rent." They will learn in time that there are more in's and out's, twists and turns in good property management than Lombard street in San Francisco. This is a tough job for sure if anyone has been in the trade over 5 years and especially if a manager has hundreds of units to manage. Each unit takes time to watch over and a landlord must deal with any kind of issue or problem that may pop up, from initial basic leasing documents to evictions, the ongoing maintenance needs, full accounting with rent-rolls and W-9 tracking plus making an online portal to be available for each owner to be able to see what is going on with their property 24 hours a day and 7 days a week. The tenant also gets their own online portal where they can electronically pay their rent or put in a Maintenance request from their PC or their Smart Phone. Owners want to know what is going on with their properties, and we have found over the years that they need feedback every week when the property is vacant and a full report with photos every six months (180 days).               

   Many times there are hidden fees that nobody knows about and the public suffers when they are hit by such fees, often being unaware totally that they would have to pay some kind of contrived fee which was not disclosed openly up front before they signed up. 

1. Set-up fee	NO FEE!	Many companies charge a setup fee. We do not.
2. Management Fee*, … $75 minimum monthly. 4-9 Rental Units… 10-30 rentals……… 30 + rental units/doors….	8% 9% yr 2 10% yr 3 11% yr 4 7% 6% 5%	If we do not collect the rent, you do not pay a fee. These fees are for services outlined in this contract. This low first year introduction fee at a low 8% will increase to 9% on year two, then 10% for year three and stop at 11% for year four as a cap or maximum. Our master plan is to prove our superior services are worth the fee that owners pay. After 30 years of service, we feel that our fees are fair and allow us to do the absolute best job for our rental owners.
3.Lease up Fee	75%1st month only.	1st month for new rental contracts only - not Renewals. Helps offset Advertising & overhead costs, as Thousands of dollars a month are spent for overhead & paying Realtors an MLS Fee to bring us a tenant. Applies to first full month of rent, in case of a pro-rated month. If pro-rated, fee shall apply to part of 2nd mo.
4. Emergency Trust Fund *This is owners money, held in a Trust Account.	$200Minimum	These funds are for Emergency Maintenance needs, and can be used to pay day-to-day operating expenses if needed for an owners benefit. A reserve of $400-$500 is normal for single family properties. Multi-family units are negotiable.
5. Lease Renewal	NO FEE!	For existing tenants who want to stay, NO FEE to owners.
6. Vacant Property Maintenance Fee.	NO FEE!	We do not charge a fee to manage a vacant property. Option: if owner wishes us to cut the grass as needed and keep the place clean while vacant, then there is a basic $100 minimum monthly fee while vacant, contingent on review of needs and owner approval.
7. Notices and Legal Docs.	NO FEE!	These are Attorney & Legal Notice Fees. If a tenant does not pay these Fees, then owner must pay. In time these are sent to a Collection Agency, to recoup owner’s money.
8. NSF fees, late notice & miscellaneous fees.	NO FEE!	These are fees which BCI has charged to tenants. Owners must pay these fees only if tenants do not pay as expected, but owners never pay late fees, these are charged to tenants.
9. Annual Administration	$75	A year end fee is assessed to help cover costs of the preparation of annual year-end statements, rent-rolls, 1099 Federal Tax form and annual review of entire account.
10. Property Inspections *May be done by a 3rd party, at no added cost to owners!	NO FEE!	We schedule a photo inspection with written report at 180 days post occupancy, plus drive-by inspections during the year which can trigger a spot Inspection. FREE SERVICE!
11. Eviction Costs *We attempt to negotiate with tenants first to get them out and save owners money.	Costs:	Fees for the eviction process can cost from $200-$900 as an estimated average with court costs, Attorney Fees and management fees. Owners must pay $500 deposit at the time of Eviction inception, with refund later if and when collected from tenant..
12. Cancellation Fee	NO FEE!	*EXCEPTION: See section below for details.
13. Unpaid Invoice fee	NO FEE!	For unpaid owner invoices that are past due. Money owed by owner which has gone unpaid to BCI, such as maintenance costs.
14. Bill payment fee	NO FEE!	Regarding payment of mortgage, insurance, HOA dues, etc. We do not charge a separate fee as some do; many others don't even provide this service. Hard costs are passed on to owner.
15. Repair &  Maintenance	NO FEE!	When repairs or maintenance is needed, BCI is “hands on” with supervision of the task needed. Owners do not pay BCI a fee, but do pay retail costs. See Section above.

So it is then that whenever I find a company who does not disclose their fee structure openly on their website I get a very uneasy feeling, wouldn’t you feel the same if you were an owner of rental properties?