How to price a rental house?

Question

I own a house in Minneapolis that I plan to rent out.  I will be living in a different state so I will not be able to show the house in person to potential tenants.  I would like to do as much of the property management that I can.  So far I've contacted one property manager.  I explained that I only want them to show the properties and set up the appointments to show the properties over texts, emails, phone with the potential tenants.  Once a person was interested, I would take it from there.

They said they would do it for 70 percent of a months rent (2,000) times .7= 1,400 dollars

My questions are:  What is the average amount of time a property manager spends doing this?  (I am wondering what they are making per hour).  Is this a decent price?

I will also need a person to clean and paint the unit when there is a turnover, and to make repairs when needed.

I have only rented out the top portion of my house to 2 different tenants.  The first time there were about 3 people total who set up an appointment to look at the unit until I found someone interested.  The 2nd time was about 4 people. It must of taken less than an hour total setting up appointments over texts/emails.

Drew Sygit · Answer

You're going to tick off a lot of people if you just focus on buying their time and try avoid paying for their expertise!

Most states require someone showing a property they do NOT own, to have a real estate license. So, you are stuck with using licensed agents unless you want to roll the dice on breaking the law, and see if you can get away with it.

Agents invest time and money getting licensed, renewing it every year and their knowledge.

Most agents will charge 1 month of rent to find a tenant. They will put the home on the MLS and offer agents bringing prospects 50% of that 1 month of rent.

PMC's will often offer to find a tenant for less than one month of rent, but then may not put it on the MLS, or if they do, they may offer less than 50% of 1 month of rent - so few agents will actually show it. So, what they are really doing is trying to find a tenant themselves and keep the entire commission for themselves.

You haven't stated if you plan to screen the applicants of if you'll depend on the agents or PMC's to do so. We strongly caution you to consider all aspects of this!

From our own experiences, most agents really only know the basics of qualifying applicants and miss A LOT.

PMC's process way more applications in a month than most agents do in a year. But, if you focus solely on driving a hard bargain to save a few pennies, and the PMC knows they won't have to manage the prospect they place, then what incentive are you giving them to do the best they can? So, your focus on saving pennies, could cost you dollars via a bad tenant.

You'll run into similar problems with maintenance issues.

LeAnn Riley · Answer

Great advice here from others. In Mpls for a property manager, you can just have them handle the lease up. Then you take over and handle the management. Most property managers charge the first months rent to secure a tenant. They would likely set you up with a cleaning person and be helpful if you need other items as they have the vendors. Sometimes it's easy and other times it takes many showings to find the RIGHT tenant.

The market here is great with super low vacancy rates. However, the most important thing is to have the prospective tenant screened extensively with a full background check and to have the proper lease to cover your liabilities as a landlord.

It's better to form a relationship with someone who can assist you with landlord obligations, in case you can't handle it from afar. Maybe you have friends or family BUT with eviction moratoriums and other rules depending on what city your property is in, I believe in building relationships. Even more critical when you are operating an investment from a remote location.

Hey, I had a building burn down when I was out of town, thank goodness I had a team of people I could rely on.

Bill B. · Answer

Two piece for experience for you.

In Las Vegas realtors are paid a flat $300 for bringing a tenant. They could certainly show the property as well. (A very good deal compared to your 70%).

If you are willing to pay 70% of a months rent then I would look at someone like renters warehouse of Mn. For 100% of first months rent they will not only show the property. They will also take photos, advertise and screen the tenant. After that they have no problem with you managing the tenant or they will for $90/month. (I thought that was a good deal on a $3,000/mo townhome I have in Tonka Bay. But< the tenant was so good we both agreed to cut them out of the process after a year and they’ve been there 5 years so far. )

Matt Eakle · Answer

Hi, Chris.  To add to what Drew Sygit said, there is a lot more to property management than opening a door for a prospective tenant.  Our clients find that they get a better return on their investment by letting us manage their properties because of the knowledge and experience that we bring to the table which Drew also mentioned.  And keep in mind, you are asking for tenant placement which is a one-time service.  So you should not expect that property manager to be a resource for painters, cleaners, etc. on an ongoing basis without a property management agreement in place.

To answer your specific question, yes 70% is a good rate.

Please be careful with what you're getting into here because a bad tenant can destroy your profitability.

Theresa Harris · Answer

Many property managers charge a percent of the rent for finding a tenant. I never understood that as it takes as much time to rent a $500/month home as it does $1500/month.  You can also talk to a realtor as some of them do rentals.

Bjorn Ahlblad · Answer

Whether you are trying to PM from out of state, doing your own taxes or standing in front of a mirror about to perform an appendectomy they are all about the same. Get it done by a professional who knows his/her stuff. It will save you money and grief in the long term. All the best!

How to price a rental house?

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