Typical Management Fees

[Dennis O'Loughlin]

Good evening y'all! My wife and I recently bought our first rental property with a good potential ROI calculation. We met with a potential property manager this afternoon and we were a little surprised by the amount of fees charged. None of them seemed excessive to either of us and they all seemed to make sense but I wanted to ask y'all and see if this sounded fishy. They charge a 10% management fee which we know is pretty standard and they don't take any type of fee if the property is vacant. They do charge a new Tennant fee of either $500 or 62.5% whichever is greater. This comes off the first months rent. They charge the 1st months rent and the security deposit directly to the potential Tennant. They hold 5% of the rent each month to cover the garbage bill because management companies pay the garbage bill apparently. Their maintenance fees are $30-$40 an hour depending on the job.

We would appreciate any thought or insight into these fees.  Thanks for the help.  

[Nathan Gesner]

Quote from @Dennis O'Loughlin:

Those aren't unusual, if that's the question.

The more important issue is what you get in exchange for those fees. Are they true professionals, or are they glorified rent collectors?  A professional can justify what they charge and show what you'll get in exchange for your money. A pretender will give vague answers, no answers, or bad answers. I would start by asking some questions to see if these fees are paying for a specific service or if it's just a money grab.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!