All Forum Posts by: Heath Sizick

Hi Mitchell, welcome to Coastal NC. I am in Hampstead. If you are in the area I can introduce you to some great REI networking groups here. Let me know.

Hey Vincent, we were in a similar boat not too long ago. I'd be happy to chat with you & be a sound board for you. I am in Hampstead. 

Hi Jessica, welcome!

My company works a lot with military - both owners & tenants. We are a long term property management company. If I can be of any help to you all with thinking through all the real estate options I'd be happy to connect with you guys.

If you are doing your homework and deciding if a professional property management company is right for you this post will help (as well as my previous posts). 

Owners entrust property managers with more than just assets; they handle rental income, security deposits, reserve funds, and write checks on the owner’s behalf. This relationship requires trust, transparency, and accountability. 

Here’s a list of key issues and questions to ask when interviewing property management companies:

Payment to owner

• What day of the month do they mail checks to owners?
• Will the check be for that month, or will the management company hold back a month?
• Do they provide direct deposit?

Taxes

• Will the management company provide you with an IRS-1099 and a summary profit and loss statement for tax purposes?
• Are they able to advise you on tax deductions?

Accounting

• Do they keep detailed records and documentation?

Reporting

• How often do they send out reports? When are they sent out?
• Will you be able to view reports online?
• * Request to see a sample report

Security deposits

Security deposits motivate tenant care and help recover damages, but mishandling them could result in losing the deposit or owing the tenant more. Ask prospective property management companies these questions:

• How do they handle security deposits?
• How much is collected?
• Do they accept personal checks? What if a check bounces? (Deposits should be cash, money orders, or cashier’s checks.)
• How quickly are refunds sent?
• What are their conditions and deductions for refunds?
• How often do they go to small claims court over security deposits?

Miscellaneous

• Do they make payments for owners (mortgage, insurance, property taxes, HOA dues, etc.)?
• Will the manager be authorized to sign checks on the owners account? If so, what types of controls are put in place to prevent misuse of funds or outright embezzlement?
• How quickly do they pay vendors?
• Do they prevent the co-mingling of funds among the properties they manage?

Given the fiscal responsibility that a property management company has, it is a good idea to raise these questions during the interview process and make sure you understand their approach.

PM's - Comment anything I may have missed!

Quote from @Brian Teeter:

I own a property management company in Little Rock, Arkansas. I regularly talk with prospective clients and review our fees.  It's amazing how often it becomes obvious that the prospect is simply searching for the lowest cost provider and fees are their number one consideration.

I think of it like this: Would you search for the lowest cost baby sitter for your child or the best qualified?  Would you search for the lowest cost financial advisor or the best qualified? 

In both scenarios, you want to trust who you leave your child or your assets with.  Quality is important.  And in both scenarios, you are likely not going to get both quality and low price together. 

On leasing and renewal fees, even with all the technology we have at our disposal, this is still a very important and tedious process.  We charge 80% of first month on new lease and flat fee of $250 for a renewal. We have an in-house leasing agent and she is paid a commission for leasing and renewals. There is real cost in technology and time.  But I believe it's justified. For example, we target 2-year leases, rather than the standard 12 month...So hopefully, we have less turnover. We add in a 3% rental increase starting year 2. So revenue increases. 

Bottom line: Client/owner benefit is secured, multi year lease with a qualified tenant. Expectation of revenue increases and hopefully less turnover (and associated cost).  Does that justify a leasing fee and/or renewal fee?  

Absolutely Brian! We view ourselves as asset managers more than property managers. Quality & value!!! Thanks for sharing. 

Quote from @Drew Sygit:

@Heath Sizick kudos for doing this!

Unfortunately, the PMC industry does a BAD job of promoting itself to property owners, so owners usually focus on the fees only - instead of service quality:(

That is until they get burned by poor service that costs them more money than the "pennies" they saved by going with the cheapest provider!

I spoke to two owners in July that had hired PMCs with no websites and no owner portal!
- Isn't this the 21st century?
- How'd they even find these PMCs?

Some thoughts on your specifics:

1) Lease/Placement Fee: Traditionally 100% of one month of rent as before Zillow, you had to put a property on the MLS to get exposure, along with yard signs, and that meant offering 50% of the 1-month fee to the other agent bringing a tenant-prospect. It also took a whole lot more time to advertise, answer calls and do showings.

Technology has supplied the industry with the 600lb gorilla called Zillow, which dominates the advertising space for rentals and sales. So, many PMC's no longer put their rentals on the MLS, they just post them to their website and their PM software syndicates the listing to Zillow and more. Since they don't have to pay another agent, they can drop their fee to 50% of 1-month of rent or just go flat fee.
- Unfortunately, most PMCs doing this do NOT tell their clients that they are NOT putting the property on the MLS. It would make more sense for PMCs to be transparent about this and give owners the choice.

2) Lowering Leasing/Placement Fee: why would a PMC lower their fee if the OWNER wants an unreasonably high rental rate and won't lower it after weeks on the market?

3) Lease Guarantees: these really should be tied to the Property Class. Most guarantees are for Class A properties - which should attract Class A tenants. Owners should expect less/shorter guarantees for lower Property Classes. 

5) Advertising: Zillow, and most websites, only allow a single ad - so how will an owner be able to also advertise their property without causing a mess?
- Also, no decent PMC will allow an owner to place their own tenant without waiving any tenant-related guarantees!

You didn't cover Lease Renewals! 
Challenge with them is owners don't want to pay anything for these, because they MISTAKENLY think they are so easy:( They think you just send the tenant a takie-it-or-leave-it amount. That may have worked for several years, but it is NOT working in most parts of the country which are experiencing flat rent rates and even decreasing rents.
- Also, this approach leads to more turnovers and PMCs actually make more money due to Leasing/Placement Fees!
- Owners should want a Renewal Fee that incentivizes PMCs to renew leases vs trying to make more money by replacing them.

I did neglect lease renewals - good catch Drew! You make great points. I know we offer 50% of one month's rent for our Leasing fee because of the reasons you mentioned. We still put listings on MLS as well. Thanks!!!

Quote from @Syed Ahmed:

This is an incredibly useful breakdown  I wish more investors looked beyond just the headline management fee. I’ve seen firsthand how a “cheaper” PM ends up costing more when hidden fees, poor tenant screening, or lack of responsiveness kick in. The points about aligning leasing fee structure with long-term tenant performance really hit home. Great share  I’ve picked up a few questions I’ll definitely use when vetting PMs in new markets. Thanks for posting this!

 Thanks Syed! Appreciate it. Best to you. 

I am hoping these posts are helpful. Today, I want to tackle property management fees!  While property management fees are important they must be viewed in light of what other firms are charging, the scope of services provided & the quality of those services.

A PM company is stewarding one of your biggest assets & the last thing you want to do is make your decision based solely (or even primarily) on who charges the lowest fees.  

A low price often indicates a lower service quality or a firm struggling to remain profitable -potentially leading to overworked managers. Price should be considered after confirming the firm offers quality services. Low fees won’t matter if the company doesn’t perform well or provide value to you.

Also, ensure you compare all potential fees, as hidden charges can negate any savings from lower management fees. Common fees to clarify with prospective firms include:

• Management Fee: Typically 8-12% of monthly rent, varying based on property size, location, & included services.
• Vacancy Fee: Some companies charge a vacancy fee even when there’s no rent coming in. Ensure contracts specify fees are based on “collected rent.”
• Set-up Fee: Fees for setting up an account range from $0-$500. Confirm if it's per unit or per property.
• Leasing Fee: This compensates for finding tenants & can be up to 100% of the first month's rent. Some prefer it bundled into the management fee to incentivize long-term tenants.

A good management company should view the management fee, NOT the leasing fee as the primary profit center. This is why leasing fees as a stand alone service (meaning without other property management services) are typically much higher (75-100% of first months rent).

A transparent fee structure discourages high turnover, benefiting both parties.

Good "pricing" questions to ask when vetting PM companies:

1. - How much is the leasing fee? This ranges from 25% to 100% of the first months rent, but 50% is pretty standard. Instead of charging a percentage, some firms charge a flat fee or a percentage of the gross amount for which the lease is written.
2. - Does their leasing fee decrease or get waived if it takes them an unreasonably long time to find a tenant?
3. - Is the leasing fee structured in a way that provides the firm incentive to bring in reliable tenants? This usually either means a full or partial refund (sometimes pro-rated) in the event that the tenant is evicted, or breaks their lease within 12 months of the original move in date. Some firms have a policy of only charging this fee once per 12 months per unit which has the same affect.
4. - Do they use leasing agents? If so, what will you have to pay them in the event they find you a tenant?
5. - Do they require exclusivity in advertising, or can you advertise the unit as well? If you find the tenant do you still pay the fee?
6. - Are there any restrictions or extra charges for showings (they only do X number a week, or not on weekends etc.)?

This should give you a good start! Best to you.

Hey Sam, my recent posts have been about finding a property manager. You may find them helpful as you call around so you have the right questions. If I can be of any assistance, let me know. Good luck!

Welcome Roy. Wishing you the best. I am in Wilmington, but if there is anything I could help you with let me know.