All Forum Posts by: Joel Fine

@Joel Fine its funny you ran those numbers because i was doing the exact same this week as i was breaking down a market i saw as profitable until i incorporated the cost of a management fee. The charges i ran into were exactly the same as yours, as they where what i found 2-3 in the area to pose, and i didn't feel the property cash flowed enough with the integrated cost of a PM.

Then i wondered if i even wanted to go with one for my first couple of properties until i scale up to where i might really need it and might have more negotiation with a portfolio of 5-7 properties. The other consideration i had was my market is mostly Condos, Row homes, Townhomes ect. not freestanding single family homes with yards. Aside from finding a tenant the upkeep on a 2br 1200 sq/ft condo isn't much.

i don't know.

If i could find a PM in my area with the terms some people have stated of 5-7% flat rate i would think more about it. the PM i have found just kill the cash flow on what could otherwise be a solid property.

-Josh

I've found deals that still pencil out with higher PM fees. But, it certainly makes each deal less profitable when I use 15% instead of 10% for PM fees. And some deals go from "worth doing" to "never mind."

0 Votes

Originally posted by @Andrey Y.:

Originally posted by @Joel Fine:

I'm somewhat new to Real Estate investing, so I analyze lots of deals as a way to learn. I want my analyses to be as accurate as I can get them.

I've been concerned about the accuracy of my estimate for Property Management expense. At first I was using 10% because in many metros, that's what PM's take from the monthly rent roll, but then I realized that was only part of the story.

Each time a tenant moves out, a PM charges 1 month's rent to place a new tenant. If tenants stay on average for 2 years, that's an extra 1/24 (one month out of 24) of rental income going to the PM. 1/24 = 4.2%.
Most PMs charge a renewal fee if a tenant re-ups. Again using the average 2 year stay, that means the PM is collecting that fee every other year (think of it as: in even years, the tenant re-ups; in odd years, new tenant). Let's say that's another $100 on a $800/month unit. That's 1/8 of a month's rent, every 24 months - another 0.5%.
Each time a tenant re-ups, I'll want an inspection of the property. Call that $75 - again, every other year. Add 0.4%.

So we're looking at

Base fee: 10%
Tenant placement: 4.2%
Renewal fee: 0.5%
Inspection fee: 0.4%
Total: 10+4.2+0.5+0.4 = 15.1%

Of course, this will vary across markets and between PM's. In some areas PMs charge less than 10%, or less than a full month's rent for a tenant placement. And if your tenants stay longer than 2 years, then your placement fees will hit less often.

But the point stands: the base rate is only a part of the net cost of PM service.

I'd love to hear from other BP'ers: what do YOU use for PM cost in your analyses (or what are you actually paying). Anyone?

Don't forget the utilities and "yard cleanup" (2X per month!) your PM will charge you during turnover/vacancy. Ask me how I know :P

Ugh, good point. I was thinking those expenses are in the vacancy figures but that just accounts for lost rent - utilities and property upkeep is on top of that. So I guess I'll have to come up with an estimate for those line items as well...

0 Votes

Originally posted by @Doug McVinua:

@Joel Fine Not all Property Managers charge fee structures like you're experiencing. Good, caring PM's exist that want owners to be successful while still making an honest dollar.

I was with an attorney for a very large flat fee ($75.00 per month) PM firm one day and he was proud to convey that the average gross per door was $250 per month and the average tenant duration was 8 months. $75.00 per month is clearly total BS marketing and if I had an 8 month tenant duration I would be pissed as an owner.

I take great pride in the service we provide with only 2 fee's to owners, a lease up fee and a % per month. The lease up fee is needed as it's actually a lot of time to market, show, screen, lease and do the move-in etc. I don't consider the leasing fee a profit center given the value of my time, prepping the property, showings, lease, move-in and then the first month or two is generally higher service volume with a new tenant.

I believe in most situations we are far better off keeping the tenant happy enough to want to stay put and avoid the turnover. Unless a tenant is bad it's much better for the owner to renew and the owner is who I owe my fiduciary. Yes, I have a right to an income but my obligation and fiduciary is with the owner. The needs of the owner come before mine so in good faith I never turn a property over unless it needs it. I have one right now that I just don't like the tenant and agreed to do a lease up for free because it helps me, the owner was indifferent. It's an easy lease up and won't cause vacancy and I get rid of a difficult tenant that is a time sucker.

PM industry gurus for years have been promoting the fee's as additional income. I like income don't get me wrong but I'm happy taking my % per month with good owners that own decent properties and let us do our job.

Another fee to be careful of is the PM charging the tenant a monthly fee. In AZ I believe that fee drives away many good tenants. Many good tenants are smart and realize the owner should be paying the PM fee so they avoid those properties so now the ones charging the tenants are left with a less than desirable pool of tenants. The owner thinking they are saving money is likely losing money as they get a lower quality tenant and all the issues that go with them.

Sorry for rant, it's early on a Saturday and I need more coffee!!! lol

Thanks for sharing your thoughts ! Hope you got that coffee that you needed... :)

Don't get me wrong, I'm not complaining about the fees (at least, not in this post). I do understand that PM's need to make a profit for the valuable service they perform. I just want to get accurate numbers so my profitability calculations will be as close to reality as possible. And of course if I'm comparing fees from different PM's I would want to include ALL fees, not just the monthly rake from the rent roll.

I've never heard of a PM charging the tenant a monthly fee. I'll have to keep an eye out for that one. That sounds a little underhanded to me.

1 Vote

Originally posted by @Account Closed:

Originally posted by @Joel Fine:

I'm somewhat new to Real Estate investing, so I analyze lots of deals as a way to learn. I want my analyses to be as accurate as I can get them.

Each time a tenant moves out, a PM charges 1 month's rent to place a new tenant. If tenants stay on average for 2 years, that's an extra 1/24 (one month out of 24) of rental income going to the PM. 1/24 = 4.2%.
Most PMs charge a renewal fee if a tenant re-ups. Again using the average 2 year stay, that means the PM is collecting that fee every other year (think of it as: in even years, the tenant re-ups; in odd years, new tenant). Let's say that's another $100 on a $800/month unit. That's 1/8 of a month's rent, every 24 months - another 0.5%.
Each time a tenant re-ups, I'll want an inspection of the property. Call that $75 - again, every other year. Add 0.4%.

So we're looking at

Base fee: 10%
Tenant placement: 4.2%
Renewal fee: 0.5%
Inspection fee: 0.4%
Total: 10+4.2+0.5+0.4 = 15.1%

But the point stands: the base rate is only a part of the net cost of PM service.

I'd love to hear from other BP'ers: what do YOU use for PM cost in your analyses (or what are you actually paying). Anyone?

I agree, those are discouraging numbers. In Arizona we do things a bit differently than California or Texas. Keep in mind that a Property Manager makes *MORE money to fill a vacancy* than to keep tenants happy. (What do you think their incentive is . . .?) Bummer, eh? That's why in AZ we don't do what people in CA & TX do. Because we've figured this out! Let me show you how to get rid of the Property Manager altogether and make mucho more:

https://www.biggerpockets.com/forums/600/topics/58...

I've seen this post before. I have GOT to figure out how to make this happen - it looks like an incredible profit machine. Very impressive how you have it worked out!

0 Votes

Originally posted by @Matthew McNeil:

Originally posted by @Joel Fine:

I'm somewhat new to Real Estate investing, so I analyze lots of deals as a way to learn. I want my analyses to be as accurate as I can get them.

Each time a tenant moves out, a PM charges 1 month's rent to place a new tenant. If tenants stay on average for 2 years, that's an extra 1/24 (one month out of 24) of rental income going to the PM. 1/24 = 4.2%.
Most PMs charge a renewal fee if a tenant re-ups. Again using the average 2 year stay, that means the PM is collecting that fee every other year (think of it as: in even years, the tenant re-ups; in odd years, new tenant). Let's say that's another $100 on a $800/month unit. That's 1/8 of a month's rent, every 24 months - another 0.5%.
Each time a tenant re-ups, I'll want an inspection of the property. Call that $75 - again, every other year. Add 0.4%.

So we're looking at

Base fee: 10%
Tenant placement: 4.2%
Renewal fee: 0.5%
Inspection fee: 0.4%
Total: 10+4.2+0.5+0.4 = 15.1%

But the point stands: the base rate is only a part of the net cost of PM service.

I'd love to hear from other BP'ers: what do YOU use for PM cost in your analyses (or what are you actually paying). Anyone?

Joel, I've been very fortunate to have a great PM whom I've used for 10+ years. They charge me a flat 6% of the gross collected rent with no additional fees such as what you've listed in your post; with the exception that I reimburse them for advertising when there's a vacancy.

That sounds great! Quite a bit less than I'm seeing for PM fees.

So how do you account for the advertising expense when you analyze a deal?

0 Votes

Originally posted by @Courtney Jones:

I guess I am blessed as well. My property management charges me a flat 10% of rent er month. I do not pay extra for the resign of a lease. I do not pay extra for the yearly walk through. I pay a full months rent to find a new tenant if needed.

Thanks for the reply, and the info about your PM fees.

So when you analyze a deal, what number do you use for PM? I would think 10% is too low since that doesn't take into account the 1-month rent you pay to find a new tenant. A month of rent is 8.3% of your income for the year, so even if it only happens once every few years, it's not a trivial amount.

0 Votes

I'm somewhat new to Real Estate investing, so I analyze lots of deals as a way to learn. I want my analyses to be as accurate as I can get them.

Each time a tenant moves out, a PM charges 1 month's rent to place a new tenant. If tenants stay on average for 2 years, that's an extra 1/24 (one month out of 24) of rental income going to the PM. 1/24 = 4.2%.
Most PMs charge a renewal fee if a tenant re-ups. Again using the average 2 year stay, that means the PM is collecting that fee every other year (think of it as: in even years, the tenant re-ups; in odd years, new tenant). Let's say that's another $100 on a $800/month unit. That's 1/8 of a month's rent, every 24 months - another 0.5%.
Each time a tenant re-ups, I'll want an inspection of the property. Call that $75 - again, every other year. Add 0.4%.

So we're looking at

Base fee: 10%
Tenant placement: 4.2%
Renewal fee: 0.5%
Inspection fee: 0.4%
Total: 10+4.2+0.5+0.4 = 15.1%

But the point stands: the base rate is only a part of the net cost of PM service.

I'd love to hear from other BP'ers: what do YOU use for PM cost in your analyses (or what are you actually paying). Anyone?

11 Votes

As a suggestion, this might be a way to start educating yourself, so you have have a more productive conversation with a potential contractor:

https://www.biggerpockets.com/store/flipping-estimating-digital

0 Votes

Originally posted by @Account Closed:

@Joel Fine @Mike Bitette @Robert Campbell

Hmmm, I'm trying to think of how to be clearer - let's start with a post I did - Click on the link and see if the post helps you understand better - then ask your questions

https://www.biggerpockets.com/forums/600/topics/58...

Thanks Mike! That post was exactly what I was looking for. I need to study that recipe and see if I can replicate it. I'm going to bookmark that post!

Joel

1 Vote

Welcome @Lee Lewis! "Anywhere but California" - I can relate!! I'm in Saratoga, nothing would come close to positive cash flow here...

0 Votes

All Forum Posts by: Joel Fine

Joel Fine has started 28 posts and replied 175 times.

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: What do you REALLY pay for Property Management?

Post: Rehab costs, need Estimator!

Post: Need Advice on Buying Homes at Auction

Post: Hello! CA based, seeing out of state investment opps