What do Property Managers do? How much do they charge investors?

apartment investing hoas & property management income & expenses managed communities market research multifamily Sep 04, 2021

Let's go through a bit of an outline. What do property managers charge? What do property managers do? What are they going to do for what they charge?

Because right now, somebody listening to this that has a vacant lot next to their house or who wants to build a 30-unit building will need to reach this point of the decision process. They're wondering because I've met guys that live on-site, who manage a 30 unit building themselves.

What are you going to get charged? What services are you going to get if you engage your property manager?

Sherida Zenger

Okay, I'll start with this. So usually you're going to see anywhere from 7-12%, depending on the market. Now there are times where there's going to be just a flat fee, right? We've experienced that in Arizona, there are a few companies that will just do a flat fee. And then they'll do a lease-up fee. So you're also going to have a lease-up fee more than likely anywhere from $150-495. Somewhere probably in that range. Or first month's rent sometimes. Going back to Texas, for example, most of the agents are getting their start doing property management or helping buyers or tenants find a lease. That's very common in a lot of places.

As far as a property manager, they're going to help screen the tenant make sure that that tenant qualifies, obviously, there's going to be a range of things there as far as what qualifying means. And every property management company has seen slightly different, they're going to help with the move-in, most of them will do some kind of a walkthrough midterm. Sometimes that's an additional fee.

So if they want if you want them to walk through and check on the property, but if they're managing a community, they're going to be on-site quite a bit to be able to look at the exterior and the project as a whole. And then deal with the move-out and any maintenance. So if the tenant has maintenance issues, they're going to be contacting property management, not you as the owner.

Chase Leavitt

Then on the move-out, property management will go in there and assess what needs to be done to the property if there were damages, does that come out of the tenant's deposit? Or is that something that normal wear and tear and an owner has to contribute a portion to that? That's usually what a property manager is going to do? They'll advertise it, obviously, you know, and that's how they're gonna find the tenant. That's what I've experienced.

So lease-up. Finding tenants. Management is managing the property once it's filled, for that 12-month period, sometimes shorter, sometimes longer. And then the expenses for repairs, what are they charging? to handle that if repairs need to be done?

Sherida Zenger

Sometimes they'll charge 5-10% markup on that just to oversee that and make sure that those repairs are done in a timely manner and are acceptable.

Steve Olson

You have to consider legal too. Sometimes have to go to court for you if there's an eviction or something like that.

You have to understand it. Because when you interview a property manager, they're just going to give you the highlights of what they charge and what they do. But there's more.

There's more behind that. It's called your property management agreement and will outline what they're supposed to do on your behalf. And we gave some ranges. That I would say there's kind of a continuum.

The cheapest, the lowest cost property management is for big buildings. Multifamily buildings where it's 2-4 percent. But there's also a base payroll that they charge because they've usually got somebody on site. You've also got marketing dollars, it's kind of more all a cart.

There's the very basic management for a low percentage, but you're also going to have to pay us to do you know, place ads and handle all this, that and the other, right. And that's advantageous for somebody that owns hundreds or 1000s of units. That's the kind of model that you would want to be on because it literally is a full-time, a full-time job just on one property in many cases.

So then from there, you kind of go into the typical single-family manager, right? As you said, tennis person, it's anywhere from five to 10%. And then you've got some, some lease-up fees in there. And then some court costs, you know, other up charges based on what they have to do. And then at the absolute opposite end, is the property manager for vacation properties, right?

That's very intensive, I was talking to a neighbor that owns one down in Destin, Florida. And they pay close to 40%. Right? Because that is intensive, they're always finding new tenants, there's always clean, there's always work that has to be done. So a lot of people just opt out of the assignment, I manage my own vacation property, well, that's great for you. But if you're going to scale, you're going to run out of gas really quick, right? You have to have a management company handle that kind of thing.

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