Property Management Fees

Melvin Scoville

One of the biggest challenges in owning apartment properties is *competent* management.  It is SO critical to success because ultimately the profitability or unprofitability stems from the overall management of income and expenses.

I look at it like any other business - the management can make all the difference in the world.  It's the difference between a messy restaurant with lousy food, and a nice, clean place with plenty of regulars showing up for good food and comradarie.

The parallels are endless with other businesses.  As an apartment investor, the problem is this this *competent* management comes at a price...  You want to find a good company so you both can succeed - and you don't have to play hardball like George Foreman and say, "I'm not gonna pay a lot for this muffler!"

"How much should you expect to pay for that *competent* property management?"

Well, it's one of our most frequently asked questions, and I've recorded a quick video to answer it - and also reveal some common misconceptions about what's included when you hire a management company.  See link at the bottom of this page.  The short answer to this question is really, "It depends..."  Yeah, I know, this is about like hearing, "Go ask your father...or go ask your mother..." when you're a kid, but hear me out.... 

There are a number of different factors which can affect the fees charged for property management.  Just a handful of these include your market, the property size, management services included, and many other details.  In general, we prefer companies that charge fees based on a percent of rents received. 

The key word here being rents "received".  By doing this, it provides motivation for your management company to keep the property running as close as possible to full occupancy.  So the basic idea is that their pay is tied to the property performance.

So what percent should you expect to pay?

As I mentioned, this will depend on your market, property size, and other factors mentioned, but you will generally pay anywhere from 5 to 10 percent of rents received for property management. 

So what's included with the property management fees?

There are a number of common misconceptions on what's included in a property management agreement, so I'd like to cover some of these and hopefully clarify what's typically seen in the market.  Here's a list of what's included versus what's not included.  I go into further detail on these in my recent video on Property Management Fees -- see link at bottom of this page.

NOT INCLUDED:

• Advertising Expenses
• Property Maintenance -- Maintenance Labor and Materials
• Capital Expenditures
• Utilities
• Taxes
• Insurance

INCLUDED:

• Marketing & Leasing Activities (Not the Actual Advertising Expense)
• Maintenance Coordination and Management (Typically Not the Actual Labor & Materials, But Onsite Personnel May Be Included in Your Agreement)
• Rent Collection
• Paying Bills
• Bookkeeping and Reports for You, The Property Owner

There is a lot of great services included with a good property management company, and this is an integral part to your success as you scale up in number of units.  The key is that you look for a company that charges a percent of rents received for the above services. 

And be sure to stay on the "Asset Management" side versus becoming a "Property Manager", or as Michael Gerber says, "Work ON Your Business, Not IN It!".