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Many “buy and hold” real estate investors decide early on managing their own rental property simply isn’t worth the time and effort. This is especially true for investors that own properties outside of their immediate geographic area. Whe are pros and cons to managing your own properties, ultimately it comes down to personal preference and capacity. Some people would rather be more hands on and save a few bucks while others gladly shell out a small percentage of their income to let somebody else manage the property.
For investors that opt to outsource management to a professional, licensed property management company. Knowing what questions to ask and what charges to expect is an important part of making a good hiring decision. In almost any market, you’ll find numerous property managers of all shapes and sizes. For the investors less familiar with how property management companies work, here’s a basic checklist to help get you started and a few of the expenses you may incur.

Leasing Fees

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How much does the property manager charge to place a new tenant in a vacant unit? I’ve found that anywhere from three quarters to a month and a half is standard. Be sure to find out how the property manager advertises for tenants. This is very important.  A property manager with a lower leasing fee may not spend as much time or effort on advertising. It’s also very important to ASK what their average days it takes to lease a property, so you know in advance if they even track those important metrics. It’s also important to understand how the property manager, or managing property company, screens applicants.  RPM maintains a consistent 29.5 days on market.

At a minimum a property manager should:

Verify Income
Obtain credit report (look for prior judgments, eviction history, credit history)
Run criminal background check
Have a stated debt to income approach (ie. rent amount cannot represent more than 33% of tenants gross income)
Check rental references to understand rental history

Management Fee

All property managers charge a monthly management fee for managing a property. Pricing is typically between 9% and 12% of the gross monthly rent OR charged as a flat fee typically between $99-$149. per unit/per month, Real Property Management charges a flat rate/per unit of just $79. through October 1st, 2019.  An important question to ask is whether management fees are charged. most property managers charge the fee regardless of occupancy status. It’s also important to understand what services are included within this management fee. Some of the fees listed below may actually be included as part of the management fee and not charged independently.

Renewal Fee

This is a fee the property manager charge to handle paperwork associated with renewing the contract for an existing tenant, for an additional year (or more). This fee is typically anywhere from a few hundred dollars up to a half month’s rent. While this may seem like an unnecessary fee, I’ve found that a good property manager can save you thousands of dollars in vacancy and turn-over expenses if they are good at keeping tenants in the property for multiple years.

Evictions

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There are fees associated with filing an eviction and handling the corresponding court proceedings. This varies from one property manager to the next. Some property managers simply pass on the actual filing costs, but manage the eviction as part of their management services. Most, however, charge a few hundred dollars (on top of the filing fees) to handle the eviction and court appearances. Real Property Management offers an opt in program where, if chosen by the owner, RPM pays the cost of an eviction. At RPM we call it EPP, cost is an additional $19 per month to be included in EPP. RPM pioneered this program, and the first to offer such a service, other PM’s have followed our lead.

Escrow Account

Most property managers include a clause that allows a maximum dollar amount the management company can spend on repairs without notifying the owner or obtaining specific approval. Be aware of the amount you’ve agreed to, I’ve seen this run as high as $1000-$1500 without approval. in contrast, RPM has an automatic threshold of $300. Any single item deemed to be over $300. RPM contacts the owner with an estimate and allows the owner to choose an outside vendor if desired.

Repairs

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This is probably the most important aspect of property management. If you shop around, you’ll find a property manager that beats the competition in almost every  category, but if they don’t have a good, affordable solution for repairs and turn-over expenses, you will still end up wasting more time and spending more money. Most PM’s simply outsource the maintenance to third party contractors that may or may not be qualified yet charge high handyman rates.  Others have a (1) handymen on staff that can make repairs and handle turn-overs, usually at competitive rates. The third is very similar to RPM, where the PM keeps a full staff of specialized tradesmen in house. there are two distinct advantages to this; consistent quality of work, and controlled costs, RPM doesn’t have to “mark up” rates to squeeze out small profit margins.

Inspections/ Trip Charges

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For many who get “stuck” with a piece of real estate, property management is often an ancillary afterthought. But to the savvy investor it’s important that somebody, with a trained set of eyes has a chance to see the property at least two or three times a year to make sure the tenant is taking care of the property, ensuring there are no major issues/violations and looking for lease violations. A few property managers include drive-by’s as part of the management fee, but may charge for a specific inspection or trip charge (of $75 to $125) to go into the property and make assessments as to the condition of the property. At RPM we offer inspections quarterly, letting the owner choose the frequency, giving the owner better control over costs, and helps establish a budget.

While different markets have different nuances of how property management is operated, understanding the basics (above) is important in selecting a property management company. Whether it’s a homeowner that can’t sell a house or an investor with a portfolio of 30 properties to a large firm with over 1000, ultimately you have to be comfortable with who you choose and trust that they will treat you fairly and honestly .

The best thing about a free market……competition!  If the first company you select doesn’t work out as well as you had hoped, you can always change. Remember, Real estate investing offers almost anyone the opportunity to accumulate wealth as long as they are willing to put in the work. To get a real estate investment career off the ground it’s essential to learn the tricks of the trade, hopefully i’ve helped you along. Good luck!!

Matt Pelton

Matt is an Ohio licensed Realtor with 20+ years experience in residential and investment real estate sales, leasing, property management, BPO’s and providing pre-purchase consultations. Currently working as Sales Manger at Real Property Management. You can contact him directly  here or on twitter @CincySalesGuy

Matt’s an Ohio licensed Realtor with 20+ years in residential and investment sales, leasing and property management. Matt offers pre-purchase consultations and BPO’s for investors, lending institutions and independent lenders. Matt splits his time between Sales Manager and RPM SuperHero  Contact Matt via the Mat-Signal by night or during the day via the interwebs or 866.500.6200 –[email protected]  – As the largest property management brand in the country, Real Property Management is well equipped to maximize your investment, alleviate the daily burdens, and provide you with detailed communication along the way.  How can Real Property Management help you?  Real Property Management @CincySalesGuy@ColumbusRealPropertyMGT – @RealPropertManagementMidwest 

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8 replies
  1. John
    John says:

    It’s rare to see someone writing such detailed article. You highlighted all the important things that we should pay attention to, and you also mentioned the one thing that people often forget about – the cost of the repairs. Good one, keep up the good work.

    Reply
  2. Dave Anderson
    Dave Anderson says:

    I think that property management is a very personal decision whether someone want’s to sacrifice their time and energy to manage their properties or not. By choosing a management company, you would save yourself the time and headache involved with managing your own properties. You would also be able to spend more time working, making more money, and with your family. Because of that, I think that hiring a property management company is definitely worth it.

    Reply
  3. Ashley Maxwell
    Ashley Maxwell says:

    Thanks for your comment about how property managers can answer our questions openly. I like how you said that they can help you with advertising. If someone is considering looking into property management, I would think that they would consider this post.

    Reply

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