SS43: What Do Multifamily Property Managers Charge?

Charles discusses what multifamily property managers charge for managing apartments. 

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Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what do multifamily property managers charge. And this is very important, even if you’re self managing property, because at some point you’re most likely gonna bring on a third party manager so that you can scale your portfolio and knowing exactly what a third party manager will charge in your area, a on your type of properties that you own is important when you’re calculating out your actual returns and your actual cashflow on that property. So monthly fee is usually how is usually how you pay a property manager. And it’s a monthly fee that has a percentage of the monthly rent collective, typically six to 10%. Now, if you’re getting 50 plus units in a property or 50 plus units in a portfolio this will start decreasing. You’re also paying hourly rate for handyman.

Charles:
There be additional fees are possible depending on what the manager is handling and what you are handling yourself, such as if you have someone else working. That’s going to be something that you’re paying to your handyman or leasing agent, but not to your handyman. Now the monthly fee is a percentage of the monthly rent collected. Typically monthly management fees for residential multi-family properties can vary greatly by the property location, the class of the property services rendered, but typically run in the six to 10% of rent range for basic management, larger pro we’ll see decreased rates when there is onsite management. And we’ll talk a little bit about onsite management in a second. The percentage depends on the geographic area. Your property is located as well as a services rent. For example, vacant properties sometimes require more work from the management companies, such as conducting weekly inspections for potential break-ins or paying the utility bills.

Charles:
A slightly higher rate now with an hourly wait, when we’re talking about this, it’s some property management companies will offer a fixed fee structure in lieu of collecting a fee based on a percentage of a month rent. And this might be with smaller properties. And when you’re talking smaller properties like residential properties. So if you own a condo or something, they might just give you a fixed rate every month, if it’s rented, or if it’s not, because there’s still things that they’re gonna have to do, even if there’s no rent coming in, when you’re just starting out with a single property, this may seem like a good bargain as a property is collecting $2,000 in monthly rent will cost you $200 per month. Let’s say for a condo, usually 10% is usually what you’ll see in a single condo or single family house rental.

Charles:
However, manage companies collecting a fixed fee only, maybe as motivated to maximize this rental income from your property or provide any additional services. Also, once you own multiple properties, you’ll also be able to negotiate a far better flat monthly fee. That is 10% of rate 10% of rent. Now, this is very important because when you’re talking and when you hire a management company, find out where their tiers are and where the rate decreases come in. So I’ve spoken to one before. I was just speaking to one and they’re saying that their rate’s about 7% starting off and it drops around 35 or 40 units. It drops 1%. So knowing that going in that you’re gonna be paying and what you have to hit for units before you see a decrease over the whole portfolio, and that’s the whole benefit with it.

Charles:
It’s over the whole portfolio. And so with you have investors or you own another property, a hundred percent and you hit one of these tiers, that’ll save you on your new properties coming up, but it’s also gonna save you on your properties that you’re already owned. So any investors that you might have, or if you’re in joint venture, any partners that you have they’re gonna see that that decrease in cost and their property as well. Now, onsite management is used usually one and admin person in one handyman per hundred units. And usually starting around 50 to 60 units. If you have less than 50 or 60 units, you’re probably not gonna have onsite management. Now, some properties will have onsite if the they’ll have a little office on there and they might have one, like we had one that was 32 units and had onsite, but we had a lot of units around it.

Charles:
So we’re able to an on site leasing person and also a handyman. And it made sense. But if you just had say 32 units, having a full-time leasing person on site probably won’t make financial sense. Now I have a friend that has a 60 unit property and pays 6% for management. However, the management company provides a handyman for two days a week. So it really to pay in that scenario, they don’t have to now hire a handyman for two full days a week. They’re just, it’s all combined into the 6%, which makes it easier for their numbers when they’re doing stuff out. And also it’s gonna decrease cost with using that handyman cause you now pretty much have someone on salary during those times. So buildings in importation or in core areas, okay, you’re gonna be paying additional if your property requires more time or management, if you’re requiring the property manager to supervise a renovation or certain projects who will be charged using a percentage of the work that’s being done.

Charles:
So if you’re having a CapEx project done like a new roof, you’re having new windows put in, you’re having the whole building painted all these different things. You it’s, it’s very regular. If you you’re not, if the asset manager, the owner is not managing that project, then you’re gonna have to pay a percent. That chin might be a few percent. It might be 10%. It depends on the project. Depends on what’s being done. And you know, depends on what you can work out with your property manager. You’re gonna be charged more if the property manager needs to be on site more often than expected or that to send somebody from their office regularly to check in, or if there’s a higher level of turnover. And this is really, this is normal. When you’re getting into lower end properties, you’re getting into C minus and D properties.

Charles:
This is where you require daily on site from a property manager. So you’re gonna be paying more for that. And that’s a reason I kind of stay away from this because you, it, it’s very difficult to make money in those properties. But number two, it’s just your management fees. You might see great returns when you’re looking at when you’re looking at line of these properties or looking at a broker’s performa, but there’s a lot of management that goes into lower class properties when you’re going into them DS and, and lower CS now, additional fees. This is gonna be something that comes up and this is all over the place with managers. So, because a lot of people just say, percentage, it’s a percentages percentage. That’s all they really care about. But it’s very important that in our last example with my buddy that has a 60 unit, 6%, I might look at it and they say, oh, my, my rate 6%.

Charles:
And someone might say, oh I don’t wanna deal with that’s too expensive. Right? And they don’t go through and say, well, we have a full time person for two days a week on, right? So there’s a lot of different things of how it can be structured that go into how that property may manager runs their business. And every property’s gonna be different. They’re gonna have a different strategy probably for you. If they’re managing a 12 unit versus you know, they’re managing a 70 unit, right? So you have to know and go through and keep everything apples to apples. When you’re comparing property managers. Now application fees paid usually from the 10 manager owners on smaller properties will usually not take part in this. Okay. So I have application fees come through with one of my property managers for a small portfolio I own, and I don’t take any money off that.

Charles:
And in, you know, that’s lost revenue. However, in that application fee, they’re gonna pocket. The majority of that application fee is profit. I understand that, but you also have the person in the office that’s accepting the application and you also have the president of the manager, the manager, the property manager to he’s going to approve or decline the tenant. So if you’re getting good tenants and this is how it works, Hey, it doesn’t come outta your pocket. So it’s not really something, I would worry too much about all the fees become more important when everything’s not working when everything’s working. It’s a, it, you know, you’re kind of paying for better service, right? Just kind of with anything else. So keep that in mind when you’re looking at these fees and know exactly how you want the property to run. And if they’re taking a fee that you’re not even paying to get good tenants in there, I wouldn’t worry about too much.

Charles:
Now, when you get into larger apartment complexes, you’re probably gonna have onsite people. They’d be paying these application fees. This is more something where you’re gonna be taking a, a, a big chunk of that. And you might have a system set up where if you have an onsite actual, like, you know, present of your management company, something of, of your small complex or something like this, that’s on site all day long. So if you have a 200 unit property, you might have like four people, two leasing people, two handymen, and you might have actually like one manager, that’s making decisions on who’s approved to come in and who’s declined, or they might take all that information from those four people on site, send it to the main office. And that’s where you’re paying your property manager, right? Where the property manager’s like, yes, no.

Charles:
And that all day long they’re approving or declining tenants based on the application. And the background check next is advertising marketing fees. Okay. In addition to actual costs and it’s better for asset managers to handle, I feel, so if they’re gonna charge you for different advertising usually I find that the pro the property managers aren’t as effective marketing as you could be. So if I was doing asset management, I want to handle I don’t want to take any of the calls or deal with any of the the tenants, but I wanna make that property manager’s phone ring for my property. Right. So I’m gonna spend more time probably promoting our property ourselves and not really have the manager do that. I’d keep that as an asset manager role. The other thing too, is that I’m gonna focus on Handl.

Charles:
A lot of the CapEx renovation, project management myself. I wanna see how it’s going. I wanna see that for myself, if it’s pro property, I own myself or a joint venture that I have with partners. We’re gonna do that for sure. And of course, if I have investors, I can’t just say, Hey another third party is gonna handle this huge project that, where we have, we’re doing, you know not very professional. Next is eviction fees. Most property managers won’t charge you for eviction fees. Some will you see a lot of these fees that you’re paying your property manager on smaller properties. Once you get into bigger properties, there’s a lot more money generate it from you from your properties. So you’re gonna see a lot of these fees decreased or completely eliminated. Okay. So if you’re paying an eviction fee, I’ve never done that.

Charles:
Where if someone gets evicted, they’re gonna charge you the property manager and then have a lawyer charge you. I see that as kind of frivolous next is late fees. You should be keeping late fees if they’re actually gonna collect them and you have to pay a little bit back to the property manager, fine, but I’m not gonna give all the late fees to the property manager. Now, I understand if you give a little bit back, but not all of it, right. And if they actually collect them and they put their foot down on them great, fantastic. They should be compensated a little bit on that. And if I’m charging a $50 late fee, and I have to give them 10 to one $25 outta that fine, it’s another $25 that I would never have gotten. And it probably will push that tenant to pay on time next month, which is the goal of all this.

Charles:
Next is leasing fees. This is very common. Every time something’s leased, they will charge a fee for it. It usually I have a deal right now with one of my property managers, where we pay $250. They have an agent that they work with for all their thousands of units, and they pay this agent or this broker brokerage two 50. That’s what I pay every time they lease an apartment and that’s it, I used to not have to pay that fee. And then I was able to, when they brought it on, it saved a lot of time on on on their end, but also it sped up and minimize my downtime on the units. So if you rent, if you’re renting a unit for a thousand dollars, and you are able to get someone in there two weeks earlier, because you have a full-time person that’s focused on renting your apartment to a good person, and they’re on a hundred percent commission, that’s pretty good.

Charles:
And $250, isn’t that much. You’re gonna see a lot more fees. For, from other property managers, I’ve seen some that charge, maybe 175, they might charge 200. They might charge someone just told me that someone, they saw someone that was $350. It all depends on your market. Depends on how much work goes into finding a good tenant. It also comes down to marketing. If you are making your property managers a phone ring off the hook, when you have a vacancy, right with marketing campaign that you’re doing, or your virtual assistant are doing for you that’s gonna make it a lot easier for them. They’re gonna have a lot more leads coming, right? They’re rent the department. They have 40 people that call, right? And they get a few applications and they can really hand pick a good tenant. Well, you’re gonna most likely not be paying as much in these leasing fees, cuz it’s less work for them.

Charles:
Renewal fees are something that you’ll get charged here or there. And that’s on the 13th month when a lease is renewing, you’re gonna pay a fee to property manager. And that’s very common. I’ve seen some that go several hundred dollars and I feel it’s pretty high, but it, it is a fee that you’ll look out for. But if it’s on the low end, it’s something I might not worry too much about. It also depends on the size of the property. Now sales commission for selling your property. This is possible because if your property may Andrew they’re most likely, or they have to be a licensed brokerage, but they’re probably not gonna sell your property. So they’re probably not gonna be selling you charging you a sales commission when you sell your property. The other thing too is they’re gonna wanna earn the business of the buyer.

Charles:
So when they’re earning the business of the buyer they’re probably not gonna want to leave a bad taste in your right and they’re gonna wanna get that business. And the cuz the buyers can ask you, how is this management company? And would you recommend them now, most fees you charge will go to the owner’s bottom line and some will be shared with your PM, your property manager, while a couple may be kept by your PM, like the application fees in some situations or renewals. But you know, you have to see what they’re charging and what they wing. And that’s really what the results, if you’re getting good results from what they’re doing, I would take that into consideration. As we, as we close up here, the best way of finding property managers is by referral. So if you, if you are find property owners in your area that have professional managers third party managers and that have so and lower properties to you in nearby in the vicinity of where your properties are and ask them for a referral of who they are. And that’s the best way of doing it. Cause if you start looking online you’re gonna get inundated with all different type of managers where you really wanna find one that knows your market knows your size of your property and knows the class of your property. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

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