Property Management Co Exp.

Does the property management company extract their pay percentage from the gross collected rent or NOI?

Typically they take from the gross income, but everything is negotiable. Having them take their cut from the NOI is much better for you because it encourages them to not only collect all of the rent but to keep the expenses down to.

I recommend starting your own management co. if you start accumulating a lot of units. A small company of 4-10 employees is not difficult to manage (if you have a manager) and will save you a tremendous amount of money by not paying someone profit. To manage SFH’s the going rate is about 8-10% of the effective gross income (EGI). Large complexes, the management fee is more like 2-6% of the EGI.

When you say “Large complexes”, what is exaclty do you consider Large?

I consider large to be anything I walk in front of and say “Wow, that’s big!”

Typically 50-100 units is considered medium in the wide world of commercial RE. Management will cost 4-6% in most cases in this range. Hopefully you can figure out what small and large are from that.

The largEST complexes (over 1,000 units) are probably paying 1-2% of the EGI. Unless your talking about low income housing where the array of problems are concentrated to make a huge mess, it’s easier to manage 50 units under 1 roof vs. 50 single family houses all around the county. For that reason, management is cheaper the bigger you go. Your total operating expenses are usually less for the same reason. I have an office building that has operating expenses at 25% of the EGI. You may want to look into offices as a place to start accumulating rentals. Much easier!