What is the average cost for property management. I know its probably cheaper with a mfh to have a tenant manager, but what if that is not feasible. How does it work. If a tenant has an urgent propblem in the middle of the night, would they contact the property mgmnt co. right away, or would they have to call me first. Im looking to purchase a mfh out of state (my first one) and need some info.
Depending on the area and the amount of service, expect to pay 7 - 12% of the gross rents. The average is 10%…
Keith
REJunkie,
You need to do a careful cash flow analysis using real world numbers especially if you are planning to use paid management and paid maintenance. That 10% of the gross rents that you pay for management and 5-10% for maintenance can easily be 100% of your profit.
Good Luck,
Mike
Mike,
What percentage of your gross income actually end up as cash flow? Are you essentially a waged property manager with a bunch of equity?
I pay between 6-10% and I use 4 different companies.Three out of 4 charge no placement fee and one charges $200 flat fee, but does not collect 10% of first month rent.
The prop. mgmt should handle everything; some will even pay your mortgage/insurance/taxes for you. As for repairs, usually you set a limit (like $200) before they have to call you.
Be sure to check out folks well before signing up with a company. Things to look for include experience, do they have a full-time person running the office/taking calls, etc. Many times, prop. mgmt is connected to a real estate office; you need to make sure that the management of the property is a priority for someone there (not just a “if I have time” activity for some sales agent). Also I don’t like big upfront placement fees. I like firms that have their own people to do repairs (charge a flat hourly fee plus materials) or a good list of local handyman. One firm I use like to use licensed, big firms for reapirs. I end up with stupid bills for $75 becuase a tenant complained about a leaky faucet. I’m not entirely happy with that.
Lastly, look at how good their “pipeline” is for placing tenants. This is particular key for a small, niche markets. I have one company in small out of the way place, but they are locally known as the place to go to find a rental unit. Thus, they have people calling every day looking for places and my vacancy rate has been practically zero despite a good bit of turnover in tenants over the 6 years I have been working with them.
Danny,
The positive cash flow is about 15% for my business. However the extra 15% to 20% that I EARN for management and maintenance makes a BIG difference. This is especially true when you consider that the effort to earn that 15% to 20% is VERY LOW. I work the first 4 days of each month collecting rent. If I have don’t get anyone’s rent, on the morning of the 5th, I have to post a 3 day notice and take the paperwork to the attorney. During the rest of the month, I try to work about 3-4 hours each day doing scheduled maintenance and turning vacated properties (paint, carpet, etc).
As AAK said, I tried using contractors and handymen to do the maintenance. I found that contractors charged WAY too much and handymen do shoddy work (and charge too much). I’m not paying $75 for the 10 minutes it takes to repair a leaky faucet.
I have all my tools and materials divided into 5 gallon buckets. I have a bucket with plumbing fittings, electrical stuff, drywall stuff, carpet stuff, etc, and even a Section 8 bucket. The Section 8 bucket has all the common stuff to fix anything the Section 8 inspector finds during his inspection. When I get ready to go work on a property, I just grab the appropriate bucket for that day’s work. A ten minute job takes 10 minutes and I don’t end up spending $75 for a 10 minute job.
Danny, what have you found to be the profit margin on your rental business? Are you doing better than 15%?
Mike
I see about 10% on my apartments. That’s with in house maintenace and management. I don’t have any section 8 tenants so I don’t have to pay anyone to clean feces off the wall and ceiling which makes the costs more bearable…
With my office buildings the margins are much better (30+%), but none are gross leases either. The money, ease of management/ maintenance, and operating expenses I’m responsible for are all much better with offices.
I orginally thought I wanted to own 1,000 apartment units before I “retire”. Now I won’t be happy until I have 0 apartment units. I’m going to settle at 500 office units before I stop buying properties entirely (long way to go). Your a better man than me for being able to manage residential tenants!
Mike is half man, half robot…sent here from the future. Sent back in time from a section 8 office in the year 3049 he’s here to ensure a promising future for section 8 tenants.
I'm going to settle at 500 office units before I stop buying properties entirely (long way to go).
F I V E H U N D R E D - WOW! You must have a lifestyle that is a little bigger than my goal.
Do you have your eye on one of those Private Jets and a Big Yacht?
My goal is only 100 residential rentals, although that could change.
Mike
I’ve got a long way to go before I can put that yacht, private, jet, helicopter, and 3 blonde girlfriends (Hugh Hefner approved) on layaway.
500 office units seem like a lot to me now also but I acquired 45 in 2006 without even realizing it. I was so busy with my residential division and other commitments I didn’t have time to stop and count what I was doing. Now I have more time and I will be going after atleast 60 more units this year (more if I can sell my apartment buildings).
You’ll get to 100 apartment units before you know it and your next goal will be 1,000 then 10,000 then 100,000. It’s been done, no reason why you can’t!
If I’m going to have 1,000 units, then I’m going to be forced to go to the dark side and hire someone. I know I can’t do 1,000 units alone.
Mike
Ya think?!?!?! The lawn mowing/painting/make ready alone would kill the average droid!
Keith
1,000 units is the green side no matter what kind of employees you have. One good manager is all it takes to alleviate most of the BS from your life.
What was your business with the 50 employees that left such a bad taste in your mouth?
It was an ambulance business, but I’ve had other businesses also and I didn’t enjoy having employees in any of them. That’s my weakness, I don’t work well with others and I HATE to manage mediocre people. I found it very similar to dealing with tenants. A FEW employees excel; most are mediocre at best; and a few are total disasters. I probably fired 100 people in the years that I owned that business.
We had a paramedic that injected himself with the morphine and refilled the syringes with water; another paramedic who turned out to not be a paramedic at all (had a forged certificate), an EMT who pulled up the shirt of a female EMT in front of other employees; paramedics who would go on cardiac runs without taking batteries for the heart monitor; a paramedic that passed out on the way to work because he was drunk; an EMT who quit after working for 4 hours because the work was too hard, a crew who drove a brand new ambulance without water until the engine seized (with annunciator lights illuminated for 1/2 an hour), etc. I could go on and on and on and on and on… but you get the idea!
Mike
LOL
Mike, that sounds more like a frat house than a business. I had no idea there was any private ambulance companies. RE tends to attract more mature (older) people so I’d imagine you’d have less of that “fun” to worry about.
I agree 150% that most employees are mediocre on a good day. The younger employees I have are about as stupid as I’ve ever seen a human be. They are relegated to menial tasks like putting stamps on 5,000 envelopes, answering the phones, going to get office supplies, etc. But I have 3 who I almost never see.
They are all over the state evaluating properties unsupervised and doing a great job. They send me pictures and descriptions of each room of the property along with a detailed scope of work based on what they saw. By inputting the disrepairs in their tablet PC’s, it automatically tells them how much it will cost to repair based on a lot of previous research. Before they arrive at a house we will have an agent send my office some comps and we determine a max ARV ahead of time. With those 2 numbers, they can then make an offer to the seller on my behalf, on the spot. They are really in the position to screw me over if they wanted so I keep them happy$$$.
Sounds like you’ve done what sucessful rehabbers do, built a SYSTEM that works and expanded it. By having people out there that are well trained and ready to act intelligently on your behalf you’ve multiplied the level you can operate at bigtime. Good work!
Thanks Rich. The “Investment Analysts” really are smart people. All have some background in home inspections or general contracting. All have owned their own business at one point. All got tired of an inconsistent income and I pay them equal to or more than what they’d make on their own with less stress of worrying about where next weeks payday is coming from. These guys can evaluate 2- 3- 4 properties a day each which leaves plenty of properties to choose from.
Sometimes home inspectors or appraisers offer their expertise in the form of an “investment consultant”, this is pretty much the same thing only mine are full-timers.
Now shut up and go buy a piece of the rock!
Trying man, trying. Trust me…I’m definitely out there trying to git r done. I think unless the numbers come back above my expectations on that condo deal its kibashed bigtime. I’m going to keep searching. Read a little of “Flip” last week or so, figured since I was trying to buy now I should at least pretend to read it. LOL
I’m with Mike here.
I already wanted to own a business with employees, but having run one with 8 employees for the last four years, I’m currently selling it. Why??
Good employees are expensive, they come and go, open their own business, and if they stay want frequent raises. The bad ones stay and stay till one day, they mess up bad enough I have to let them go.
I just had it with employees
For small businesses, one out of four hires are disasters. I hired a gentlemen, in his late 30’s, with a mind and intelligence of a 15 year old. My manager prevented me from firing him a number of times, reminding me his replacement can be a even bigger disaster.
Anyway, I kept him around for laughs, but he finally left a few weeks ago.
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One time he’s having lunch, picked up the phone to tell a customer with his mouth full of food that’s he’s out to lunch. The angry customer wanted his supervisor. Told him to let the voicebox pick up the phone next time.
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Told us all about all his problems bringing a big pizza home on a crowded city bus because it’s one dollar cheaper here where he works. Couldn’t understand why the other passengers are so upset.
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Asked a lady in the office what to do with leftover pizza, and was told to heat in up in the oven at 350 degrees. When he gave a puzzled look, turned out he just rented a new apartment, but forgot to see if it came with an oven.
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Another employee tired of sitting around did some work for him, but didn’t quite finished. He was all upset, yelling saying why people can’t finish jobs that they started. Explained to him everyone working here is “on a team”, and he’s expected to finish work someone else started. His answer “oh, now I understand. I never understood why after my wife did the wash, she’s so upset, I don’t go and fold it, and I always thought if she started a job, doing laundry, she’s got to finish, folding it. I guess on ON A TEAM with her, and I should finish”.
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Bought several new phones at Staples and he started to throw the all boxes away. Told him to keep one, he gave a puzzled look and asked why. A customer standing nearby explained that if a phone is broken, you put it back in the box, and bring it back to the store. His answer “oh, I never knew that”.
I kept this fellow on, as he’s stupid but harmless.
I understand completely. It takes a while to find the first one because it has to be a winner. There is no comprimise on this because a marginal deal can leave you torn to sh** financially and it will be another 10 years before you are in the position to start again. Just keep on truckin’.
“Riches do not respond to wishes. They respond only to definite plans, backed by definite desires, through constant persistence.” - Napolean Hill