Often when I speak with investors about property management, one of the first questions I get asked is, “how much are your fees?” I think that question quickly comes up in a conversation for two reasons:
- PRICE DRIVEN – maybe the investor is price driven, and they will go with whatever the lowest price is on the surface. That investor may not realize that he/she is possibly sacrificing hundreds or thousands of dollars in savings or lost opportunity somewhere else in the investment life cycle. It reminds me of one of my business coaches said about something I was trying to be too frugal on. He told me to “stop stepping over dollars to pick up pennies,” that something that has always made me laugh.
- MANAGEMENT EDUCATION – some investors may not be educated enough in property management or investing to understand that property management services is not a commodity. Investors need to know that going with a certain company that might save you $18 per month on a management fee or an extra $100 on a lease renewal is a small amount vs having an extra week of vacancy time or having to do a turnover due to the renewal not being successfully executed timely.
I do think understanding the cost of a management fee or a renewal fee is a valid question, but it should only be part of an investor’s total decision criteria. Along with knowing the cost, investors should also account for all aspects of the property manager’s experience and true cost involved. Below are a couple other items that an investor needs to account for when making an INFORMED decision on who they should hire to manage their asset that is worth hundreds of thousands of dollars.
- LEASE UP - an investor needs to know how long it will take a property manager to lease their property. They can estimate this time by discussing with the property manager how long it takes to get a lease signed and a tenant moved in. If a company charges 8% management fee, and it takes them 10 days less to lease a property than the company that charges 7% for $1800 of property, you just paid for that additional 1% for the next 3 years. That will still put you ahead a couple of dollars.
- MAINTENANCE - how will a company handle your day to day work orders and turnovers? Are they going to contract out 100% of that work or will they do a majority of it in-house? Over the course of one year, this can affect you $1000 of dollars if you have a turnover. How quickly a company resolves issues or completes turnovers affects the quality of your tenant’s customer service and vacancy rate. Every extra day it takes to complete a turnover is another day you are not receiving rent and still having to pay taxes, mortgage, insurance, utilities, and possibly an association’s fee.
As an investor, I know at the end of the year, vacancy and maintenance can make or break me. Over the years, I have realized that it may take a little more on the surface in expenses to my property manager; however, on the back end, it saves me thousands of dollars in various areas of the investment cycle.
In conclusion, if you do not want to worry about the long-term health and stability of your valuable asset, then you should go with the lowest management fee you can find.