Property Management???!!!!
Hi,
I am interviewing a property management firm to manage one-half of a duplex that I own in another State. From all our dsicussions, They are charging an 8% fee per month and they want half of the first months rent as a leasing fee. So far this looks pretty typical to me and I have no problems with it.
During negotiations, I asked the office manager if I would have to pay the leasing fee again if the lessor broke their lease and moved out. She said that I would have to pay that fee EVERYTIME a tenant moved out. I recall reading somewhere that a leasing fee should be charged only once every 12 months. My questions are: Am I accurate here? Is it standard to have a leasing fee paid everytime a tenant breaks a lease? How do I ensure that the property manager is properly screening these tenants and not just making my property a revolving door to collect multiple leasing fees?
Please share your advice or expertise on this issue. Is it possible that that I am being ay too paranoid? I always want to approach things with a worst case scenario so that I know exactly where I stand. Thanks in advance.
JS.
NEVER pay a leasing/finders fee to a PM. I have never had to do that and the people who I know who have, have run into the exact problem you mention. The tenants were horrible since the PM was more interested in getting the fee than anything else. In almost every city, you can find both PMs who will and won't charge this fee. In one town close to me the first 4 I called charged this fee, but the 5th didn't. I have have been very satisfied with the tenants that my PMs who don't charge a fee have found. They are more interested in getting a good long term tenant since they know they won't get anything if there is a vacancy. I have also found that the rates charged by the PMs that have a fee are at least as high and often higher than the ones who don't charge a fee. Hope this helps.
smithj2,
Leasing fees are the standard practice in one of my investment areas too. If your management agreement calls for a leasing fee each time a tenant is placed in your property, then a fee will be charged whenever your tenant breaks a lease and you install a new tenant.
Note, I said "a leasing fee will be charged." I did not say that you would necessarily pay the fee. In the terms of your lease agreement include language in your section on termination that specifies that the tenant will pay the costs of obtaining a new tenant to serve the remaining term of their lease.
These costs might include advertising and the leasing fee and could be deductions from the security deposit. This MAY also mean that you can not raise the rent until the original lease has expired (this is a provision of my state landlord law).
Ask the property management company to give you a blank copy of the lease agreement they propose to use. Check the termination clause to see if you have similar protections.
If you absolutely can not find a PM in your area that doesn't charge this fee, I would try to get some terms that were beneficial to you. Maybe you could get them to agree that the fee was refundable if the tenant did not stay for at least 1 year. Again, I would do many, many phone calls before I would pay a fee. Most cities of any size have lots of PMs. Also, almost every PM is willing to negotiate. I would still be suprised if you could not find a PM who would work off a strict percentage of rents.
davmille,
You get what you pay for. In my area, the best property manager charges a leasing fee. I am willing to pay a leasing fee to have the best manager in the area working for me.
The original question was not related to the practice of charging a leasing fee. smithj2 said he had no problem with a leasing fee, just that he did not want to pay the fee in the event a tenant breaks the lease. I pointed out that this could be avoided if the lease shifted this liability to the tenant.
Dave,
I think were going to have to just agree to disagree on this. From my experience, which of course would not be great enough to be called statistically valid, there is no advantage gained in paying fees to PMs. I will add again, that in the cases I am familiar with however limited, the PMs who charged a fee gave inferior service. Also, it is true that JS did mention that he did not have a problem with the fee but that was qualified with his comment that the fee appeared typical for his area. Of course, if he happened to find out about a good PM in his area who didn't charge the fee after he has paid out a few thousand he may not feel the same way. All I am saying is that there is no harm in getting out a phone book and making calls to all the PMs listed, along with reccomendations from a few realtors. Then he could not only ask about the fees but he could also ask if they would waive them. You never know what will turn up.
Hey,
I don't use Property Managers and this fee is one of the main reasons.
When I did some research on PM (several years ago) and I contacted no less than 10 firms in my area (some where full time PM and some where RE Agents/Firms). And every single one of them charged this fee. It varied between half and one month's rent.
I was told, repeatedly, this was to recoup their expenses in obtaining a new tenant.
I thought, and still do, a fair compromise would be a fee plus the guarantee the tenant would stay for set amount of time. None of the PM would agree to this idea.
In my head, the idea that a PM is rewarded for short term tenants is insane.
BUT, as you are out of state, I think you have to get a PM. So find one that believes in long term tenants.
I have been burned like you do not know! I finally have interviewd 3 PM's and choose the one who happend to be an attorney. I reviewd the contract, made changes and finally my properties are in good hands! I can finally sleep at night!
Mine charges 50% of the 1st month to procure a tenant. He also has a retainer fee of 25% if the tenant stays and re-ups for another year - I think that is fair! He also cares for ALL the payments tot he mortgage and utility companies for about 10% of the monthly gross.
There will never be a guarentee for retention of tenants - They are people too and make choices like the rest of us.
In any case, it is a good practice to send letters to your tenants as part of a survey to make sure your PM is paying attention to their needs and show you care about the home you provide for them. Then review the letters with your PM. This lets everyone know you care about your investment and also the environment you provide for them!
Keep on looking for a PM until you are comfortable with one. It takes time to find the right one. But when you do... You'll know it!
Thanks Everyone,
I took some of the advice above and suggested to the PM that we modify the contract to make the tenant responsible for the leasing fee IF they break their lease. They refused and insisted that the contract must stand as is. I know these PM's are in business to make a profit and I do not begrudge them that right. I do believe a leasing fee is fair only if there is some way to protect the owner from poor service.
I did some rough calculations and if the PM gets paid just three(3) leasing fees in a 12 month period, they actually would make more money than they would if theY just managed the property and took 10% gross rents. To me, this seems very skewed and I believe that there will be a great tendency for PM's to take the path of least resistance and work just for the leasing fee.
Since I am out-of-state, I realize that I don't have much of a choice with regards to using or not using a PM. For those who used PM's that did not charge a leasing fee, how did you handle the costs of advertising and listing the property?.
Thanks Again.
JS
Recently I visited Salt Lake, the rental market there is very tight! A Lease fee might be what is needed to create motivation to lease your property. I agree with Dave, whatever it takes , do it! I know one agency that gives out large screen TV's with each lease to the rentor and is happy to do so. Out of the 100 units they manage all 100 are rented. I say, "go with what works" never be afraid to share some of the money around if it means making you money
[addsig]
Quote:I took some of the advice above and suggested to the PM that we modify the contract to make the tenant responsible for the leasing fee IF they break their lease. They refused and insisted that the contract must stand as is. smithj2,
Let's be completely clear on the suggestion. You are NOT amending the property management agreement between you and the management company.
Instead, you are adding a clause to the lease agreement between the management company and your tenant that says (or words to the effect):"In the event of default by Tenant hereunder, Tenant shall be obligated to pay as additional rent, all costs actually incurred by Landlord/Agent to obtain a new tenant, including, but not limited to, advertising costs, real estate broker fees, and such other incidental costs and expenses."[ Edited by DaveT on Date 02/13/2004 ]
JS,
The costs for advertising have been insignificant in my own experience. Basically, the PM has people come into his office all the time looking for something to rent. It may just be my market, but the PM will tell the potential tenants that he has a unit available in a couple of weeks and lets the tenant look at it if possible. The most I have seen my PM do is drive over about a mile to where my properties are located and put out a sign in the yard. The tenants have to pay an application fee which I think is about $25 which covers the cost of doing credit and background checks on them. The rates in my area range from 6% to 9% with 6% being most common. I pay 7% for the particular PM I went with for most of my properties. Best of luck.
As a PM, I charge 1/2 first months rent for TENANT LOCATOR SERVICE ONLY (No PM contract).
If I'm to manage the property, I do the FIRST tenant locator AS PART OF PM duties (9% net receipts) for the life of the relationship...regardless of tenant turnover. I only ask owner to pay my cost for advertising. A long term PM / owner relationship is better than a one time locator fee.
Please rate this service model.
Just a quick update, I finally walked away from the PM who was insistent on the leasing fee and would not budge on the terms. Almost immediately, I have found another PM who is much more flexible on terms and has a better understanding of my particular market (at least based on their past experience and referrals).
Let's see how well this new PM can perform.
JS