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Monday, March 26, 2007

Property Management Set Up For Rental #1

My first choice for property management did not work out, so I've signed up with another property management company. The terms are almost identical to what I had planned on with my first choice: the monthly fee is 10% of the monthly rent, there is no fee when the property is empty, and when a new tenant is put in place, there is a charge of 75% of the first month's rent. The only difference between my original PM choice is that the new tenant fee would have been 50% of the first month's rent. I need to send in $250 to be held in a contingency account for any repairs (which I would have had to do, no matter which PM I used).

I wanted to get all this done this week, before the first of the month so that the tenants could start sending their rent to the new manager.

3 comments:

Doug O said...

Now you've just touched on one of the biggest problems with SFRs out of state - the high cost of having a PM for a single home... This is one of those things where if you accumulated several in the area you could really increase the cashflow by negotiating better terms (obviously when you are dangling a bigger carrot, you get a better offer)...
This is the exact reason why I don't buy anything less than 50 units out of state, since it makes a big difference between getting a PM for 3-5% and no other charges (other than actual repair costs) and a PM that costs 10-12%... It's a great case study for those people who are trying to get into real estate to make certain they factor in this higher cost of management and that they take that into consideration when buying.. That way they can be sure that they buy at a price where it still makes sense, even with that PM cost factored in...
I've seen so many people so eager to 'get into real estate' that they buy a SFR that looks cheap but never factored in the cost of a PM... Then they realize that their $100 / mo cashflow isn't actually there...

Shaun said...

In my case, I did factor in 10% management fees in my cashflow calculations (see here). However, I am also looking at getting more houses in that area to get a lower rate.

I'd love to get into 50 unit and bigger properties, but I don't think I'm ready for that quite yet.

Doug O said...

You'd be surprised... I went from a 5 unit to a 100+ unit place in 2 years... Honestly, I just saw a better value in larger properties (plus I got tired quickly of being the manager for the smaller properties)...
Although I will say, being an onsite manager is a great experience in learning A) what types of things happen with apartments, and B) how to handle crisis with a reasonable cost...
If you take a hard look at properties out there, you should see that you can get into larger properties without altering much - particularly if you're willing to sell off other, smaller properties you might currently own... Figure with $100,000, you can begin searching for mid-sized properties in specific markets that provide (at the very least) decent cash flow... The markets where both cash flow and appreciation are considered will obviously have a higher entry cost...

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