The Costs of Hiring a Property Management Company

For rental property owners, at a certain stage of their investment life, they will consider this question - should I hire a Property Management company? If your answer is yes, then next you will need to think about your criteria to choose the PM company.

if A company charge 5% of your property and another B company charges you 10%. Should you just go with A company? Hold on, from my experience, the more expensive PM company in most cases, are the cheaper ones. Let me explain.

First of all, PM company charges a PM fee, normally based on a percentage of the monthly rent. However at the back-end, what they need is to charge a certain dollar amount, thus you should know that different regions and rental prices may call for different PM percentage. With this, let’s say, your rent is $2000 per month. In the above example, pm expense for A company is $100 while pm fee for B company is $200. The problem is PM fee is normally not the main expense of your rental property. Here are the top 3 factors that differentiate a good PM company from the other ones.

1. Rental price

A good PM company has enough resource and put in the efforts to provide you with a localized rental analysis. They can help you set a neighbourhood and property specific rental prices that can bring you the most revenues while leasing the units ASAP.

2. Vacancy

What is worse than setting the renal price too low is taking to long to rent. Vacancy means no positive cashflow for you. As an investor this is bad. One of the PM companies I hired took 10 months to lease one of my units when I first started rental property investing. I chose them due to a lower PM fee percentage, which I regret to date. This is almost a year-rent and tens of thousands of dollars lost for me.

3. Cost of R&M

Good PM companies work with you to make profits. Bad ones to get profit from you. A good PM company has the resources and a large network of vendors to work with for R&M. A project like AC replacement could cost your either $5000 or $3000 depends on who you are working with.

With these added up, that $100 difference in PM fees expense does not seem to matter that much at all. Don’t fall into the trap as I did, using PM % as the major deciding factor.