Why property management fees don’t matter

A lot of us make buying decision on price.  It only makes sense.  Not so when shopping for a property management company.  Here’s why.

Most property management companies charge a percentage of rent — somewhere in the range of 7-12% of the rental price.  You don’t have to be a rocket scientist to figure out that an 8% management fee is better than a 10% management fee.  But there is a LOT more at stake here than just the management fee.

What if the management company does a lousy job of screening tenants and allows some “deadbeat” tenants to move in?  Now you are at risk for: 1) unpaid rents; 2) property damage; 3) legal fees from eviction, and/or; 4) any combination of the above.  The cost to an owner from lousy tenants can easily escalate to $5-10,000 or more.

Now consider the cost of the 8% PM company vs the 10% PM company.  On a $2,000/mo. rental that difference is $40/mo., or $500/year.  Beginning to see the logic?

The management fees a PM company charge an owner are dwarfed by the potential financial risk that same PM company puts the owner into.

So what is the solution?

Shop management companies NOT on fee or price but rather on their success at finding good tenants.  Ask them the following questions:  How many evictions have they had in the past 3 years?  What is their tenant screening process?  Is that policy posted on their website or somewhere where you and applicants can see it?  How do they handle late pays?  How do they handle bad tenants?  Do they inspect property?  How often?

Tenant screening is THE most important task a property management company (and landlord) does.  There is not second!  It is that important.  Do your homework up front and you (and us!) can save thousands on the back end.

Peter Nelson is President of Full Service Property Management company in Seattle, WA.  He has been managing his own rentals and those of other landlords for over 30 years.  He can be reached through the company’s website at www.fullservicepm.com.

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