Amateur Landlord: The Benefits and Costs of a Property Management Company

by Bryce Baschuk

A property management company can take a lot of the hassle out of renting out an apartment. In this week’s Amateur Landlord, we looked into what a management company actually does and how much it costs to outsource landlord responsibilities.

Amateur Landlord: The Benefits and Costs of a Property Management Company: Figure 1

“The issue is really a question of time and resources,” Rick Gersten, founder of Urban Igloo, a residential rental brokerage firm, said in response to whether or not it makes sense to hire a management company. “Doing all your own management work can be very time consuming. Some people have the time and resources to do the accounting and the repairs that are necessary over the term of the lease. But a lot of people don’t.”

For amateur landlords that decide to go with a management company, it can be a huge load off.

In addition to advertising the unit and screening prospective tenants, the company will also coordinate the execution of the lease and collect rent. During the course of the lease term, the company will also coordinate maintenance and repair work, and most will document monthly cash flow statements and provide 24-hour emergency service.

In return for these services, management companies in the District typically charge fees of between three and ten percent of each monthly rental payment.

“Eight percent for full service property management has been the standard in DC for a long time,” Mary Kay Welch, president of Investors Management, a residential property management firm in Dupont Circle, told UrbanTurf. “But some firms now charge ten percent.” In addition to the monthly charges, the firms typically collect a leasing fee of one month’s rent. This makes the true, amortized monthly fee more like 16 percent total.

To put this in perspective, we calculated what the total annual management costs would be for a one, two and three-bedroom apartment at an eight percent monthly fee plus one month’s rent for the leasing.

  • DC one-bedroom at $1,495/mo. — Annual prop. management cost = $2,930.
  • DC two-bedroom at $2,400/mo. — Annual prop. management cost = $4,704.
  • DC three-bedroom at $3,300/mo. — Annual prop. management cost = $6,468.

The calculations above show that a property owner would have to part with approximately two monthly rental payments a year to have a property management company take care of everything. This might seem like a lot of money, but to some landlords the cost-benefit analysis of such an arrangement can be more attractive than the headaches that come with managing a unit themselves. This is particularly true for landlords who live far away from their properties.

Not surprisingly, maintenance and repair requests and rent collection are the issues that prove to be where owners get the most bang for their buck from using a management company. For delinquent tenants, management companies can be a tremendous help when it comes to pursuing litigation or evicting tenants that do not pay. Since companies collect their fees from rental charges “you can bet that they are going to ensure that the rent is paid and that local laws are followed,” Urban Igloo’s Gersten said.

For landlords looking to find a good local management company, check out the National Association of Residential Property Managers website. The site is used to find NARPM-approved property managers in specific neighborhoods.

Amateur landlords, do you use a management company? What have been your experiences? Let us know in the comments.

See other articles related to: renting in dc, property management, amateur landlord

This article originally published at http://dc.urbanturf.com/articles/blog/amateur_landlord_the_benefits_and_costs_of_a_property_management_company/2501


  1. RFalk said at 7:54 pm on Wednesday September 22, 2010:
    I own three apartments that I rent out in the city and have used the same management company for the last five years. Without a management company, my hours after work would be filled with dealing with tenant issues. I have had great relationships with my renters, but I am happy to have someone else manage the day to day issues.
  1. RT said at 8:12 pm on Wednesday September 22, 2010:
    So does anyone have any recommendations on good property management companies in the area?
  1. John said at 8:20 pm on Wednesday September 22, 2010:
    "Management Companies get compensated on when they pay rent" Yes that's true - but dont they also typically collect 100% of the late fees? Those are not generally passed on to the tenant no? Oddly they have a perverse incentive to NOT collect on-time.
  1. ashley said at 8:56 pm on Wednesday September 22, 2010:
    I haven't used them but friends that live in a building managed by Meener say they do a good job.
  1. ashley said at 9:03 pm on Wednesday September 22, 2010:
    And by meener I meant Keener
  1. Rob said at 9:16 pm on Wednesday September 22, 2010:
    Why do management companies always set the fee as a percentage of the rent, rather than a flat fee or an hourly rate? A nice apartment in a good building rents for much more than a run-down apartment in a badly run building, so a fee that's a percentage of rent would be a lot more dollars/year for the nicer apartment -- but I bet the nicer apartment is actually a lot less work to manage (stuff breaks less often and tenants pay their rent more reliably). I own one apartment that I rent out, and it's silly for me to do the management myself -- I'm really busy, and I'm not as good at property management as a pro would be. But I have a reliable tenant and an apartment where things rarely go wrong, so it seems crazy to pay thousands of dollars a year to have someone else manage it. If I could find a property manager who charges by the hour (even at a relatively high rate), though, I'd jump on that.
  1. DC Landlord said at 11:18 am on Thursday September 23, 2010:
    I'm in the same boat as Rob. I, too, own a property that I rent out - and am unable to justify paying thousands to have someone select tenants and sporadically manage the place. And like Rob, I'd consider hiring property managers who charge by the hour. Are there any out there? Also, my personal landlord experience is that once you get through the hassles of first few weeks of the lease , it becomes pretty easy.
  1. roots said at 6:01 pm on Thursday September 23, 2010:
    Wow, so based on the numbers provided, management companies take about 16% of what you make in rent per year to "manage" your ONE unit. I'm in the wrong field if you can make that much money sitting around and dealing with a "crisis" every couple of months. Amazing.
  1. Steve Baker said at 3:48 pm on Friday September 24, 2010:
    The benefits of having a property management company handle all the issues for your property far outweigh the costs. You need to ask yourself when you first purchased your property "Do I want to deal with screening new tenants? What if I need to evict a tenant? Am I getting a call to repair a plumbing problem?" The list is endless. However, if you enjoy the challenges of managing your own property, by all means go for it.
  1. Theo said at 3:57 am on Sunday September 26, 2010:
    First of all the way the fee is presented is misleading. The 16% is a bundled fee for two separate activities. Not all property managers do leasing and not all leasing agents do property management. The leasing fee is a one time "finder's" fee and the other is a monthly management fee. Most importantly, few property managers require that they lease the property for you as a condition of managing it. So, even though it is explained in the article that there are two different fees involved, presenting them combined is very misleading to people, as witnessed by the comments. Secondly, I should disclose that I am a broker who does not manage properties, other than my own, and also help out a few friends with their properties. I will agree with some of the comments that sometime, managing property can be uneventful. For 6 years I have managed 3 properties I own in the area (one sold since) and also hired a property management company manage a property I owned in Florida. Here is my experience, both personally and professionally: a) The business of property management has huge liability. I don't even know where to beging. Just to make the point, "rdhd" who commented above has already violated Fair Housing laws. If rdhd made this comments to a licensed agent or prospective tenant he would be facing a very expensive lawsuit and perhaps even jail time (not sure what the penalties are but they are not light). A property manager can protect you from liability. b) To address the comments by "John" & "roots", a property manager does not have an incentive "not to collect on time". Property management as a business has very low margins and the way to improve them is to run it efficiently. If a PM needs to spend extra time chasing late rents, the extra $30 or $50 in late fees don't make up for the additional admin and other work needed to collect. c) In managing my own properties I have had very few issues. However this is a result of being in the real estate business and knowing the laws, rules and regulations, and what needs to be done and how. I am very strict and do not let anything fall between the cracks. d) In a few occasions there have been unexpected situations. For example, a friend's condo flooded because a pipe burst in the unit above his. He happened to be out of town, but even if he was in town the situation was a nightmare to deal with for two weeks. Luckily the tenants happened to be cooperative, otherwise it would have been a disaster. I have also had a couple of minor issues while I was out of town for extended periods of time, and the only reason I managed them without a PM was because my real estate partner helped out. e) For the property I had in Florida, I didn't even blink about hiring a PM company. I also didn't think twice about hiring a buyer's agent when I bought it, even though I knew the area. Being in the business, I have the privilege and misfortune of seeing things that most consumers don't know, so one thing I have learned to recognize is the value of a good professional, no matter the industry (but that's a different discussion). Unfortunately, I was pressed for time and the PM company I hired for my property in Florida did a pretty bad job. Hiring the right company makes a big difference. f) @Rob & @DC Landlord - I keep challenging myself to find alternative compensation models that make sense for both the consumer and the professional. I keep hitting a wall. Here is an experience I had, which, although not directly relevant, illustrates a point I'd like to make: I once did an extensive renovation ($100k+) in my own property. Doing it for the first time there were things I didn't know. When the time came to finish the bathroom, the crew I had hired told me that I needed to build a concrete shower base, and I should higher a tile guy who had done it before. I also had to find the tile guy in one day's notice. I found a good one who came and did it immediately, but also charged me $500 (his daily fee) for two hours worth of work. My point is, that if you expect someone to jump when you say jump, then you'll pay for it dearly. The other reason a PM gets paid through monthly commission vs hourly-as-needed is because he is basically on call. It is like insurance. You might not need it, but when you do need it, it's there and it is not costing you an arm and a leg. Perhaps you don't need a PM but a handyman that's accessible. I am not married to the existing compensation models in real estate, but I can see the value of monthly fee over hourly/as needed. Sorry for the long post. Hope this provides another view.
  1. prh said at 4:39 pm on Thursday September 23, 2010:
    I live in a small four unit building where I became the condo president after the guy that sold us the units ran off with our condo fees. Long story, short a friend referred a property manager to me and for the last 2 plus years, she has been a tremendous help. The company is call Property Management Solutions (rwilliams@pmsllc.info)
  1. rdhd said at 1:06 pm on Thursday September 23, 2010:
    Has anyone ever worked with a company that specifically manages apartments for clients with special needs or disabilities of some sort? My wife has a coworker with a daughter (blind?) who rents through a place like this. The company goes out and finds the apt or house and acts as a mgmt company in dealing with the owner. I'm probably not describing this very well, since I don't totally understand how it all works. Short story long, it seems like a way to get a long-term stable tenant (we live near AU and would rather not rent our place to college students).
  1. BJ McKellar said at 4:45 am on Sunday April 10, 2011:
    Better late than never. We do management in Dc, and charge a lot less than the other companies. Most companies do charge the 8% , and 100% of 1st months rent, that is charged every 12 months. We offer 8% management, and charge 40% for the initial lease up, but if the tenant stays for multiple years, we do not charge the marketing/lease up fee. This fee is only charge, when placing a tenant. This will save an owner thousands of dollars over the life of a lease. Or we offer a 10% mgmt fee with only a $450.00 leasing fee. There are lots of good reasons to hire a manager. Send emails to bj@realpropertymetro.com
  1. Brenda Marlena said at 3:10 am on Monday July 16, 2012:
    Thanks, Theo, for your long post because it was quite informative! I'm buying my first income property, a fourplex, and nervous about what to expect. Your points and explanations were very helpful.
  1. John said at 3:47 pm on Tuesday July 24, 2012:
    I am looking to buy investment property/rental which gives at least 1% rent per month of property value. Can u suggest where metro is offering most value of money at this time.
  1. Jennifer said at 6:41 pm on Tuesday May 7, 2013:
    I am deciding on whether or not to sell or rent out my Alexandria townhouse and have found the responses helpful and appreciate Ashley, Theo & BJ's time in sharing. Thanks. =)
  1. brad said at 6:09 pm on Monday July 29, 2013:
    I teach property management and have training available for any level of investor from the private owner to hedge funds. Check out my web site for 9 reports and E Book version of my book all free. Managing rentals is not as hard as most people think. I have over 40 years experience managing all types of residential properties. web site is www.propertymanagementmadeeasy.com You can ask me questions and get my newsletter with access to the private Face Book group too.
  1. smn-dc said at 5:36 pm on Thursday August 1, 2013:
    We own 2 rentals in DC and where the location is it's almost too easy to find tenants (1 in NoMa & the other in SW Waterfront). Just after a posting on Craig's list we get too many responses. If that's what the mgmt. co's doing--we're doing it for free ourselves. As for selecting good candidates who will pay their bills on time, it almost comes down to a gut feeling of who will be the best candidate--if all the candidates have full time jobs, and look dependable. If you have a list of good handy-man and fixers whom you can call up, you can deal w/your properties yourself. Of course, that's just us as we live in DC and have time to manage ourselves.
  1. k-atl said at 3:16 am on Monday August 26, 2013:
    As someone who has managed hundreds of units, I can honestly say that an experienced property manager can save you headaches, time, and yes even money especially when it comes to collecting payments/removing delinquent tenants. What's interesting is that this conversation actually covers a jurisdiction (DC) that has some not so favorable laws for landlords! Has anyone on this thread attempted to have a delinquent resident removed from a property in DC? If so, please share as I'm sure that the rest of the group can draw from your experience. I wish smn-dc continued success in his/her endeavors going it alone, but many others have not been so fortunate. Anyone inexperienced with removing a delinquent resident from their property can potentially make costly mistakes during the process which can come back to haunt them in the long run. Moreover, landlords need to be conscious of items even as minor as their advertising online as they are not completely absolved from Fair Housing Laws when not using a real estate professional (contrary to popular belief). In addition to the 7 federally protected classes (race, religion, color, sex, national origin, familial status, and disability), most localities will have additional protected classes for which a landlord cannot choose to deny residency...some even have "source of income" as a protected class (therefore the "no section 8" advertisement might land you in some hot water). Some other things to consider might be how to legally collect for any damages, how to handle return of deposit disputes, and ensuring that you have appropriate lease documents that will stand in court. There are a myriad of other problems that property managers are faced with daily, so in sum you are far better off by hiring a professional manager than being destroyed by a professional renter. Best of luck to everyone!
  1. Susan said at 4:47 pm on Friday October 11, 2013:
    I would like to know what the 'rules', or better yet, the laws when a PM has to have the rent paid to the property owner. For example, if the rent is due to the PM on/by the 1st, when does the PM have to have the check 'processed' and rent paid to the PO? The reason I ask is because I don't receive the rent until after the 15th of the month. I only have one property (house), and I find this on unacceptable length of time. Is there anything I can do to get the PM to pay me within a reasonable amount of time?
  1. BJ McKellar said at 3:36 am on Monday October 28, 2013:
    Susan I am not aware of a law of when the owner has to receive payments from the property manager, I'd check the management agreement, and see what it says. At Real Property Management DC Metro we send owner draws on the 10th of the month. The reason for this, is if the tenant pays with a check by the 5th, it allows enough time to verify the funds, so all money paid to the owners is certified funds. Nothing worse than getting rent and then the check bouncing. If the tenant pays late, we will send the owner draw later, just so we can verify those funds. I hope this helps. Good luck! RealPropertyManagementDC.com
  1. Stephanie Goldner said at 3:39 pm on Monday December 9, 2013:
    I would recommend Gordon James Realty for property managers in the DC, VA, MD areas. They are extremely attentive and responsive when you need them, own homes themselves so they really empathize with you as a home owner... You can check out some of their reviews on yelp and decide for yourself but I highly recommend them. http://www.yelp.com/biz/gordon-james-realty-services-washington-4
  1. dcjoe said at 6:34 pm on Friday January 24, 2014:
    I have been managing my 4 DC properties since 2000, all well located, and I have to say that I've had no problems doing it. I spent a lot of time, though, up front learning the DC code for leasing. I hired a real estate attorney to go over my lease and application. I have also used SafeRent.com since I started to verify applicants charging SafeRent's fee to the tenant via the application fee. I also use common sense, and try to remain very unbiased when approving tenants. For example, I always use a first come first served approach; whoever gets me the completed application and application fee first gets processed first and if that passes the processing they get the apartment. All my applications follow the same process... SafeRent makes a recommendation; I call the previous landlord (not the current) and ask them questions about the tenant's history with them. If the application indicates that they have a variable income source (self-employed, just out of school, or a grad-student) I will usually approve them with the condition that they get a co-signer. As far as I'm concerned, I want someone who can pay the rent on time, and will not trash the place and all that information should be readily available on the application and through the interview with the previous landlord. My gut does not factor into the decision making process. <P> Once they are approved, I send them a draft copy of the lease for their review and set up a date and time to sign. I always meet with them to sign the lease, always at the property. I go over the entire lease with them, each paragraph, and make sure that they not only agree but understand what their and my obligation is as outlined in the lease. I always conclude by asking if they have any questions at all. <P> In the 14 years I've been doing this, I've never had a "problem" tenant. All have been conscientious. I make a habit to keep clear lines of communication open between them and me. I do not, absolutely, without exception, mix with my tenants. I have lived both over and under tenants and cannot tell you how often I've been invited to dinners and parties, and I always thank them but decline, no matter how nice they are. I am their landlord first and their neighbor second, and never their friend. I also make it a policy to never encourage leasing to a friend or someone I know. If someone I know is looking for a place, I always help them to find a place that is right for them, but not my place. If they insisted I would talk with them and let them know why I have this policy, but in the end I guess I'd have to allow them to apply and such. Fortunately for me, this has never come up. <P> Things happen to properties, and I've been fortunate enough to have tenants who have been patient, understanding and good communicators. When an issue is brought to my attention, usually via email (though some have texted me, which I don't encourage) I try to respond right away to their request. This is how I would want to be treated if I were a tenant. I find that if they know you are working the issue then they allow you the room to do so. Once the HVAC system in a property went out. It had reached the end of it's life. Unfortunately it was the beginning of August. I responded to my tenant right away; had someone out as soon as I could get on their schedule. But in the end, it took almost four weeks to have a new system put in from when it was reported. All through the process I communicated what was going on as soon as I knew. My tenant was very amenable and worked with me the whole time, and at no time did they ask for a concession or complain about the time. <P> I believe my success to date is attributable to three factors: <P> 1) the application process I use is rather rigorous, and the application I use collects lots of information, none of which is any different from what you would see on any other "suburban" mega-apartment complex application, but I believe in many cases, prospective tenants may think, this is a small time landlord, I should be able to get through easily. I have had a few cases when people have been all gun-ho on renting the property but then when they look at the application, they cool their jets and often ask to take it home to fill out... in my experience, if the tenant doesn't fill it out on the spot and give the app fee, then they are not that interested in the apartment. I've never had anyone take an application and come back with it days later. <P> 2) my property locations are in desirable neighborhoods (Columbia Heights, Dupont, Shaw), so putting an add up on Craigslist for a week, is more than enough to elicit many interested people, and several applications. I always try to get at least three or four applications; things happen and applications, even if approved, don't always lead to a lease. I once had 6 applications in one day on a property and as my policy is to process them in order of receipt, the 5th one was the one that was approved and was available and interested to lease the apartment. All the others, either weren't approved or most often had taken some place else. <P> 3) I treat my tenants as I would want to be treated if I were a tenant. I used to rent and I know what it's like to be on the other side; that said, this is a business and I try to balance both common sense with the need to turn a profit and I keep a solid boundary between me as the landlord and them as the tenant. <P> As for property managers... to date I've had three different ones, and I have been unimpressed with their ability to manage properties. In the end, no-one manages my property as well as I do, so I continue to do it myself. But then I'm a bit of odd ball there... I enjoy being my own property manager; are there aspects of the job I don't enjoy... sure... all jobs have that. But in the end I take pride in my record of having tenants who leave my properties in good condition, paying on time, and years down the road, write to me and say how much they wish I could be their landlord again. <P>
  1. Andrew Brown said at 10:49 am on Tuesday October 28, 2014:
    Hiring a professional property management company OR property manager is a profitable investment. I am working with Dwell Real Estate Group, personally I have good experience with them and they helps me to save a lot of time. I have no worries now as my property is in good hands.

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