In this episode we get transparent about all the costs and fees associated with a GOOD property management company and break down the costs across all the roles a PM does.
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Welcome to Canada's Property Management Podcast. Your number one resource for investing, managing, and maximizing the value of your real estate assets. Now, here's your hosts, Carla Browne and Adrian Schulz. Canada's rental property experts.
Carla Browne (00:18):
Okay, Adrian, here we are again. Today we are going to be talking about a question that we get posed all the time, and that is, "Well, how much does professional property management cost anyways?"
Adrian Schulz (00:31):
Wow. What a topic. In Winnipeg, we're really cheap. Let's start there.
Carla Browne (00:36):
Well, then you are going to be a good one that I can try to sell my services to, I guess, today. Or at make you aware of how they're going to benefit you as an investor. Let's maybe start there. When you're an investor, Adrian, you're coming to me. You want to know about property management. Usually the first question I get asked is how much it costs, which is kind of not usually the first thing I want to talk about. I would usually turn it a little bit and say, "What are you looking for?" When you come to a professional property management company as an investor, what are you hoping to gain from that?
Adrian Schulz (01:05):
Well, I think to begin with, if the unit is vacant and I think that a lot of people are seeking management when they have a vacant unit, because something's occurred, not always, but many times. I would want to know what are the leasing fees, the cost to get it filled? What are the ongoing property management fees? Are there additional maintenance or administrative fees? Et cetera. What's my overall management cost? On either a monthly or on an annualized basis. What's included in that cost? Because from the conversations over the last 10, 15 years with different property managers across the country is boy, oh boy, there sure is a range of what people are charging. I'm curious, given that RPM is a national brand, what is sort of the scale that one can expect to pay for professional property management?
Carla Browne (02:06):
Right. All of our offices are independently owned and operated. We're dealing with real estate acts and competition bureaus. We are very careful that we can't actually fix all of these costs across Canada. Okay? I'll give you a range of what we see and we see anywhere from about 8% percent to 14%. Seems like a big range, but really it is big as you move across the country, that you can expect to pay for property management on a single family property management space. That is very different than the multi-family, which I know you have some experience in. On the multi-family, would you say that's as low as maybe 5% at times?
Adrian Schulz (02:46):
Multi-family residential, depending on the province and depending if there's onsite staff, and depending of course, on the unit count. Now, multi-family in my world, that's 20 and 30 unit apartment blocks or more, and all the way up to two and 300 units in a multi-family community. That range, they do seem to shake out in that 5%, but the range is between four and six. Again, what is the fee applied to? Is it just incoming rents? Is it laundry? Is it parking? Is it leasing fees? There are a lot of variables to be considered just like in the single family, duplex triplex, fourplex world.
Carla Browne (03:31):
Right. We're going to primarily talk about single family today-
Adrian Schulz (03:34):
Carla Browne (03:35):
That's the space that we primarily focus on. Although, some of our offices do some multiplex facilitation as well. What can you expect to be covered? The way I like to explain this to investors is that you can expect that that base management fee is going to cover all of those predictable types of things that need to happen. It's predictable that we're going to have to collect rent. It's predictable that we're going to have to answer inquiries from tenants. It's predictable that we're going to have to pay the invoices and the maintenance that are coming in on the property, and send you an owner statement and pay that out to you. The things that are not predictable when it comes to primarily maintenance, that's the big one, is that there are going to be other costs that are incurred because those are things that are just not a predictable type of service.
Carla Browne (04:22):
You have some properties, when you manage 400 properties, it's funny how you can actually name off the top 10, the top 10 that you actually have to be doing things with all the time. You have some properties like, "Oh my, besides regular inspections, we don't have to do anything on those properties." That's how I like to best explain it to set the mindset is that when you pay that percentage, so let's just take 10%, that is not necessarily going to be the only thing you ever see as an expense on your property, because we're going to be doing some maintenance. We're going to be doing preventative maintenance. We're going to be doing things that are going to help hold the value of your property as an investor that you would have to be doing if are living in that home yourself.
Carla Browne (05:03):
There would be an added cost to that. That's how I try to wrap around that. The cost, so then people are like, "Wow, 10%, that sounds like maybe so much. I could do it myself for that." I like to really break it down and say something like, let's say you're charging $2,000 a month for rent. Okay? Now you're going to be paying us 10%, simplify it, cowboy math. I like to say $500 a week. Okay? $500 a week is what the rent is on that particular property. You're going to have our services say just, it's 40 hours a week that we're going to give you. Which in the end, it's way more than that, right? Because we are essentially on call. 24% of the time it takes to manage a property, property managers on call for 24 seven, but let's say 40 hours a week, that is going to end up costing you as an investor, $1.25 an hour. If we say it's 24 seven, now we're down to 29 cents an hour, which then makes me think that I really need to increase my fees quite honestly. But to do for the investors-
Adrian Schulz (06:06):
What a silly topic for us to pick. All of a sudden our management-
Carla Browne (06:08):
Adrian Schulz (06:09):
Fees are going up.
Carla Browne (06:10):
I was really breaking it down. One of our management fees, they're 29 cents an hour.
Adrian Schulz (06:13):
You called it cowboy, was that cowboy math?
Carla Browne (06:16):
Cowboy math, yes.
Adrian Schulz (06:17):
Okay. For those on our Eastern or Western seaboard, cowboy math is what prairie people call a calculator.
Carla Browne (06:26):
A very simplified calculator because I'm all about making things simple that it's not so complex.
Adrian Schulz (06:32):
KIS, I think was the old term, keep it simple.
Carla Browne (06:35):
Exactly. Out of that 29 cents an hour, I'm essentially paying for software technology, it is the main thing that we need to deal with here in the PM space. There's a lot of cost to that. The liability insurance, the office rent. I'm employing staff, I've got phone, I've got vehicle expenses, all of these things come into play.
Carla Browne (06:56):
I just ask the investor to think about what their time is worth and where they want to spend their time? Because everybody's time is money. You think it's not costing you anything if you do it yourself, it is because you could be doing something else with that time. How do you feel about going in front of a hearing at a tendency board? How does that make you feel? Keeping up with the regulations. Who's going to advocate for you as the investor, when you're doing it alone? Those are things that I'd like the investor to think about. It's not to sound salesy, but is the reality of what you're going to deal with when you're dealing with a landlord tenant situation. You're getting into investment real estate and realizing, "Is this a cost or is it actually an income source?" Right?
Adrian Schulz (07:39):
It's an investment, right? A management fee in many ways, you're investing in your own time and in your own life by offloading something that can be much better executed by a professional company.
Carla Browne (07:53):
Exactly. The time that you're spending, I mean, I know you, you have a wife and you have three young children. As an investor, do you want to spend your time building relationships with the tenants that are in your property, which is very important. A tenants don't just want you to collect their rent on the first. They want to know that you are a human being that cares about them. Do you want to sit there and try to connect with them? Or would you rather be spending the afternoon with your wife and three kids?
Adrian Schulz (08:21):
Well, I'm completely occupied by trying to make my five week old smile at me. My time is 100% taken at the moment. I'm reminded of something, and I remember in the past talking about flat fee and management fee based on collected income. Although, there are some points to be made about the predictability of flat fee, I believe that a management fee based on collected income is much more in favor of the property investor. There's two key reasons. Number one, your property manager is encouraged and incentivized to make sure that your property is full because that's the only way they get paid. Okay? Number two-
Carla Browne (09:11):
Not just, sorry to interrupt you, not just full. With people who will pay. It's not about filling the property, it's about-
Adrian Schulz (09:18):
Carla Browne (09:18):
Making sure that you've got tenants that are actually going to pay. We're very motivated when we know that's how we're getting paid.
Adrian Schulz (09:24):
Occupied with paying residents-
Carla Browne (09:28):
Adrian Schulz (09:28):
I think the other benefit of a percentage of rent management fee is the property manage company is always incentivized to assure that the rent, the revenue, is being maximized because that's also how they grow their own revenue. There's no, it's not a sin to have revenue in a business. Frankly, it's how a business survives. Right? I think it's in everybody's best interest to have that percentage of rent management fee. I know that accountants also like it because they're able to exactly understand and offset what the expense line items are and why, and break it down as a percentage.
Carla Browne (10:10):
Another thing that gets asked also, are property management fees, are a tax deduction. They are an expense on this real estate investment business that you're running. This is something that you're able to expense, so you're not actually paying on it. It's really important to understand that piece. I always say when you are looking for a property manager, and I don't know if we've touched on this before, but you should interview a few of them. People always think, "Why would you want me to go and interview other people, Carla, when I'm talking to you?" Because I truly believe that you should find the fit that's going to fit best for you and your goals. Your goals may not fit best for my company. I will be very honest if you're talking to me about that. It's important that we have that alignment because choosing a professional property manager, it's like choosing your doctor.
Carla Browne (10:58):
I mean, honestly, I mean, you want to make sure that this is a partnership that we understand what your long term goals are. It is not just about collecting rent and fixing toilets. That's so important that you understand, but if that is your only goal of what you want for a property manager, then you might not want to look at real property measurement. You might want to look at another one. I say, go out and research yourself as an investor, talk to a couple property managers, you will find the one that fits best for you. Being biased, I think I'll probably fit for yourself, Adrian. I think I would make a great property manager for you as my investor [crosstalk 00:11:31].
Adrian Schulz (11:31):
Well, we can have all these conversations and look how far we get. I agree with you to interview multiple people. I think it's really, it's a two part decision. Number one, it's relational. Right? All good things are based on relationships. But the other side of that coin is that the company that you're dealing with must have systems, and processes in place to assure that your property is in fact professionally managed. If you have relationship without process and procedure for your asset, it is destined to fail. Which is, I think why our PM as a national brand, having national standards and processes and systems, is really a good value proposition because you get the best of the independent locally owned and operated office with whom you have a relationship. Whilst knowing and trusting that the organization as a whole has systems and processes in place that protect the property investor.
Carla Browne (12:39):
All for 29 cents an hour. Now, that's real property management.
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