What a Property Manager Does, and What the Fee Covers
Picture a woman named Naomi, 66, who plans to rent out her house while she lives abroad.
Picture a woman named Naomi, 66, who plans to rent out her house while she lives abroad. The house is paid off and worth about US$500,000. A manager named Pam told her it could rent for US$3,000 a month. Her son Paul offered to manage it himself, but he works long hours and lives two states away.
Naomi sat down with Pam at her own kitchen table. "Your fee is ten percent," she said. "What does that buy?"
Pam had expected the question. She took out a single page.
"Ten percent of the rent. I find a tenant and check them. I collect the rent each month. When the toilet leaks at night, the tenant calls me, not you. I send a repair person, and I ask you first for anything above an amount we agree on. You get a statement each month."
"Does anything cost extra?"
"Sometimes. Finding a new tenant, in some contracts. Fees differ between managers, so ask for it in writing. Mine goes on the first page."
Naomi worked out the year while Pam waited. She set it beside the other ways of handling the house, and she made one rule: every column carries the cost of the place she will live abroad, a one-bedroom at US$900 a month plus US$150 for utilities, which is US$12,600 a year. When a tenant lives in the house, the tenant pays the utilities and the routine upkeep, so she counted tax, insurance and big repairs at US$10,500 a year (an assumption).
| Per year | Keep it empty | Rent, Pam manages | Rent, Paul manages | Sell |
|---|---|---|---|---|
| House money in | US$0 | US$33,000 (11 months at 3,000) | US$33,000 | US$18,800 (US$470,000 at an assumed 4%) |
| Manager's fee | 0 | −US$3,300 | 0 | 0 |
| Tax, insurance and upkeep | −US$14,900 | −US$10,500 | −US$10,500 | 0 |
| Her place abroad | −US$12,600 | −US$12,600 | −US$12,600 | −US$12,600 |
| Left over, before income tax | −US$27,500 | +US$6,600 | +US$9,900 | +US$6,200 |
(33,000 minus 3,300 minus 10,500 minus 12,600 equals 6,600. Rent counts as income, so tax comes later.)
"Three thousand three hundred dollars is a lot to pay for a phone," Naomi said.
"It is a lot," Pam said. "It also pays for someone to answer that phone at night when you are across an ocean."
The difference between the two renting columns is the fee, US$3,300. Paul's column leaves out the value of his time, the nights he would be called, and the two states between him and the house. Naomi also saw that renting with Pam and selling come out within US$400 of each other. The fee is the price of keeping the house in the family, with a way back to it.
Naomi thought about Paul. He would have said yes without a second thought, and then he would have carried it. She thought about the tenant calling at two in the morning with a different time zone between them.
She asked for the page in writing, signed for one year, and asked for the first monthly statement by the tenth of the month.
You could…
- Ask two managers what their fee covers, and ask for the answer in writing.
- Ask what costs extra, such as finding a new tenant or a repair above an agreed limit.
- Ask when and how the rent reaches you, and what the monthly statement shows.
- Put keeping, renting and selling in one table, with the cost of your own place to live in every column.
What is the first question you would ask a manager? Post it in the comments, and a reader about to meet a manager for the first time could borrow your question.
Figures are estimates for planning, based on public data, before income tax.
Tell us in the comments