Ep018: The Truth About Fees 

Chris McAllister: Hello everyone and welcome back to the Landlord Profitability Playbook Podcast. I’m Chris McAllister and it’s my job to create and coach business opportunities and strategies that support and add value to the lives of residential real estate investors. I’m here today with my podcast partners, Laci LeBlanc and Gretchen Mitchell.

And today we’re diving into part 10 of our 12 part series called What to Expect from Your Property Manager. And our topic today is about these and specifically, What fees do property management companies typically charge their clients, charge their clients for their services and why they charge them?

So good morning, ladies. 

Laci LeBlanc: Good morning. Good morning. 

Chris McAllister: Hot topic this morning. Everybody’s got fees on their mind. I know we do, and I think our owners do as well. So just as sort of an introduction, managing rental properties is a complex and demanding job. It requires expertise, diligence, and a keen understanding of both market conditions and tenant relations.

Property owners often feel overwhelmed by the various fees associated with property management, and they sometimes perceive them as excessive or unnecessary. Or in some cases they consider them to be junk fees. But no matter how you feel about it, a well structured fee system is essential for delivering quality service, maintaining properties, and ensuring a seamless rental experience, not just for the tenants, but for the owners as well.

So in this episode of the Landlord Property Playbook, we’re going to break down common property management fees and the tasks that are associated with those fees. And we’re going to clarify what owners should expect from their property managers and highlight how these fees contribute to effective oversight.

And hopefully by the end of this hour or so you’ll have a clear understanding of why these fees exist, the value they provide, and how to ensure that you’re getting the best return on your investment. That’s a lot, huh? 

Laci LeBlanc: Well, you know, time, time is money. It’s the way that I’d like to start this out. Um, and in a lot of cases, we think, I think when, when property owners think about it, they think about it very simply to start out with, which is, is it my time or is it your time, right?

They’re paying you for their time, but so much more goes into determining these fees and coming up with a, you know, a A value for for what you provide. And so I’m excited to dig a little deeper into those because I think the more folks understand, um, that it’s not just swapping your time for their time or vice versa.

If there’s a lot more that goes into it and how much more efficient it can be, then, you know, I think that it’ll, it’ll make a lot more sense for folks. 

Chris McAllister: Well, at the end of the day, what we want to have happen is, is that our owners make more money. They get a greater return on their investment from their portfolio, having us as a trusted partner than they would if they were going it alone.

So, I think that’s ultimately. What we’re trying to get to, but I got to tell you owners, including myself, you know, I, I still have about 30 doors that, that I own that Roos looks at looks after, and I got to tell you, I think all of us are feeling a little nickel to nine, hopefully not by Roos, but just by life in general.

So, 

Laci LeBlanc: you know, Disney plus, I feel dickled and dimed by Disney plus and Amazon prime. Um, you know, we pay a fee for everything to get our groceries delivered to watch TV. So they’ll get me started, you know, they charge 

Chris McAllister: me like 3 and 21 cents now for something on Disney or on Amazon prime. I still don’t remember what it is, but I get that in addition to the annual and.

I did the Disney bundle and suddenly it went up and you know, I didn’t, I, I, let’s not go down that road. That’s a whole nother project. So I don’t think any property manager intentionally angers their owners and I don’t think Disney or Amazon intentionally angers. Owners. Maybe they do. I, I don’t know.

Laci LeBlanc: That’s a conversation for a whole other day. 

Chris McAllister: They feel they can get away with it, but nobody wants to anger owners with junk fees or unexpected charges. I know, uh, Gretchen and I certainly do not, and we don’t want owners to feel nickel and dimed, and we certainly do not want to charge any fees that could be perceived as a junk fee.

But that being said, it is entirely acceptable to expect your property manager to explain their fees. to you and what you can expect in return for paying those fees. So we see the question in the title of this episode, what’s this fee for? As an opportunity to articulate the value we provide to residential real estate investors and to help educate all investors who want to hire a high performing management team.

On how profitable property management businesses operate.

So these are challenging times. I don’t, I don’t want to start off with giant gloom and doom, but I don’t think I’m, uh, I don’t think this is breaking news. Everything is getting more expensive and this trend is unlikely to change anytime soon. I mean, in Scretchin, you know, we’ve been absolutely focused on profitability for the past six weeks or so coming into the new year.

And the reason is if we’re not solidly profitable, if we can’t continue to You know, attract great people, reinvest in the business, take care of our owners, you know, and make a profit doing it. We’re not going to be here for the next 5, 15, 25 years, whatever it’s going to be. So profit matters to our owners and profit matters to us.

And it should matter to whatever property manager or property management company or listeners choose to. higher. The rehab and maintenance costs alone have more than doubled over the last three years, and those are going to continue to climb. Interest rates remain high. If we’ve got owners with adjustable rate mortgages or lines of credit, those interest rates and fees remain high.

It’s making it tough for owners with mortgages or all Owners tied to mortgages or especially loans that are tied to a fed funds rate. Insurance is another issue altogether. You know, it’s going up every single year, whether we’re in a hurricane area or a fire area. Quite frankly, we all feel the effects of this seemingly endless parade of natural disasters.

And, you know, Laci, do you just, you’re still coming out of this in North Carolina? 

Laci LeBlanc: Yeah, it’s just the housing. The housing market where we are is disastrous for a lot of different reasons, but it does have folks really in that, um, kind of fight or flight stage where you’re just not sure how things are gonna, gonna pan out.

So you want to play it super safe, but at the same time, you know, you want to maximize your income at a time like this. Um, so it’s, yeah, challenging is definitely the right word for it. 

Chris McAllister: But we’re definitely seeing all these disasters show up in our insurance rates all over the country. On the plus side, rents have been climbing, but these rent increases often come a little too late, right?

So market rate rent reflects the single moment in time, and that increase may cover last year’s costs, right? So, you know, you’re trailing 12 months costs, but that rent increase based on this moment in time doesn’t anticipate Next year’s cost increases, right? So it constantly feels like, you know, w we do have some ability to raise rents, all of our owners do, but it feels like it’s never quite enough because as soon as that annualization comes or a new tenant, or we, or we do assign a new lease, rent increase, whatever it, it feels like within the first couple of months, all that extra hoped for cushion.

is essentially used up. So it’s almost impossible to command a rent increase that accounts for the past 12 months while also anticipating the next 12 months of inflation and still be at a competitive price in the marketplace. You know, from the perspective of your property manager, I, I know we feel like this.

They’re likely treading water with, with not a lot of organic top line or even bottom line growth since 2021, you know, salaries, fixed costs, variable costs. Everything that it takes to run any sort of business, not just the direct costs associated with, you know, what the owners pay for, they’ve been rising as fast or faster than the fee increases that, you know, we as property managers are successfully able to pass on.

So I guess what I’m trying to say is a good property manager feels your pain as an owner, but it’s important to keep in mind the other side of the profitability coin as an owner, and that is appreciation. You know, the value of our rental properties since covid, but have just absolutely skyrocketed the last few years.

And in almost every single instance, every single instance I’ve looked at, including my own portfolio, the amount of appreciation we’ve enjoyed that it’s at some point We will harvest, right? Whether in terms of a new mortgage or selling the property of some sort in the future or what have you, that equity has gone through the roof the last few years.

And if you, if you really take a hard look at it, or even a quick look at it, you’ll find that what that property is worth today versus what it was worth prior to COVID has more than made up for, for the short term losses that this turbulent market has wrought.

So what should you expect from your property manager, hence the title of the entire series right so given today’s challenges. I just want to take us through the common activities that you can expect your property manager to perform, and the corresponding fees. outlined or should be outlined in your property management agreement.

So I want, I want us to start off with marketing, leasing, and renewals. And then we’re going to move on to tenant relations and delinquencies. And then we’re going to talk a bit about rehab and maintenance. And finally, we’re going to talk about that pesky monthly management fee. The, the, the fee that, uh, um, seems to be, is always a constant.

So Gretchen, so let’s just talk a little bit about what are all the things. Because I think it’s helpful to just, to just list them once in a while and review what are all the things that go into marketing and leasing. 

Gretchen Mitchell: So there’s, it’s, there’s a, there’s a handful of them. So there’s a process in place when it goes.

When a property is rent ready, um, you know, we walk the property, make sure it’s okay, get the pictures. We advertise them on things like, well, at Folio and TenantTurner, and it pushes out to the other platforms like Zillow and Apartments. com, um. A lot of photos go in there. Um, a lot of market research to see what’s the best rent.

Um, you know, we use the platform rent range a lot to kind of help that. Um, sometimes we agree with the number on that. Sometimes we don’t, but that’s why we do other market research to see what other homes in the areas. Are renting for we set up tenant Turner for the showings. We do open houses if necessary.

And then once we get those applications in comes the screening and we have a lot of steps when it comes to the screening. We do the background checks. We call the current landlords, the previous landlords. Um, we have to make sure they turn everything in for the application. Three full months of pay stubs.

Um, do they fill out the application fully, correctly? Is it legible? There’s always some questions that we have, so working the applications does take some time as well. Um, once we have an approved application, we make sure they pay the security deposit. And then we do a walk one more time to make sure the house is ready before they move in.

Um, discuss the Move in costs for them, make sure they get utilities in their name, um, make sure the water’s on because now in the wintertime we’re turning water off just to, you know, make sure there’s no busted pipes and things in the cold weather. So we do the one last walkthrough. We have a move in coordination, so there’s a document that we give to the tenants saying this is the house that you’re renting, you’re taking it as is, however, we’re going to walk through and make sure there’s nothing that you want to be dinged on when you move out, um, and then we sign the lease, get them moved in, get the keys together, and then about 10 months down the road, we’ll reach out to the tenant and the owner and talk about a lease renewal and those terms and conditions that we want to add to the renewal.

Um, There’s a lot that goes into the marketing and leasing. 

Chris McAllister: There is. It’s, it’s, it’s huge and it just makes me tired to hear you rattle all that off. 

Gretchen Mitchell: It’s a lot. It’s the day to day. 

Chris McAllister: So what fees does an owner pay? So you, the, uh, the biggest fees that an owner pays to cover those activities is the, is the lease fee.

When the property is vacant and they rent it, and it’s also the renewal fee. So what does that cover? Well, you know that covers Taylor’s salary. Basically, Taylor is our leasing manager. It covers Corey, who is our runner, who spends a lot of time in the truck going out and making sure the signs are up, the tenant turner lockbox is on, that the keys work.

Um, you know, if there’s a complaint that comes through from tenant turner, from somebody who walked through the property, he goes out and he makes sure that that’s being taken care of. So, It covers that salary as well. It’s also supplemented by Marcy, and Marcy is our tenant relations person who, you know, fields every incoming phone call, but probably half of her calls are about, are from applicants that are interested in one of our rental properties.

So that Lease fee, you know, has to, has to, it has to carry a lot of weight, right? It’s, it’s an important fee that has a lot to cover. And when you, on top of that, you know, it has to cover. Has to cover the cost of tenant Turner, right? So that’s, you know, hundreds of dollars, 1, 000 plus a month. It has to cover all the Zillow advertising, you know, Zillow is probably for, you know, our thousand doors or so is, is roughly seven, 800 a month.

Maybe in the springtime, it’s more than that. It covers underwriting. We use a company called Babco that probably runs another 800 a month to, to make sure we do a thorough screening. The, um, the thing with Babco is it’s, it’s worth every penny because they are very, very good at checking for criminal histories, past evictions, um, credit score, which is, which is an important component, but it’s just one component.

So, you know, underwriting, there’s a cost there. So there’s a lot of different softwares. There’s a lot of different services. And, uh, some of that is covered, you know, in the form of, uh, applicant application fees that we charge. And again, the rest of it is, our goal is to cover the rest of it with our, the lease fees we charge our owners and for, um, the renewal fees that we charge on them.

So it’s a lot. 

Gretchen Mitchell: It is a lot. 

Chris McAllister: All right, let’s talk about tenant relations a little bit. So these are some of the activities that you should expect to, to have your property manager or prospective property manager be able to speak to. So. These are the activities. Gretchen, why don’t you give us some of these activities that we classify as tenant relations activities.

Gretchen Mitchell: Sure. Um, rent collection, making sure rent’s paid on time, make sure late fees are paid. Um, lease enforcement, so if you have noisy neighbors, you know, pulling out the lease, talking to someone, Hey, remember your peaceful enjoyment of the neighborhood clause, we talk about those things, we do walkthroughs if we need to.

Um, Any tenant that calls in really with any issue at all, um, maintenance, or like you said, general inquiries about homes we have, um, going to eviction court even, um, you know, Marcy’s been doing that for us and sometimes we can make agreements with tenants, sometimes we don’t, um, payment plans if we can, um, and even just dropping off those eviction notices takes some time too.

So tenant relations is a lot of. day to day tasks once a tenant obviously is in place, but, um, every day is different with those. Every phone call is a little bit different, so you have to get creative also in your solutions. 

Chris McAllister: Yeah, Marcy is amazing on the phone. I mean, she, she, she relates to the tenants at whatever place they’re at, and she’s great at that.

But you know, tenant relations encompasses a lot of stuff and we’ve got to be front stage and in support of those folks that are paying the rent every month. So, like you said, rent collections set up and manage online payments, late fees. Um, direct deposits, you know, there’s, there’s a cost to all of those that your property manager is going to incur lease enforcement, you know, ensure the tenants comply with the lease terms and including, you know, noise issues that come up pet issues that come up or maintenance issues, all communications.

Um, that come through. Um, you know, we have to go through and then we use our folio to do this, but we have to track tenant payments. We have to flag overdue accounts immediately. You know, we have to be able to provide multiple payment options for tenants, whether it’s online or a money order or ACH. Um, your property manager should also have a system in place there, you know, with us, with that folio, if we can set it up to, to send out automated reminders about due dates and.

Uh, things like that for, for, um, uh, rent and to remind people that they still have a balance outstanding. Um, payment plans, like you said, now I think as a rule, um, Marcy, uh, obviously doesn’t negotiate payment plans, Gretchen, you, you sign off on all of those. And in most cases that’s in consultation with the owner, of course, but, uh, you know, those, those five to 10 percent of the people that pay late.

You know, take up the vast amount of, uh, Marcy’s time, your time, and most of the costs associated with. Management and of course, going through all of this. We’ve got to document every communication. We have to have a clear record in case we do have to go to eviction court so we can show, hey, here’s here’s what happened.

Here’s the chain of events. Here’s all the documentation so we can present that to the magistrate and get a favorable outcome, assuming we do have to go through the eviction process. But at eviction process, holy crap. I mean, three day notices alone 

Gretchen Mitchell: and then especially if it’s section eight. There’s different rules for that.

You know, you have to give a 30 day notice instead of a three day notice, and then even Section 8 payments, even following up, sometimes you don’t get the amount that you expect from Section 8 and having to work with them to figure out, okay, when am I going to get the correct payment? So Section 8 is a really big one, too.

Chris McAllister: Yeah, absolutely. Filing the eviction, coordinating with the local attorney. And then, you know, a lot of times the, the tenants after they lose their court case, they don’t leave. So then we have to send, you know, our maintenance guys out to meet the sheriff. You know, to do a set out and change the locks and so forth.

So there’s a lot. So, you know, again, on our team, Marcy’s a huge part of that. Shannon in the Springfield office is a huge part of that. Tina, our property manager in Springfield, there’s a lot of that. And Gretchen, this takes up a lot of your job as well. So how does that get covered? Well, frankly, some of it, um, has to be, you know, covered by the monthly property management fee, but we also have Um, are able to supplement that with, um, if we can, if we can collect, uh, tenant paid late fees.

And of course, uh, you know, the eviction fees that we’re forced to pass along to the owners and in the cases that when we do have to file an eviction, and I, you know, I think that, you know, I’m confident that we are doing an incredible job actually on screening applicants, but even, even having the perfect process for screening applicants and trying to make sure that we only place people into an apartment, I That have the highest likelihood of of paying the rent every month and leaving the property at a As good or better when they leave is when they got it There’s still things that happen either people sneak through that aren’t, you know, the best people but normally what happens is life events happen somebody gets sick somebody loses a job and and uh, you know, it’s not necessarily malicious, but it still sometimes results in an eviction proceeding and that’s why Um, most property management companies, including us, charge eviction fees to the owner when, when and if that, uh, sad thing happens.

And it’s also important to keep in mind, all these things that we’re talking about, I have to say that there’s more, of course, but these are the primary reasons why people hire property managers in the first place. It’s a lot. And to have to deal with that as part of your regular life experience or your, you know, your, your regular career or whatever, that’s why people tend to hire property managers.

So the next section is rehabs, uh, or turns, what we like to call turns, between tenant turns and routine maintenance. So Gretchen, why don’t you kind of talk through what, what are some of the services that, uh, our listeners can expect to, to find with a property management company? 

Gretchen Mitchell: Um, so routine things like landscaping, um, in the winter, snow plowing, shoveling, those things have to be set up, um, emergency calls we get, um, let’s see, property inspections, we do a handful of those each month, um, finding other contractors, finding outside You Companies building those relationships.

And then, you know, of course the rehabs, when someone moves out, getting the scope and photos and getting those estimates to get them back to rent ready. 

Chris McAllister: So we, we basically have. Two parts to rehab and maintenance. We have the rehab or turn team, and then we have the routine maintenance with, you know, our at the moment for, um, W two employees that actually go out and visit tenants houses and take care of things so that when they have a maintenance issue.

But it also, it does involve, you know, taking care of the lawn maintenance, like you said, you know, being able to take care of basic HVAC issues, plumbing issues, electrical work, and if it’s beyond the scope of our maintenance techs, having a, um, cadre, basically a group of third party contractors that we can rely on that do good work promptly and are fairly priced.

Um, so that’s a huge, huge part of rehab and maintenance. Emergency repairs, you know, we’ve got to respond 24 7 to urgent issues like flooding, heat failure, you know, sometimes broken locks, things like that. So that’s something you want to challenge your prospective property manager on. This whole thing about third party vendor and contractor management, you know, anything.

That we can do, whether it’s a turn or, you know, a regular maintenance call to a property, it’s going to be done, uh, at a better price. It’s going to be done faster and the outcome is going to be better when we actually. Have our employees do it, but there’s times when our employees can’t, or it doesn’t make sense.

You know, drain cleaning is a perfect example, um, or a third party, uh, lawn warming service, or, um, 

Gretchen Mitchell: We do a lot of like, um, tree work. We’d have to contract that out a lot. A lot 

Chris McAllister: of trees that come 

Gretchen Mitchell: down. A lot of 

Chris McAllister: those. So, you know, hiring, supervising and paying these service providers. So there’s a lot of, uh, Accounts receivable and accounts payable going on property inspections.

You said, you know, we always do inspections when, um, when somebody moves out. Of course, sometimes our owners ask us to do periodic inspections that they pay a fee for and we’re happy to do that. Um, sometimes though, you know, one of our maintenance guys may may walk through a property and and see that the property is not being cared for.

And that raises a red flag. And, you know, you hear about that Gretchen at the Monday meetings and, you know, we’re on the phone with the owner, letting them know that, uh, you know, we’re going to go through and and see what’s going on here. But, you know, I guess we would call them after we know exactly we got our ducks in a row.

But basically we want to anticipate problems so they don’t show up 

Gretchen Mitchell: Right. 

Chris McAllister: And it moves out and it’s not a huge surprise. And of course turns, you got to clean it, you got to paint it, do repairs and so forth. So how do you pay for that? Right. So that comes into the, um, the maintenance payroll reimbursement and, and the markups for materials and the management and the, and the markup of third party contractors.

I’ve been doing a lot of research on what property management companies are, are marking up third party contractors and so forth. And it’s anywhere from. Uh, 5 percent on the low side to up to 20, 25 percent on the high side for a construction management fee or a markup for materials and don’t forget, you know, there’s many, many times, especially on smaller things where your property manager is going to be fronting their own money from their brokerage business or from their property management business to Purchase, you know, materials on your behalf.

Um, so there’s value to that. And I don’t think our owners always always think about that. So even if it’s only, you know, less than a month, you know, more often than not, when we do that, we recoup that, you know, when the check run comes up on the 10th, but it’s something to think about. So all these fees, right?

The maintenance reimbursement, the markups, and so forth. That’s got to cover not just, you know, the payroll for the maintenance techs, but it has to cover their trucks, their gas, their, their, uh, the new tires on the truck, the insurance, the liability, the workers comp, the, the office space, you know, paying for property metal, site audit pro, the list goes.

On and on and on. And then of course our four maintenance techs and, and, uh, uh, Brad, who’s our, um, rehab and maintenance manager and, and, and Corey that we spoke about who does our running. And he also also does dispatch for, uh, tenant concerns and, and Gretchen’s time. So rehabs and maintenance is, is rehab and maintenance is almost like.

It’s own entity, its own property. It’s part of the property management company, but it’s such a large and involved process with so much potential to, uh, go wrong and so much opportunity to go right. I think that Gretchen, you’d agree that, you know, we find ourselves spending more and more time on setting that up as a, as a self sufficient entity.

Gretchen Mitchell: For sure. 

Chris McAllister: And then that begs the question, does your property manager have a dedicated rehab and maintenance department? So there’s a lot of larger property management companies that are standing up their own in house maintenance departments and all for the same reason, right? To better control timing, costs, and outcomes for the owners.

The issue too, why the costs have been, you know, more than doubled since COVID. Semi skilled labor and skilled labor is an unbelievable demand, especially in markets like where we are in Ohio, where the housing stock is older. Right. You know, most of the houses in Springfield are a hundred years old, and a lot of it in the central Columbus as well.

So consequently, costs, costs are rising, but so are wait times to get a property in a contractor’s queue. That’s the other reason why, you know, I think it’s important for us to, to stand up our own term team, because even if we find a contractor who’s willing to do the work at a reasonable price, he may not be available to do that work for.

You know, 30, 40, 60, 90 days. Whereas if we have a dedicated crew who obviously only works for our owners, we can more often than not get that done much quicker, get the property back in service that much faster and, and do it at a competitive. And when you do hire an external contractor, and I think sometimes owners forget this, you know, like it or not, an external contractor is still going to have to be monitored, managed, and held accountable, just like if they were a W 2 employee.

So, you know, it’s not a situation where, I mean, yes, we have relationships with some of these contractors that have been with you for, you know, 10, 15 years, and they do great work, but we still follow up and do a walkthrough. through before they get that final payment. 

Gretchen Mitchell: Oh, absolutely. We take the original scope that was given to them and literally check off every item.

And if it’s not done, nobody gets paid until everything on that list is done, but they know that. 

Chris McAllister: Yeah. So there comes a point where it makes sense for both the owner and the property manager to handle daily maintenance and as many turns as they can internally. And we’re no exception. So please ask your property manager, how they handle both routine maintenance in between tenant turns.

But Gretchen, why don’t you take us through the management fee? 

Gretchen Mitchell: What will the management fee? That is the number one question when I have a new owner conversation, but, you know, the management fee has to pay for a lot of things, obviously, um, but, you know, we have owners, um, owner statements and accounting, um, the owner payments that get paid on the 10th and the 20th, um, tracking the repairs and the utilities, calling utility companies, uh, security deposits, Um, how to collect those, make sure they’re processed correctly with the in and out of a tenant, um, tax documents, you know, the end of year statements, your 1099s, um, reserves and flats, we can make sure that owners.

You know, we have money set back for some things, uh, legal expenses. I mean, it comes with a lot of things. So, um, 

Chris McAllister: Well, legally compliance alone is a huge thing. You know, we’ve got to do all this stuff. And the reason the law says every state, except for Maine requires their property managers to be licensed with the state and the, you know, the whole legal thing alone.

And, you know, that encompasses fair housing compliance, it encompasses making sure the leases reflect current law, state, local, um, our, our company policies reflect, you know, local ordinance and laws that we’re, we’re complying with the local ordinance conviction, eviction procedures. And like you said, every, every city in which we do business, if we take section eight.

Um, it’s a whole different set of, of rules, right? 

Gretchen Mitchell: Yeah. 

Chris McAllister: And then on top of all that, and which is a lot and enough, you know, the other thing that, you know, I think some owners look for and hopefully more and more will, is And this is something that actually we’re sending out a letter to all of our owners today.

It’ll be at the mailbox tonight on February 18th and it’s all about us expanding our support for owners outside of just the day to day management. So the other thing that, you know, you may Want from your property manager or at least want to know if they offer it is, you know, basically investment advising for your residential property.

So offer insights on market trends, rental pricing, and return on investment. Is your property, does your property manager understand The numbers of a typical rental property. Do they own rental property? Do they? It’s one thing to, you know, feel your pain. It’s quite another to feel your pain and know exactly what that pain looks like on a profit and loss statement.

Can they help consult with you on portfolio growth, right? Can they help you acquire or sell rental properties? Can they, can they point you in the right direction for 1031 exchanges and so forth? Capital improvements. You know, we’ve been talking a lot about it. So, you know, whenever, whenever a unit goes vacant and we hate it, the owners hate it.

It’s a bad thing because, you know, money’s tight right now. Everything costs too much. And what we’re trying to do is give our owners basically two numbers, right? So here’s the minimum that you can do to maintain the property, keep it safe and preserve the rent that you’ve been getting. So that’s one thing and that’s one price, but we also think that if you would consider doing this and this, you know, maybe it’s, uh, painting the entire place, maybe it’s taking care of, you know, replacing some, uh, older carpet with some plank flooring or whatever.

If you do these things, we think that we can raise the rent this much. And, you know, if you can spend, uh, I’m going to mess up these numbers off the fly, but Let’s say you make some upgrades to the property to, to get it back to the neighborhood standard and that allows you to raise the rent on the property a couple of hundred bucks, right?

That, uh, that 2, 400 against even a 10, 000 investment is a hell of a rate of return. So, you know, as long as you can, if it, we’re trying to. Getting the habit when we’re working with our owners on these on these turns and potential upgrades is okay. We need to make sure that our owners can see that if they do this and this to the property And will that improvement result in an increased rent and a greater return on that investment?

And I think that’s absolutely critical going forward. But again, market analysis and rent pricing. We talked about rent range. We spend a few thousand dollars on rent range every month just to get that extra third party. Data point, you know, on top of whatever article experiences, um, custom reports and forecasting, we’re, we’re working on a really cool thing that, uh, I’m excited to roll out next, next, uh, next month.

And we referenced that in the letter that we sent out today. It’s from a service called blanket homes. com that literally takes, um, all the information about, uh, given rental property in our portfolio. And sets up an analysis for how it’s performing and how it, uh, is forecasted to perform in the future.

So anyway, that’s a lot. I get a little excited about that extra stuff. I guess, Lisa, you and I have been kind of calling it property management plus. 

Laci LeBlanc: Yeah, exactly. But even with all of that, let’s call it extra stuff, right? You talked about how just the basics of the management fee were more than enough.

I’m sitting over here listening to you guys list off. All of this stuff and thinking to myself, like, there’s no way that an individual without a team behind them could could even do all of this stuff. Well, right. So we talk about fair housing. We thought talk about documenting things. Um, you know, in the event that something comes back up and you need to show that you you did things the right way.

Um, you know, I just think about all these things, I think about how Nana does it. And I just think about how you can’t do it really and truly yourself for less than, than you guys charge. Um, I don’t know about other property management companies, but you certainly can’t do it well and do it efficiently for less than a property manager.

So I’m thinking back to the beginning of the conversation where you said we want our owners to make more money. You’re not going to be even paying us than they would on their own and as you start to really hear all of this and, and walk through each and every aspect of it, it’s obvious why you guys are able to do that because, you know, these owners are splitting, not just the cost with all of the other owners that you service, but also, you know, they’re, they’re gaining the expertise and the efficiencies that you guys have, have kind of created over this time doing this and, and knowing what you know.

Chris McAllister: It’s all about adding value. That’s our mission is to just add value and be as competitive in the marketplace as we possibly can. So all those things that we just rattled off, that all has to be covered under the monthly management fee. So that includes overhead for the brokerage, liability insurance, errors and omission insurance, licensing fees, rent, utilities, salaries, benefits, work trucks, tools, it’s just crazy.

And there’s not one thing I just mentioned that hasn’t increased in price dramatically over the last three years. I mean, the software increases that are getting pushed through alone are unbelievable. And, you know, to some degree we’re captive, right? It would take millions and millions and millions of dollars to duplicate AppFolio.

Right. So once they gotcha, they gotcha.

Yeah. And the accounting alone, you know, we, we did a whole episode on trust accounting and, and, uh, co mingling and all those things to, to, to worry about, ask about your, your, you know, ask your prospective property manager about, but who does this cover? Well, in our company, it’s got to cover Kelly. It’s got to cover Josie, Angela, Jill, our accountant.

It’s got to cover Gretchen, Tina, Shannon, Marcy. And yeah, I’d like to get a little something out of there myself. So in reality is this fee has to cover a percent of everyone, even as You know, we’re, we’re doing everything we can to, you know, make sure that maintenance covers its own, that leasing covers its own, that renewals cover its own and so forth.

So I’ve been thinking about it the past few months that everything we do and everybody we employ is a profit center. And every single person has to be able to add value and be able to articulate their value and understand how, how their services are. Ultimately paid for. So that’s a pretty good rundown of everything you could expect from a property management company.

But the other thing I want to touch base on, and again, in the moment, things we’re thinking about. There’s two kinds of management views, right? Property management companies basically charge two ways. They either charge a percentage of the rent collected or they charge a flat rate fee. So what are the pros and cons?

Right. So from an owner’s perspective, both of these fee structures have advantages and drawbacks. So here’s a quick breakdown. So let’s start with flat rate management fee, which happens to be how we approach the business. So what are the pros for the owners? Well, it’s predictable. Owners know exactly how much they’re going to pay each month for any door they every door they have, which makes budgeting easier.

It also tends to result in much, much lower fees. On high rent properties, right? So a flat fee can be more cost effective for high end rentals compared to a percentage based model. There’s also less incentive for rent inflation, right? The property manager isn’t financially motivated to push rents higher just to increase their cut.

There’s a, there’s a place, there’s an equilibrium in every single market. And, you know, even in a, in a rent increase friendly market, there’s still a cap. And honestly, we’re starting to see that cap. You know, we’re not being able to push through, um, rent increases like we have the last two or three years.

So, um, on a flat rate, there’s, there’s no reason for a property manager to push, push a rent beyond what the market’s going to bear and resulting in the property staying empty an extra month, two months, even three months, you know, before the owner has to step in and say, look, I think we’ve got to cut the price on this.

The other thing about a flat rent, it’s full service regardless of the rent paid, right? So whether you’ve got a 700 unit or a 1, 700 unit, you know, you can, you, you can expect a minimum level of service. So what are the cons? Well, the cons are that you’re paying a management fee, even if the property happens to be vacant.

So owners still owe the fee even the property isn’t generating income, which can be a downside during prolonged vacancies. You could argue that there’s less incentive for tenant retention since the manager gets paid no matter what. They may not be as aggressive about keeping tenants happy and renewing leases.

I think that’s, uh, I don’t, I don’t really see that as happening with us because I just want our owners to know that we We freak out as much as you do when somebody moves out. 

Gretchen Mitchell: We absolutely do. 

Chris McAllister: Because if there’s one event that’s going to cause an owner to, to sell their property, it’s a vacancy. So we, we, maybe it’s a, maybe it’s a stick more than a carrot, but, uh, I, I don’t, I don’t see that as a con, but I can see how people might perceive it as a con.

Potential for less hands on management at the fact. Flat, the fat fee is the fat flat fee. I mean the skinny flat fee. If the flat fee is too low, property managers might cut corners on service to maintain profitability and that I would say is a legitimate concern and I see that in the market all the time.

All right, so what about if the property manager charges a percentage of rent collected and you know this is a case where that percentage is only charged when the property is occupied because the percentage is only taken when money is collected. So what’s the pro for the owner? No rent, no fee. Owners only pay when the property generates income, aligning the manager’s incentives with the owner’s success.

Stronger leasing incentive. Property managers are less motivated to minimize vacancies and find quality tenants. Let’s think about that one. Stronger leasing incentive. Property managers are more motivated to minimize vacancies and find quality tenants. Yeah, I’m not sure that that’s necessarily the case.

I’d have to think through that one again. Better tenant management. Managers benefit from long term paying tenants and may work harder to ensure tenant retention. I can see that, you know, somebody can, you know, if I’m getting, you know, You know, 12 percent of a 2, 000 payment every month. Yeah. Well, I, I may be more incented to take better care of them than I’m, than I might, you know, getting, you know, 12 percent on a 700 rent.

So I can see how that’s an issue and it is a performance based piece fee. So the manager does earn more when they maximize rental income. Which could encourage stronger pricing practices, uh, maybe. But there’s another 

Laci LeBlanc: side to that coin too, right? There is. There’s, yeah. I mean, it also can incentivize you to charge more for the property than it’s worth, which can lead to rental problems down the road, right?

Chris McAllister: It does. And some of the cons for owners doing it this way is it costs more for high rent properties, of course. A percentage based fee can become expensive, especially in high demand rental markets. It’s the incentive to prioritize high rent units over lower rent units. Some managers may focus on the properties that generate the highest commission and they don’t focus on the, on the rest of the portfolio and less predictable monthly costs, fees fluctuate with rent amounts, making budgeting for the owner a bit tougher.

And there’s the potential for fee manipulation in that some property managers may charge a percentage on late fees, pet fees, and so forth as an effort to increase their. their earnings. So, you know, there’s pros and cons for everything. It’s obviously more traditional that, um, I think most companies still today charge a percentage based fee.

Um, but which is better? Well, flat fee is better for owners who want predictable costs and have high rent properties. Percentage fee is better for owners who want a performance based structure and don’t want to pay during vacancies. So it can go either way, but let’s talk a little bit about, um, how, how we do it.

So, because that’s all we know, right? So you can use this as a comparison with whatever company you’re interviewing. But our mission is simple. We want to provide The best value in property management while ensuring long term tenant satisfaction, you know We want tenants that stay there for years and we have a ton of tenants that have been with us since we ever started property management in springfield But we aim to keep good tenants in place for years helping you maximize your property’s potential with minimal disruptions And our fee structure, hopefully, reflects this commitment by keeping management costs low, the monthly management fee low, or at least as competitive as we possibly can, while offering competitive rates for the non recurring services as needed, whether they be a lease or, you know, an eviction or a repair or an owner term.

So for us, we want our fees to be competitive, consistent. So we charge a flat fee. That’s, that’s our business structure. And here’s why we as for your property manager, what more consistent cashflow and we’re willing to forgo what other companies might charge to get that. The downside though, is we don’t get the automatic income.

We don’t get the automatic raises that a percentage based model provides with. with increased rent collections. So we have to be very, very careful and watch our costs closely to make sure that our revenue that we’re charging our owner keeps up with our expenses, because when you’re on a flat rate, it’s, it’s, it’s not automatic.

Right. So, you know, every time the rent goes up 100 bucks, you know, your property manager could be getting an extra 8 to 12 a month. We don’t, we don’t have that automatic race system set up for that for us. Having said that, we believe in maintaining as low a monthly management fee as possible while ensuring that the essential services that you need.

are affordable. So whether you you’re managing a single family home or a multi unit home, you know, we want our fee structure to to be straightforward and affordable. And we actually have a blog post that we’ll put in the show notes that talks about our fee philosophy and also spells out in great detail What what we charge so and we do charge a different we charge different amounts for in different markets.

So Springfield tends to be is different than Columbus is different than Dayton different than actually Florida and Columbus are about the same. So we charge a standard rate every month for a single home. And if it happens to be a multi unit building, then we charge a reduced rate per unit on a multi unit property.

Our leasing rates, you know, we charge a full month’s rent as a, as a lease commission when we lease a property. And we charge a 250 renewal fee when we renew a property. Now, you may see some companies out there that charge less for leasing. Some of them may charge a flat fee, some may charge half a month’s rent.

But you want to really look closely because you, you, many times there’s additional charges that these companies are throwing at you for paying Brazillo for, uh, Application fees, admin fees and so forth that they’re asking the owner to pay that miraculously add up to darn close to a full month’s rent.

So just be, be prepared to ask for any hidden charges and find out about them. So our philosophy on these non recurring charges is that you pay only when needed, right? The management fee has to cover the day to day needs, certain services, but certain services like leasing, maintenance or inspections, evictions.

Those are only required occasion, right? So at our company, these non recurring charges, we want to make sure they’re priced competitively. Of course, they cover our costs, but are only charged when necessary. This way, you’re not paying for services every month rolled into your managed fee, management fee, that you don’t really need.

And you have the flexibility to address property specific needs as they arise. So, in the show notes, we also have, uh, some documentation on our maintenance fees, what we charge for payroll reimbursement, what we charge for markup, inspections, lock changes, and so forth. Um, so all of that’s going to be in there and you can pick that up in the show notes and you can take that to your property manager meeting and, uh, compare notes.

One more thing about fees. Um, you know, we, I, not that you can’t blame this on Gretchen or anybody else, but, you know, we want desperately to keep things fair for our owners. And I think a lot of that anxiety about keeping things fair comes from the fact that I look at my own portfolio and I know what it costs to keep it going and I, I just want to make sure that I know that if the fees are reasonable for me, then they’re going to be reasonable for just about anybody.

But having said that, we, you know, when we started in Columbus in 2018, the book of business we bought, their fee structure was a flat fee structure and we kept with that and later we moved that flat fee structure over to Springfield and Dayton as well. The problem was, um, we didn’t raise those fees at all, all the way up until last two, not 16 months ago, I think was the first time we raised our fees.

Gretchen Mitchell: Yeah, I think it was like 2023 getting into 2024. 

Chris McAllister: Yeah, and I, I, I tell you this because I think this is something you want to ask your prospective property manager because their profitability should be important to you. Right. So the thing about flat fees from a manager’s perspective is We have to be able to raise those fees in response to the costs we incur because we’re not getting it automatically every time the rent collected goes up, right?

So, it’s my job and, and, uh, we, we held our fees last year again. Um, I don’t know that we’re going to do that into 2026. But, you know, whatever the competitive number is from a percentage basis, we’ve got to come in. We have to basically take that annual number, right? That that’s typical. We have to divide it by 12 and then we have to make sure that we, I hate to use the word discount it, but that we adjust it appropriately to make sure that we are priced.

Absolutely competitively in the market by providing the very best values. So you want to ask your perspective management company if they’re doing a flat fee, you know, ask them how often have you raised that fee over the past five years? And really, you want to hear that they have. You want to hire somebody who is as close to their business that they understand the profitability and that there’s a good chance they’re going to be there.

And anytime you see a it. Low, low fee. You have to expect it’s uh, it’s, it’s too good to be true. One more thing and, and, um, you know, get off my soapbox here. But Lacy, as you said there is a lot of stuff that goes into automating your rent collection and allowing, uh, our owner to get on with their life.

You know, it, it, it, it. It’s a lot. And, you know, we’re fortunate that we, you know, we have a certain scale with the number of doors that we look after. And we’re absolutely looking to add more doors so that we become more efficient and more profitable as a company. But when you think of somebody who, an individual, um, Licensee who does property management on the side.

I don’t care, you know, if you’ve got maybe 10 properties, you can get away with it, you know, and have a life and do a good job for your owner. I think that the most I’ve ever seen a single person property manager, you know, do maybe 25 properties, 30, but anything beyond that, there is, you just got to be very, very.

Um, I want you to be somewhat skeptical, skeptical of how they’re able to do that as a, as a one person show. So in this business, scale matters. I’m not saying that you necessarily want to go hire a company that’s got 25, 000 doors. Uh, although if that’s the best fit in the market, go for it. But I also want you to be careful that you’re dealing with a Lone Ranger or a one man band who also does sales on the side, because there’s a chance you’re not going to get the service that you’re looking for to make the price you’re paying worthwhile, even if it’s, uh,

Laci LeBlanc: I think that’s a really good point. You know, we did a podcast last week, I think about, um, with connect practice, track and go grow for agents. And we talked about the different agents, different types of agents and what types of brokerages and, you know, kind of where they are, how they define success and, and how that’s different for everybody.

And there’s not necessarily a right or wrong. And I think that’s true with the property owners as well. You know. Roost offers a certain type of service and a certain, you know, type of, you know, fees and management, and that may not be a fit for everybody. Um, there are people out there who just want the, the bare minimum and who don’t align, you know, with their, their views on how a property should be managed and how much it should cost.

So, um, I think that’s a really good point is that, you know, and that’s. That’s the point of really this whole series, right? What to Expect from Your Property Manager is this is an interview process. This is a, a series of questions and answers to see how a prospective property management company aligns with your views for your property.

Chris McAllister: Yeah. And I’ve thought about this a lot. I want to be the Costco of, uh, property management. I want to be the Costco of the real estate world, right? We are not a dollar general. We are not discounted. We’re not, uh, we’re not even Walmart, but we’re certainly not Neiman Marcus. Right. We’re, we’re, we’re not boutique.

We’re, we’re, we’re not, uh, I wouldn’t say that anybody’s hiring roost because of the prestige involved. Right. But when I think of Costco, 

Laci LeBlanc: it’s definitely for the 1 hot dogs. 

Chris McAllister: We have to start selling dogs. That’s right. But when I think of Costco, I think of absolutely fair pricing. I think of tremendous value.

I think of consistency of service. I think of something that, um, you know, I just feel great about the value that they’re providing. And I think that’s the kind of, uh, that’s how I want our property manager clients to, to think of us and feel great about it. So just to toot our own horn a little bit, or at least to kind of reiterate our aspirations before we wrap up here, you know, we offer an exceptional We aspire to offer an exceptional combination of low management fees and fair and transparent pricing for non recurring service so that our owners get the best value possible in the industry.

So all of our services are competitively priced to ensure you’re getting the most value for your your management fees and, uh, the other fees. And I actively benchmark every other company in the market to make sure that we’re in line there. We want clear and transparent invoicing. You always are going to know what you’re getting charged for.

We don’t want any hidden fees. We don’t want any surprises. We don’t like it. We know you don’t like it. I don’t like it as an owner. And yes, we can provide tailored solutions for our owners. So we can customize our approach. We do do volume discounts on fees. We can do a lot of things to meet the specific needs of your property or your portfolio.

And we were figuring the other day, our average owner, we have a ton of, uh, we have a lot of owners that obviously have a single property. Some of them were maybe accidental landlords and so forth, but we, you know, our, our owners average three properties with us right now. And I’d like to see that grow because we, we can definitely add even, even greater value to.

owners that have a multi property portfolio and a mixed portfolio, right? So we can handle single family, we can handle duplexes, fourplexes, small complexes, etc. We can tailor what we do to the owner’s needs. So Gretchen, anything else to, um, Um, Laci, anything else we want to, you guys want to add at the, as we finish this up, 

Gretchen Mitchell: I guess the only thing is like, when I have a, uh, conversation with a potential new owner, I actually tell them, this is why we do the 15 percent markup because it covers, you know, payroll for this and Angela for this.

And this is what the management fee covers. I actually tell them all these things on the phone. So they’re very well aware of why we charge what we do. Yeah, I think they appreciate that. 

Chris McAllister: Yep. And we’re actually going to do an episode here, um, where we’re going to talk about the entire onboarding process and what that looks like, you know, when they 1st interface with either Laci or or Taylor and, uh, you know, what they expect from them and what they expect from you.

And then I want to share all the forms that you guys need filled out and all the information that you have to get from an owner to to go live. It actually takes us to Another fee that obviously the owners need to ask and that’s an onboarding fee. Now there are some property management companies that charge an onboarding fee to get you in the system.

We currently are not doing that. Um, but there’s, there is a lot of time and effort involved in getting your portfolio into our, uh, system, right? And that, that, that takes time and Gretchen’s the person that has to. To do that. And currently we’re not doing that. But what we will ask for is a reserve, um, you know, enough money in there to cover the first month’s fee to us, whether the property is rented or not, to cover any potential bills that are coming up that we’re going to have to pay.

So we may ask for a reserve based on the size of the portfolio, but we are not asking for a non refundable onboarding fee. So that’s a, that’s a fee we didn’t really, uh, discuss. Um, but that’s definitely something to be conscious of when you’re interviewing property management companies. Laci, anything else?

Laci LeBlanc: Oh, I feel like this is the time where I have to say, but you don’t have to take our word for it. You should go look at our Google reviews from, to see how other people, uh, feel about the property management services, tenants, um, you know, I I’ve seen a lot of really great reviews come through, um, just recently, you know, applauding your team there in property management for how great they are to work with, um, how easy they made the process.

Um, And how, you know, they’re, they’re so happy with their, their new home. So a lot of tenant reviews lately, but I think that just says so much about the time and the effort that you all at Roost put into finding the right people for these jobs, and that’s something you didn’t talk about, I don’t think, as part of the fees, but I mean, if you, if you have to hire one person, Uh, you know, to help you with either maintenance or I mean, I think about my Nana and all the people she has to call on a regular basis because she has, you know, seven contractors and then nevermind my dad and my brother who are her, you know, hands and feet when it comes to anything she needs, but just finding the right people.

Um, the, the team that you’ve put together there is so So capable, so qualified and just so they’re so nice while doing it right that you got a lot of competent people who maybe are a little condescending or rude and you got to sort through those people. You got the best of all the world. So yes, I encourage people to go look at the reviews of whoever they’re interviewing as their property management company and see how they’re really doing.

Um, you know, from in the eyes of of the people they actually serve. 

Chris McAllister: And, you know, the five star reviews are great and, you know, Taylor’s been getting a ton of love lately in leasing and the maintenance guys get a ton of love when they go fix somebody’s house and so forth. Um, but also, you know, look at the one star reviews and how, how does the property management company respond to the to the one star reviews.

I think that says a lot about the, the, the integrity and the quality of the company that you’re dealing with. So in conclusion, at our company, we believe in transparency, value, and long term relationships with our property owners. Our goal is to provide excellent service at a fair price, ensuring your investment remains profitable by maintaining high tenant satisfaction.

And if you’re not working with us, this is what you should expect from your property management company as well. So that’s all for this week. Join us next time. We’re going to go through the property management agreement and the onboarding process that we take our new owner clients through. So thank you for listening.

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