Management quotes at 5%, 6% and 8%. What am I actually comparing?

Twelve units is the worst size in this business and I say that with four buildings in that range. Too big to run off your phone in the evenings, too small for anyone to put a person on site, and too small to be interesting to a company whose money comes from 200-unit communities.

B is where I'd worry. A portfolio manager who also handles two apartment communities will handle those first every single time, because that's where their fee is and where their boss is looking. Your twelve units are a rounding error in their book. That's not malice, it's arithmetic.

C being small is a feature at your size. Two people means you'll talk to a decision maker. It also means when one of them has a baby or a back surgery you have a problem, so ask what happens then.

The annual capital plan C mentioned is the only thing in your post that addresses the actual question you asked. A 1978 building needs someone tracking roof age, boiler age, service panel, sewer lateral. Nobody at 5% is doing that.

Check with your lender before you sign anything. On smaller commercial and agency-adjacent loans it's fairly common for the lender to require that the property be professionally managed and sometimes that they approve the manager, and some loan documents let them force a replacement if a coverage test slips. Get your loan documents out and read the management covenant, and confirm what they'll accept in writing rather than over the phone.

Your fee comparison is arithmetically right and it's answering the wrong question. A and B land within $110 of each other on your assumed turnover, so turnover is the variable doing the work, and you've assumed it rather than measured it. Get the seller's last three years of leases. At 12 units, moving from four turns a year to two is worth about $1,000 in leasing fees under A and $600 under B, and considerably more in downtime. At $1,050 average rent, a day vacant is $35, so an extra three weeks per turn across two extra turns is roughly $1,470 of lost rent. That dwarfs the spread between the three quotes.

On the flat per-unit offer: a flat fee per occupied unit removes the manager's benefit from rent increases and removes their penalty for vacancy, depending on whether it's per unit or per occupied unit. Ask which. Per occupied unit keeps some alignment. Flat per unit regardless of occupancy pays them the same whether the building is full or half empty.

The thing your post is missing is the scope of maintenance oversight in writing. Ask each company for their spending authority threshold, their after-hours process, and their vendor list with whether any vendor is affiliated with them. Also ask for a sample monthly report package from an existing 10 to 20 unit client with the numbers redacted. What comes back separates these three faster than the fee schedule does.

What all of this depends on: whether you're buying an asset you intend to hold through a boiler replacement and a roof, or one you plan to reposition and sell in four years. The capital-planning value that makes C worth 1.2% of collections only pays off on the long hold.

Ask all three for their written screening criteria and how consistently they apply it. Income multiple, credit floor, criminal history handling, how they treat co-signers, what they do with an applicant whose only eviction filing is six years old.

Months of reading on this has left me with one takeaway: inconsistent application is where fair housing trouble comes from, and a small shop making judgment calls unit by unit is exposed. You want the criteria on paper and applied the same way to everyone. If a company can't hand you that document today, that's your answer about how they run.

Pick the one whose monthly report you can understand without calling them. I've had a manager whose statements I had to reconstruct in a spreadsheet every month for two years and it soured everything else about the relationship.

What's a lease-up fee for? Company C charges nothing for a new lease and the others charge $300 to half a month. If the manager is already getting 5 to 8% of rent every month, what's the extra payment covering? Genuinely asking, I'm at the very start of this.

@ember it covers the marketing, showings, application processing and the paperwork on a new tenancy, which is real work concentrated in a couple of weeks. Whether it should be separate or baked into the percentage is a matter of taste. Separate fees make the manager's revenue lumpy and reward churn, baked-in fees mean you're paying for leasing in the months nothing is leasing.

@quill at twelve units one vacant unit is 8.3% of your revenue. That's the whole reason the fee argument is second order. Everything should be pointed at keeping the twelve full and keeping renewals, and I'd ask each company for the renewal rate across their small building portfolio last year. If they don't track it they aren't managing it.

Does 8% plus taxes plus insurance plus reserves still leave anything? I ask because I want income and not a job, and every one of these threads ends with the passive option costing 20% of NOI. On $141k collections, $11,280 to a manager is a lot of months of somebody else's mortgage.

Not saying self-manage. Saying I'd want to see the number after debt service before I decided which quote was affordable.

@marlow the alternative to paying for management isn't free, it's you at 9pm on a Sunday with a water heater.

@quill my worst experience was with a company that looked like your B. Mid-size, some bigger communities, took my small building as a favor. First four months were fine. Then their regional person left, my building got reassigned twice, and I went five weeks without a statement. Nothing catastrophic happened, but I found out later a tenant had given notice and nobody had started marketing.

Ask who specifically handles your property, how many doors that person carries, and what their turnover has been in that role. Doors per person is the single number I'd want. Anything over 400 for a small-building portfolio manager and you're going to feel it.

Run it per unit per year and the picture gets cleaner. A is $796, B is $805, C is $940. Then look at what a point of occupancy is worth: 1% of $151k gross potential is $1,510, which is more than the entire spread between your cheapest and most expensive quote.

So the decision is only about fees if you believe all three will hold the same occupancy and the same expense line. You don't believe that, or you wouldn't have posted.

Separately, your collections of $141k against $151k potential is 6.6% loss. Ask each company what they'd forecast that loss to be in year one under their management and make them write the number down. Then you have something to hold them to, and the difference between someone who says "about the same" and someone who says "4.5% and here's how" is worth more than 1.2%.

Dumb question, is the 5% on collected rent or on gross potential rent? Because I've read both and they aren't the same thing at all, and I can't tell from the quotes as written.

@vellum not a dumb question, it's the second thing I check. @quill said collected for A and "6% flat" for B, which is ambiguous and needs pinning down.

On his numbers: 5% of collected $141k is $7,050. Five percent of gross potential $151k is $7,550. Five hundred dollars, so small. It matters more for what it does to behavior. A manager paid on collections has a reason to chase delinquency and fill units. A manager paid on gross potential gets paid the same on an empty building. Get it in the agreement as collected, and define collected so it excludes security deposits and excludes reimbursements passing through.

Also @quill, A's 15% on capital projects is high and it's the line nobody's flagged. You have a 1978 building. If you spend $60k on a roof in year two that's a $9,000 fee for coordinating one contractor. Negotiate a sliding scale or a cap now, when you have three bidders, rather than in year two when you have one manager.

What's the exit clause on each of them? I'd want 30 days without cause on the first year of any relationship with a company I've never worked with, and I'd want to know whether they hold my tenant files and deposit records hostage while the transition happens. Ask specifically how a handoff works and how long it takes to get the ledgers.

Second time through this and security deposits are what I keep snagging on. Who holds them under each quote, and does it go into a separate trust account or into the operating account? I've seen that deposit handling rules differ quite a bit by state, including whether interest has to be paid and to whom, so I'd ask each company to explain their process and then check it against your own state's requirements with someone qualified.

Contrary view. The reason this is hard is that a 12-unit is an awkward first asset if you can't be near it, and you're solving a structural problem with a vendor choice. @thicket said it plainly.

I'm not saying walk away, you're under contract and the building may be fine. But if the plan is twelve units at a time from a distance, the management overhead never gets better, it just repeats. Worth knowing whether you're building toward 60 units in one submarket where a manager can put someone part time on site, or collecting scattered twelves.

@kestrel that's the scale point and it's real. The economics of professional apartment management improve a lot once a property can carry its own part-time staff, and that's usually somewhere north of 40 or 50 units in one place, depending on the market and how the building is laid out.

@quill if the working submarket has more of these 1978 walkups, the interesting question is whether you and one manager could get to three of them within a mile. Same vendor list, one person covering all three, better fee negotiation. That path makes the 8% quote look like an investment in a relationship instead of an expense on one building.