I managed four scattered houses for ten months and made 12 dollars an hour

I wanted to find out whether the service side of this was where I fit, so last year I took on management for two out-of-state owners. Four houses total, average rent 1,450, so 5,800 a month gross. I charged 9 percent of collected rent and a 200 dollar leasing fee, because that's what the two firms in my market advertise. Revenue ran about 522 a month, call it 6,260 for the year plus 400 in leasing fees on two turns.

Here is what the year actually contained. Two turns, each of which took me 14 to 20 hours of vendor coordination, walkthroughs, and photos. One roof replacement at 6,800 where I got three bids, met two of the three roofers on site, and handled a supplement conversation with the owner's adjuster, unpaid, because my agreement said maintenance coordination was included. Eleven maintenance calls, four of which required me to be there. One tenant who paid between the 8th and the 14th every single month, which is 12 conversations a year. The houses were 9, 14, 22, and 31 minutes from me in three different directions, so nothing batched.

I tracked hours from month three because I got suspicious. Averaged 34 hours a month across the year. Out of pocket: 1,140 on software I barely used, 780 in mileage and gas, 310 on lockboxes, signage, and a background check I ate when an applicant withdrew. Net about 4,430 on roughly 400 hours. Twelve dollars an hour, before the two weekends the roof took.

I gave both owners 60 days notice in November and handed the files to a real firm. Nobody was angry. One owner asked me to stay on at 12 percent and I said no because I'd have still lost money.

The thing I got wrong is the pricing model, and I'm not sure I understand it even now. Percent of rent works for the local firms, so either their cost structure is completely different from mine or I was doing the job wrong. Property management licensing rules vary by state and I did confirm what mine required before I started, so that isn't the hole. What I'd do differently is charge a per-door minimum and bill maintenance coordination separately, but I have no idea what those numbers should be.

Answer

1laurenkim53Passive

Percent of rent isn't broken, it's just the wrong unit for what the work actually costs. The work scales with doors, events, and drive time. Revenue scales with rent. In my markets, where a house rents for 850, 9 percent is 76 dollars a month and no human being can serve that door for 76 dollars. The local firms you're comparing yourself to are surviving on volume and on fees you didn't charge, so their headline 9 percent is not their real revenue per door.

What the small operators around me actually run, and what I'd have told you before you started:

A per-door monthly minimum, so the fee is the greater of a percentage or a floor. Around here the floor is 110 to 135. On your 1,450 rents, 9 percent already clears that, so the floor wouldn't have saved you. Your problem is that four doors times any reasonable fee is not a business, which means the minimum you needed was a portfolio minimum, something like eight doors per owner or a flat monthly retainer regardless of door count.

Maintenance coordination billed separately. Either a flat per work order, 45 to 75 in my area, or a project fee on anything over a threshold like 2,500. Your roof was 20 hours of skilled work that you priced at zero.

A leasing fee that reflects a turn. 200 dollars for 14 to 20 hours is 12 an hour again. Locally it's 50 to 100 percent of one month's rent, so 725 to 1,450 on your houses. Two turns would have been 1,450 to 2,900 instead of 400. That one change alone roughly doubles your year.

And a service radius you enforce. 25 minutes, one direction, and you say no to the 31 minute house even when the owner is nice about it.

Whether an hourly or retainer structure creates any licensing wrinkle depends on your state's real estate and property management statutes, so run the fee structure past whoever handles your licensing before you publish it. The pricing itself is arithmetic. You were about 60 percent underpriced on turns and 100 percent underpriced on capital work, and no percentage on the monthly line fixes that.

15 replies

1kevin_lombardPG1BPRO5

400 hours for four houses is nine hours a house a month. I had it in my head that a manager spends maybe an hour a month per house once it's leased. Is your year unusually bad or is my number fantasy?

2hannah_west29 Get yours

@juniper both, sort of. A leased house with a paying tenant and nothing broken is well under an hour a month. A turn is 15 to 20 hours and a capital project is 20 plus. @plumb had two turns and a roof in a four house year, which is a heavy year for a small sample. At 40 doors those events average out and the light months subsidize the heavy ones. At four doors there are no light months to average against.

9 percent of 5,800 is 522. You cannot run any business on 522 a month. The number was doomed before the roof.

2brandonlee36Passive

This is the thing I keep bumping into from the owner side. My manager is fine at 8 percent on a portfolio where she has 300 doors and a maintenance tech on payroll. When I asked her to take one house 40 minutes out of her area she declined and told me exactly why. She said the drive kills it and she was right.

1ryanmck27SC2C

I'm partway through licensing and the fee side is something I've had to figure out on my own. What did your management agreement actually say about the roof? Most of the ones I've read give the manager a percentage of capital projects, commonly 5 to 10 percent of the job, on top of the monthly fee. On 6,800 that's 340 to 680 dollars for the exact work you did unpaid.

1ehernandez74PO2BPRO5

@halyard that's the clause I look for as an owner and I don't love it, because it pays the manager more when the job costs more. I'd rather pay an hourly project fee. But @plumb should have had something there. Doing an insurance supplement conversation for free is a gift.

1devon_pierce Get yoursPRO5

The 31 minute house is the one I'd cut first. Three directions, four houses, no batching. Density is the whole business and you had none of it.

2tylerbrooks9PassivePRO5

Or the answer is that managing four houses isn't a business, it's a favor with an invoice attached. Ten months to find that out is fast.

5renee_dubois Get yours

@verity that's roughly what happened to me from the other side. I self-managed my first building because 8 percent of 4,200 wasn't worth giving up, and I was effectively working for the same 12 dollars an hour @plumb was. The difference is I owned the asset, so the hours bought me equity as well as wages. @plumb was buying wages only.

1paulgrant17PassivePRO5

The tenant paying between the 8th and the 14th for twelve straight months is the detail I'll remember. My first rental is coming and I've been reading about screening constantly. That's not a bad tenant on paper, they paid every month. It's twelve conversations, and someone has to have them.

1priya_n21PO1C

@wren and if the owner is out of state, the someone is the manager or it's nobody. That's the part I'm paying for and I hadn't priced it as labor until this thread.

1karen_whitfieldPG4APRO7

@hollow the portfolio minimum is the piece I'd never seen written down and it explains every conversation I've had with managers who turned me down politely.

1samantha_ruizAU4APRO6

I hit the same ceiling from the active side. Four houses is the worst possible number, too many to ignore and too few to pay for anyone. Either you go to fifteen or you hand them to someone who has fifteen hundred. @plumb picked the right exit, just late.

3chriswalton8CC1CPRO8

Reading @hollow's breakdown, the interesting thing is that the fee structure is basically the same problem as fund economics. A management fee on a small base doesn't cover the operating team, so you need either scale or transaction-based fees to survive the early years. Same shape, different asset.

0derekj19SB1B

I've been circling the service side wondering whether it's a real business and this is the most useful thing I've read on it. The version that works isn't four doors done well. @plumb, would you take another run at it with @hollow's numbers, or is the answer that you go find eight doors from one owner first?