At Mynd Property Management, we are introducing a series about investing in Seattle real estate. If you own rental properties in this market or you’re thinking about making some Seattle investments, you want to be successful.
We’re talking to someone who knows how to do it successfully.
Alex Osenenko is joined by Enrique Jevons, who manages 850 units with his team in the Pacific Northwest. Not only does Enrique have a successful track record of managing homes professionally, he has a personal interest in how to succeed with Seattle rental properties. He owns 73 of his own. So, with over a decade of experience, we asked him to help us tackle some of the questions we hear most frequently from current and potential investors. Whether you’re already managing a portfolio of Seattle rental properties or you want to get into rental property investment, pay attention to the things we’re talking about in this series. You’ll learn a lot and increase your chances for profit and performance.
We are tackling one of the questions that we hear most often from investors. It’s a question that owners and investors all over the world ask when they decide to invest in real estate: What does professional property management cost? We’re talking about the costs specific to Seattle property management today. We’ve asked Enrique to walk us through the pricing schemes that management companies use in this market, and we’re exploring how property managers put together their pricing structures and how those are then represented to the customer.
Before You Invest: Build in Property Management Costs
One of the best ways to prepare yourself for the cost of professional property management is to build in those costs when you’re budgeting. Before you buy an investment property, you do a lot of math. Take a look at what you can expect your rental income to be and you compare that to the purchase price and you think about expenses such as vacancy and maintenance. Another cost to add to your calculations is professional property management. When you’re able to plan for this expense, it’s not going to deter any cash flow or return on investment. It’s already built into your expenses.
Maybe you’re planning to self-manage, so you don’t think that including professional property management costs is necessary. That’s not entirely true. The reality is that you need to take into account what those management costs will be. First, when you sell that property, the buyer may not be planning to self-manage. So, he or she will want to have that expense already determined. Second, you might turn the property over to professionals one day in the future. Or perhaps you’ll start acquiring a larger number of rental homes and realize you need some help. Maybe your professional career will take a turn or you’ll have new family obligations. When you’re prepared for the cost of property management, you strengthen your investment.
So, determine what those costs are going to be before you buy. A good investment property will perform well, regardless of whether it’s being professionally managed or managed by the owner.
Something else to consider is that your time has a lot of worth to it. So, if you’re managing your own investment property, take your own personal time into account because that’s worth something. When you manage on your own, there’s an opportunity cost. The time you spend finding residents, showing your properties, executing leases, screening applications and responding to maintenance is the time that you’re not spending on something else.
What would you do with that time if you weren’t busy managing your property or portfolio? Maybe you would be looking for other properties to manage. Or, perhaps you’d be more active diversifying your investment portfolio into other assets, such as stocks or bonds. Maybe you’d just be taking more vacations. The point is, your time has value. While you may not be paying a management fee every month, you’re still spending money. It’s just spent differently.
Include the property management cost in all of your calculations, spreadsheets, budgets and projections. If you don’t end up spending that money yourself, it still needs to be reflected.
Average Seattle Property Management Costs
The amount you pay for property management will depend on the company you choose, the services you need, and the type of rental property or properties you own. Each company structures its fees differently and each company has certain things that are included and certain things that will cost more. But, you need an average number as a baseline. So, based on all of our data and all of our research, and all of our number crunching, we can provide an average that you can safely use.
We recommend that you use 10% as the general management fee to expect. When you actually close on a property and find a management company, it’s possible that you find you’re only paying 8% or maybe you’re paying as much as 12% For the purposes of budgeting and projecting, let’s compromise and use the average: 10%. When say 10%, we mean 10%of your rental income. So, if your Seattle rental property has a rental value of $2,500, the monthly management fee you’ll pay is 10 percent of that, or $250.
In addition to the monthly management fee, you can expect to pay the equivalent of a full month’s rent for the lease-up fee. Unlike the management fee which is paid monthly, the lease-up fee is only paid when you’re looking for a new resident. It includes things like marketing and showings and screening and lease execution.
Residents of single-family rental (SFR) homes tend to remain in their residences for a term of three years. Anecdotally we have found that residents will stay for a few years and then move on if they decide to buy something on their own or they travel to a new location. So, that lease-up fee will need to be factored in for an expense that’s paid every three years. With some residents and some residents, turnover will be more frequent. However as far as finding an average, expect to pay a leasing fee every three years on a single-family home.
With apartments, turnover is typically higher. You can expect your residents to move out a little sooner. Lease terms for an apartment unit or multifamily units tend to turn over every two years, on average.
When you’re calculating averages, it’s better to be conservative. Use these numbers while you’re planning your rental property expenses and you’ll have an accurate look at what your property can potentially bring in and what you’ll be spending.
There are smaller micro-economies throughout Seattle and of course throughout the country. But, these averages are good numbers both for Seattle, the Pacific Northwest, and most rental markets.
So, you’ve got your 10% number and you’ve got your number that equals a month’s rent. Those are the property management fees you should be including in your calculations.
Evaluating the Cost of Property Management
When you’re choosing a property management company, cost should not be the driving factor, but it’s something you’ll want to explore. Make sure you’re thinking about these averages when you’re examining a price structure. With an average management cost of 10%, a slight alarm bell should go off if you find a management company that only charges you 4% every month, for example.
What are you really getting if you’re only paying 4% every month? And, how much more expensive will those other services be when you need them? It’s the same with leasing fees. If you come across a company that only charges a flat fee of $50 for a lease-up, you should definitely hesitate. How could a property management company possibly advertise a property and screen a resident for so little money?
Property management costs will be varied. You’ll find companies that are all-inclusive and companies that have a menu of a la care services. Either model works, as long as you choose what best suits your own personal needs.
To find out what Mynd Property Management charges for professional Seattle residential management, all of our fees are published on our website. It’s part of our commitment to remaining transparent to our customers.
We’re here to help. If you’d like to know more about professional property management pricing, please contact us at Mynd Property Management.