Do you want to know how much money property managers make yearly? If YES, here is an analysis of the income & profit margin for property management companies.
In the United States, a property owner (landlord) can function as a property manager, or he or she can hire a professional property management company to assume full or partial responsibility of the management of a property or properties.
Note that the purpose of a property management company is to eliminate risks and maximize income for the property owners. In the property management business, the ideal clients are real estate investors that own rental properties. These landlords can own a single property or be a large Real Estate Investment Trust (REIT) that owns thousands of properties.
Property managers or property management company owners are expected to be problem solvers and should always take prompt legal action to evict destructive and/or non-paying tenants. These professionals are also expected to stay calm and manage emergencies without getting overly stressed about the problems because there will be a constant stream of new problems to deal with.
Real estate brokers are perfect candidates to start a property management company as either a division or a subsidiary because they already have many contacts with property owners, as well as relevant experience in the industry.
How Much Money Do Property Management Companies Make Yearly
Note that some property management companies charge professional fees for managing property owned by a third party, while other property managers acquire the properties they manage and keep all rents derived from their property.
Also note that there are property management companies that do both. For new entrants into the business, it may not be possible to directly acquire rental properties unless partnered with a real estate investor that can provide funds to buy a property.
For property management companies that provide full-service management, which means the management company has full responsibility for the property, they more or less earn 10% to 20% of the rental income collected, with the balance paid to the property owners.
For instance, a property management company with an agreement to manage a multi-tenant complex with 100 units that rent for an average of $500 per month each. If they maintain an annual occupancy rate of 90%, which is really good, the annual earnings for the property management would be calculated as follows:
- 100 units at 90% occupancy equal 90 units rented on average over one year.
- Note that the rental income would be 90 units’ times $500 per month times 12 months. This equals (90 x $500 x 12) $540,000 for a year.
- The fee earned by the property management company would be either 10% or 20% of this amount, which is $54,000 or $108,000 from this single contract.
However, a property management company with staff of one manager, one assistant manager, and one administrative assistant with a modest office costs about $143,000 per year, employee taxes and benefits would be about 30% of the pay, which is around $34,000 and a small office costs about $27,000 per year. It simply means that expenses for the year would be around $204,000.
Howbeit, to make a profit using the above scenario, the property management company would have to manage around 400 units to be able to meet up with overhead expenses and also generate good profit. Gross revenues after expenses from around 400 units will be $216,000 to $324,000 per year.
Gross profits before taxes are kept as $12,000 at the lower end of the scale (10% fee) and $120,000 (15%) at the higher end of the scale.
Estimated Profit Potential of a Property Management Company
In addition, note that about 20 percent of the average property management company’s revenue is profit. If a property management company is earning a total fee income per property of around $2,000 per year for one property, and their profit margin is 20 percent, it means you’re only earning $400 on that property.
With traditional thinking, to double that profit margin, the property management company will simply need to double roofs and front doors. Hence, all they really need to do to double the profit margin is find another $400 a year in these extra value-added fees. That’s a more efficient way to double profit, without needing more doors and more staff and more overhead costs.
Have it in mind that setting the right price is one of the main reasons why new entrants into the industry may not earn as much as they should.
If you charge too high, you could chase away potential clients. But charging below-market-rate management fees is not the solution and it won’t make you achieve substantial success. This may win you some clients, but property management companies more or less depend on these fees to fund their operations.
Even if you offer a significant discount, it becomes harder to respond to your clients’ needs and the quality of your services will decline as you start to get more clients – this will cost you in the long run. To avoid this, property managers need to be realistic and do their research. Start with checking what other managers are charging to get an average for the local market