Your question seems to ask about the property management factor as an expense item only. I assume that you are using actual amounts in all other elements of expense for the calculating of NOI. The property management element is based on a number of considerations:
1. Do you have off-site as well as on site management costs?
2. Is your property being managed by a professional company?
3. What is the size of the property?
4. Where is it located? (Important to costs of providing off-site services).
5. How many accounts are being managed in the owner's portfolio?
6. What type of property is it? (Multifamily, retail, office, industrial, etc.)
With the answer to questions #3 & 4 will help to determine what the gross annual rental income will be. This will help to establish the amount of cost (or property management company income) that will come from any one property. This figure must then be used to calculate what the actual costs of providing competent property management to the tenants and to the owner. The results of application of the costs to fees charged will provide an incentive (profit) figure to the person or company supplying the property management.
Of course if it is a small property, owners may utilize whatever dollars it takes to make sure that good services are delivered to the tenants; and that efficient property maintenance and overhead is performed for the property, which should be the goal of all property management.)
The answer to question #5 helps the professional property management company to determine the incentive for giving a lower economy of scale percentage to the particular property (or owner).
In general from very large properties or many properties in a portfolio, the property management percentage may be as low as 1.5%; while to an individual small property it may be as high as 10%. Generally, I find more common amounts to be from 3% to 5% of the gross rental income.
Be careful to giving a "free apartment" as part of the management package. It is much cleaner and more acceptable with the IRS and labor laws to charge for the apartment and to give a property management salary where appropriate workman's compensation and other taxes are applied. Always check with your accountant or attorney on this however.
Onward and upward... Rob Baird, CA RE License #544165 (One of the oldest, active licenses in CA) 951 515-5855 Email: firstname.lastname@example.org
May 14, 2011