Cap rate compression is just the process of cap rates going down. It’s called “compression” because when cap rates are declining, the cap rates of high cap rate properties typically go down more than the cap rates of lower cap rate properties, which “compresses” the range of cap rates for various properties. This is illustrated visually below.
Why does cap rate compression happen?
Cap rate compression can happen for many reasons, including increased competition within a market. However, on a macro scale, the most important cause of cap rate compression is falling interest rates. Interest rates affect how every other asset class in an economy gets priced.
Cap rates tend to lag interest rates by 1-5 years because most lease agreements last 1-5 years. That means if interest rates are dropped but then raised back up within a few months, it probably won’t have much effect on cap rates. However, from 1981 to 2022, interest rates in the U.S. trended down overall. That multi-decade trend of falling interest rates led to a multi-decade trend of falling cap rates which was only interrupted in a substantial way one time, by the financial crisis in 2007-2009 when asset prices plummeted. Now that interest rates are going up again, cap rates should eventually start trending up again as well. However, this will only occur if interest rates stay high for some time.
Property-related expenses include HOA fees, property taxes, insurance, and maintenance costs. Since the costs of maintenance and insurance vary substantially from one city to another, it’s hard to get good numbers to estimate average cap rates for different cities. However, we can at least get a general idea of what cap rates are like by looking at what I will call, for purposes of this article, “net rent” (which is just rent minus any HOA fees).
In the rest of this article, I look at 9 different U.S. cities. For each city, I sample the 5 most recently sold rent-ready residential properties on Zillow and calculate the annual net rent-to-price ratio using the sale price of the property and the rental Zestimate. This methodology isn’t perfect, but it’s a pretty good rough estimate for the range of cap rates in a given area.
NOTE: Expect cap rates to be at least 1-2% lower than the rent-to-price ratios listed below due to the costs of maintenance and taxes. Based on this adjustment as well as the age of the houses being sold in each city, I’ve provided an approximate range of cap rates you can expect for each city.
1. West Palm Beach, Florida
Cap rates are roughly 3.0% to 7.2% in West Palm.
Table 1: Recently sold properties in West Palm Beach, FL
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
6148 Azalea Circle
Single family – 3 bed, 2 bath, 1518 sq ft, built 2003
$427,000
$2,900
$154
7.72%
1234 Winding Rose Way
Single family – 4 bed, 2 bath, 1584 sq ft, built 2004
$460,000
$2,900
$154
7.16%
5857 Cassandra Court
Single family – 4 bed, 3 bath, 1596 sq ft, built 1985
$375,000
$2,884
$154
8.74%
315 Avila Road
Single family – 2 bed, 2 bath, 1640 sq ft, built 1955
$1.01 Million
$4,855
None
5.77%
255 Evernia Street, Apt 306
Condo – 1 bed, 1 bath, 766 sq ft, built 2002
$580,000
$2,600
$406
4.54%
2. Port Saint Lucie, Florida
Cap rates are roughly 5.0% to 6.5% in Port Saint Lucie.
Table 2: Recently sold properties in Port Saint Lucie, FL
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
433 SW Fairway Point
Single family – 2 bed, 2 bath, 1363 sq ft, built 1995
$355,000
$2,248
$292
6.61%
1225 NW Sun Terrace Circle, Apt B
Townhome – 2 bed, 2 bath, 1152 sq ft, built 1992
$278,000
$1,966
$320
7.11%
806 SW Saint Andrews Cv
Single family – 3 bed, 2 bath, 1679 sq ft, built 2001
$362,000
$2,600
$278
7.70%
801 SE Forgal St
Single family – 5 bed, 2 bath, 3000 sq ft, built 1980
$440,000
$2,999
None
8.18%
1549 SE Minorca Ave
Single family – 2 bed, 2 bath, 932 sq ft, built 1977
$305,000
$1,999
None
7.86%
3. Savannah, Georgia
Cap rates are roughly 5.8% to 8.1% in Savannah.
Table 3: Recently sold properties in Savannah, GA
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
24 Orchid Ln
Townhome – 3 bed, 2 bath, 1490 sq ft, built 2005
$244,000
$1,991
Unknown (assuming none)
9.79%
77 Knollwood Ln
Townhome – 3 bed, 3 bath, 1564 sq ft, built 1971
$203,000
$1,999
$285
10.13%
209 Chapel Lake S
Single family – 3 bed, 3 bath, 1700 sq ft, built 2006
$309,900
$2,199
$180
7.82%
210 Westminister Rd
Single family – 3 bed, 2 bath, 1633 sq ft, built 1980
$287,000
$2,126
$39
8.73%
28 Heritage Way
Single family – 5 bed, 3 bath, 2784 sq ft, built 2004
$395,000
$2,999
$40.67
8.99%
4. Chattanooga, Tennessee
Cap rates are roughly 6.8% to 8.5% in Chattanooga.
Table 4: Recently sold properties in Chattanooga, TN
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
4104 Gayle Dr
Single family – 3 bed, 3 bath, 2350 sq ft, built 1960
$325,000
$2,400
Unknown (assuming none)
8.86%
1211 Sholar Ave
Single family – 3 bed, 1 bath, 1377 sq ft, built 1930
$185,000
$1,642
Unknown (assuming none)
10.65%
1052 N Orchard Knob Ave
Single family – 3 bed, 2 bath, 1756 sq ft, built 1920
$250,000
$2,254
Unknown (assuming none)
10.82%
711 Snow St
Single family – 3 bed, 2 bath, 1391 sq ft, built 1940
$273,000
$2,146
Unknown (assuming none)
9.43%
6240 E Brainerd Rd
Single family – 3 bed, 2 bath, 1800 sq ft, built 1951
$250,000
$2,050
Unknown (assuming none)
9.84%
5. Atlanta, Georgia
Cap rates are roughly 4.7% to 9.0% in Atlanta.
Table 5: Recently sold properties in Atlanta, GA
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
60 Bates Ave SE
Single family – 4 bed, 3.5 bath, 3528 sq ft, new construction (2023)
$1.18 Million
$6,162
Unknown (assuming none)
6.27%
1689 Derry Ave SW
Single family – 4 bed, 4 bath, 2425 sq ft, built 1945
$450,000
$3,452
None
9.21%
3991 Adamsville Dr SW
Single family – 3 bed, 1 bath, 1016 sq ft, built 1964
$150,000
$1,431
Unknown (assuming none)
11.45%
1017 Dean Dr NW
Single family – 3 bed, 3 bath, 2258 sq ft, built 1951
$1.05 Million
$5,408
Unknown (assuming none)
6.18%
1280 W Peachtree St NW Apt 3609
Condo – 2 bed, 2 bath, 1028 sq ft, built 1989
$340,000
$2,429
$555
6.61%
6. Cave Creek, Arizona
Cap rates are roughly 3.5% to 4.9% in Cave Creek.
Table 6: Recently sold properties in Cave Creek, AZ
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
4519 E Duane Ln
Single family – 3 bed, 2 bath, 2083 sq ft, built 1992
$625,000
$3,200
$26.33
6.09%
4536 E Hunter Court
Single family – 4 bed, 2 bath, 2310 sq ft, built 1995
$785,000
$3,300
$26.33
5.00%
29852 N 43rd Way
Single family – 4 bed, 2.5 bath, 2931 sq ft, built 1992
$1,032,500
$4,635
$26.33
5.36%
26630 N 45th Pl
Single family – 4 bed, 2.5 bath, 2582 sq ft, built 1996
$762,500
$3,200
$39
4.97%
26614 N 47th St
Single family – 5 bed, 3 bath, 3744 sq ft, built 1997
$918,000
$4,428
$37.33
5.74%
7. Columbus, Ohio
Cap rates are roughly 3.5% to 7.5% in Columbus.
Table 7: Recently sold properties in Columbus, OH
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
871 Crevis Ln
Single family – 3 bed, 3 bath, 1542 sq ft, built 2001
$267,000
$1,944
Unknown (assuming none)
8.74%
1347 E 15th Ave
Single family – 3 bed, 1 bath, 1012 sq ft, built 1948
$170,000
$1,350
Unknown (assuming none)
9.53%
1321 Oakwood Ave
Single family, 2 bed, 1.5 bath, 1032 sq ft, built 1925
$199,900
$1,344
Unknown (assuming none)
8.07%
65 Sheffield Rd
Single family – 3 bed, 1.5 bath, 1690 sq ft, built 1940
$520,000
$2,122
Unknown (assuming none)
4.90%
3550 Kirkwood Rd
Single family – 3 bed, 1.5 bath, 1080 sq ft, built 1958
$202,000
$1,494
Unknown (assuming none)
8.88%
8. Cincinnati, Ohio
Cap rates are roughly 4.3% to 9% in Cincinnati.
Table 8: Recently sold properties in Cincinnati, OH
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
3849 Washington Ave
Single family – 6 bed, 7 bath, 6594 sq ft, built 1925
$800,000
$4,210
None
6.32%
2831 Rosella Ave
Single family – 2 bed, 1 bath, 1096 sq ft, built 1890
$200,000
$1,999
None
11.99%
3116 Troy Ave
Single family – 4 bed, 4 bath, 2063 sq ft, built 1880
$495,000
$3,188
Unknown (assuming none)
7.73%
3745 Marburg Ave
Single family – 3 bed, 3 bath, 1224 sq ft, built 1936
$403,000
$2,324
None
6.92%
159 E Mitchell Ave
Duplex – 3626 sq ft, built 1916
$410,000
$3,351
None
9.81%
9. Cary, North Carolina
Cap rates are roughly 2.9% to 4.0% in Cary.
Table 9: Recently sold properties in Cary, NC
Street Address
Description
Price
Rental Zestimate
Monthly HOA Fees
Annual Net Rent-to-Price Ratio
124 Greenmont Ln
Townhouse – 3 bed, 2 bath, 1263 sq ft, built 1987
$375,000
$1,794
$171
5.19%
102 Glenhigh Ct
Single family – 5 bed, 4 bath, 3131 sq ft, built 1992
$830,000
$3,550
$884
3.85%
208 Wedgemere St
Single family – 3 bed, 3 bath, 2385 sq ft, built 1999
$623,000
$2,500
$70
4.78%
207 Beckingham Loop
Single family – 3 bed, 2 bath, 2342 sq ft, built 2007
$715,000
$3,218
$287
4.92%
260 Langford Valley Way
Townhouse – 3 bed, 3 bath, 2060 sq ft, built 2009
$510,000
$2,175
$237
4.56%
NOTE: These are not, by any means, the highest cap rates you can get in these markets. This data is only based on a small sample of properties that are currently being sold, and most of these listings were sold to home buyers not investors. By finding the right deal and doing some light renovations, you can increase your cap rate significantly.
Land zoning differs by state, county, and municipality, and different jurisdictions frequently use the same designations (e.g. R1) for zones that have different rules. However, in most parts of the United States, R1 zoning means land zoned for detached single-family homes on relatively spacious lots. Condos, apartment complexes, and commercial buildings are typically not allowed in R1 zones.
Notably, many jurisdictions also have other zoning designations which are also reserved for single family homes. For example, the city of West Palm Beach, Florida within Palm Beach County also has a zoning districts labeled SF3 and SF7-C4 which are intended for low-density single family homes.
What can you build on land zoned R1?
Typically, the only things you can build on land with R1 zoning are single family homes. Due to federal law, many of these areas also begrudgingly allow group homes or assisted living facilities as well, but only up to a maximum of 6 residents. Don’t expect a warm reception at your local city council meeting though if you want to get development of a group home approved in an R1 zone.
Can you put a mobile home on R1 zoning?
In most jurisdictions, you can’t put a mobile home on R1 zoned land. Even in jurisdictions that do allow mobile homes to be parked on R1 zoning, the mobile home usually needs to be at least a certain minimum size over 1,000 square feet.
What is R2 zoning?
As previously mentioned, zoning designations are particular to each local jurisdiction. However, in general, R2 zoning typically refers to land reserved for medium-density residential use. In some jurisdictions, R2 zones are restricted to single family homes and duplexes. In other jurisdictions, R2 zones also allow large multi-family buildings such as triplexes or even condominiums. Frequently, schools and churches are also allowed.
What is R3 zoning?
R3 zoning universally refers to residential zoning, but the exact type of residential zoning rules that apply to an R3 zone vary even more from one jurisdiction to another than do R1 zones or R2 zones. Typically, R3 zoning refers to land reserved for higher density residential use than is allowed in an R1 or R2 zone. Frequently, R3 zones allow duplexes, triplexes, and limited commercial use. Sometimes, they also allow larger apartment buildings.
Some jurisdictions also have confusingly similar designations that mean something totally different. For example, Florida City uses the zoning designation RS-3 (not R-3) to refer to land intended for single family homes.
What zoning is required for a church?
Churches can be included in many types of zones. Sometimes they are allowed in R2 zones. They are rarely allowed in R1 zones.
What zoning do you need to build a duplex?
Duplexes are often allowed in R2 and R3 zones. In many jurisdictions, there are also other zoning designations that allow duplexes. However, duplexes are usually not allowed in R1 zones.
The IRS does not allow investors to directly 1031 exchange into a REIT, but you can indirectly 1031 into a REIT by first 1031 exchanging into a Delaware Statutory Trust (DST) which is already in the acquisition pipeline of a REIT and then later 721 exchanging your DST interest for ownership units in an UPREIT.
An UPREIT is an operating partnership owned by a REIT. That means technically, you still won’t own shares in a REIT. However, you get all of the same benefits because whenever you are ready to sell your REIT holdings, you can convert the UPREIT ownership units into REIT stock (usually 1-to-1) and then sell your new REIT shares in the liquid public markets.
In more detail, here’s how the process works, step by step:
Step 1: Do a 1031 exchange into a DST
Delaware Statutory Trusts (DSTs) are legally recognized trusts that typically manage the real estate of many investors, thereby allowing individuals to exchange their single property for an ownership interest in a much larger real estate portfolio without incurring any capital gains tax.
DSTs are like closed funds in that after they raise their initial capital, they do not raise any additional capital in the future. That means you’ll need to find a DST sponsor which is planning to create a DST but which hasn’t already collected a round of capital. There are sponsors who create a new DST every few months, so you shouldn’t have difficulty finding a DST that can accommodate you. The trick is to find one which offers a good deal after all the fees are accounted for.
Since your end goal is to hold a REIT investment, you’ll need to choose a DST which has a relationship with one or more REITs that could acquire it down the road.
After you find a DST that fits your needs, you can then do a 1031 exchange into the DST. DSTs do not file tax returns, and as such, you will report your share of the DST’s income on your personal tax return for as long as it takes the DST to be acquired by a REIT.
Step 2: The DST does a 721 exchange into an UPREIT
UPREIT stands for Umbrella Partnership Real Estate Investment Trust. An UPREIT is an operating partnership that owns and manages the real estate of a REIT and is itself owned by a REIT.
721 exchanges are the lesser known cousins of 1031 exchanges. In a 721 exchange, an investor contributes property to a partnership in exchange for an ownership stake in that partnership. Like a 1031 exchange, 721 exchanges are not taxable. However, to keep your tax deferral, you typically have to wait 2-3 years after 1031 exchanging into a DST before the DST will give you the option to convert your DST interest into ownership units in an UPREIT.
Step 3: When you want to exit, convert your UPREIT ownership units into REIT shares
REITs that operate through an UPREIT usually have identical investment returns whether you hold UPREIT ownership units or actual REIT stock. That means you can just hold the UPREIT units for as long as you want to invest in the REIT. If and when you eventually want to sell, you can easily convert your UPREIT units into REIT stock. If you chose a REIT which is publicly traded, you can then take advantage of the public market liquidity to sell your REIT shares.
It’s important to note that when you convert your UPREIT units to REIT shares, your deferred capital gains will be recognized, so it’s important to only do this once you are ready to sell.
The downside of 1031 exchanging into a REIT
The process outlined above can help you 1031 exchange into a REIT. This process can be very helpful if you need to sell (or have already sold) a property but can’t find a new property to 1031 exchange into. However, it also has downsides. After you convert your DST ownership interest into ownership units of an UPREIT, you can never go back. Your equity is now locked into the UPREIT, and the only way to get it out is to convert your UPREIT units into REIT shares which is a taxable event which you can’t 1031 your way out of since the IRS would deem the gain to be coming from the sale of a security interest in a partnership rather than from the sale of real property. It might still be worth it for you do a 1031 exchange into a REIT, but there are alternatives you should also consider before making a decision.
Alternative #1: Do a 1031 into a Delaware Statutory Trust
This was step 1 from above, and you can actually just stop here. Doing a 1031 into a DST helps you solve the problem of not being able to find a property to buy within the 1031 time window, while at the same time allowing you to do a future 1031 exchange on any gains (unlike a REIT or UPREIT).
DSTs have their own limitations, including:
DSTs are restricted from borrowing any new funds or renegotiating the terms of existing loans after they close, which can limit their ability to optimize their use of leverage, and
DSTs are not allowed to make capital calls or retain significant cash, which can put the real estate held by DSTs at risk in the event of financial crises or other serious market conditions.
Those limitations are manageable in some situations, but if you don’t like them, then there is another option.
Alternative #2: Invest into a Qualified Opportunity Fund (QOF)
Opportunity zones are specific census tracts that exist in every state. A qualified opportunity fund (QOF) is an LLC or other business entity which invests in real estate or businesses located in opportunity zones. If you invest capital gains into a QOF, then you can defer capital gains until 2027. That may sound much worse than a 1031 exchange (which allows you to defer capital gains indefinitely), but it’s actually better because of what comes next. You can hold an opportunity fund investment until 2046, and when you sell you don’t owe ANY capital gains tax. I’m not talking about a deferral of capital gains tax like a 1031. I’m talking about a permanent erasure of capital gains tax liability, as if Thanos snapped his fingers and made it disappear.
Opportunity zone funds are also very flexible. You can invest into an existing QOF or you can create your own QOF. If you create your own QOF, you can double the amount of time you have to acquire a property from the 6 months allowed by a 1031 up to 12 months or even more. For new construction projects, you can even qualify for 36+ months of total time to find and build your project!
And you aren’t even restricted to real estate with opportunity zones. You can actually invest in your own small business using a QOF. Most of the time, it’s even possible for you to invest in a QOF if you already have your funds locked up with a qualified 1031 custodian.
If you are trying to figure out how to avoid a big capital gains tax bill using a 1031 exchange, DST, or QOF, email me your questions through the form below. Unlike most forms on the internet, this one guarantees a response from an actual person with deep financial and tax knowledge.
U.S. law typically allows nearly limitless customization of the rights that can be transferred via contracts. However, real property ownership only comes in the form of a few different pre-defined types of bundles of rights (called estates). A present estate is an estate (i.e. interest in real property) representing ownership that is not dependent on anything else occurring to come into being.
There are 4 types of present estates in U.S. real estate law: fee simple absolute, fee tail (no longer used), defeasible fee, and life estate. The details of each type of present estate are organized in the table below.
Fee Simple Absolute
Fee Tail
Defeasible Fee
Life Estate
Subtypes
None
None
FSD (Fee Simple Determinable) – Fee Simple BUT automatically terminates if condition is met (and in that case, estate is automatically transferred back to the grantor)
FSSCS (Fee Simple Subject to Conditions Subsequent) – The same as an FSD except that if the condition is met, the grantor has the option whether or not to take back the land.
FSSEL (Fee Simple Subject to Executory Limitation) – Same as an FSD except that if the condition is met, the land is automatically transferred to a named third party rather than the grantor.
None
Creation Language
“To A” or “To A and his heirs”
“To A and the heirs of his body”
FSD: “To A as long as…” or “To A for so long as…” or “To A during…” or “To A until…”
FSSCS: “To A, but if _____ occurs, grantor reserves the right to re-enter”
FSSEL: “To A, but if _____ occurs, then to B.”
“To A for life” or “To A for the life of B”
Transferability
1) Devisable (can transfer by will)? 2) Descendible (does it transfer by statutes of intestacy if owner dies w/o a will) 3) Alienable (is the estate transferable intervivos, i.e. during the holder’s lifetime)?
Devisable Descendible Alienable
Only transferable to blood related descendents.
FSD: – Devisable, descendible, and alienable (but always subject to the condition)
FSSCS: – Devisable, descendible, and alienable (but always subject to the condition and the grantor deciding to take back the land if the condition is met)
FSSEL: – Devisable, descendible, and alienable (but always subject to the condition)
NOT Devisable NOT Descendible YES Alienable
Future interests involved?
None
—
FSD: – Grantor has a “possibility of Reverter”
FSSCS: – Grantor has a “right of entry”
FSSEL: – Third party has a “shifting executory interest”
If future interest in grantor, called a Reversion.
If future interest in a third party, called a Remainder.
Examples
B conveys the land to A.
Bob gives land to his son Joe with the condition that Joe can never transfer the land to anyone who isn’t a blood relative of Joe.
FSD: The King of Russia conveys land to the Princess for as long as the land is not used for singing. The princess has an FSD present estate, and the King has a possibility of Reverter. “Possibility of Reverter” is a type of future interest. The Princess falls madly in love with Frank Sinatra, and she gives him the land. Frank cannot sing on the land or else it will revert back to the King.
FSSCS: Joe conveys land to his son in law Sam, but if Sam ever uses drugs on the land, Joe reserves the right to take back the land.
FSSEL: Joe conveys land to his son in law Sam, but if Sam ever uses drugs on the land, the land will automatically go to Joe’s cousin Ned.
Sarah transfers a house to her mother for life. Sarah’s mother holds a life estate in the property, and Sarah holds a Reversion.
Notes
Unconditional and lasts forever
Strongest form of ownership
Obsolete (has either been abolished or was never recognized in almost all states)
Common law frowns on defeasible estates, so unless a defeasible estate is CLEARLY intended, modern courts will tend to construe against this type of estate.
An interest in land that only lasts as long as someone’s life (usually the recipient of the life estate).
Connected concept: “waste”.
Holders of a life estate are called life tenants.
What is waste in the context of a life estate?
Life tenants are entitled to all ordinary uses of the land, however, they must not commit “waste” (actions which harm the future landowners).
There are three types of waste:
Voluntary waste – Overt conduct that causes a decrease in value. For example, cannot deplete natural resources unless covered by an ORGE exception:
Open mine doctrine – Life tenant utilizes a mine that was already open before the life tenant’s ownership
Repairs – Life tenant consumes natural resources for repairs
Grant – Life tenant has a written grant of permission (from the future interest holder)
Exploitation – Applies where the natural use of the land is to exploit natural resources
Permissive waste – Neglect, causing the property to fall into disrepair. To avoid permissive waste, the life tenant must maintain the land in reasonably good repair and must pay taxes on the land and income made using the land, or if no income is made, then pay taxes on the fair rental value of the land. Additionally, the life tenant must pay interest if the land is mortgaged.
Ameliorative waste – Alterations that increase value, unless it is possible to know who future landowners will be AND the future landowners give consent. This is to protect future landowners who may not want alterations.
Most property management companies will charge 8-12% of total rent as their fee to manage a residential long-term rental property. However, that doesn’t include the cost of any property repairs that may be necessary, and it also typically does not include leasing commissions. That means if your tenant calls about a toilet malfunction, you’ll be charged for the plumber’s visit on top of the 8-12% of rent collected by the property manager as a flat fee that month. It also means that if your tenant leaves, your property manager will likely charge anywhere from 0.5 to 1 month of rent as a leasing commission for finding and signing a new tenant.
Some property managers will also mark up the cost of repairs so that, for example, if your tenant calls about a toilet malfunction, and a plumber charges $100 to come out and fix it, your property management company may bill you $120 for that visit. Be sure to ask any property manager whether or not they mark up service costs or repairs before you agree to hire them.
Some property managers will also charge an initial onboarding fee (typically a few hundred dollars).
Questions to ask a residential long-term rental property manager before hiring them:
What percentage of rent do you charge each month, and what value do I get included for that price?
Do you mark up labor or materials for maintenance, repair, or other service calls?
Do you charge a leasing commission to find a new tenant after an old tenant leaves? If so, how much do you charge?
What is the average time it takes you to fill a vacancy?
Do you stay on top of compliance with local rental property licensing, inspections, and regulations?
How do you screen tenants? Do you charge any fees for the screening process?
Do you optimize tax-adjusted ROI when choosing replacement appliances, HVAC equipment, windows, etc? (This is an important consideration because many appliances, equipment pieces, windows, etc can qualify for tax credits or deductions.)
How much do apartment property managers charge?
If you hire a property manager to manage an entire apartment complex, you will often get a discounted rate. Frequently, a property manager may only charge around 6% of rent to manage an entire large apartment complex. However, this still does not include repairs, maintenance, property taxes, etc.
How much do vacation rental property managers charge?
Vacation property management fees vary a lot more than long-term property management fees. In general, vacation property managers will charge anywhere from 10-30% of total rent. On the low end, that typically includes all customer interaction, Airbnb and VRBO listing management, and coordination with cleaners and maintenance vendors. On the high end, it may also include property maintenance (but not repairs over $200) and possibly even cleaning.
Most frequently, however, cleaning is not included in vacation property management fees. The cleaning company hired by a vacation property management company might be owned by the same person who owns the property management company though, which can sometimes conflict with your best interest as property owner, so it’s worth asking if this is the case before you hire any vacation property manager.
NOTE: It’s not necessarily bad to have the property management company owner also be the owner of the cleaning company. It might actually be good if it means your cleaning gets done on time and on budget reliably. However, where it can go wrong is if there are 3 other cleaning companies just as good which charge half the price, but they aren’t hired because the property manager wants to pay his own cleaning company more money out of your pocket.
