The Dark Side – Flipping Units

by | Sep 14, 2020

Before we get started I do want to mention that this post has an example discussing fees. The fees are only an example and if you’re looking for property management services you should negotiate these amounts. It would be a violation of anti-trust laws to suggest “common” or “general” commission rates, management fees, etc., as these are all negotiated. The examples provided are solely for a math breakdown, not suggestions.

Every industry has its not-so trustworthy individuals. Property Management is no different.

In this post I’m going to highlight one of the ways a Property Manager or management company may work against the property owner to help themselves. Be on the lookout for :

Flipping Units

This may go by other terms but I call it “flipping units”. This is the practice of not renewing a lease, causing the unit to “flip” and change tenants.

In the beginning, tenant flipping my not be noticeable. But over time, as the property owner, you’ll start to see a trend of higher turnover. How does this occur?

A tenant who is ignored by a manager may elect to not renew a lease. On the flip side, a property manager who deems a tenant a burden may seek to not renew the lease, too. Either way, the unit is vacated. Immediately this creates a loss for the property owner. Any amount of time, even a day, is revenue not generated.

Once the unit is back on the market a Property Manager may have the ability to generate application fees and a lease commission for a portion or even all of the first month’s rent. These rates vary between management companies and they can be MUCH higher than the monthly management fees. Let’s look at the math:

Tenant Stays:

  • Monthly Rent: $1,200
  • Management Fee (10%): $120/mo OR $1,440/yr
  • Yearly Management Cost: $1,440

Unit Flipped:

  • Monthly Rent: $1,200
  • Management Fee (10%): $120/mo OR $1,440/yr
  • Placement Commission (100%/1-month): $1200
  • Yearly Management: $2,640

Simply: tenant turnover equals additional income for the Property Manager. Be on the lookout for this practice and ask your Property Manager for any additional income to justify not renewing a lease. Make sure you’re on the same page and require documentation via their online portal or via email. 

Erich Schwenk Headshot

Written By Erich Schwenk

Erich Schwenk is the Designated Managing Broker & Designated Association Manager for the The Pineapple Brand Company. He has a passion for hospitality and created a real estate & management company around high levels of customer service, communication, transparency, and above all - trust. Before launching The Pineapple Brand Company, Erich served 20+ years as a Flight Attendant. He has a background in web development, videography, photography, and digital marketing. Bringing years of service, knowledge and these skills to real estate and its digital marketplace.

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