How Property Managers Make Money on Repairs, and How to Check

The management fee is not where a property manager makes their money on your house. It is a thin margin business with a lot of overhead. $185 a month on your $1,850 rental does not go far once the staff, the software and the office are paid for.

Often repairs are where the revenue is made up. And there are three quite different ways of doing it, only one of which appears anywhere on the paperwork you sign.

None of the three is dishonest by itself. I use property managers on all three models, and the wider account of what my worst ones cost me is in when your property manager is the biggest risk. But you should know which one you have, because two are invisible, and one of them was, in my case, outright fraud. Checking the repair line is one of the four checks I run every month, and it is the one that catches the most.

I did not find that out until I came to sell.

1. How do managers make money on repairs?

In-house labor

The manager has their own handymen, or owns the building firm that does the work.

Why it can work. It is fast. The crew knows your property. No waiting on a third party to fit you in, and it is easier to run when one firm does it all.

Why it can hurt. Nobody else quoted, so there is no pressure on price. And there is every reason to spec the job generously, because the same firm writes the spec and the bill. It is the same absence of a second opinion that lets a seller quote you a rent they cannot evidence.

Preferred suppliers, marked up

The manager has a list of trades who give them a cut rate for volume. They bill you higher and keep the difference.

This one is invisible. The bill looks like a normal bill from a normal trade. There is no line called markup, because it sits inside the price.

In their favor: they negotiated the volume rate, and the discount is theirs to keep or share.

Against them: you cannot see it, and you cannot tell whether your price is above or below what you would have paid going direct.

While doing the work yourself sounds like the obvious response, it is often worse than it sounds, as I have set out in should you self-manage a US rental from abroad.

Pass-through with an admin fee

The manager passes the trade's bill through at cost and adds a stated share for arranging it.

This is the open model, and the one you can check. The fee lists charging 5% or 10% work this way.

And the admin fee is not a rip-off. Somebody has to take the tenant's call, get the trade out, check the work and pay the bill. On a small job, 10% of $200 is $20, and it costs more than that in staff time. Where that fee sits in the wider stack is in what US property management actually costs.

The problem is scale. Ten per cent of a $9,000 turnover bill when a tenant vacates is $900 for arranging work they were going to arrange anyway. That is the argument for capping the fee in dollars rather than as a percentage.

2. What do real fee lists actually say?

Three real fee lists from managers in Cleveland and Kansas City.

That third row is the important one. How to choose between the companies producing these lists is in how to pick a turnkey company.

A fee list with no markup on it might mean they do not charge one. It might mean they use one of the invisible models. You cannot tell which, and that is the point.

No markup on the paperwork is not proof there is no markup. The margin may just sit somewhere you are not shown.

3. Why are photographs not proof?

This is something that went badly wrong for me, and it is the reason I changed how I check everything.

A manager sent me photographs of a completed turnover. Finished rooms, clean, ready to let.

They were photographs of other houses. In mine, they had done one room.

I did not find out at the time. I found out when I came to sell the property and the buyer's inspection turned up the state of it. Everything else that happens at that closing is in what closing costs actually are. The same entity was both the manager and the contractor, so there was nobody else in the chain to notice.

The lesson is not that managers lie. Almost none of them do. It is about what a photo proves from 4,000 miles away, which is nothing. Especially in a world of hyper-realistic AI images.

So I stopped asking for photos. I ask for video, because a walkthrough has to move through the house in one take and show what sits between rooms. The full schedule of what should be happening between those videos is in maintenance, repairs and capital. Much harder to fake. And on a big job with a trade I do not know, I pay for my own inspection rather than trust their record.

A couple of hundred dollars against a $9,000 turnover is not a cost. It is the cheapest insurance going.

4. How do I check whether I am being overcharged?

All of the above is theory until you test it, and testing it is easy.

Next time you get a repair bill, get two quotes of your own for the same work.

Not to fight the bill. To find out where your manager sits. Take the spec off the bill, call two local trades, and ask what they would charge.

Three possible outcomes.

The quotes come in around the same. Your manager is passing work through at a fair rate. Stop worrying about it.

The quotes come in well below. You have found a markup, whether or not it is on the fee list. Now you can talk about it.

The quotes come in higher. It happens, and it is worth knowing. A manager with volume does get better prices sometimes, and if they pass it on you can stop looking for a problem that is not there. Whether they keep your tenant is the bigger question, and that is in what tenant turnover actually costs.

Do this once a year and on any job over a couple of thousand dollars. And if the quotes do come in below, work out what the difference is worth before you decide whether it matters. A markup you can live with on one bill is a different number once you spread it across a year of repairs. It takes an hour and it removes the entire question. It belongs on the same list as the checks in the nine questions investors actually ask about turnkey property.

It is one of the things we do for clients when we go through their monthly statements as part of our remote property management service, because an owner in Brazil or Taiwan cannot easily ring two trades in Kansas City.

My client Karl bought his first US rental property from Taiwan, and his purchase is written up in his case study. It sits alongside the checks I run before buying at all, which are in how to check a turnkey seller's numbers. But there is nothing hard about it and you can do it yourself.

And I should be honest about something. I get cost pricing from a contractor for maintenance and repairs on my Kansas City rentals because we buy houses from him. A turnover that would cost you $7,000 costs me $3,100. That is a relationship, not a skill, and it is exactly the kind of advantage a good manager with volume can also have. The question is whether they pass it on.

5. Is it a problem if my manager owns the builder?

One of the three managers openly owns the construction company that does their maintenance. They say so in their brochure, and they present it as a benefit.

They are not wrong to. It genuinely does make response times faster and coordination easier, and I have no complaint about the work.

There is one risk that comes with it, though, and it caught me in Pennsylvania.

A manager there did work using in-house handymen with no contractor's license. Where a state or city requires licensed trades, unlicensed work causes real problems. A failed inspection. Work with no permit. A declined insurance claim. Or a question at sale that you have to answer years later.

Ask two questions of any manager who does work in-house. Who holds the license for work that requires one? And is the work permitted where a permit is required?

If the answer is vague, the risk is yours, not theirs. It attaches to the property. Subsidised tenancies add a further inspection standard on top, set out in the Section 8 inspection problem.

6. Who is actually liable, and who insures them?

This is the part almost no owner knows, and it is genuinely useful.

In most US states a manager must hold a real estate license, or work under a licensed broker. California, Florida and Texas all require it, and most other states require something similar for anyone managing property for a fee.

So there is usually a broker of record standing behind your manager, and that broker answers for the conduct of the people under their license.

And more than 40 states require licensed brokers to carry errors and omissions insurance as a condition of holding or renewing the license. Some, including Colorado, Montana, New Mexico and South Dakota, mandate it explicitly.

So when something goes badly wrong, there is usually a license and a policy behind your manager, not just a company. In my own case the broker settled out of court.

Two routes exist and you can use both. Bring a claim, which is where the cover matters because there is money to settle with. Or complain to the state real estate commission, which can look into it, fine them, and in some states stop them trading. In most cases a broker will not want a regulatory complaint, so they will fix the issue if they can.

And the reverse is the warning. If your manager holds no license and works under no broker, you have none of that. No cover, no state recovery fund, a contract that may not hold up, and possible exposure to their conduct yourself.

So check the license before you sign. Every state real estate commission has a free public search. Two minutes, and it tells you who is really standing behind the person collecting your rent. What the tenant selection standard should look like is in how to screen a Section 8 tenant, which applies well beyond voucher tenancies.

One more point on insurance. We always name the manager as an additional insured on our own policies, because the tenant's lease is with them and not with us. Without that, there is a gap between who holds the deal with the tenant and who holds the cover.

7. What do I do now?

Six things, and every one of them came from something going wrong.

Ask which model they use, directly, before signing. In-house, marked-up suppliers, or pass-through.

Get video of every repair. Not photographs.

Pay for an independent inspection on any large job with a contractor I do not know.

Audit with two quotes once a year and on anything over a couple of thousand dollars.

Check the license and the broker of record on the state commission website before signing anything. If the house is held in an LLC, that entity carries a yearly filing of its own, set out in the $25,000 form nobody mentions.

And name the manager as an additional insured on the property policy.

None of that assumes bad faith. Most managers are honest and most bills are fair. The checks exist because you are 4,000 miles away and cannot walk into the house, and because the one time it goes wrong pays for all of them.

If you would rather somebody else did the auditing, the statement reviews and the license checks, that is a large part of what we actually do. The free tools in my investor starter kit cover the underwriting side.

The bottom line

There are three ways a property manager can make money on work at your house, and only one of them is written down.

A fee list with no markup is not proof there is no markup. It may just mean the margin is somewhere you are not shown, in a supplier discount or an in-house crew.

The good news is that none of this needs trust. Two independent quotes settle it on any job, video settles what a photograph cannot, and a free license search tells you who is really standing behind your manager.

I learned each of those from a specific failure, including photographs of a house that was not mine. Every one of them costs less than the problem it prevents.

Remember, investing is a game of probabilities. Verification is how you shift them.