Understand Your Leasing Costs & Revenue

For property managers.
Exploring the hidden costs of your leasing business.
See 2023 Winners

Watch the 5-minute
Video Explainer

Caption: Quick overview of the ROI Calculator spreadsheet Sunroom shares with PMs.
Download the Free Spreadsheet

What is This Study About?

After surveying numerous property management companies and analyzing their profit and loss statements, we've made a valuable discovery: most companies aren't profiting as much as they should on leasing and are spending far too much time and money.

This article will explore the underlying reasons for this finding and offer practical suggestions to enhance your company's profitability and efficiency. Additionally, we will conduct a detailed analysis of an example company's leasing revenue, expenses, and their resulting financial performance.

Why a PM’s Leasing Business is Not That Profitable.

1. The PM Owner's Time is Expensive

The company owners are helping in the leasing process. Nobody’s time is worth more than the owner’s time. If you’re a PM owner and reading this, set an aspirational hourly rate for yourself. Then re-calculate how much each lease listing costs based on your aspirational hourly rate.

2. Door Count is Not Growing

They are losing out on door growth. Company owners typically don’t consider the opportunity costs of their time (the other things they could be working on), such as investor relations, marketing, and sales, to grow their business.

3. More Costs Than They Think

You forgot just how many costs you have related to leasing. Company owners remember only a few of the expenses involved in leasing, such as self-showing locks, yard signs, and gas for driving to the homes. But there can be over 50 different costs you need to consider.

‍Property Managers Spend the Most on People.

Salaries are one of the most significant cost inputs, and it can be tricky to understand precisely the cost allocated to leasing. You must ask yourself, what percentage of your employee’s time is spent on leasing?

In the example below, there are three people involved in leasing:
  • A property manager who spends 30% of their time processing applications, drafting leases, and coordinating move-ins.
  • A leasing agent, setting up the property, working leads, and facilitating tours.
  • The owner of the company who spends about 20 hours a month overseeing and managing these two team members.
Caption: Example of Labor Costs expressed for time spent on leasing tasks.
Download the Free Spreadsheet
It's common for a leasing agent to make a commission when a property is leased. In this case, the property manager is paying the agent 25% of the monthly rent, their average rent is $2100, and they lease approximately 60 homes a year. Therefore this leasing agent makes about (25% * $2100 * 60) $33,600 a year.

Lastly, the owner/broker must review the property manager's and leasing agent's work to ensure excellent quality. They also need to spend time working through more complex issues that pop up occasionally. That owner's time is precious. We estimate their time is worth at least $70 an hour. Even at 15 hours a month (3 hours a week), that's an extra $12,500 in annual leasing costs.

Cost of All Operations & Software

Set up the Property

In the Sun Belt, here are the average costs to set up a property to get it show-ready.
  • Professional Photography typically costs between $100 to 200 on average per listing. Then it takes the property manager or leasing operator time to download the photos, edit them, upload them, sort them in the correct order, and remove the poor photos. That’s an extra cost after you’ve paid the photographer.
  • Leasing Software (such as TenantTurner) can cost hundreds of dollars per month, even when you don’t have active listings. Don’t forget you’re paying for Codeboxes to be active too!
  • Yard signs cost money to get installed. They also get beat up over time, and every year a property manager with 150-300 doors will spend $1,500 - $3,000 per year replacing yard signs. A quality yard sign speaks volumes for your marketing. Listings without yard signs are less likely to convert people driving by to touring and telling friends.
  • Gas money for agents who demand mileage reimbursement due to driving out to properties. As of 2023, the standard rate set by the federal government to pay your employees or contractors is $0.65 per mile. If a listing is 6 miles from the agent’s office and if the agent drives only once to and from the listing, you need to pay them $7.80 for mileage. Now, if the agent drives more than once (the self-showing lock is messed up or the place needs a cleaning), this gas money adds up quickly! Multiply this by the 5-10 listings most PMs have active in any given month, and you can expect to spend $200+ per month JUST on mileage for your agents.

Pay to have the property on the market

In the Sun Belt, here are the average costs for a property that is on-market.
  • Zillow costs $1.50 per day per listing. That adds up fast! Most PMs forget about this, but it's a real cost that you need to consider. Suppose you have five listings on the market for a month. That's $225 that you're not getting back. Most listings in Miami are on the market for around 45 days, so it's even more expensive.
  • Application Fees for background/credit reports are a significant expense. The average cost is $20 per report. Many property managers have inflated application fees to compensate for this cost, but renters say a major reason to why they will not apply to a rental home is the high application fee. So if you’re charging over $60 for app fees (the industry average), you are losing out on applicants.
Caption: Example of Setup & On-Market Costs for leasing. Download the Free Spreadsheet

The Richest PMs Spend Their Time Growing Their Business, Not Doing Day-To-Day Operations.

The wealthiest PMs differentiate from those with fewer doors by how they choose to use their time. Most PMs say they are too busy but keep themselves busy with tasks that the fastest-growing PMs would say are not worth their time.

Some Property Managers are scared to grow their business because they’ve never really grown a business as their full-time job. Most PMs have only made minimal marketing efforts, rely on referrals, and cross their fingers for SEO to grow their business. Instead, the wealthiest PMs think about growth 24/7.

How the Richest PM Owners Spend Their Time.

1. Helping current investors

Most profitable PMs help their current investor clients purchase more homes or sell their existing properties. The least profitable PMs are too busy processing applicants and answering calls and texts from renter leads.

2. Attracting more property owners

Large PMs only get that large through business development and marketing activities. They don't play around in the small leasing dollars.

3. Working on other critical business areas

Maintenance and accounting are critical to a PM business's profitability. Too often maintenance issues are behind, or go unfixed for months. This leads to unhappy tenants and then even unhappier investors who now have to spend a fortune to fix their property. This is why most PMs experience a high churn rate of investor clients every year.

4. Expanding to more cities

Most PMs who have fewer doors are in one MSA. Expanding to more cities makes growth easier because there is more supply of investors to sell into. There is a reason why larger PMs are in multiple MSAs, they spend their days growing their doors!

So How Profitable is the Average Leasing Business?

At first glance, PMs think their leasing revenue covers all their leasing expenses, but when they do the math, they find they’re typically losing money on leasing or barely breaking even. Not exactly a profit center!

This property manager is doing better than most and makes about $21,560 a year on leasing.
Caption: Example of Leasing Profit being $21,560 per year.
Download the Free Spreadsheet

Sunroom Helps Property Managers Find Lost Profit

Sunroom has simplified leasing and offers property managers room to make more profit than before. Sunroom costs less than what the average PM spends on leasing. Instead of having many expense line items and variables, Sunroom only charges the PM a leasing fee when a lease is signed (no hourly rates, no Zillow cost, no photography costs, etc.). This way, a property manager’s leasing cost is easy to understand and always fair as they grow their door count. There are no software fees — just a simple percentage of 1 month’s rent.

In the example below, Sunroom charges 45% of 1st month’s rent, equating to $60,480 in annual leasing expenses. Therefore by fully adopting Sunroom, this property manager would reduce their leasing expenses by more than $30k per year. Even after giving up their application revenue, they could still earn $18,760 in more profit on leasing annually!
Caption: Example of Sunroom ROI earning your business $18,760 more in profit on leasing annually! Download the Free Spreadsheet

Download the free spreadsheet to calculate your leasing profits.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Earn more profit from leasing today.

Sunroom leases more than 5,000 SFR homes across the United States. Feel free to ask to talk to any of our customers, and Sunroom will connect you with a local PM who can tell you what they really think about Sunroom! Thanks for reading.
Get More Profit Now

Quick action based on real-time data

With all your data and systems synced on one dashboard, you're always ahead of the situation.
Learn more
"We've hit our projected numbers and more with the ability to take action with real-time data."
-Pritom Rani, VP Sales, Cobalt