Property Management

Property management is the operation of a rental on the owner's behalf: finding tenants, collecting rent, handling repairs and following landlord-tenant law. It is usually paid as a percentage of collected rent. A residential DSCR lender ignores the fee; a commercial lender deducts it.

A manager charging 8% of $4,000 rent costs $320 a month. That money never appears in a residential DSCR, which divides gross rent by the payment. It does come out of your pocket, so the ratio overstates what you keep by that amount.

Commercial underwriting subtracts a management fee from income whether or not the owner self-manages, since a future owner or the lender might have to hire one. That is one reason the commercial ratio on the same building runs lower. See operating expense for the full list.