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.

Further reading: Property Management on Wikipedia.