Are you a real estate investor looking for a property manager? Or are you still thinking about the pros and cons of having one?
Property managers help landlords simplify the way they handle investment properties. But what kind of benefits do you really get from these fees?
A bunch of real estate investors might see it as a cut from profit. But in reality, property management services help you MAXIMIZE your investments.
In this guide, you will learn:
- How much a property manager charges
- Different fee structures of different property management companies
- What services to expect from a property management firm
- How to compare and choose the right property management company for you
How Much Do Property Managers Charge?
Property owners usually allot 8-10% of monthly rental income for property management costs.
Property management companies use this percentage-based fee structure. This can be split into two types.
- Rent Collected: When a property management company collects the tenants’ monthly rent, they will automatically deduct the agreed percentage you owe to them.
- Rent Due: The property manager will charge a management fee based on how much a tenant owes you. If the property is vacant, you will still need to pay the management fee that you agreed upon.
The percentage of rent due will also vary based on the types of services the property owner demands from the property managers.
There are also some property managers who offer a flat rate price.
With a flat fee, the property management cost is not associated with the month’s rent being collected. Its fixed price is to be determined by whatever services the management company provides.
Having a flat rate will be easier to keep track of, although a percentage-based fee might favor you more depending on the types of properties you own.
Both percentage and flat fee vary by the market.
Before you do sign an agreement, make sure it is financially feasible and sustainable for you to hire a property management company.
What Influences Property Management Fees?
A property manager prices their management fees based on these several factors.
Size of Rental Property
Managing a rental property that has a bigger space involves more work than a small one. Logically, the more square meters it takes, the higher the fee.
Type of Investment Property
The fee will vary based on the type of investment property.
- Family Homes
- Multi-family properties
- Commercial Properties
- Vacant Properties
A management company can cater to different types of investment properties. Of course, managing a commercial property will have a different price from that of a residential property.
For a single-family home, a property management fee would cost around 10% of the monthly rent collected.
Condition of Property
Newer properties have less maintenance issues than older ones. The management fee will also depend on this. A recently renovated place will have lesser maintenance fees.
Location of Rental Property
The property management fee will vary based on location. A property manager may charge higher if the properties are located in busy city areas. Different cities have different rent prices and taxes.
For example, the management fee in San Francisco will greatly differ from a property located in San Diego.
A place that is densely populated has a higher number of tenants. The cost becomes pricier if there is high demand.
Extent of Services
A big chunk of the fees depends on the services you will acquire from the company.
A property manager who is only required to collect rent will have cheaper fees than one who not only collects rent but also fills vacancies, handles repairs, handles tenant eviction, and keeps financial records.
Breakdown of Property Management Fees
Besides the initial fees you pay to a property manager, whether it be a flat fee or percentage-based, there are “hidden” or extra costs that a company charges.
These are important to take note of when you compare different firms or when you’re finalizing a contract. You wouldn’t want to underestimate your projected cost.
Early Cancellation Fee
Some companies charge an early cancellation fee if you break the contract with your property manager before the end of the term agreed upon.
For example, if the initial contract stated that you agree to work with the firm for a year and you want to end it after ten months, you might be required to pay a few hundred bucks.
Watch out and be wary of this particular fee.
Initial Setup Fee
Not all companies charge this fee, but some might require it at the start of your contract. It’s usually charged to set up your initial account with their company.
Setup fees include costs to inspect the condition of your property as well as notifying tenants of the manager that will be handling it. This usually costs around USD 500 or less.
A vacancy fee is charged when a company charges you based on collected rent.
Some managers do not require this.
But if they do, it’s usually a one-time fee of one month’s rent, or it could be a fixed fee per unit. They usually charge USD50 per vacant unit until a tenant is landed.
Look closely at the wording in the contract. Vacancy fees are to be charged out of “collected rent” or “rent collected” rather than “scheduled rent” or “rent due.”
This will protect you from having to pay management fees in case a tenant stops paying rent.
Some companies may charge a separate fee for placing tenants in your property. This can either be a flat fee or a percentage of the rent. This can also be referred to as the tenant placement fee.
This leasing fee covers the following:
- Advertising fee in finding a tenant
- Tenant screening
- Move-in procedures
- Answer tenant/s’ calls
- Preparing lease agreements
A leasing fee compensates the property manager for all the time and effort in getting you a new tenant. It’s basically their leasing commission.
The leasing fee is not the primary focus of profit for a good property management company so it should generally be low cost. Firms with a high leasing fee should be avoided.
Here are important questions to ask companies regarding their leasing fees:
- How much is the leasing fee? If you find the tenant, are you still required to pay the fee?
- Does it decrease if the manager takes a long while to find a tenant?
- If a tenant is evicted, is the fee refundable? (this ensures your manager brings in reliable tenants)
Depending on what’s agreed in the contract, this fee is refundable to the property manager if the lease is canceled early or an eviction takes place.
Lease Renewal Fees
A property manager might charge for a lease renewal fee in case they need to renegotiate terms with a tenant. This will cover the effort in writing a new contract. Less work than initial leasing.
Maintenance fees are usually included in the overall monthly management fee.
This covers keeping the properties clean, snow and leaf removals, any work that is required to keep the property in mint condition.
If there is a specific repair to be made, the reserve repair fund will be used.
The reserve repair fund is a separate account solely for repairs.
Now take note!
Only the landlord can authorize any deduction from this. The manager notifies the landlord of the repair before using this fund.
A minimum amount is required to be kept in this account.
Tenant Eviction Fee
Eviction can be a tedious process and you can choose to have your property manager handle it on your behalf.
This will require an extra fee.
Expect to pay a few hundred dollars for each eviction and a few more for any associated court costs.
How to Compare Property Management Fees
Different companies charge different fees. In choosing the best one, you should consider the following factors other than the ones mentioned above.
- Transparency: A good property manager should always publish their prices online. If the company is not open with what they charge, ask them. Some might not publish the prices as they might be too high but always ask for the breakdown.
- Consistency: Most managers charge by property basis so the prices are not consistent but always look for the services guaranteed.
- Clear and Flexible Options: As a landlord, you have the right to choose which service to avail of. A company cannot force you to avail of everything all at once.
- Cancellation Options: There should always be a cancellation option for your contract.
Take into account all of these factors when comparing prices and services guaranteed. A cheaper price might not give you what you need and possibly have more extra charges in the long-run.
In choosing the right property management company, make sure the company’s guarantee aligns with your interests.
A good choice will rely on how you plan on working with a property manager.
For example, if you’re planning on working with them long-term, an early cancellation fee shouldn’t affect your comparisons.
Be attentive to the contract agreements. Always be on the lookout for other monthly fees that are not included.
Consider all of these factors and price points when choosing a property manager to manage a rental property.
If you have any questions, feel free to leave a comment below!