One of the things that hold most landlords back from hiring a property manager is the perceived cost of their service. But, how much exactly are property management fees?
What You Need to Know About Property Management Fees
Plenty of landlords can handle their rental properties fine on their own. This is usually the case for landlords who only manage one or two units. But, for those with a lot of units on their hands, it makes sense to hire a professional to do the job in their place.
A property management company performs all the tasks that landlords would typically do. This includes finding and screening tenants, collecting rent, overseeing maintenance and repairs, responding to tenant complaints, conducting property inspections, and even processing evictions. Of course, their services do not come free. But, that is not to say that property management fees are unaffordable.
Cost is a common reason why a lot of landlords refuse to hire property management companies. And worrying about the cost is only normal. Sooner or later, though, many crumble under the weight and pressure of their responsibilities. It does not take long before they become open to the idea of outsourcing their duties to a property management company.
But, how much do rental management companies charge anyway?
What Factors Affect Rental Property Management Fees?
Not all property management companies are made equal. How much does it cost to hire a property manager? It depends on a number of factors.
When people hear about property management, they usually think about apartments and vacation homes. But, property management is not just about residential units. Property managers can also manage other types of properties, such as commercial properties and mixed-use properties. They can even manage properties with no tenants.
The type of property an owner has can influence how much they pay. Some companies might charge higher commercial property management fees because there is a lot more that goes into the work.
Smaller rental properties typically don’t need a lot of maintenance and repairs, so they may command a lower price compared to larger properties. In other cases, though, a property management company will charge the same rate no matter the size.
The location of the rental property has a significant influence on the price of property management. Properties located in more affluent areas with higher rent tend to be more expensive to manage.
Maintenance is a critical part of property management. When a property is old, it tends to have more maintenance issues. As such, older properties may cost more to manage compared to newly built or newly renovated properties.
Lastly, the nature and extent of services a property management company provides will greatly affect the final cost. The more services a property management company provides, the higher the price. In contrast, if an owner only wants the company to find tenants and collect rent, that may not cost as much.
Types of Property Management Fee Structure
Property management companies commonly use one of two types of fee structures to charge their monthly management fee.
Flat fee property management is when a company charges a fixed monthly rate for its services. This rate, though, can still change depending on the type and size of the property as well as the services included. For single-family properties, owners should expect a flat rate of around $100 a month.
Percentage of Rent
Instead of charging a fixed rate, most companies charge a percentage of the monthly rent for their services. Again, this percentage can vary from one company to another. Typically, though, a property with 10 units or more tends to command a lower rate because of the higher total rent. In comparison, a company might use a higher percentage for a property with only one or two units because of the opposite reason.
What is the average property management fee for rental properties? Using the percentage of rent structure, owners should expect to pay between 8% to 12% of the gross monthly rent.
Property Management Fee Calculation: Rent Collected vs. Rent Due
It is important to understand the difference between the rent collected and rent due. If a contract stipulates that the property management company will collect their fee from the rent due, then it means owners will need to pay the fee regardless of whether or not the tenant pays their rent.
As such, owners should make sure their management contract states that the fee should come from rent collected. This way, the owner will only need to pay the company if they actually collect rent successfully.
Other Property Management Company Fees to Know About
Aside from the monthly management fee, there are several other fees that companies may charge. It is important that owners ask for the complete property management price list to find out if there are any hidden costs the company failed to disclose at the initial meeting. Keep in mind that not all companies charge the fees below.
1. Initial Setup Fee
The overall rental property management cost typically does not include the initial setup fee. This one-time fee covers the expenses associated with setting up an owner’s first account with the property management firm, including but not limited to:
- Opening a new bank account
- Inspecting the property to assess its condition
- Sending written notifications to tenants informing them of new management
- Assisting with any required licenses
2. Vacancy Fee
Property management companies also manage vacant properties. If a property is vacant, there is usually a fixed vacancy fee on top of the monthly management fee. This fee covers additional work, ranging from performing weekly property inspections and repairing damages. Vacant properties usually need more attention as they attract squatters and trespassers.
3. Tenant Placement Fee
Also known as a leasing fee, the tenant placement fee is what it costs to find tenants to lease the property. This may come as a flat rate or as a percentage of the rent. Tenant placement fees usually cover the costs of the following:
- Advertising the property
- Screening tenants
- Showing the property
- Preparing the lease agreement
- Performing move-in inspections
In some cases, a property management company will refund this fee if the tenant they find gets evicted or ends their lease early. This fee can cost up to one month’s rent, though every company is different.
4. Inspection Fee
A property manager will normally conduct routine inspections, even with a tenant in place, to make sure the property remains in good condition. Doing regular inspections allows them to locate small problems and repair them before they worsen.
While some companies include this as part of their monthly management fee, others will charge it separately. Those that do charge it separately may charge a lower monthly management fee. They may charge a fee for every inspection or a one-time fee covering an entire year’s worth of inspections.
5. Maintenance Fee
As for maintenance, it usually falls under the umbrella of the monthly management fee. However, some services may cost extra. Owners should carefully read through the contract to understand what is included in the monthly fee and what is not. Typically, the contract will set a limit for how much the company can charge extra in maintenance.
Property management companies may also keep a separate bank account containing a reserve fund. This fund is used for necessary repairs to the property. The money, though, will come from the landlord’s pocket. Depending on the agreement, the landlord may authorize each withdrawal that comes through the account or allow their manager control over it.
6. Late Payment Fee
When tenants do not pay their rent on time, a late fee usually applies. Some property management companies, though, will also take a percentage of the collected late fee. This percentage varies, but owners should expect a range of 25% to 50%.
7. Lease Renewal Fee
The lease renewal fee covers the expenses associated with renewing a tenant’s lease. This includes any adjustments made to the lease as well as an analysis of the market to allow for any rent increases. Companies may charge a flat rate or a percentage, though it usually does not go over $200.
8. Eviction Fee
If a landlord wants their property management company to handle evictions, too, then they will usually need to pay an eviction fee. Processing evictions is no easy feat, especially in some states (such as Vermont). But, an eviction is better than having to put up with a tenant who does not pay rent or constantly violates the terms of their lease. In addition to court costs, companies will normally charge between $200 to $500 to evict a tenant.
9. Early Termination Fee
Sometimes, the partnership between a landlord and their management company will not work out. If a landlord wants to terminate their management contract before its expiry, it usually comes with an early termination fee. Some companies charge only a single month’s management fees to terminate the contract early. Others will ask the landlord to pay the equivalent of the contract’s remaining months’ fees. In worst-case scenarios, a company may even sue.
It is imperative that landlords understand the different property management fees they may have to pay when they hire a property management company. This way, they will not be blindsided by hidden costs and charges.
Shop around for the best property management companies with the help of Rental Choice. Our online directory allows you to search for property management companies in your area.
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