When comparing property management companies, most property owners place a great deal of importance on the cost of their services. But, it is not always easy to understand each company’s fee structure. To help you make a decision, here is everything you need to know about property management fees.
In this article:
A Guide to Understanding Property Management Fees
Residential property management takes both time and skill — two things that many property owners lack. As a result, most owners turn to property management companies for help. But, with countless management companies to choose from, it can be tough to choose the one that best suits your needs.
Aside from comparing services, references, and experience, it is imperative to weigh the price of each company’s services. After all, you need to work within your budget, and property management fee calculation can impact your rental income.
But, fee structures can be confusing, and you may not be aware of certain hidden fees that a property management firm might charge. Additionally, if you have never worked with a property management company before, you might not have a good idea of what counts as a reasonable fee and what counts as excessive.
So, how much do property managers charge? Keep reading on to find out.
How Much Does Property Management Cost?
What is included in property management fee? It depends on the rental management company. Some companies offer their services as part of a package, tacking on other services on an a la carte basis. This is ideal for property owners who do not necessarily need a full-service company. Other companies, though, handle everything — from marketing your property and screening tenants all the way down to legal compliance and even financial management.
The nature of the company and the services you require can influence the exact cost of your rental management fee. Generally, though, there are some key fees you must keep an eye out for. How much does a property manager cost? Here is a breakdown of property management costs:
Initial Setup Fee
This is a one-time fee that you need to pay the property management company for setting up an account with them. It may also cover the cost of property inspection and tenant notification of new management. Some management companies charge an initial setup fee, while others do not. If you find this fee in your management contract, you can expect to pay around $500 or less.
Monthly Management Fee
Out of all the possible fees, the monthly management fee is something that a majority of companies charge. You will typically find this information in your management contract, including details on how it is computed and which services come with the fee. Make sure the cost of the monthly management fee justifies the services included.
There are two ways a property management company may charge this fee:
- Flat Fee. This is a fixed amount the company charges you on a monthly basis. What is a typical management fee? It depends on a number of things, such as the size and nature of your property. Typical property management fees for a single-family home, for example, might be $100.
- Rent Percentage. Most companies take a percentage of the monthly rent as their management fee. What is the average property management fee for rental properties? Generally, it is 8 to 12 percent of the monthly rent, though some companies may use a lower rate depending on the number of units to manage. Make sure the company takes from the rent collected and not the rent due.
Tenant Placement Fee
A tenant placement fee is a separate fee that some companies may charge for finding and placing a tenant in your property. This fee usually includes the cost of advertising your property, screening tenants, move-in procedures, and writing the lease agreement. Like the monthly management fee, this can be in the form of a fixed dollar amount or a percentage of the rent.
Maintenance or Repairs Fee
Most monthly management fees cover the cost of maintenance as well, but, again, it depends on the company. If the property is in need of repairs, some companies may impose an extra fee for coordinating with vendors or overseeing repairs. Other companies will require you to set up a separate fund dedicated to repairs.
A vacancy fee usually comes up when you try to hire a property management company while your rental property is unoccupied by a tenant. Depending on the company, you might pay a fee per vacant unit or a fixed one-time fee. In the case of the latter, it is usually one month’s rent.
Early Termination Fee
Property management companies also usually charge an early termination fee if you decide to end your contract before it officially expires. The cost can vary anywhere from a fixed amount to the cost of an entire month’s property management fees. It is always a good idea to check with an attorney if you plan to terminate your contract early. That way, you can protect yourself from possible legal liability.
Evictions can be very messy, which is why many owners prefer to have property management companies handle it for them. Many companies charge extra for tenant evictions, though. Eviction fees typically cost a few hundred dollars. Additionally, you will need to cover any court fees, too.
Property managers do not always conduct visits to the property. But, if you need them to, you might need to pay an additional fee for it. This usually happens if there is an emergency situation that requires a personal trip to the rental property.
Look out for other miscellaneous fees that your property management firm might include in the contract. Some companies charge separate fees for advertising, lease renewals, and even late payments. It is never a bad idea to have an attorney review your contract to ensure you are not being baited into paying hidden costs.
What Factors Affect Rental Property Management Fees?
More often than not, companies will tailor their property management fees according to the following factors:
- Type. This pertains to the nature of your property — whether it is a single-family home, a multi-family complex, or even a commercial property.
- Size. Larger properties tend to command a higher price due to the volume of work involved.
- Location. If your rental property is located in an expensive neighborhood, your company might charge more to manage it.
- Condition. Older properties tend to experience more maintenance and repair issues, so companies might hike up their management or maintenance fee.
- Services. The exact services you require will also dictate how expensive your fee will be. What is included in property management services? A full-service company usually takes care of all rental management processes, including legal compliance, tax assistance, and tenant retention.
Can You Negotiate Property Management Fees?
Absolutely. There is no law saying you cannot try to negotiate your property management fees. If you feel like a company is charging too high a price (especially compared to the services included), feel free to say so. It is also best to let companies know your price range so they know how much they can work with. After all, property management companies need to pay for various expenses, too, including property manager salary.
A Key Takeaway
Property management fees do not have to be an enigma. It only takes some effort on your part to understand how they work. Of course, the best piece of advice you can take away from this is to thoroughly review your management contract before signing it. In doing so, you can prevent surprise fees.
Are you looking for a property management company near you? Make your search easier with Rental Choice’s online directory today!
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