Property Management Fees: Everything you need to know

When an investor obtains a rental property, they might obtain the services of a property manager to manage the units at a price. This relationship is usually one of delegation, with some owners being more hands-on than others. Consequently, Property Management Fees tend to vary depending on the amount of work the property manager does for the landlord. They can also hinge on factors such as the property type, location, and size.

Are you thinking of hiring a property manager to oversee the running of your units? Here is a breakdown of what you should expect in terms of fees.

What Is a Typical Management Fee?

A typical management fee is the primary payment arrangement used by many property management companies as a fee baseline. Generally, a property manager may demand 8 to 12 percent of a property’s monthly rental value in addition to expenses as payment. Other property managers charge a flat rate that is constant regardless of the amount of rent collected. This last option can lead to some losses for the landlord.

Key Factors of Property Management Fees

When it comes to property management fees, there is no one-size-fits-all approach. Property management companies will usually determine their fees by considering factors such as:

  • Services rendered – Property managers can perform a wide range of duties on a property, including tenant screening, rent collection, evictions, and financial record keeping. The more responsibilities you would like your property manager to oversee, the higher you are likely to be charged.
  • Property type – A property manager will take into account whether the property is a single-family home, condominium, or commercial property when calculating their fees.
  • Property size – Larger properties tend to need more work than smaller ones and, as such, may cost you more in terms of property management fees.
  • Property condition – Older properties tend to require more repair and maintenance than new or recently-renovated ones. If you own such property, you will likely be charged more.
  • Property location – Most property managers will charge more in areas with high rent rates than those where properties fetch lower payments.

Classification of Property Management Fees

Account Setup Fee

When you approach a property management company, you might be charged an amount to set up your account (not every company charges this fee). The fee, which usually falls around $500, might include costs for an initial property inspection and informing tenants of the new property manager.

Property Management Fee

Upon signing the contract, the property manager will demand a monthly flat rate or percentage to cover their charges for managing the property. The agreement will define how this amount will be calculated and the services included. The fee can be calculated as a:

Flat fee – This is a fixed amount paid every month and will usually depend on the property size and services rendered. A flat fee is risky for business owners as it doesn’t take into account the income or expenses on the property for a given month.

Rent percentage – Typically, this is usually 8 to 12 percent of the gross rent collected on the property per month. However, the property manager may charge less for properties with more units and vice versa.

Maintenance Fee

A property manager may also charge you a fee for the repairs and general maintenance done on the property. However, you must establish a reserve repair fund for the repairs themselves, from which the property manager can pay for necessary maintenance. Depending on your agreement, you or the manager may have discretion over the fund.

Placement Fee

Many property managers charge a fee for every tenant they place in a rental unit on the property. If indicated on the contract, the property manager may have to refund the amount upon early lease termination or eviction.

Eviction Fee

If your property manager is in charge of handling evictions, they will charge a separate fee per eviction, including associated legal costs.

Early Contract Termination Fee

In the event you cancel the property management contract before the termination date, you will be required to pay an early termination fee, which will depend on the contract terms.

Is It Worth It to Get a Property Manager?

It depends. Property managers handle numerous duties on a property, sometimes filling in completely for the landlord. They can take care of everything from getting your rental units ready for occupation, advertising the property, screening tenants, handling and renewing leases, to maintenance and evictions. If these are things you can do yourself, then you don’t need a property manager.

However, if your rental unit is a part-time commitment and you have obligations elsewhere or would just like to avoid calls about every blown-out bulb, hiring a property manager is a good decision. The property manager will ensure your property is running smoothly, your tenants are happy, and your account is full.

Property Management Fees Vs. Leasing Fees

You can hire a property manager to carry out regular monthly management leasing duties, or both. These two duties are charged differently through the following fees:

Property Management Fees: Property management companies will collect these fees if they are in charge of collecting and processing rent payments, overseeing inspections, managing maintenance, and making emergency repairs. This fee could fall between 7 and 10 percent of the rent collected on your property or be a flat rate.

Tip: Before signing a property management contract, confirm whether property management fees are collected on rent collected or rent due. If the latter is the case, your property manager will charge you even when no rent has been collected.

Leasing Fees: A property manager will charge a leasing fee if they are expected to advertise, show, and fill rental units by reviewing applications, screening applicants, processing lease agreements, and preparing the unit for occupation. Because this job is heftier, the fees tend to lie between 75 and 100 percent of the rent collected during the first month.

Conclusion

Hiring a property manager is a wise and sometimes necessary decision for property owners. However, as you delegate duties to your new property manager, you should also keep their fees in mind. Property Management Fees can be charged as a percentage of rent or a fixed rate and usually depend on property type, size, and locations. It is up to you to determine whether the fees are worth the services rendered, or you can manage the property yourself.

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