While it’s a top-line expense, investing in the services of a good property manager may improve the value of your rental property asset. A good, professional property manager will keep your rental property occupied (thus increasing the return on your investment) and free up your valuable time to focus on growing your real estate business.
These two considerations are essential as you decide whether or not to hire a property manager for your rental property:
- Your operating budget for the property
- The value of your time
You must answer whether it is worth the property management fee to have a third party take care of the day-to-day property management, or do you prefer to DIY and keep the cash?
Rental property managers charge a percentage of the rent, a flat fee, or a per-project basis.
Percentage-based management
Property management companies typically charge a monthly fee of 8%–12% of the monthly rent. If the rent on your rental property is $1,200 per month, the property management fee will likely range from $96–$144.
Some property management companies do not charge their fee if it is vacant. Some charge a fixed vacant unit fee or a fee equal to the monthly rent with or without a tenant. A vacant property can require additional attention from the management company, especially if they need to inspect the property weekly for damage, squatters, or potential break-ins.
Flat-fee management
A flat-fee structure is based on the property type, square footage, the property condition, and the specific management services provided.
A reliable rule of thumb is to estimate $100 for flat-fee property management for a single-family home. But how much rental agencies charge varies from market to market. If the rental agency charges a flat fee, ask for a detailed list of services provided for that amount to ensure they’ll manage and maintain the property to your standards. A cheaper rental management company is not always better, as, without proper compensation, you may find they may not be as motivated to keep the property full or well maintained.
Per-project property management
Property management companies handle a variety of tasks. When you hire on a per-project basis, you can select which of your landlord responsibilities you want the management company to handle. You may want to engage a property management company for one-time maintenance projects or ask them to handle only certain aspects of managing tenants. If that’s the case, you will pay individually for each completed project. Fees will vary and will likely be more expensive per assignment than what you would pay with a flat fee or percentage-based structure.
How much does a property management company charge?
In general, how much a rental property manager will charge will depend on how much responsibility you want them to have. Whatever arrangement you choose, take care to understand exactly how you are being charged and how the fees are structured in your contract.
Rent collected vs. rent due
An important detail in your contract will define whether the management cost is based on rent collected vs. rent due. Always insist on a contract stating that the rental management company charges come out of actual rent collected from tenants for the month, rather than simply the amount of rent due.
With this arrangement, the rental agency must collect rent to get paid, which means they should be highly motivated to fill vacancies, handle tenant requests quickly, and act in your best interest if a tenant shares their plan to move out. The bottom line? You will pay the appropriate management fee when you receive rental income but not when the property is vacant.
What does a property management company do?
In a full-service arrangement, you pay the property manager to market the property, including advertising, screen tenants, handle leasing, collect rent, handle evictions and perform routine maintenance.
In some cases, the property management charges may include costs passed on to you, especially if the company’s percentage-based rates are lower than average.
You may incur pass-along costs for the following items:
Account setup fee: This can cost up to $300 and covers the time to set up your account.
New tenant placement fee: Some managers may charge a new tenant placement fee or bonus for getting a tenant into a lease. You may be charged anywhere from 25% –100% of the first month’s rent. However, you should not have to pay multiple up-front fees. Rental managers either have a first-month rental fee, an upfront fee, or a significant percentage of the first month’s rent collected. You’re not likely to be charged for all three unless the management company has very low or no ongoing monthly expenses.
Tenant occupied unit fee: Some management only charges when the property is occupied. You might not pay a fee if the property is vacant, or the management company may charge a reduced fee for showing and maintaining the property.
Advertising fee: You may be charged $100 to $200 for advertising costs to market a vacant unit.
Lease renewal fee: You may incur a cost of up to $200 on a tenant renewal. However, some property management companies charge much less or nothing at all.
Vacancy fee: Some property management firms charge one month’s rent upfront as a vacancy fee. This gives them the funds to pay for advertising and prepare the lease paperwork. A vacancy fee also pays any real estate commission to an agent who shows the property and places a tenant. Other companies charge around $50 a month for a vacant property rather than charging the vacancy fee upfront.
Reserve fund fee: A reserve fund fee pays for maintenance services and day-to-day expenses and any recurring bills you have contracted the management company to pay on your behalf. This fee could range from $200–$500 and is an ongoing fee.
Maintenance fee: Some rental management agencies retain maintenance crews for turnovers and routine maintenance. You will need to ask whether this maintenance fee is included in the monthly rate. If they pass on all such charges, you shouldn't see a monthly fee.
In addition, your management agreement should set a limit for specific charges, such as labor rates. It is not unusual to see labor charges of $20 to $45 per hour, per person, plus materials.
Eviction fee: Property managers will typically charge to serve an eviction notice, deal with attorneys, and any court appearance connected to the eviction. You can expect an hourly rate of $25–$50 an hour or a flat fee between $200–$500 per eviction, plus court costs.
Unpaid property management fee: Property management companies need to pay their bills too. If a landlord has a past due invoice, they may incur a fee, typically 1.5% of the invoice added monthly until the invoice is paid.
Late service payment fee: If landlords pay for property management services late, they may incur a late fee of 25%–50% of the amount owed.
Bill payment fee: You will pay a service fee if you have contracted with your property management company to handle bill payments, including your mortgage, insurance, HOA, utilities, or other regular home expenses.
Returned check fee: Management companies typically charge for a bounced check from either the tenant or you. This may result in a $35 charge or more.
Some landlords prefer to do physical property management work themselves and rely on a management company to handle tenant screening and eviction. With this arrangement, where the property management company has no ongoing maintenance responsibilities, you may pay a one-time commission of 50–100 percent of one month’s rent for a signed 1-year lease.
A good property management company can be a good solution for a busy property investor. They’ll take charge of the maintenance of the property and ensure your property stays in top-notch condition, so any vacancies fill up quickly. The best property managers will track area rents closely to take advantage of general rent increases. This helps your rental retain value and appreciate at a price in line with comparable properties.
RentSpree is your all-in-one management platform from rental property searching to management. RentSpree can help you with comparative market analysis, rent estimation, rental applications, lease signing, tenant payments, tenant screening, and more.
