Do you know your property’s management fees? Think about it. Are you paying more than you should? Most landlords don’t know the exact fees management agencies charge them. As a landlord, be aware of any hidden property management fees that are scooping your rental monthly income.
Look: Don’t be lured by low property management fees, thinking you won the best deal. Ask yourself, what services should I receive for this amount of fees? In most cases, when you pay cheap management costs, it only covers the basic property management services.
What this means is that from time to time they will charge you a fee for “extra services”. This is more expensive than paying a quality property manager, a reasonable fee.
Engage an agency that will discuss their fees transparently. Find out if they charge a flat management fee where all the services are included. Others unbundle their services and allow you to pay for what you need. Scrutinize the services you will receive before signing the dotted line.
Let’s get started and discuss the factors that influence your management fee. Talk of property management fees to expect, and the sneaky costs you should be on the lookout for.
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Factors that Affect Property Management Cost
As a real estate investor, hiring a property manager is a smart move. While they are expensive, an excellent property manager will guard your investment and increase profitability. What determines the amount of property management fees you should incur?
1. Type of Property
The amount of management fees you pay depends on whether your property is a single-family home, a multi-family home, or a commercial property. You will pay more for a multi-family property compared to a single-family home.
2. Size of the Property
Overseeing a large rental property calls for more responsibilities. You will definitely pay more for a big-sized property compared to a small-sized home.
3. Condition of the Property
A new or renovated property will attract lesser fees because of reduced maintenance, as compared to owning an old house.
4. Rental Property Location
A locality with high rental rates will attract more management fees.
5. Services They Offer
If you engage a property manager to just collect rent, you will pay less. If you hire an agency to do more than rent collection, get ready to pay more.
Additional Resources:
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Property Management Fees to Expect
#1: Management Fee
It is the principal fee paid each month. The fee covers the day-to-day operations of the property. It can either be a flat fee or a percentage of the rent. The flat fee depends on the size of your property.
The Percentage is approximately 8% to 12% of your monthly rental income. It can go as low as 3% to 4% for multifamily and commercial properties. Ensure your agreement clearly states that they base the fee on the rent collected.
The services covered vary but should include: rent collection, service of late notices, property inspections, lease enforcement, legal compliance, routine maintenance, basic accounting, and communication with tenants.
Consider asking what property management software they plan to use as well.
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Sneaky Property Management Fees To Look Out For
Most landlords are aware of the primary property management fees. If not clearly stipulated in your agreement on what the property management fee will cover, they will slap you with the following costs:
#1: Leasing Fee
Good property managers include this fee in the total cost of management. But if not, they will charge you a flat fee or a percentage of the first month’s rent (25% to 75%) for each unit they lease out for you.
The cost will cover:
- Advertising the property
- Showing the vacant space to potential tenants
- Responding to inquiries regarding the property
- Screening applications and collecting security deposits
- Executing the lease agreement and carrying out a move-in inspection
#2: Lease Renewal Fee
This is the cost of renegotiating terms and drawing up new paperwork with an existing client. whose initial lease has expired. A property manager may charge for the additional work. They deduct the fee from the first month’s rent of the new lease.
#3: Maintenance Fee
Landlords and property managers set a percentage of the monthly rent (at least 10%) to cater to any maintenance requests. If the cost exceeds the maintenance limit, they inform you for approval of the expenditure.
Unfortunately, some property managers want to benefit from the maintenance They, therefore, charge a markup of 5% to 20% on all the maintenance costs.
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#4: Set-Up Costs
This is the fee for setting up your account with the management company. It also covers initial property inspection. Using the fee, they inform tenants they are the new property managers. This should not cost much if they have to charge it.
#5: Advertising Fee
This is the cost associated with marketing your property. The cost covers online listing on real estate websites, professional photography, and signboards. If you pay a leasing fee, you should not incur this cost.
#6: Early Cancellation Fee
Putting up with an underperforming property manager is a crime to your profits. If a property manager cannot maintain the quality standards you are paying for, terminate your contract. However, this comes with a cancellation fee. It can cost you a few hundred dollars depending on your contract terms.
#7: Eviction Fee
This is the cost of removing a tenant who has failed to meet lease agreement terms.
Think about it. A Management Company that charges an eviction fee might use that as a loophole to gain from the fees. What that means, they have an incentive of evicting clients than getting good tenants. Be careful with such agencies.
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#8: Property Inspection Cost
These are routine checks by property managers to ensure everything within the property is running smoothly. This fee should be part of the monthly management fee. Believe it or not, some management companies charge it as a separate fee.
#9: Vacancy Fee
This is the amount you pay to a property manager when the house has empty units. Their job is to ensure they get good tenants with full occupancy. Paying vacancy fees is like paying them not to do their job.
Bottom Line
Working with a property management company is relieving. An excellent property management company will minimize expenses and maximize returns.
A well-managed property improves profitability in the long run.
You will not only receive guaranteed monthly rental income but also get time to do the most important things. Engage a property manager who is transparent about every fee they charge you.
Before signing any agreement, ensure it covers all the services you need. Incurring extra sneaky property management costs will eat into your profit, leading to reduced returns.
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