Real estate investors who are successful understand that a property manager is an asset and not an expense. If you’re a landlord or property owner looking for a reliable and trustworthy property manager, you need to know how much property managers charge.
Property managers are able to help you keep your rental property occupied for years, increase your return on investment and free up valuable time to focus on your real estate business.
This article will provide an overview of the factors that influence how much property managers charge, including the type of services they provide, the size and location of the property, and the complexity of the job.
We’ll also discuss the various ways you can save on property manager fees, as well as tips for finding the right property manager for your needs. Read on for a comprehensive guide to understanding property manager fees.
How property management fees are calculated
The fees of property management companies are usually charged in one of two ways: a percentage of rent collected and a flat monthly fee.
The majority of property management companies charge a monthly fee that is between 8% and 12% of the monthly rent collected. Based on a 10% average fee, the property management fee for a home with a rent of $1,200 per monthly would be $120.
Management companies charge a flat fee for vacant properties or a fee equal to the expected monthly rent when the property is leased. Management companies may need to do more work for vacant properties, such as weekly inspections for possible break-ins and the presence of squatters.
Fixed property management fee
Many property management companies offer fixed-fee structures instead of charging a percentage of the month’s rent. The fixed fee is usually based on the property type, square footage and the services provided by property management companies.
Management fees may vary by market. A flat fee structure may seem like a great deal, but management companies that collect a fixed fee might not be as motivated in maximizing your rental income.
Additional property management fees
Not all property management fees are equal. A property management company might charge additional services beyond the monthly fee.
A majority of property management companies will charge an initial setup fee.. This covers the cost of:
- Opening a bank account, if necessary
- Creating a bookkeeping account for accounting purposes
- Inspection of the property
- Applying for any tax and business licenses
Overseeing vacant property
Managing a vacant property can require more work for property managers.
Water leaks or other emergencies can occur because utilities must be on during showings. Security lights may also go out. The greater chance of a home being vandalized or broken into, regardless of its location, the longer it sits empty.
Typically a property manager will visit the property at minimum once per week to reduce these risks.
Leasing of vacant property
You can list your vacant rental property on a variety of free websites and reach millions of potential tenants every month. If you are a remote investor in real estate, however, it is still necessary to find someone local to rent your vacant rental property.
Some property management companies do not charge a fee for leasing vacant properties, but many will charge a leasing fee. This can be up to one half of the monthly rent.
Landlords can make some savings when it comes time for tenants to renew their lease. Most management companies charge a minimal fee, or no fee at all, for renewing a tenant’s lease. As long as there isn’t much negotiation involved.
Late payment charges
It is a good idea to charge late fees to tenants if rent is not received in time. A late fee does not always mean additional profits. As compensation for having the tenant pay unpaid rent, some property management companies may keep a portion of the late fee.
Maintenance and repair
A network of reliable vendors or a full-time maintenance crew are essential components of the best property management companies. Management companies are often offered preferred pricing in return for their business. This means that repair and maintenance costs will be less than you would find on your own.
Ask prospective property managers about mark-ups on labor and supplies costs when interviewing them. To ensure that the work is done correctly, management companies may charge a percentage to manage a property that has undergone significant updating.
Routine inspection charges
A residential rental property should generally be inspected inside out every three to six months. Routine inspections of the property can help to spot and fix small problems before they become costly and prevent damage to the property.
A few property management companies offer semi-annual inspections at no cost. Some companies will charge you for each inspection in return for a lower property management fee. To prove that routine inspections are being performed, ask the property management company to send you a detailed inspection report.
Collections and evictions
It doesn’t usually happen very often but it can be necessary to evict tenants for not paying rent, disrupting your neighborhood or causing damage to your rental property.
Some large property management companies might have the ability to handle evictions by themselves, while others may contract the work out to local law firms that specialize in residential evictions. You may be charged a flat fee in cases like these.
If you win a case against eviction and are awarded a judgment, collection agencies and attorneys will charge a percentage of money collected.
Unless the landlord has a legitimate cause to break the property management contract, such as the manager not carrying out duties as laid out in the agreement, any early termination of the contract will likely incur an early termination fee.
The amount of the termination fee can vary significantly, from one month’s loss of income to the management company to the landlord being sued for violating the contract.
Factors that influence property management fees
The amount of the property management fee is based on the amount of effort put in by the property management team to preserve the condition of the property and gain the highest rental income and value. For instance, a small multifamily building with three or four units will require more work from the property manager than a single-family rental home.
The following factors will impact the property management fees a landlord will have to pay:
- The kind of rental property you possess – be it a single-family rental, a multifamily building, or a short-term rental – is a key factor when considering whether a property manager is worth the cost.
- The size of the property – measured by the number of units, square footage, or the number of bedrooms is also important.
- Condition of properties – Older properties typically necessitate more repairs and upkeep compared to recently renovated homes, even if they have been extensively restored.
- Neighborhood rating – Generally speaking, areas with higher ratings tend to draw better tenants and fewer issues compared to areas with weaker school districts and fewer facilities.
- Full-service or a la-carte pricing – Some property management companies offer landlords a lower monthly fee for basic services such as rent collection and dealing with maintenance requests, with the option to pay-as-you-go for repairs, inspections, and lease renewals.
- Competition within the market – Property management fees in some smaller markets may be higher due to less competition and fewer options for landlords.
Is it worth the cost to hire a property manager?
A property manager can be a great investment for most investors in real estate. However, it might not be the best choice for all property owners.
What are you looking for in a property manager?
Start by asking yourself questions about your property management needs.
Remote real estate investors will need to hire a local management company in order to manage the property and tenants. Investors who live in the same area as their rental property may opt to manage the property themselves.
Are you willing to save a few bucks a month?
It’s important to not underestimate the amount of time required to manage a property or overestimate the kind of tenants your property will draw in. Property management companies typically have access to a network of contractors and handymen with special pricing plans, with those savings passed on directly to you.
Where your rental property is located and the kind of tenants it attracts, can also affect whether or not it’s worth it to hire a property manager. For instance, rental properties in lower-income areas or with Section 8 housing may generate a good income, but dealing with the tenants and the repair problems they bring can take up a lot more time than you bargained for!
Understanding what a property manager does
If you’re still undecided about hiring a professional property manager, it could be worth running some “what-if” scenarios to help you decide. Imagine how you’d go about advertising and marketing your vacant property, screening new tenants and signing a lease, and dealing with tenant issues when they arise.
Keep in mind that contractors will likely charge you more and be less responsive to your repair needs since you won’t be able to offer them a steady stream of business. Additionally, do you have a good understanding of local and state landlord-tenant laws and Federal Fair Housing laws in your region, the same way a property manager would? Landlords who don’t take the proper steps when collecting late rent, entering a property, or making sure the property is habitable can quickly find themselves in legal trouble.
Overall, the cost of a property manager relies on a variety of factors, such as the type of property, size of the property, condition of the property, neighborhood rating, and market competition.
Additionally, property management companies may offer a lower monthly fee for basic services such as rent collection and maintenance requests, with landlords then having the option to pay-as-you-go for repairs, inspections, and lease renewals.
Ultimately, the amount of a property manager’s fee will depend on the landlord’s individual needs and budget. But in the long run, hiring a respected and qualified property management company can be invaluable.