As a landlord, the idea of earning passive income does not remain “passive” if he or she has to actively manage the property. Managing a property is time-consuming, and the majority of landlords address this issue by outsourcing.
However, new investors have a harder time making sense of property management fees. Here is a guide to help explain the property management fee structure and what to expect in return.
There is no set price for a property manager’s services. It usually depends on the following factors:
Property Size: Managing a smaller property requires less work than managing a larger one.
Property Type: Properties are categorized differently (i.e. commercial; multi-family; single-family; etc.) Most property managers’ charges vary depending on the property type.
Property Age: Newly built or freshly renovated homes have fewer repair issues, so it costs less to manage these types of homes.
Property Location: Property management companies charge more when the property is in an expensive neighborhood or commercial hubs than if it’s in a cheaper or remote area.
Number of Services: The number of services the landlord wants plays a large role in how much a property manager will charge. If they’re only hired to collect rent, you will be paying a lot less than if you’ve outsourced them for several more extensive duties such as finding new tenants, handling repairs and evictions, and keeping financial records.
A property management fee is charged one of two ways: landlords can either pay a customized fee for required services or they can subscribe to services at a flat monthly rate. Landlords can typically expect to spend almost 10% of all income on hiring a property manager.
Property management fees are usually broken down as follows:
This is the fee to establish a relationship with the property management company. Not every company charges this fee but some companies charge a one-time fee (anywhere between $300 and $500). The registration fee includes an initial inspection fee to determine the condition of the property as well as a fee to notify tenants that they will be managing the property going forward.
Property management companies can charge up to one month’s rent to conduct tenant locating services for an empty property. The fee includes the cost of hiring an agent to find a tenant, advertising, scheduling in-person visits to the property, screening the tenants, and preparing a lease agreement.
Companies can charge for setting up a new lease for a tenant who wants to renew their lease. The fee is $200 or less and includes a comparative market analysis to generate recommended rent prices. It also includes the cost of handling the renewal paperwork.
Maintenance fees are the prime fees landlords pay each month. These fees factor in the cost of handling property repairs, attending emergency maintenance calls, communicating with tenants, collecting rent, and conducting property inspections.
Some companies have their own maintenance crews and, if that is the case, they will negotiate the price based on the costs of those services. Most companies charge between 8 – 10% of the collected rent for maintenance alone. Before signing a contract, set a limit for how much your property manager can charge.
There are additional fees, especially when the company is charging a low monthly percentage, such as an inspection fee, an advertisement fee to attract new tenants or a fee for handling unexpected or urgent maintenance costs.
These are the major fees associated with property managers who are doing everything on your behalf, including those who handle legal affairs in case of eviction. However, if a landlord can spare time to attend to repair calls or if the property is new construction, conducting tenant screening could save them a considerable amount in fees.
The contract language is of the utmost importance. Understand how you will be paying the manager and set a percentage of how much of the rent or how much of the rent is due that they will receive for their services. It creates a big difference because when you pay based on when the rent is due. You will have to pay the fee even when the property is unoccupied.
For example, let’s say the set limit is 10% of the collected rent and the monthly rent is $2,000. The property management company would collect the rent and deduct $200 from the payment and send you the remaining $1,800. When they don’t collect rent, they would not gain anything and you also don’t have to pay any fees out of your pocket.
To be honest, this largely depends on your goals and your property. Hiring a property manager might not be a good idea for a full-time landlord. Who has multiple properties and loads of experience with managing them or if they choose to be a property manager part-time?
However, there are those who are new to the real estate business or cannot spare extra time managing the property who will find that hiring a property management company is extremely beneficial.
A property manager’s first responsibility to the owner is to maximize the financial return on the property while also ensuring the property is well-maintained and meets legal and safety requirements.
Licensing is typically not required for property managers who manage commercial properties, such as office buildings or retail centers.
Selecting a good property manager is an important decision that can have a significant impact on the success and profitability of your investment property. Some key factors to consider when selecting a property manager include experience and qualifications; reputation; communication and responsiveness; marketing and tenant screening; property maintenance and repairs; and financial management.
Using a property manager can have several benefits for landlords or property owners. Here are some reasons why you might consider using a property manager: Save time and effort, Maximize profitability, handle legal and regulatory issues, Provide expertise and resources and improve tenant satisfaction.
Overall, the role of a property manager is to oversee the day-to-day operations of a property, maintain the property’s value, and ensure that tenants are satisfied with their living arrangements. A property manager should be knowledgeable, professional, and responsive to both the needs of the owner and the tenants.
Now you know how much property management companies can charge. We hope you also have a good idea of how much time and energy property management consumes. It is wise to get multiple quotes from prospective companies before selecting any company.
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