Understanding the Most Common Property Management Costs
A company that provides property management services helps landlords manage their rental property for a price. Fees will vary based on a variety of factors, such as property-type and services provided. Below is a breakdown of the fees property managers may charge.
Different Factors That Affect Property Management Costs
There is typically not a set price that a property management company will charge to manage your property. The fees will depend on a number of factors, including:
- Condition of Property – Newer or newly renovated properties, may have fewer maintenance issues than older properties.
- Size of Rental Property – Managing a smaller rental property involves less work than managing a larger rental property, so the fee collected will be larger.
- Location of Rental Property – Property managers might charge more to manage properties that are in areas that demand higher rents and lower fees to manage properties in areas that demand lower rents.
- Type of Property – Property managers can manage all types of investment properties, including single-family homes, multi-family properties, commercial properties, and even vacant properties.
- The Extent of Services – The services that the property management company provides plays a major role in how much they charge. If you are only hiring a property manager to collect rent, you will likely pay less than someone who wants a manager to collect rent, handle repairs, fill vacancies, manage tenant evictions and keep financial records for your taxes.
Analysis of Property Management Fees
Initial Setup Fee
This is the fee a property management company might charge to set up your initial account with their company. Not all companies charge this fee, but it is usually $500 or less if they do. This fee might also include a property inspection cost to evaluate the condition of your property, as well as costs to notify tenants that they will be managing the property.
Monthly Maintenence Management Fee
Most property managers will charge a monthly fee to manage your property. How this fee is calculated and what services the fee includes should be specified in the contract you sign with the property management company. Some companies charge a higher monthly management fee, but that fee may include more of the necessary services needed than a company that charges a lower monthly fee and bills for additional services separately.
A property management company may charge a flat fee to manage your property or a percentage fee:
- Flat Fee – A flat fee is a specific dollar amount that you pay the property management company each month. The flat fee amount is calculated based on the size of your property and the services provided. For a single-family home, this flat fee may be as low as $100 a month.
- Percentage of Rent – More often than not, a property manager will collect a percentage of the monthly rent as a management fee. The percentage collected will vary, but is traditionally between 4% and 12% of the gross monthly rent. The percentage may be lower, for properties with 10 units or more or for commercial properties, and it may be a higher percentage for smaller or residential properties.
- Rent Due vs. Rent Collected – The contract with the property management company should state that the fee is for rent collected rather than rent due. Otherwise, the property manager will still be collecting money even if the tenants are not paying their rent.
Tenant Placement Fee
A property manager may charge an additional fee for placing tenants in your property. Again, this could be a flat fee or a percentage of the rent collected. Half a month’s rent or even a full month’s rent is typical.
This fee can include various things like advertising costs to find tenants, tenant screening, move-in procedures, and preparing the lease agreement. Depending on the contract’s terms, this fee may be refunded to the property owner if the tenant breaks their lease early or is evicted.
Maintenance fees are usually included as part of the monthly management fee. This could include keeping common areas clean, taking out garbage and snow and leaf removal. If a specific repair needs to be made, the cost of the repair will be deducted from the reserve repair fund.
- Reserve Repair Fund – This is a separate account that the property owner or landlord adds money to for necessary repairs at the property. The landlord can choose to only be notified for repairs over a certain dollar amount, to authorize every repair deduction from the account, or in some cases can choose to let the property manager use the account at their discretion. Its good practice for a minimum amount to be kept in this account, such as the equivalent of one month’s rent.
A fee for vacancies could also be included in the property management contract. This could be a one time fee of one month’s rent upfront or it could be a fee for each unit that is vacant, such as $50 per unit.
Early Termination Fee
If the property management contract is broken early, you will often have to pay an early termination fee. Based on the terms of the contract, this fee could vary greatly. You may only be responsible for paying one month of additional management fees or you could be taken to court for breach of contract.
If you want a property manager to handle tenant evictions, you will have to pay for it separately in most cases. For each eviction, you can expect to pay a few hundred dollars, plus any court costs associated with the eviction process.