Landlord 101: Property management fees explained

No matter if you are a hands-on landlord, who manages their rental investments on their own, or an investor who employs a professional to do it for you, you no doubt wonder about property management company fees, and why property managers charge fees in order to administer your property. Property management fees differ widely depending on the company and property management plan that you choose, and you should always search for these when you sign your PMA. That being said, there are also fees that are common for most managers and plans. We will provide a property management fee breakdown so that you can understand what costs are associated with these most typical property management fees.

What does a property management company do?

First, let us try to understand what property management companies do. When you consider hiring a property manager, you certainly ask yourself what value do they bring for the cost associated with hiring them? Do I value my time or the cost more? To put it simply, a property manager takes care of your rental property investment when you lack the time, knowledge, and/or passion necessary to do it yourself. The property manager is a professional with expert knowledge of the market in which your property is located, that can find good tenants fast, who oftentimes can pay higher rent, and have at their disposal the most qualified vendors to take care of whatever maintenance issues might arise at your property. Moreover, they are your trusted adviser if you want to expand your portfolio, sell your property, or simply trade up. Property managers keep a close pulse on up and coming areas in the real estate market, therefore, your next investment could be in such a sought-after area.

What are the typical property management fees?

  • Monthly management fee

Most property managers will express their monthly management fees as a percent of the monthly rent, or as a flat fee.

When it comes to the percentage version,  it’s not useful to pinpoint an average management fee in any specific marketplace as they tend to vary based on business expense and regulatory restriction.

Other property management companies follow another model, in which they charge flat fees, or a hybrid that includes both a percentage and a flat fee. Whatever model you choose, make sure that it is clearly stipulated in the property management agreement.

It is worth mentioning here that property management costs may depend on the management plan you choose, the location and condition of the property, and what property management services are included in that plan. Nevertheless, the typical monthly management fee covers the property management company’s expenses derived from moderating tenant disputes, lease violation redirection, providing software services for rent collection and reporting of maintenance, distribution of rents to the landlord, and expert knowledge and relationships with vendors.

  • Leasing fee

Those landlords who already have the experience of working with a professional property manager are surely aware of leasing fees. The leasing fee basically pays for the costs associated with leasing the property, including the cost of advertising, the time spent showing the property, the lockbox and tenant procurement software, and the time to respond to inquiries. The leasing fee will come as a percent of the first month’s rent. Yet don’t hesitate at the prospect that you’ll be investing almost entirely the first month’s rent once the home has been leased.  Leasing fees do not occur frequently; you’ll pay one the first time when you rent your property, and then once in 2-3 years on average. Most professional property managers know what to do to keep your tenant happy in the long run so that on average they renew the lease for at least 2-3 years.

Now, back to the costs. Why does the leasing fee seem high? The leasing fee pays for the very costly marketing process. The property management company needs to produce professional marketing videos and photos of your property, and they often use in-house staff that has labor costs. They syndicate the rental ad for your property on dozens of industry websites and advertise it on social media as well, and most often the syndication is also very expensive. The leasing fee also pays for the tenant screening process and the lease agreement which is in most cases attorney approved, as property managers use specialized staff, and software to accomplish this, which, you know it at this point, costs money. These are the costs to receive maximum exposure to lease your property.

  • Lease renewal fee

Although you’ll not be paying a new lease fee at the time that your tenant renews, you will pay the lease renewal fee. Many property management companies charge a lease renewal fee to cover the expenses incurred when they renegotiate and draft the new lease in preparation for a new tenancy term.

Don’t forget, the property management cost should be made clear in the Property Management Agreement and the Lease Renewal Agreement. Most property management companies make available a monthly Owner Statement that keeps you abreast of the revenues and expenses incurred by your property. If you have any other questions about what goes into the cost to manage rental property, don’t hesitate to contact us at [email protected].

Credits: Photo by rupixen.com on Unsplash.

 

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