Updated June 2021
As an investor with expansive rental properties, it can be challenging to handle all the tasks required to run your business effectively. From rent collection to finding qualified tenants, it's a lot to manage on your own. That's where rental property management fees come in. By hiring qualified property managers, you can streamline your workload and increase your profits.
Consider Your Strengths & Weaknesses As A Landlord
Not everyone is cut out to be a hands-on landlord. Managing every aspect of your business can be overwhelming and may prevent you from reaching your full potential. That's why it's important to assess your strengths and weaknesses as a landlord. Identify the tasks that you enjoy and excel at, as well as the areas that cause you stress or take up too much of your time. By understanding your limitations, you can hire a property management team to assist in ways that improve your workload and overall business.
Understanding Rental Property Management Fees
Property management fees are the costs associated with hiring a property management company to take care of certain aspects of property management on your behalf. These fees cover services such as rent collection, tenant disputes, lease renewals, finding qualified tenants, handling maintenance and repairs, and coordinating with third-party contractors. The specific fees and services provided may vary depending on the property management company and your agreement.
The Average Cost Of Property Management Services
The average cost of property management services is typically between 7% and 15% of the rental property's value. This fee may vary depending on the level of service and location. Some companies offer flat-rate fees or charge a specific amount per property. To get an accurate estimate, it's best to contact property management companies in your area and request quotes.
The Most Common Fees That Landlords Have To Cover
Here are some of the most common fees associated with hiring a property management company:
Setup Fees
The setup fee covers the initial onboarding process when you join a property management company. It usually includes the cost of communicating with existing tenants and conducting initial property inspections.
Rental Advertising Costs
Property management companies may include advertising costs for vacant properties as part of their services. However, it's important to clarify if these costs are already included or if there are additional fees.
Property Maintenance Fees
Routine maintenance costs, such as hiring contractors for repairs, are to be expected. Property management companies may have preferred vendors and can often negotiate discounted rates. Keep in mind that there may be a mark-up on the service costs.
Lease Fees And Lease Renewal Fees
Lease fees cover the cost of advertising, showing the property, screening tenants, and setting up the lease agreement. Lease renewal fees are charged when renewing a tenant's lease. It's crucial to understand the terms and conditions of lease renewal fees before signing an agreement.
Early Cancellation Fees
Some property management companies include clauses for early cancellation fees if you decide to terminate the agreement under specific conditions. These fees vary, so it's essential to clarify the terms before entering into an agreement.
It's important to read and understand the fine print of your property management fees to avoid any surprises. Look out for additional fees and costs that may be added on and review your contract carefully.
Keep Analyzing Your Progress
After hiring a property management company, regularly evaluate the impact on your business and finances. Take a close look at your income and expenses to assess if the arrangement is beneficial for your bottom line. Transparent communication with your property management company is key to maintaining a successful partnership.
Rental Property Management Fees FAQs
What is a monthly management fee?
A monthly management fee is a charge for the services provided by a property management company each month. The fee typically includes basic services such as rent collection and tenant communication. The amount charged depends on factors such as the number of properties managed and the services provided.
How do you negotiate property manager charges?
If the prices offered by a property management company don't align with your business needs, you can negotiate by proposing alternative terms. Adding more properties to the service or removing certain services can help adjust the price. Be clear about which services you do not require and discuss if the price can be adjusted accordingly.
Are property managers' fees different for a single-family home?
The fees charged by property management companies may vary depending on the type of property. Managing an apartment building with common areas may incur higher fees compared to managing a single-family home. However, each company has its own fee structure, so it's best to inquire about specific rates.
Can a real estate investor write off property management fees?
Yes, property management costs are typically deductible expenses for landlords. The exact deductibility may vary based on how you file your taxes, but most landlords can offset rental income with these fees. It's crucial to track all expenses related to property management accurately, whether you do it yourself or hire a company.
Stay In Control Of Your Properties
While it's understandable to be hesitant about the cost of property management fees, consider the long-term benefits for your business. Hiring a property management company enables you to reinvest your rental income effectively and grow your business. Assess your long-term goals and evaluate if having the necessary support will help you achieve them. Remember, you don't have to do it all alone to be successful as a landlord!
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