Property Management Fees: The Breakdown
TL;DR - Calculating how much you’ll pay in property management fees is easy. First, determine which common rate influencers apply to you. Second, add up the cost of the property management services you want to utilize. Finally — enjoy your passive income and time freedom!
As a real estate investor, you’re bound to value your profit margins more than anything. We all love money, right?
But when it comes to managing a property, there’s an expense so valuable that you can almost classify it as an asset. What could that possibly be?
Property management, of course.
After all, a property manager is the most important member of your real estate team.
They do all of the things you don’t want to. The things that eat up your time and prevent you from making more money.
Before you pull the trigger and say bye-bye to self-managing, let’s break down what you’ll be paying in return for more time.
Property Management Fees
Factors That’ll Determine Your Rate
While it’d be nice if all property managers charged one set fee for their services, that isn’t the case.
In fact, property management fees can vary considerably even in the same city or local area.
Luckily we know certain factors that normally influence the cost of these fees.
The Type of Property
There are a ton of different real estate property types and each one comes with different needs and requirements.
For example, a multi-family home requires more maintenance than a single-family home.
If a property manager needs to spend more time managing your property, your fees will be higher.
The Size of Your Property
Similar to the multi-family vs. single-family home point.
The larger the property, the more care it requires. That’ll command a higher fee.
The Condition of Your Property
New properties and recently renovated properties are a property manager’s dream! It means less work for them and less they have to charge you.
On the flip side, old properties can potentially require a lot of maintenance. So it’s safe to say that additional fees are a high likelihood.
The Location of Your Property
What type of market and location your property is in has a huge effect on your property management fees.
If you’re in an area where rents are higher, you’ll be paying more to your property manager.
Likewise, a location with low rents will cost you less overall.
What Do You Need?
You can hire a property manager to handle one specific task or everything.
If you only need them to fill a rent vacancy for you, then you’re paying a one-time fee.
But if you want a property manager to completely take over your rental property duties, then you’ll have to pay more.
The Main Property Management Fees to Consider
It’s true that property managers could charge you for almost anything they do. After all, they’re spending their time taking care of your property.
But when you’re trying to figure out your monthly rental property expenses, these are the main fees to plan for.
Setup Fee
To begin your contract with a property management company, you’ll have to pay this fee.
It’s normally a few hundred dollars per rental unit. But it shouldn’t be more than $500 per unit.
Your property manager will assess your property and notify tenants of their management during the setup period.
Management Fee
This is the most important management fee you’ll be paying. It’s the largest and most recurring fee.
You’ll pay it each month, as it covers the day-to-day operations of your property manager.
Rent collection, tenant communication, inspections, repairs, and more are covered by this.
While a majority of property managers charge 8-12% of your monthly rent, some prefer to charge a flat fee. The flat fee is determined by the size of your property and the services included. A single-family home normally runs around $100 a month for a flat fee.
An important distinction to make is rent due vs. rent collected.
When you’re making a contract with a property management company, ensure that you’re paying for rent collected and not rent due. If you pay for rent due, you’ll be paying your property manager even if you have a tenant vacancy. When you pay for rent collected, you’ll only pay your property manager when you’re making money.
Maintenance Fee
A rental property is almost guaranteed to need maintenance each year. Whether the fixes are big or small, they will be needed.
To your benefit, your property manager will schedule contractors when issues arise. If you want to set a monetary limit to how much your property manager can authorize alone, you can set that up through their company.
Put aside a month and a half of rent for this fee.
Leasing (Tenant Placement) Fee
When you’re trying to fill a tenant vacancy, this is the fee you’ll pay.
You’ll either pay your property manager a percentage of your monthly rent (50-100%) or a flat fee (also around 50-100% of a month’s rent).
This fee covers advertising costs, tenant screening, tenant move-in, and lease agreement preparation.
If the new tenant breaks the lease or is evicted, your property management company might offer a full or partial refund of the leasing fee.
Vacancy Fee
If your property management contract is geared toward rent collected, then you might have to pay this fee when you have a tenant vacancy.
Plan for a one-time fee of around 50-100% of your monthly rent.
Lease-Renewal Fee
Some property managers don’t charge this fee. Others charge a flat fee or a percentage of your monthly rent.
You can expect this to cost $200 or less.
It’ll cover adjustments to the lease and getting a tenant’s signature.
Eviction Fee
Hopefully it’ll never happen to you, but sometimes you get a bad tenant. They might stop paying rent or damage your property.
In that case, they need to go.
Your property management company will handle it — or they’ll hire legal professionals that can.
Expect to pay a few hundred dollars (sometimes $500+) plus legal fees if it goes to court.
Early Termination Fee
If you cancel your contract with your property management company early, then they’ll charge you a fee.
What you’ll pay depends on the terms of your contract. You might owe a few hundred dollars, an entire month’s rent, or be forced to go to court for breach of contract.
The Price of Freedom
When you look at the full list of property management fees, you might be a little hesitant to hire a property management company.
Don’t be!
Having someone else manage the day-to-day operations of your rental property takes a huge weight off your shoulders. Instead of answering tenant calls at 2 AM on a Sunday, you can enjoy your passive income. In addition, your time will be freed up so you can make more money on other investment deals!
It’s a win-win for both parties. You get your time back and your property manager gets money.
Plus, managing your property manager is as simple as consistent communication. Really!
To tie it all together, paying a property manager is a tax deduction. So on top of the amazing benefits already listed, you can write off all of these miscellaneous fees.
No brainer, right? We think so too.
Happy hunting!
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.
