11
Oct
Real Estate

How Much Does Property Management Cost?

Blaine Annett
I
October 8, 2021

Property owners, particularly the owners of large apartment buildings and collective condos have learned from hard experience that good property management is worth their weight in gold.


A reliable property management firm does most of the hard work for property owners and hiring a quality property management company should not be seen as an expense but actually as an investment in the peach of mind of the property owner.


According to Business Wire, a 2016 survey of 1,000 real estate speculators revealed that over 50 percent of them relied on property management services to handle most property tasks for them and that 62 percent relied on a property management company to handle their maintenance problems.


Meanwhile, 58 percent reported that they rely on a property management company to obtain quality, reliable tenant screening, which leads to longer and more profitable stays.


Meanwhile, Nolo.com suggests that as an owner of investment property, that you strongly consider hiring a property management company if you:


  • Have lots of properties for rent

  • Do not live close by the properties

  • If you are not a conscientious owner and rather consider your property as an investment.

  • Your time is extremely limited due to other business engagements.


So what exactly does a property management company do?


Well, the first thing a property management company does, is to attract quality tenants. Attracting new tenants so the property occupancy rate is high is essential to an owner's profits.


Rental property that remains vacant for a long time seriously hurts the owner's property investment. And this is particularly critical depending upon the property type, with apartments in less desirable areas being very difficult to fill.


Single-family homes tend to rent more quickly and to attract longer tenants, but even then, if the property management does not keep up with the maintenance, it may take a couple of months to rent it out after a vacancy.


Typical property management fees


Keep in mind that while a management firm is offering to be your right-hand man so to speak, they are also in their business to make a profit, so before hiring a management company, you should know all the management fees involved.


Property management fees vary widely, but typically the property management fees can come in one of two ways.


The first is charging a percentage of the rental property, typically between 8 and 12 percent of the collected rent.


The other way is to charge a flat fee, which may be slightly less, but then the property management company may not be as motivated to do a great job. A flat fee, therefore, is not the preferred method.


Real estate investors understand that they obtain a better return on investment by obtaining a good property manager who is as motivated as you are to make a profit. There is no free lunch in real estate. Generally, you get what you pay for.


That's one reason why real estate investors do not like to switch property management companies unless they absolutely have to, because, quality management firms are hard to come by, and more than pay for themselves, and incidentally, the best firms rarely utilize the flat rate method.


Additional fees


Collecting the rent is, of course, the most essential part of the tasks for the management company, other than finding quality candidates and taking care of necessary maintenance.


Unfortunately, there are often additional fees, which though sometimes small, do add up.


A perfect example is the management company charging a setup fee to integrate all the necessary, behind the scenes banking and software requirements.


Typically, the setup fee is charged to connect you with the companies bookkeeping system, possibly opening a bank account in your name for making direct deposits,

meeting local city business license codes and performing the initial inspection of the property.


As you can see, these are additional costs that are quite reasonable, and you can expect them from most management companies.


Another management fee that often is an add-on is overseeing your vacant property.


The property must be ready at all times to rent, and that involves continual and constant learning, utility bills so the apartment has power and gas, inspecting the property regularly to see it hasn't been vandalized, and more.


So there is much more to the property management costs than merely collecting the monthly rent.


Also, the majority of management companies add a half month's rent to their costs

merely for showing the apartment or home.


Next, there is often a late fee payment added.


While there is often a tenant late fee involved in almost any rental lease, chasing tenants in order to collect the monthly rent is no small task, particularly in the tight economic times of COVID-19.


Another of the management fees is a leasing fee. As long as there is not a lot involved, the leasing fee may be minimal. But if leasing involves major rewriting of the leasing contract, there will frequently involve more expensive costs for the new leasing fee.


However, the charge for the lease renewal fee may even be waived at the companies discretion if the tenants are very easy to work with.


Quite obviously, maintenance fees will be part of the monthly management fee. However, in terms of the maintenance fees, here is an area where property management firms shine as they often have contracts with local plumbers and other vendors in exchange for volume work.


An expected fee is advertising fees. Some apartments and houses of course, have a waiting list and pretty much sell themselves, while others require extensive advertising.


All of this comes under the heading of a vacancy fee. And as alluded to earlier, the vacancy fee is typically about half of one month's rent.


Eviction Fees


Rental property owners are sensitive to late payments during the time of COVID, but the plain fact is, that there are plenty of renters who will try to take advantage of a property owner, whether it be an apartment or a single-family home.


Most management companies will handle evictions for you, and have contracts with lawyers who appreciate the volume business. Expect to pay around $500 per eviction, and expect to pay up to 50 percent to a collection company attempting to collect the judgment.


Average property management fee


As we said, the costs may vary according to where your property is located, but expect to pay around 10 percent to 12 percent in most locals. This is according to Allpropertymanagment.com.


However, just because the average property management fee is 10 or 12 percent, it does not mean that they are not negotiable, particularly if you have properties that are in really great shape and involve less maintenance.


Most property owners are happy to pay that 10 or 12 percent for the peace of mind that a management company provides, so think carefully before deciding to go it alone.


Sources:


(1) https://www.businesswire.com/news/home/20160524005289/en/Survey-Finds-Majority-of-Rental-Property-Owners-Use-a-Property-Manager-With-Rates-Expected-to-Rise-in-2016


(2) https://www.nolo.com/legal-encyclopedia/landlord-hire-property-management-company-29885.html


(3) https://www.allpropertymanagement.com/resources/ask-a-pro/posts/how-much-property-managers-charge/


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