A Breakdown of Property Management Fees
A property management company will help landlords manage their rental property for a price. Fees will vary based on a variety of factors, such as property-type and services provided. Here is a breakdown of the fees a property manager may charge.
Factors That Influence Property Management Cost
There is no set price that a property management company will charge to manage your property. The fees will depend on a number of factors, including:
- Size of Rental Property – Managing a larger rental property involves more work than managing a smaller rental property, so the fee collected will be larger.
- 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.
- Condition of Property – Newer properties, or older properties that have been renovated, may have fewer maintenance issues than older properties.
- Location of Rental Property – Property managers may charge more to manage properties that are in areas that command higher rents and lower fees to manage properties in areas that command lower rents.
- Extent of Services – The services that the property management company provides plays a large role in how much they charge. If you are only hiring a property manager to collect rent, you will pay much less than someone who wants a manager to collect rent, fill vacancies, handle repairs, handle tenant evictions and keep financial records for your taxes.
Breakdown of Property Management Fees
Initial Setup Fee
This is the fee a property management company will charge to set up your initial account with their company. Not all companies charge this fee, but if they do, it is usually $500 or less. This fee could also include costs to inspect the condition of your property, as well as costs to notify tenants that they will be managing the property.
Monthly Management Fee
Almost every property manager will charge you a fee to manage your property on a monthly basis. The contract you sign with the property manager will specify how this fee is calculated and what services the fee includes. Some companies charge a higher monthly management fee, but it may be more inclusive, so do not be put off by a higher initial fee until you understand what is included in this fee.
A property manager 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 manager each month. The specific number is determined based on the size of your property and services provided. For a single family home, this flat fee may be $100 a month.
- Percentage of Rent – More commonly, 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. Managers will often charge a lower percentage, between 4% and 7%, for properties with 10 units or more or for commercial properties, and a higher percentage, 10% or more, for smaller or residential properties.
- A 5% fee for a property with $50,000 in monthly rent would be $2500, while a 5% fee for a property with $2,000 in monthly rent would only be $100, which would not even be worth the cost of business for the management company. A 10% fee for the property with $2,000 in monthly rent would allow them to collect $200 instead.
- Rent Due vs. Rent Collected – Make sure your contract with the property manager states that the fee is for rent collected rather than rent due. Otherwise, the property manager will be collecting money even if the tenants are not paying their rent.
Tenant Placement Fee
A property manager may charge a separate fee for placing tenants in your property. Again, this could be a flat fee or a percentage of the rent. Half a month’s rent to a full month’s rent is common.
This fee can include advertising cost to find a tenant, tenant screening, move-in procedures, and preparing the lease agreement. Depending on contract terms, this fee may be refunded to the property manager if the tenant breaks their lease early or is evicted.
Maintenance fees are generally 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 must 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 landlord puts money in for necessary repairs at the property. The landlord can choose to authorize every repair deduction from the account, can choose to only be notified for repairs over a certain dollar amount or can choose to let the property manager use the account at their discretion. A minimum amount must be kept in this account, such as the equivalent of one month’s rent.
If you want a property manager to handle tenant evictions, you will have to pay for it. Expect to pay a few hundred dollars for each eviction, plus any associated court costs.
Early Termination Fee
If you break the property management contract early, you will often have to pay an early termination fee. This fee will vary greatly based on the terms of the contract. You may only be responsible for paying one month of additional management fees or you could be taken to court for breach of contract.