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Updated about 6 years ago,
Property Management Fees- What You Need To Know
Far too often landlords seeking residential property management services are asking one question for the initial vetting of the service. “What is your management rate?” Unfortunately, sometimes this is the only question they are concerned with.
Imagine that you are shopping for a new car. You arrive to a dealership and find a salesperson. On the showroom floor, there are 5 gigantic boxes that are wrapped, each with a different car inside. You have the option to choose one of these 5 boxes. After pointing to Box 3, you ask the salesperson, “How much does the car inside of that box cost?” The salesman explains the cost, but it’s more than you expected. You decide not to ask any additional questions.
Turns out that Box 3 cost more than the others, but had incredible gas mileage, free oil changes, extended warranties, a reputable brand, and looks great! Since you didn’t ask the right questions, you chose Box 1, which had a lower purchase price, but had none of the above mentioned traits. Over time, which is the better investment?
Management Rates
Management rates are certainly important, but it is just the tip of the iceberg when searching for a professional property manager. The management rate (or fee) is the amount of money that the property manager is going to collect each month to compensate them for their services. This is usually considered a base fee, or the standard amount per month plus any fees for additional services completed. This can be structured to be a flat rate or based on a percentage of the monthly rent.
Maintenance Fees
Property managers might charge administrative fees to both an owner and/or tenants when coordinating maintenance or repairs. This fee can be a percentage of the maintenance or repair cost. With the right questions, a landlord seeking property management help might conclude that a property manager charging a lower management rate plus maintenance administrative costs will be more expensive than a company asking for a slightly higher management fee with zero maintenance administration costs.
Accounting Fees
Having accurate and detailed financial statements are critical for a successful business. Property managers usually offer monthly owner statements, detailing money in and money out. Some property managers will offer year end business health reports which will likely save your CPA time preparing taxes, saving you money. There might be additional accounting services that you can purchase, or that may be included in your management package.
Leasing Fees
Simply put, professional property management companies might charge a leasing fee when they place a tenant in your property. This accounts for marketing, showings, inspections, turn labor, and more. While this likely only happens one time a year or less, this fee could make a big impact on your returns. A company may charge one month’s rent for a leasing fee. Another company might charge a flat rate. At the end of the year, one month worth of rent going toward a leasing fee could spike your management costs over the seemingly more expensive management company that charges a flat rate and has a higher fee. BONUS: “How long are your typical residential lease terms?” A manager that strives to get multi-year leases has your best interest in mind.
Optional Fees
Want the peace of mind to have options? Maintenance packages, eviction assurances, tenant engagement packages, benefit packages, inspection packages, and more. These options might give you added confidence that your business is going the extra mile to be successful.
In the end, the management rate should be considered, but only as a part of the larger picture. When searching for management help, landlords should look at the overall, all-in cost of property management including the management rate. If a manager seems hesitant to share additional information, walk away! Look for a management company that is proud of their rates and fees and works in the landlord’s best interest.
*Please note that this is simply a general guideline based off my experience as a property manager in Richmond, VA. This list excludes many other fees that can be charged by a property manager. This information is intended for smaller residential investments and pertains less to large multifamily or commercial management.