$25 Incidental Fee on Top of 10% Property Management Fee???

Question

I've never had to deal with this before with any property managers. The current one that I have charges a $25/mo incidental insurance fee for evictions and things involved with that process. This is on top of the 10% fee for monthly service. So far I haven't had any issues with the tenants but they plan to move after the lease is up. This may be an opportunity to find another manager.

Is this common this day in age? Good thing/bad thing? Has anyone been able to capitalize on this insurance?

Is this common this day in age?  Good thing/bad thing?  Has anyone been able to capitalize on this insurance?

Ryan Murdock · Answer

@Michael Myers

I've never heard of that either. Sounds like they are paying for any evictions (which is unusual but not unheard of) but charging you this monthly insurance fee to do it?

At $25/mo that's $300/yr which means you'd have to evict a tenant from every unit at least every 2-3 years to have this have "value" to you.

An eviction in every unit every 2-3 years is a lot, even with C Class rentals where eviction rates are generally higher no matter how well you screen. Sounds like a bum deal for you based on the info provided.

With that said, comparing property management rates and services is NEVER apples-to-apples so you need to look at their overall level of service and your total overall costs and make decisions from there. I would not hire or fire a PM based on stated price alone. Dig deeper and see what you get for that price as compared to other companies in your market.

Kenny Dahill · Answer

@Michael Myers, a few thoughts.

• Condition of properties:  What type of properties are they managing?  There is a real different between managing a Class D multifamily and Class A single family.  One would assume Class D has a higher eviction rate.
• Option or Clause:  This was 'eviction insurance' presented as an option to add into your management agreement or a standard clause that they always require.  If it was an option, did they present it to you clearly and get your acknowledgement?

I've had the privilege to talk to a lot of PM's and get their perspective into their service and fees structure.  While an 'eviction insurance' is not overly common, I would say less than 10% offer this type of service.

More common are management firms that have a higher monthly percentage but they justify their expense because they assume the eviction risk.  They might pay all court fees, place a new tenant at no charge, etc.  They don't typically have that eviction policy lined out as a separate expense cost.

It's up to you to determine if it is a good or bad thing.  Every property is different and so are the needs for each landlord.  Ask yourself:

• How difficult is my unit to lease?  If it's in great condition for the neighborhood or in prime location, then you shouldn't worry as much about eviction.
• What is the likelihood of an eviction?  Does the PM do a great job at analyzing applicants and picking a qualified tenants?  Again, if you're in a Class D area then it will be higher odds.
• Will my PM remove this expense if requested?  If you do not feel it is justified,or you want to take the burden of risk, then ask them to remove the insurance policy from your monthly expense.
• How hard is it to replace my PM?  If you deem it not worthy and they refuse to remove the insurance, then consider hiring a new property manager.  At 10% plus $25, that's already pushing top market for monthly rates.  What are their leasing fees and lease renewal fees?  If they're great besides that insurance policy, ask yourself if it's worth the risk finding a new property manager.  There are many great PM's, despite what some landlords insist.  But there will be a transitional period that could impact your tenants as well, ideally you make the switch along with the unit turnover.

I hope this was helpful!  Best of luck and let me know if I can help you with anything.

Elliot Galpern · Answer

@Michael Myers

I agree the fee is high for what it is. Here are a couple questions to consider: Is it worth the aggravation of finding a new property management company for 25/month? Could you negotiate it down? Are you happy with the company right now?

Michael Myers · Answer

@Ryan Murdock, good questions. I'll have to consider the headache involved with finding a new manager and/or negotiate the rate down for the next tenant.

Theresa Harris · Answer

I've not heard of that.  If there will be an eviction they could charge for it separately, though to me that is part of the overall package when you pay for a property manager.  Same as having to contact a repair person-that is what you are paying the 10% for. Not to mention they are the one who did the background check on the tenant, so really it is a "failure" on their part.

$25 Incidental Fee on Top of 10% Property Management Fee???

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