Property Management services and fees

Disclaimer: I did not write any of this, I found this information on a web site and they have given me permission to post it. I have no affiliation with them or use the company, i just thought it was a good article. The authors name is listed and 1 wanted to share it with the Bigger Pockets Community.

Property Management Services - A Complete List

Posted byJordan Muela

The following is a list of the tasks property managers commonly perform for owners. You may only need some of these property management services, and the property management companies you interview may offer more or less than what is listed here.

Evaluate the property and determine an accurate rental rate

Perform detailed documentation of the interior and exterior including photos

Offer recommendations on repairs and cosmetic improvements that maximize monthly rent while providing good ROI.

Gather data on rental rates in the area and work with owners to determine the optimal rental rate. Rent research will vary, but should include looking at the recently rented comparables according to size and type.

Discuss with owners the pros and cons of different policies such as accepting pets, allowing smoking etc.

Install a lock box

Market the property for rent

Prepare home for rent

* Clean home and optimize interior appeal

* Manicure landscaping to increase curb appeal

Create ads tailored to the property and advertising medium. Some of the mediums commonly used are:

* Paid and free rental listing websites

* Print publications

* Signs

* MLS

* Fliers

Work with other realtors and leasing agents to find a tenant

Provide a 24-hour hot-line where prospective tenants can listen to detailed information about the property

Field calls from prospects for questions and viewings

Meet prospective tenants for showings throughout the week and weekend.

Provide prospective tenants with rental applications that are legally compliant with fair housing laws

Collection applications with application fee

Tenant Screening and Selection

Perform a background check to verify identity, income, credit history, rental history, etc.

Grade tenant according to pre-defined tenant criteria

Inform tenants who were turned down

Tenant Move In

Draw up leasing agreement

Confirm move in date with tenant

Review lease guidelines with tenant regarding things like rental payment terms and required property maintenance

Ensure all agreements have been properly executed

Perform detailed move in inspection with tenant and have tenants sign a report verifying the condition of the property prior to move-in.

Collect first months rent and security deposit

Rent collection

Receiving rent

Hunting down late payments

Sending out pay or quit notices

Enforcing late fees

Evictions

Filing relevant paperwork to initiate and complete an unlawful detainer action

Representing owner in court

Coordinating with law enforcement to remove tenant and tenants possessions from unit

Legal

Advise in the event of a legal dispute or litigation

Refer owner to a qualified attorney when necessary

Understand and abide by the latest local, state and federal legislation that apply to renting and maintaining rental properties.

Inspections

Perform periodic inspections (Inside and outside) on a predefined schedule looking for repair needs, safety hazards, code violations, lease violations, etc.

Send owner periodic reports on the condition of the property

Financial

Provide accounting property management services

Make payments on behalf of owner (Mortgage, insurance, HOA dues, etc.)

Detailed documentation of expenses via invoices and receipts

Maintain all historical records (paid invoices, leases, inspection reports, warranties, etc.)

Provide annual reporting, structured for tax purposes as well as required tax documents including a 1099 form

Advise owner on relevant tax deductions related to their rental property

Provide easy to read monthly cash-flow statements which offer a detailed breakdown of income and itemized expenses

Maintenance, Repairs, and Remodeling

Provide and oversee an in-house maintenance crew

Establish a preventative maintenance policy to identify and deal with repair needs

Provide an network of licensed, bonded and fully insured contractors who have been vetted for good pricing and good work that is up to code.

Assign jobs to different parties (in-house employees, handyman and professional contractors) based on who will do the best job for the best price.

Maintain outdoor areas

* Leaf and snow removal

* Landscaping

* Removing trash and debris

Maintain and monitor a 24 hour emergency repair hot-line

Larger renovation or rehab projects

* Provide recommendations on how the project can maximize rental income.

* Prepare preliminary cost estimates

* Get multiple independent bids for the work

* Act as general contractor overseeing the work

Tenant Move Out

Inspect unit and fill out a report on the property's condition when the client moves out

Provide tenant with a copy as well as estimated damages

Return the balance of the security deposit to the tenant

Forward any portion of the owner’s portion of the tenant deposit to the owner or hold in owner reserves for repairs.

Clean unit and perform and needed repairs or upgrades

Re-key the locks

Put the property back on the market for rent

Property Management Fees - Part I

While property management fees are important they must be viewed in light of what other firms are charging, the scope of services provided and the quality of those services. The company you hire will be stewarding one of your biggest assets and the last thing you want to do is make your decision based solely (or even primarily) on who charges the lowest fees.

A lower price may reflect either an acknowledgment they don’t provide top tier service, or an attempt to gain business by undercutting the competition. The problem with the latter is that it leads to slim margins for the firm which lowers the ceiling on the quantity and quality of service they can provide and still remain profitable. If a firm is under-pricing their services across the board it is possible they may try to make up for it by overloading their managers with as many properties as they can (or can't) handle.

The truth is that price is one of the last things to consider. Not because it is the least important factor, but because you should only think about price, and actually hiring an MC after you have determined that they will provide quality services tailored to your needs. What good are low fees if the management company does a poor job?

Other common mistakes are failure to identify all the potential fees for property management, as well as not making a true ‘apples-to-apples’ comparison of costs between property management companies. A lower management fee could easily be wiped out by a lot of expensive back-end charges and vice versa.

Remember that all fees are negotiable, so before you make your final decision, you should try negotiating the best rate possible from the firm whom you think would do the best job.

Ask prospective management firms about the following fees so that you fully answer the question "How much will property management cost?"

Management fee

There is a significant difference between commercial vs residential property management fees but the average management fee ranges between 4-12% of monthly rent. For a single family home you might expect to pay 10% in rental property management fees. This fee will vary based on the number of properties you need managed, the number of units in each property, the location and condition of the property, and most importantly, what services are included for that fee. (Fees also vary market by market, i.e.San Francisco will differ from Los Angeles and Phoenix.) Other pricing models include flat fees, or a hybrid that sets both a percentage and a flat fee and asks you to pay whichever is lesser/greater. Find out if fees are billed or deducted directly from owner accounts.

Vacancy fee

Many management companies don't require this—if they do, pay close attention. Some management companies charge a monthly vacancy fee ($50) that is prorated when a tenant is landed. Other companies expect to collect the full monthly property management fee even though there is no rent coming in. Make sure that the language in the contract indicates management fees are to be paid out of "Collected rent" or "Rent collected" as opposed to "Scheduled rent" or "Rent due". Ensuring this language is in place will also protect you from having to pay management fees in the event that a tenant stops paying rent.

Set-up fee

This fee is for the time invested in setting-up a new account. It ranges from 0$-300$. Find out if the fee is per unit or per property, and if it makes a difference if the unit is occupied or not.

Leasing fee

Leasing fees compensate the manager for the time, effort and cost associated with getting you a new tenant. While this fee is common, some owners are opposed to paying it, preferring that it be padded into the management fee so there is more incentive for the management company to find long term tenants.

In truth, a good management company views the management fee, NOT the leasing fee as the primary profit center. This is why leasing fees as a stand alone service (meaning without other property management services) are typically much higher (75-100% of first months rent). A transparent fee structure is laid out in such a way that high tenant turnover hurts, rather than rewards the management company. The only time this is not the case is when the fee is excessive, or there are significant vacancy fees. In the event that you are fortunate enough to have a long term tenant, you will benefit by not having to pay a leasing commission that is padded into the monthly management fee.

Good questions to ask:

1.How much is the leasing fee?

This ranges from 25% to 100% of the first months rent, but 50% is pretty standard. Instead of charging a percentage, some firms charge a flat fee or a percentage of the gross amount for which the lease is written.

2.Does their leasing fee decrease or get waived if it takes them an unreasonably long time to find a tenant?

3.Is the leasing fee structured in a way that provides the firm incentive to bring in reliable tenants?

This usually either means a full or partial refund (sometimes pro-rated) in the event that the tenant is evicted, or breaks their lease within 12 months of the original move in date. Some firms have a policy of only charging this fee once per 12 months per unit which has the same affect.

4.Do they use leasing agents? If so, what will you have to pay them in the event they find you a tenant?

5.Do they require exclusivity in advertising, or can you advertise the unit as well? If you find the tenant do you still pay the fee?

6.Are there any restrictions or extra charges for showings (they only do X number a week, or not on weekends etc.)?

Property Management Fees - Part II

Here are the rest of the property management fees that you need to be aware of and look out for:

Advertising fee

There are plenty of ways to generate leads using free resources like signs, craigslist, etc. but with vacancies time is money and prolonging the search process to save a few advertising dollars is a bad idea. This fee could be charged in addition to the leasing fee so it’s important to ask who pays and what the typical fees are. The better they are at marketing the less you will pay, if they have a good strategy and use tools like rentmarketer.com this should be around $100 and certainly not more than $200.

Lease renewals

Some property managers charge this fee whenever they have to draw up the paperwork to renew a tenant’s lease. The fee typically ranges from 0-200$. The process doesn’t require a lot of work, so a big fee should be a red flag. You should ask if they require lease renewals or if they allow tenants to go month to month after the initial term is up.

Reserve fund fee

These funds are used to pay day-to-day operating expenses, making sure that services are performed promptly and bills are paid in a timely manner. A reserve of $200-$500 is normal for single family properties.

Maintenance fees

Will they contact you with an estimate before performing repairs over a pre-defined amount? Is this negotiable?

Their policy may be to notify you if an expense exceeds a higher figure like $500-$1,000, but you may want to ask if this can be set lower ($100-$200) starting out and increased over time as you become more comfortable with the property management companies judgment. Additionally, if this notification is waived during "emergencies", ask that they define what qualifies as an emergency.

Do they have their own maintenance/repair crew?

Companies that don’t offer this may portray it as an ethical hazard since the company could overcharge, but so long as you confirm that the billing rate and process is reasonable, it should not be a problem. If managed properly, an in house crew is a benefit that can lead to cost savings and a more streamlined process. Here are some questions to ask:

1. What services do they perform?

2. What is the billing rate? ($30-$40/hr is average.) Does it vary based on the work being done?

3. Is there a trip charge, or a minimum billing time?

4. Are they available 24/7/365? Is there an extra fee/higher billing rate if they are called on off hours, weekends, or holidays?

5. For larger remodeling/upgrade projects, do they act as the general contractor overseeing the work that is done? Is there a fee for this?

6. Do they get at least three independent bids for larger ($500+) projects?

7. Do they belong to a network to get better repair rates on the work they outsource?

8. Do they charge a "mark-up" fee?

9. This fee is stacked on top of the final bill for the work performed. Not all firms have this fee; if they do it should come in around 10%.

Eviction fee

Fee for serving notices, dealing with attorneys, court appearances, evictions, etc. Hourly rates are typically $25-$50 while a flat fee for the whole eviction process usually comes in between $500-$600 (plus court costs). Find out if they typically use an attorney for evictions and what their billing rate is.

Unpaid invoice fee

This is a small service charge (typically 1.5%) that is added each month to all unpaid invoices that are past due.

Bill payment fee

Fee for making owner payments such as mortgage, insurance, home owners association dues, etc. Some management firms don't charge a separate fee, while others don't even provide this service.

Sales commission if property is sold

Some management firms require an exclusive arrangement to broker your properties. If this is their policy, find out the brokerage rate and make sure there is a limited term which will allow you to re-list with another firm if the property does not sell within a reasonable period of time. Also, if the firm requires it, how much would the sales commission be in the event that a tenant ends up wanting to purchase the property they are occupying? This is typically 1-3% but we have seen higher, always make sure to check the contract.

Other income

Find out if they will be keeping any portion of the following sources of income:

Late fees

Returned check fees

Pet deposits

Lease violation fees

Interest on security deposits (may not be applicable depending on state laws) and owner funds held by manager

Income from laundry and vending machines

Extra duties fee

Some contracts contain a list of extra services not included in the contract along with the billing rate in the event the owner requests any of them be performed. Check to see if this clause exists, what services are listed, and what the billing rate is.