Property management services are available for residential homes, apartments, condos, commercial spaces, retail spaces, and other property types such as an investment property. Good property managers, who are often also real estate agents, can oversee just a single unit or as many as 30 units or more, whether those sites are inhabited full-time or are vacation rentals. Property managers can assist with finding new tenants, screening tenants, collecting rent and taking care of accounting, handling property maintenance issues and repairs, doing on-site management, overseeing annual inspections, and managing vacation rental check-in and checkout. Hiring a property management service or property management firm is a great option for property owners who live out of town or out of state, real estate investors, or people unable to handle the daily operations of property management due to time or mobility issues. Property management services typically offer 24-hour-a-day service to handle small and large emergencies like burst pipes or unpaid rents so you don't have to. Many factors affect the cost of property management.
Monthly management fee
Many property managers charge a monthly fee for overseeing rent collection, handling maintenance and minor repairs, and communicating with tenants. The monthly management fee for a private residence may be a percentage of the total monthly rent or a flat rate.
The monthly percentage fee for commercial property management is lower than that for residential property management at Logic Property Management, explains owner Jameson Kroll. "A large medical building, for example, may have a monthly rent of $50,000-$60,000, in which case our monthly fee would be 4 percent," says Kroll. "However, if the commercial rent is closer to $1,000 per month, our fee would be 10 percent to ensure business costs are met." Here are three examples of average percentage-based monthly fees:
- Redleg Property Group in Arlington, Texas: 7 percent of collected rent up to a maximum of $99.
- WrightDavis Property Management in Tampa, Florida: 10 percent of the monthly rent.
- Logic Property Management in Salt Lake City, Utah: 10 percent of monthly residential rent or 4 percent of monthly commercial rent.
- The commercial fee can be higher when the monthly rent is comparable to a residential rent.
- $200: Monthly property management fee for a $2,000-per-month, 4-bedroom, 2.5-bath rental property in upscale, desirable downtown Salt Lake City, from Logic Property Management.
- $30-$50: Monthly property management fee per unit in a 14-unit commercial building with individual monthly rents ranging from $300 to $500, from Logic Property Management.
- Because the commercial property's individual rents are low, the management fee is 10 percent.
A leasing fee, also referred to as a procurement fee or tenant placement fee, is the price that some property managers charge for finding a suitable tenant for a property. This service may include background checks, prior eviction searches, financial verifications and more. Specific tasks the property manager will perform should be outlined in the contract. Not all companies charge a leasing fee, so always ask for details about specific costs before signing a contract, recommends Kroll with Logic Property Management. Leasing fees are included in the 10 percent management fee charged by Logic Property Management. Here are some examples of average leasing fees:
A vacancy fee is the amount of money the property owner pays to the management company when a property is vacant. Some companies have no vacancy fee, and some have a flat fee that applies when the property is empty (typically a lower cost than the standard monthly management fee). Others dictate vacancy fees based on "rents scheduled," which means the management fee for a property is the same regardless of whether it is vacant or rented to a tenant. This arrangement is typically the least favorable situation for the property owner.
Property managers may charge no lease-renewal fee, a flat rate, or a percentage of the scheduled rent each time a lease needs to be renewed with existing tenants. This fee is to cover the additional time and effort involved in making any lease modifications and getting tenants to sign the new lease. WrightDavis Property Management does not charge a lease-renewal fee, but Redleg Property Group charges a flat $150 lease-renewal fee.
The region of the country where the property is located can affect the cost of property management. In cities and areas with higher rental rates, property managers will generally charge more for their services.
Management companies may ask property owners to provide reserve funds to cover the cost of minor repairs, so that managers don't need to contact the owner every time a small repair is needed. This fund is generally maintained at an ongoing set amount, often equivalent to one month's rent. A contract should specify the maximum amount that a property manager can spend on a repair (for example, $200) without first obtaining approval from the owner. The owner usually receives the total of this reserve fund (minus any repair deductions made) when they terminate the contract with the property manager.
Not all companies require a repair reserve, explains Kroll with Logic Property Management. "We keep the rent on reserve until the end of the month to pay against any repair needs. Each owner indicates their preferred level of involvement when it comes to signing off on costs. Some owners want to pre-approve any expenditures, some only want to be notified if it's over a certain amount, and some are totally hands-off and want us to make all the decisions. It just depends on what they prefer."
A property management services company may also oversee single-family home renovations for out-of-state clients. "We are currently overseeing a renovation of a new home a client purchased while it was in foreclosure. The house has severe water damage and was neglected by the previous owner. We are overseeing the roofing, new flooring, etc.," says Kroll with Logic Property Management. "For jobs like this, we charge 10 percent of the total renovation cost to hire the contractors and project-manage for them. This type of job is above and beyond the standard maintenance and repairs (putting in new carpet or painting) that is included in our monthly rate."
Good to know
"Be wary of hidden fees," recommends Kroll with Logic Property Management. Some property management companies may offer lower rates or low monthly percentages but then charge intake fees, leasing fees, advertising fees, late fees and other extra fees. "Look for a company that is transparent with costs," recommends Kroll. "If it seems too good to be true, be careful."
- Ask about inspection fees, late fees, markup costs for services or setup fees. Always be sure that the language in the contract you're signing is clear so you're not overpaying for services.
- If you don't use a property manager, _always _be sure to screen potential tenants (including credit scores and criminal background checks) to protect yourself legally, recommends Kroll with Logic Property Management.
- For more, check out our tips for smart hiring.