If you’re done managing your own property and doing a cash flow analysis, figuring out your area’s average property management fees is essential. Even though these fees vary from property manager to property manager and firm to firm, a few things remain consistent throughout the industry.
So you’re researching different property management companies trying to figure out who’s got the best deal. This can take a lot of time: requesting proposals, asking for references, and conducting interviews. Maybe your property is hours away, and you can’t even meet these people—you need someone who can take care of your property for a reasonable price.
What should you know about property management fees? Here’s what to expect.
This is the first kind of fee you’ll encounter if it’s your first time working with a property management company. Similar to a setup fee for a new account with a utility company, this is basically the cost for the property manager to set up your account. This usually isn’t too expensive, ranging from free to about $300.
This is a one-time fee, so make sure you ask whether this fee is per unit or property. Many times it may just be one fee regardless of how many properties they’ll be managing, but you’ll never know until you check.
This very common fee comes into play when you have a vacant property or unit and the property manager is trying to find a tenant. The property manager has to spend time (and sometimes money) marketing the property, so this is their way of being reimbursed for that effort.
A leasing fee also means added charges every time new tenants come in. Again, this may not be ideal for the property owner because it doesn’t incentivize the property manager to spend the time and energy to find decent tenants.
If a property management contract includes a leasing fee, it’s not a bad thing—just be sure your property manager has your best interest in mind. So before I disclose numbers, bear in mind that a good property management company won’t see leasing fees as the most profitable service. After all, if the company did a great job selecting tenants in the first place, the turnover won’t be too high, and there won’t be repetitive leasing fees required.
But a leasing fee isn’t cheap. The average range to expect is 25% to 100% of one month’s rent! The most common figure is probably 50%, so don’t be surprised to see anything within that range.
To protect yourself, ensure the contract has a clause requiring the property management company to reimburse you for the leasing fee in specific scenarios. For example, if the tenant is evicted or breaks their own lease within 12 months, you can arrange for a leasing fee refund. Similarly, you can also ask that the fee be waived if tenants are not found in a reasonable amount of time. This gives property managers better incentives to do their due diligence early on and select only the best tenants.
Depending on how your property manager markets your property and how the contract is written, a separate advertising fee may be in place. This should mean you have a lower leasing fee, as it’s breaking out the financial costs of finding a new tenant from the time costs.
While there are many free advertising options, some property management companies like to use paid services. This will typically cost about $100 and shouldn’t be any more than $200.
The management fee is the most significant financial investment you’ll need to make on your rental property. Depending on your property type, this ranges from about 4 – 12% of the collected rent, with 10% being the most common. Some companies charge a flat fee, such as $100 per month.
This fee can also vary depending on the number of properties, units, location, condition of the property, and what services the company will provide you. Keep in mind that this fee should be negotiable. If they’re managing many properties for you, you may have the leverage to negotiate a discount.
Also, be clear on what the management fee includes. For example, you may be able to find companies that only charge $100 a month to manage your properties. But it may be that they don’t include many services for that price.
Most property managers won’t require a vacancy fee, but some will. This is basically a small fee, such as $50, that you have to pay if the property is not occupied.
You need to pay close attention to the vacancy fee with the contract. You don’t want a contract that says you have to pay the property manager out of “scheduled rent” or “rent due.” This implies that even if the property is empty, you have to pay them their full fee!
Instead, a vacancy fee or a contract that states the property manager will be paid from “collected rent” is much better. Just make sure the vacancy fee is small enough that your property manager is genuinely incentivized to find another tenant.
Lease Renewal Fees
Assuming you want your tenant to renew their lease after the first ends, this is a fee your property manager may charge to draft up the necessary paperwork. Sometimes this is a free service, or it can cost up to about $200. Either way, it shouldn’t break the bank and is much better than paying another leasing fee!
If the lease renewal fee is significantly high, this is a red flag that you’re dealing with an unprofessional company. It takes very little work to draw up a renewal, and though it’s standard practice to charge a fee, it’s not common for it to be costly.
These are just a few of the more common fees associated with property management. They can vary widely, and while nothing is set in stone in this industry, knowing what to expect will give you good benchmarks to measure against.
Bear in mind that just because a property manager offers you a great price doesn’t mean it’s always a great deal. You may run into a company that charges a meager property management fee, and you may be tempted to hire them. But lower is not always better.
A property management fee should accurately reflect the work your company will put into your property. You want to be sure that the services you’re receiving will be what you need, especially if you won’t be able to check in on the property very often yourself.