When you hire a property management company to serve as the liaison between yourself and your tenants, you want to be sure you're getting the best possible property management services for the money. The services a property management company provides can range from ala carte to an all-in-one inclusive package. Along with that comes an array of fees for each. There is no set in stone fee structure we can provide you. But we can educate you on what common fees to expect and what each is commonly for. In the end it will be up to you to compare company fee structures and choose the best one that fits within your budget. Below are some of the most common fees and what service they provide.
Commission
This is an ongoing monthly fee charged to the owner to compensate the property manager for the responsibilities of overseeing the management of their property. This fee can vary from as little as 3% to over 15% of the monthly gross rent. In place of a percentage some managers may charge a flat monthly amount which again can vary from $50 to over $200 per month. All property management companies generally charge this fee.
Lease-Up or Setup Fee
This fee is charged to the owner to compensate the property manager for their initial time invested and resources used in setting up an owner's account; showing property and/or other activities resulting in tenant placement. I guess you could look at it as a ?finder's fee? for placing a tenant in your property. Once a tenant has been placed and first rent income comes in, the property manager will deduct this fee from the rent proceeds. Some property managers have been known to require this fee upfront prior to tenant procurement. Usually this fee is non-refundable once the property manager has started the process of tenant procurement or any legwork has been initiated with the property. This fee can vary from none to as much as the first months rent, and usually is a one-time fee per tenant.
Lease Renewal Fee
This fee is charged to the owner when a property manager renews a current tenant's lease and covers the costs of initiating paperwork or communication involved in implementing the new lease document. A property manager may also justify this fee if they perform a year end inspection of property. This fee can vary from none to $200 or higher, and may be charged every time a lease renewal is implemented.
Advertising Costs
Depending upon the property management company's contract, either they will pay the advertising costs or the owner or they could split the costs. If the manager is willing to cover this cost, most likely they will charge the lease-up or setup fee as outline above. If the management company covers this cost make sure to find out what type advertising or marketing of your property is included. If it's placing your listing on their own web site and other free online classified sites you may not be getting your monies worth. They are many good rental or tenant resource online web sites that bring in qualified tenants for a reasonable fee and you will want to consider these. And don't forget about print media, yard signs, listing on the MLS or even an open house. Nothing is worst than having your property vacant, bringing in no money only because you or your property manager skimped on advertising.
Maintenance Mark-up Charges
This is one of those costs you may never really of known about or had it disclosed to you. A "Mark-up" is a charge over and beyond the final bill on maintenance and/or repair work done to your property initiated by your property management company when using their vendors or in-house maintenance staff. This should be disclosed in your Manager/Owner contract which usually will state the markup as a percentage above the final invoice from vendor. For example, your manager had to call a plumber to replace the dishwasher in your rental property. Total charges for completing the job: $400. If your property manager contract states you will incur a 10% markup on all maintenance work the actual cost to you will be $440. Just one of those things to be aware of as these all eat into your profits.
Early Cancellation Fee
The dreaded "3 months and no tenant". Your property manager insist he or she's doing everything they can to find you a tenant. But here it is 3 months and still no tenant; what do you do. Well, look at your Manager/Owner contract and that might be your deciding factor. I am not a fan of this fee, and believe it to be an unnecessary fee and for you manager out there this could be the deal breaker. I'll tell you why; if a property manager is doing their due diligence and keeping the owners in the loop as far as decision making, market conditions and communication lines open an owner will not be second guessing his property managers abilities. The odds of this scenario happening is unlikely but you must be prepared for it. A cancellation fee can range from none to over $500. To be fair, some managers legitimately deserve this fee especially if they have pocketed advertising costs, incurred lots of legwork and time invested in your property.
"You've Got To Be Kidding Me" Fees
These are one's I have personally had the pleasure of running into.
* Your property is vacant, but we still will charge our monthly commission or a small flat fee.
* "A For-Rent Yard Sign Fee". I believe this was $25/mo.
* "Preventive Maintenance Fee". This was to cover the "just in case" and changing out A/C filters. If "just in case" never happens they still pocket the money. I believe this was $20/mo and I still was charged for filters.
In Summary
Read your Manager/Owner contract, understand what you are signing, ask lots of questions and know what the fees will buy you in services. A good real estate lawyer can help in negotiating the terms in a contract that suit both parties. These contracts are not set in stone. If your property manager will not negotiate, there are other property management companies that are eager to earn your business.
- Collection of rent along with assessing penalties in the event of delinquency - Accounting services including creating monthly financial statements, preparing annual tax statements and disbursing rental proceeds - Administration of the lease including lease enforcement, tenant qualification and collection of security deposit - Performing day to day repair and maintenance activities including providing twenty four hour emergency services - Monitoring and managing vacancies which includes aggressively marketing vacant units (based on market rents) to potential tenants and coming up with promotional plans
As a property owner you should be concerned about the way management company structures its process including the collections system. Most of the manage•?ment companies combine their collections from all the different properties they manage into one single account. All the properties' expenses are taken care of from that single account. As a property owner you would not want to hire a management company which functions from a common account as this can lead to lot of confusion and financial mix ups. You should hire a management company that creates separate checking accounts for each property. The checking account is usually used to deposit all the rent collections. Once all the bills are paid, if there is any balance left it belongs to the property and its owner(s). One another important point to consider is whether the owner would have authority to sign all the checks and approve all the expenses.
Another important aspect of management company's operation is its fee structure. The management fee should be clearly mentioned in the contract. Usually, management fee is determined as percentage of effective gross income (after accounting for vacancy and credit loss). Generally, management fee is between four to six percent for smaller properties and between two to four percent for bigger properties. Normally, residential properties have higher fees than commercial properties because they entail relatively more work.
In addition to the above mentioned responsibilities, management companies also take care of supervision of construction work and capital improvements made to the property. The management company is responsible for reviewing plans and proposals, negotiating bids with various contractors and vendors and for supervising the construction and capital improvement process. Generally, the fee for this kind of work ranges between five to ten percent for jobs under $20,000, and from three to five percent for jobs above $20,000.
Property management companies also make money by getting leasing commission. They are responsible for either renewing old leases or getting new leases. Usually the lower fee is charged for lease renewals and a higher one for new leases. These lease commissions are usually shared with a tenant agent - an agent who is representing the tenant in finding the space.
Property owners are responsible to reimburse some expenses to the property management company. These expenses include but are not limited to mailing expense, bank service charges, travel expenses etc.
Both Richard Mark & Masni Rizal Mansor are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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