Running a rental property business is tough work. Handling your affairs only gets harder with each property that you acquire, and it’s likely to be even more difficult if you are also working in other industries simultaneously.
One common way that rental investors alleviate some of their stress is to take on property managers to balance the workload. While you might be a new rental property owner who believes your entrepreneurial spirit will help you get it all done, you might be overlooking the amazing benefits that come with professional property management.
Of course, those benefits also come with a price tag. How much do property managers charge for their services, and does hiring one make sense for your business? Today, we’ll help you decide the answer to these questions for yourself.
Property management isn’t a service that you absolutely require to successfully manage rentals, but you should consider how and when they might be able to help. Let’s get learning!
Table of Contents for Property Management Fees
- How Property Managers Help You
- Common Reasons To Hire Property Management Services
- How Much Do Property Managers Charge?
- What to Look For In a Property Manager
Before we get into specific cost breakdowns, it will be helpful if you get a better understanding of the exact services that property managers may provide for you.
The nice thing about hiring a property management service is that you can negotiate your rate and fees to match the exact services that you want to use. Depending on which of the following services you need assistance with at any given time, the amount you pay will differ.
Tenant Search & Placement
One of the main things that property management can assist with is finding, screening, and placing new tenants. Using the guidelines that you provide, property managers will help you to fill vacant lots as quickly and effectively as possible.
Rent Collection & Accounting
Worry no more about tracking down rent from each of your tenants. Instead, property managers will set up the payment system and monitor for any late payments. Tenants that have not paid rent on time will be contacted by the management service. Additionally, property managers can often do the relevant accounting related to rent collection for your business.
When properties need small repairs between tenants or during a tenancy, property managers will handle the hiring of contractors and doing any on-site management that needs to occur at the property.
Keeping up with annual inspections can be difficult for a rental property owner who has too much on their plate. Property managers, on the other hand, can invest the time needed to ensure that your property is being kept in good repair.
This service is particularly useful to any property owners that have another job or live out of the direct area where their rental properties are. Should something like a burst pipe or other urgent issue arise, having a local property manager will make fixing the problem much more simple.
Did learning more about the services offered by property managers make you more curious about how hiring one might directly benefit your business? It’s easy to see how property managers can be helpful, but it’s not always as simple to decide if it is the right time for you to invest in this type of services.
The following five reasons are the most common reasons and times when property management services just make sense for your rental property business!
#1 You Live Out-of-Town
The most common reason that you may decide to hire a property manager is because you live out of town. This is just smart business sense. If you aren’t in the area, it will be more difficult for you to keep up with the preservation of your property or with the rental collection. Someone local could do this job much better than you can from afar.
#2 You Own More Than Ten Units
Realistically, most people will want to bring on some extra help once they are managing more than five units and still investing in more. Once you have more than ten units, so much of your time will need to be devoted to the day-to-day management that you won’t have time to invest in more properties. It’s time to get help.
#3 Things are Slipping
Have you meant to repair the sink in Unit #2 for a few months? Did you forget to follow-up about a missed rent check with the woman currently renting your largest property? Experienced or not, all rental owners make these kinds of mistakes.
Often, these mistakes are caused by the simple fact that you have too much going on at any one time. When you find yourself making mistakes that simply shouldn’t happen, it’s probably time to hire some help.
#4 A Tenant Sued You
As a landlord, it is your responsibility to keep certain aspects in a livable condition for your tenants. If you have let anything fall so far to the wayside that a tenant has taken you to court, it’s time to get help. Property management will save you money in these situations.
#5 You Don’t Enjoy Property Management
Just because you are a landlord does not mean that you will inherently enjoy the daily work of being a property manager. While many will take on both titles, it is not a requirement. If you don’t enjoy the daily grind of management, hire someone else to do it and focus your talents where they are more effective.
Now that you know more about what property managers do and how they can help you, it is time to talk about property management cost. How much does a property manager cost to hire for one, two, or more properties? Are there variable fees, or is it all one rate?
Monthly Management Fee
Most management services charge a monthly management fee to collect rent, coordinate maintenance and repairs, and keep in contact with tenants. This fee may be a percent of the monthly rent or a flat rate depending on your deal.
It is most common to see a percent of the total monthly rent being charged as a property management fee. For residential properties and units, this is usually between 6% and 10%. For commercial properties, 4% is a common percentage seen.
If you are enlisting management help for a large number of units, they may offer you a lower rate at 4-5% per unit.
Leasing Fee & Lease Renewals
If you are also hiring help with placing tenants and filling vacancies, the management company will be charging you what is known as a leasing fee. A leasing fee, also known as a tenant placement fee, may also include the cost of tasks like background checks and eviction searches. The exact details will be included in your contract.
Some companies include the leasing fee in the flat rate charged for property management while others charge a higher fee, such as 75 percent of one month’s rent. Always check to find out what your preferred choices offer before signing any management contracts.
Similarly, lease renewals may cost you nothing, or they may cost you a flat rate fee. This fee is to cover the time needed to make any lease modifications and to have the tenant sign the updated lease.
It is possible that you will need to pay a vacancy fee to your management company when you do not have tenants occupying the property. Typically, vacancies are handled in one of these three ways:
- You do not pay any vacancy fee.
- You pay a flat rate vacancy fee.
- You pay the same percentage you would if the property was vacant.
As you can see, there’s a big difference between each of these fees, so it is important to find out which method a management company is planning to use.
Repair Reserve Fund
The final “fee” that you might see associated with property management is less of a fee and more of a reserve. When small repairs need to be done on the property, it is unlikely that you will want to be contacted by the management company for the money to do the repair.
Instead, most companies prefer to set up a small reserve fund that can be used for minor repairs up to a certain threshold. It is up to you and the property management company to decide when you should be contacted prior to doing repairs and when you should not be contacted.
This fund is usually set at some small amount (such as $200) or at the equivalent of one month’s rent.
The Property Management Cost Wrap-Up
Altogether, you can usually expect to pay something around the following for management services:
- 10% of the monthly rent
- Flat fee for leasing fees & renewals
- Funding a reserve fund for necessary repairs
If you’re going to spend a significant part of your potential income on hiring a property manager, you will naturally want to ensure that you find the perfect manager for your properties. Not all property managers are created equal, so you will want to shop around to find a deal that fits your needs.
Here are some great ways to ensure that you’re getting a great property manager (and a fair deal) when hiring this service.
#1: Ask About Every Fee
A good property management company will be very transparent about the fees and costs that you may be responsible for covering. This might include intake fees, advertising fees, or a number of other extra fees that could be hidden in your contract.
The best property managers will be very clear and upfront about every potential fee that could be accumulated on your account. If any manager seems like they are trying to be sneaky about fees, look for someone else.
#2: Customize Your Deal
Every rental situation is different, and you want to ensure that your property management contract perfectly reflects your rental needs. The right property management group will work with you to create a customized contract to cover the exact services that you want. If a company is not willing to adjust which services you need to pay for, look elsewhere.
#3: Check Feedback and Reviews
Check in with other real estate investors in the area or on review websites to find out more about the property management company’s performance. If anything seems odd or out-of-place, ask the company about it directly. This will show you how they handle criticism as well as honest mistakes, which can be very telling about their integrity.
#4: Test Their Communication Skills
One of the biggest things that property managers will be doing in your place is communicating with tenants when issues arise. This means that they will need to be level-headed negotiators that can defuse and manage a situation with ease. Ask them some tough questions as examples of potential tenant problems to see how they would handle it.
Property managers are a great way to streamline your business so that you can focus on growth and expansion, but they aren’t the right choice for everyone. Depending on your skillset, current unit numbers, and budget, it’s up to you to decide if hiring a property management service makes sense for your company.
Use this checklist to make the final decision:
- Do you find it difficult to get day-to-day management tasks complete?
- Do you have enough time to do your books and invest in more properties?
- Are you against paying for some extra help?
If you answered “no” to two or more of these questions, it’s time for you to hire a property manager. The additional assistance will help your business flourish, and you’ll find that you become a better landlord through the process.