Updated June 2021
Owners of expansive investment property often struggle to find enough time each day to run their business. From collecting rent to finding ways to increase their rental income, there are many pieces to juggle when working in the rental industry.
Investing in rental property management fees rather than extra-long nights is a great way to improve your workload as a landlord. Hiring qualified property managers may change the way you do business forever.
As great as it can feel to handle every aspect of your business, you have natural limitations to how much work you can do in a day or even a week. Don’t let these limits destroy your bottom line. Bringing on help to assist in certain areas can increase profits and make your work more enjoyable.
By learning more about typical rental property management costs and programs, you can see if adding property managers to your business model is worth the price.
A Table Of Contents: Rental Management Services Costs
Get a deeper understanding of what rental management services cost, what types of property management company fees you should look out for, and how you can find the property manager that will work well with your business today!
- First: Consider Your Strengths & Weaknesses As A Landlord
- What Are Rental Property Management Fees?
- What’s The Average Cost Of Property Management Services?
- The Most Common Fees That Landlords Have To Cover
- Keep Analyzing Your Progress
- Rental Property Management Fees FAQs
Not everyone is cut out to be a landlord who handles everything on their own. In fact, most landlords who manage every aspect of their business deal with a mix of pride and stress due to their workload.
Being unable to handle so much work doesn’t make you a failure as an investor or a bad person by any means, but some people just don’t have the temperament or skills to pull off what it takes to manage a rental property effectively. In some cases, there is simply too much for any single person to do on their own!
I once heard the great Nick Sidoti say that “the kiss of death in real estate investing is managing properties.” Considering some of the conversations I’ve had with landlords when they were at the end of their ropes, I’d say Nick’s experience speaks well.
The key to success for some investors is outsourcing the areas of weakness and focusing instead on their strengths. This often means hiring a rental management company to manage tenants and the properties, which often means incurring some costs such as property management fees.
Take some time before hiring property managers, to think about your strengths and weaknesses as a landlord. What do you enjoy doing and find easy to do? What makes you stressed or takes up too much of your time?
By identifying these specific parts of your day-to-day business, you will be better equipped to hire a property management team that will assist in ways that improve your workload. Otherwise, you may hire a team only to find that you don’t feel any less overwhelmed.
Put together a list of the parts of rental management that you are most interested in hiring someone to help with. Use this list to negotiate with potential property managers as you move forward.
What exactly are property management company fees, and why should you be careful about what a property manager charges?
Rental property management fees are monies that are paid by a landlord when they decide to hire a property management company to manage their rental properties. These fees cover the cost of taking over certain aspects of property management in the landlord’s stead, such as:
- Collecting rent
- Handling tenant disputes
- Renewing tenant leases
- Finding qualified tenants
- Doing maintenance and repairs
- Handling third-party contractors
- … and much more
There are a variety of services that property management companies provide for a fee. Often, companies will have specific packages on offer for landlords, but you can also negotiate a contract to cover your particular needs.
Property management fees vary depending on the level of service provided, the types of services provided, and the general expectations of the landlord, property manager, and tenant relationships.
Many landlords who aren’t experienced with hiring help will be curious to know the average cost of property management services.
Usually, property management company fees fall between 7% and 15% of the property’s rental value. Any expenses, such as the cost of hiring a plumber, would be added to that cost.
There are, of course, companies that have a flat rate fee instead. A property management company may choose to charge a $100 or $150 flat rate per month, or they might have a flat rate for managing a specific number of properties each month.
Ultimately, it depends on the company and the types of services you want to bring into your business model. Rental property management fees also vary from location to location, so the best way to find out an average price in your area is to contact companies for quotes.
Once you have a grasp of the average management fee for rental property management in your area, you might wonder what exactly the fees include.
As with the costs of rental property management, what is included in the cost of bringing on a property manager is going to vary. Generally speaking, however, the base management fees will include the following:
- Collecting rent
- Processing rent
- Talking to tenants as needed
- Doing property inspections
- Setting up repairs
- Responding to any emergency tenant calls
- Handling emergency maintenance requests
The management fees you pay as a property owner typically cover these items, but again, you will want to check the specifics with any company you’re interested in working with before signing on.
It’s essential to understand exactly what you are putting money toward when considering the cost of property management fees. What should you expect to pay, and what are each of those fees going to cover?
We’ve briefly talked about the month-to-month property management fees that landlords have to cover, but these are not the only fees involved in hiring a property management company.
Lease renewal fees and setup fees are common parts of hiring a property manager. As always, however, the specifics of what goes into monthly management fees depend on your arrangement.
To make it easier to determine what you should expect to pay, let’s learn a bit more about each of the fees you will be responsible for when working with a property management company.
The setup fee covers setting you up to work with the property management company for the first time. Sometimes, this fee is called an onboarding fee as it is the fee charged when you first join up with their services.
This is a one-time fee, but the exact price may vary depending on how many properties are being brought into the system. In many cases, the setup fee will be less than $300.
Usually, this fee includes the cost of sending out initial communication to any tenants currently renting from you, and the initial inspections of your properties so that the property manager can get familiar with the rentals.
While sites like Craigslist are free, remember, you’re paying for the experience, expertise, and convenience of the property management company.
Many property management companies include deals that cover these expenses with the setup fee and others that share the expense through other costs combined. Some of the best deals I’ve seen have the setup included free of charge.
Make sure that you ask about advertising costs for vacant properties, if they are included in any of the other fees, and how much it would be to add advertising if it’s not already included. If nothing else, this can be a great negotiating opportunity.
Routine maintenance costs are to be expected. If you have an electrical emergency, for example, you’ll need to hire an electrician and pay for their service. However, there are some pros and cons to working with a property management company in this respect.
The pro is that they typically have “go to” people they deal with often and trust. This can save you money if they are getting discounts for volume business with these types of contractors.
The con is that you’ll likely pay a mark-up on the service costs that can range from 5-15%. So in the end, the discounted service may end up being a wash after the additional fee.
There are two fees regarding leases that you may be responsible for: lease fees and lease renewal fees.
Lease fees typically cover the cost of doing the following:
- Advertising the property
- Showing it to potential tenants
- Screening potential tenants
- Setting up the lease
- Doing pre-move-in inspections
Lease renewal fees are those charged by rental management companies to refresh a tenant’s lease and move them into a new tenancy period.
The renewal fee is what sparked this entire article on real estate agents charging renewal fees after a landlord was blindsided by the charge.
Ensure that you find out exactly what the lease renewal fees are when signing up with a property management company. Your contract should explain what the terms and conditions for this fee are.
Property management companies often justify this fee by performing an annual inspection of the property prior to or after renewal. The fees range, but remember that you’re entrusting the company to look out for your best interest.
If the fee is worth the peace of mind that comes with keeping a good tenant, or removing a bad one, then be prepared to pay when the time comes.
Many property management companies include a clause for early cancellation fees if you cancel the arrangement under specific conditions.
If you are not getting good communication or reasonable explanations as to why your rental unit is still vacant, you’ll likely feel that the property management company is not doing their job. This leads landlords to start looking for a better company and abandoning their contract.
However, keep in mind that in most cases the property management company has put the time and effort into getting your unit rented, so they’ll be looking for some sort of compensation.
The cancellation fees range, so be sure that they are clear and precise in the event you need an exit strategy. It’s okay to want to change property managers, but you should be prepared for exactly what will need to be done.
Every company and its property management fees are obviously different in some ways, but this quick guide should make you aware of what the standards are.
Most importantly, as we learned from one landlord’s story, be sure to read and agree to all of the rental property management fees and terms. Be sure to look for the small add-on fees and costs that tend to compound, like paying for rental signs and advertising material for showing the unit.
There’s nothing worse than being caught unaware by fees that you unknowingly agreed to. High-quality property management companies won’t try to hide these fees, but it’s essential to review your contracts carefully regardless, so that you can budget for property management costs.
Even after you start working with a property management company, be sure to analyze how well having property managers is working for your business.
The best property management companies understand the value of accountability and will gladly take a transparent approach. As one smart landlord once told me, “There is no secret sauce to success, just proof that the work is getting done properly.”
After a few months of working with a company, pull out your papers and see how your income has been affected. Are you making less money, but living a better lifestyle? Are you making more money while doing less? Consider what’s going on, and don’t be afraid to talk to your property management company about it.
Feel free to leave comments below and share any experiences you have had with rental management companies and the property management fees you may have had to pay throughout the process.
If you aren’t ready to bring on a property management company yet but need to smooth out your business workflow, look no further! This Mega Bundle of landlord forms can help set you up with the templates you need to succeed as a landlord. Start incorporating these helpful forms today!
A monthly management fee is a charge applied to a landlord’s account with a property management company for their services provided each month. This fee usually covers all of the basic services included in the property management service package, such as collecting rent and fielding tenant questions.
The amount charged monthly depends on the type of services rendered, how many properties are being managed, and several other factors. The price is usually based on a percentage of the monthly rent or a flat rate. The exact amount is determined by the property management company.
If you feel that the prices offered to you by a property management company won’t work for your business, propose other terms instead. You can usually negotiate a better price by adding more properties to the service or removing some of the services.
For example, you could ask that your property managers do not set up any repair calls as you handle scheduling repairs yourself. This should reduce the amount charged to you monthly. Consider which services you do not need, and ask if you can negotiate the price by removing those services.
The fees charged by a property management company may differ from unit type to unit type. Managing an apartment building and common areas of a 20-apartment building, for example, is likely to be done at a higher rate than that for a single-family home.
However, all companies are different. The only way to be sure is to talk to any companies you are interested in working with about their specific rates.
Yes. Property management costs are deductible expenses for most landlords. The final answer on whether or not these fees are deductible will depend on how you file your taxes, but the majority of landlords will be able to offset rental income with these fees as part of their deductible expenses.
This is the case whether you hire a property management company or you continue to be a do-it-yourself landlord. Suppose you are doing everything on your own. In that case, you will need to be extra careful about tracking all incurred expenses for managing the property to ensure that you are subtracting those costs properly.
Stay In Control Of Your Properties
Some real estate investors and landlords are hesitant to take on the cost of property management fees, not so much because they can’t afford them but because they are afraid of losing control of their business.
Looking long-term, however, your rental income is likely to be more effectively reinvested in your business if you have the help you need. While rental management services cost money, they also enable you to keep growing your business.
Think about your long-term goals. Can you achieve them with your hands as tied as they currently are? Adding a rental property management company to your business model might be just the thing that you need to keep growing!