As a rental property owner, choosing to utilize the services of a management company is a big decision. But, before diving in headfirst, you should take the time to get an idea of some of the average property management fees to see if it makes sense for you.
Beyond that, it’s essential to be aware that there are additional fees property management companies may charge you. Some of the more common other fees include:
- Contract Setup Fee
- Procurement or Leasing Fee
- Overseeing Vacant Property Fee
- Maintenance Fee
- Late Payment Fee
- Eviction Fee
Property Management Fees
Not all fees are created equal, so what are the average property management fees?
There are two main types of fees associated with management companies worth addressing when it comes down to it.
How Property Management Fees Work
Management fees can be broken down even further into two different categories.
Percentage-Based Management Fee
A percentage-based management fee refers to the way that a property manager collects their money. Essentially, they will be paid a percentage of the rent they collect in this payment structure.Â
Typically, you see somewhere between 8% to 12% for percentage-based management fees. This number can vary significantly as it depends on some of the other expenses that they charge. But, in general, you can anticipate around 8% to 12% for these types of fees, with the average at approximately 10%.
Flat Management Fee
The other type of management fee structure is a flat management fee. In this payment type, it doesn’t at all matter how much the house rents for. All the management company cares about is just charging a monthly, flat fee. Usually, in these circumstances, it’s cheaper than a percentage.
Other Fees
The next thing worth noting with management fees is all of the ancillary fees that property managers charge. Property management fees are not always an all-inclusive situation. In most instances, you will find that your property management company changes for several different additional services they may be responsible for upholding.
Contract Setup Fee
It’s not uncommon to find property management companies charging you a one-time fee to set up your account. This fee is usually in the ballpark of $300, although this can vary from one company to the next.
Included in your contract setup fee should be the following services:
- Transition to your new property management company
- Initial property inspection
- Assistance applying for required tax or business licenses
- Open a bank account in your name (if needed)
- Create your account for bookkeeping purposes
Procurement or Leasing Fee
One of the most common ancillary fees a property management company will charge is a leasing fee, also known as a procurement fee. This fee is associated with all of the marketing, showing the houses, underwriting the applications, and choosing an appropriate tenant for your home.
Generally speaking, most property managers will charge a fee when they rent the property and call it a procurement or leasing fee.
Overseeing Vacant Property Fee
Don’t be fooled – even if your house is not rented right away, you will more than likely be responsible for paying fees to the management company. While this might seem unreasonable, you should remember that overseeing a vacant property can be a labor-intensive task. If the management company is handling it for you, it is worth the payment to not have to deal with it yourself.
Small things, like making sure the utilities are on and paid on time for showings or replacing security light bulbs, are minor nuisances that can make a world of difference when showing your home to a potential renter. Having a management company take charge of all of these things will help ensure your home is rented quicker with less of a headache to you.
Maintenance Fee
In addition to other fees, you’ll find that many property managers will charge a markup on the maintenance that they do. Essentially any maintenance business the management company is responsible for handling will be marked up to account for dealing with the vendors and those types of things.
Late Payment Fee
When renting out your property, it is always in your best interest to charge a late fee for any rent payments not received on time. But if you’re working with a property management fee, you’ll want to consider any late payment fees they charge when determining what amount to charge your tenant.
You may find that you are charged up to 50% of the late payment fee to the property management company. Again, while this might seem unnecessary if you think about how much effort goes into chasing down a tenant to get them to pay the rent, this fee is likely for due cause.
Eviction Fee
Like late payment fees, property management companies are likely to charge additional fees for evicting any tenants. Any landlord knows that the eviction process is not simple or fun for anyone involved, so having a management company take care of it on your behalf is well worth the costs.Â
Eviction fees average around $500 plus additional fees for any legal resources needed in the process. Larger property management companies usually can handle evictions within the company, while smaller ones might require external resources, likely to cost you more.
Factors Affecting Property Management Fees
Much like everything else in the rental property industry, fees can vary greatly depending on several different factors. Here are some of the primary factors affecting property management fees:
- Market competition
- Full-service vs. a la carte pricing
- Neighborhood rating
- Property condition
- Size of your property
- Type of property
Wrap Up
In the end, determining whether property management fees are worth it or not will be a decision you have to make for yourself. Typically, real estate investors find that hiring a property management company is worth the additional expenses, but that may not necessarily be the case for you. Make sure you understand the terms of the company in question so you can carefully budget as needed.
Matthew is the CEO of Evernest. He is a student of the book Good to Great and is passionate about building the best property management company on the planet (and maybe even the universe if Elon Musk will hurry up). You can usually find Matthew at the baseball field with his son, at a dance recital with his daughter, or at his favorite restaurant with his wife, when he’s not in the office. And if you can’t find him in any of those places, it probably means he’s traveling.
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