Managing single family homes requires a significant portion of an owner’s bandwidth. As your portfolio grows, an increasing amount of your time is consumed with day-to-day responsibilities like maintenance and rent collection.
Unless you plan on making property management your full time job, you’re probably wondering how much hiring a professional property manager will cost you.
In this article we’re going to break down exactly how much property managers charge for each component of managing one or multiple single family rental properties so you can plan to outsource management and be cash flow positive.
Below, we’ll show you two fee structures property managers may use, discuss other fees you may encounter, and dive into factors that impact property management pricing.
Property Management Fee Structures
Property managers generally use one of two fee structures:
- A fixed management fee
- A percentage of monthly rent
Let’s look at how each works and compare their pros and cons.
Fixed Management Fee
A fixed management fee means you will pay a flat and unchanging amount every month. Many factors can impact management fees, such as size, location, type, and services provided. More on these later in the article.
Here are some upsides to working with a property manager that charges a fixed fee:
- Predictability: An unchanging management fee is easy to budget for.
- Potential savings: If your rental income increases, the fee remains fixed, meaning you could widen your profit margins.
Here are some downsides to consider:
- Lack of incentive alignment: The property manager won’t have as much of an incentive to maximize your rental income since their income will not increase.
- Lack of scale: Property managers have less room to offer a “bulk discount” for larger properties.
Fixed fees can work better for investors who want more predictability and don’t want to pay more as their rental income grows. It’s true that the incentive to maximize your rental income is weaker since the property manager won’t directly earn more. But a reputable property manager puts you first anyways — after all, working hard to please their clients will only bring them more clients regardless of fee structure.
Percentage of Monthly Rent
Most property managers charge a percentage of monthly rent as their fee. Under this structure, the property manager takes a portion of your property’s rent with monthly each rent collection cycle.
For example, imagine you have a property that collects $5,000 in monthly rent. A property manager charges 8% of monthly rent, meaning you pay them $400. Your profit is $4,600, assuming no other expenses.
The advantages to working with a property manager using this free structure include:
- Incentive alignment: Your property manager earns more when you earn more. Therefore, they’re motivated to maximize your rental income.
- Scale: Property managers may charge a lower percentage for properties with more units. It’s kind of like a “bulk” discount. They’ll earn much more charging 7% on 40 units than 10% on 4 units. The other “scale” aspect, of course, is that you only pay more if you earn more to cover the fee.
Some drawbacks to this fee structure include:
- Less predictability: The fee changes alongside rental rate changes. This can make budgeting for property management more challenging.
- Potential spending increases: As your rental income rises, so too do your property management fees.
Other Potential Property Management Fees
Property managers may charge a host of other fees. Keep in mind that some of the items these fees cover may be lumped into your overall fee, thus eliminating the additional cost:
Setup Fee
Some property managers charge a one-time setup fee to cover the costs of onboarding you as a client. Some items this fee may cover include:
- Adding you as a new account in the firm’s bookkeeping system
- Completing an initial property inspection
- Opening a bank account in your name for rental income
- Transitioning your property to this new company if it’s a turnkey property
Maintenance and Repair Fees
Not all property managers include maintenance and repairs in their property management fees. Some may include only the coordination of maintenance services but not the cost of the repair itself.
Some investors seek property managers who let them do the maintenance themselves to save money. However, many maintenance vendors offer property managers special pricing to secure long-term business, so letting the property manager handle your maintenance may ultimately save more money.
Tenant Placement Fee
This fee covers the cost of filling your property with a tenant. Costs include advertising and marketing costs to find a tenant, application and screening, preparing the lease, and move-in.
This could be either a flat fee or a percentage of your monthly rent.
Evictions and Collections Fees
For most investors, evictions are not a common occurrence, but they can be messy and stressful when they happen. A professional property manager will handle the eviction process for you, but could possibly charge a fee for doing so.
Generally, you’ll pay a few hundred dollars plus court-related costs.
Contract Termination Fees
Breaking a property management contract early generally requires you to pay a contract termination fee.
The obvious exception is potentially breaking your contract early “for cause”. In other words, the property manager isn’t living up to their end of the contract.
Factors That Impact Property Management Fees
Several factors can impact the property management fee, whether a fixed fee or a percentage of monthly rent:
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- Property type: Property managers may charge differently for single-family, small multi-family, larger apartment buildings, and short-term rentals.
- Property size: The bigger the property, the more you’ll pay. Property managers may evaluate this based on square footage, number of units, or bedroom count.
- Property condition: Older properties necessitate the most repairs. Older properties that have been renovated may also require repairs and maintenance, but less. Newer properties may demand the fewest repairs. Property managers price accordingly.
- Location: Location greatly impacts rental rates. Fees will increase in locations with higher rental rates and vice-versa.
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- Property management services: The number and types of services included in your property management agreement influence the price. More services means a higher fee. Some services also add more value and may cost more than others.
- The market: The real estate market affects property values and rental prices. Therefore, it’ll impact property management fees.
Important: Rent Due vs. Rent Collected
A critical piece of your property management contract to look for is rent due versus rent collected. This determines what number the property manager uses to charge your fee.
You want to make sure the contract says “rent collected”. That means you only pay based on the rent your property manager receives from your tenants. In other words, money that reaches your hands.
This does two things:
- Protects you from paying for money you never received
- Incentivizes your property manager to fill vacancies and collect rent ASAP
If the contract says “rent due”, you pay based only on the rent charged. It doesn’t matter if any of those rental dollars are collected — you still pay the fee based on the rent you’re supposed to receive.
Are Property Management Fees Worth It?
Hiring a professional property manager is worth it if they can earn you a greater return than the money you pay them. At Evernest, we know different investors are going to require different solutions, which is why we offer both flat rate and percentage based fee options, giving you the flexibility to pay in the way that suits your preferences and portfolio.
Furthermore, we take all the hard work off of your hands, winning you back time and relaxation while we help you grow your rent (and even your portfolio if you’re interested).
So if you’re ready to hand your property over to the experts…
Check out our pricing plans to get started.
Spencer is the VP of Marketing at Evernest. He wakes up with Google and Facebook on his mind. Having bought and sold over 150 homes in Birmingham, Spencer gets a kick out of helping new and seasoned investors navigate the mistakes he made as an investor. Spencer is also passionate about his love for Michael Jordan and does his best to explain to the Millennials (who never saw him play live) how much better he was than LeBron. He loves to hang out with his wife, kids, and the world’s best black lab, Jett.
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