An Overview of Common Property Management Fees
Property management services can save you a great deal of time by acting as the go-between for you and your rental tenants. Hiring a property manager does cost though and finding the right one is important. After all, why would you want to pay more than you need to? Understanding the basic fees associated with property management will help you to find a company that will meet your needs at a fair and reasonable price.
Commission (Generally Assessed Monthly)
The commission is a monthly fee that you pay to your property manager throughout the duration of your contract. This fee is their payment for handling your property. This fee can be a percentage of the amount of rent collected (generally 3-15%) or a flat monthly fee ($50-200 or more). The commission fee is very common and the majority of companies require payment of this fee.
Start Up Fee or Setup Fee
Placing tenants in a property takes time since the property management company will need to show the property to potential tenants and may need to invest in advertising. The startup fee is basically a finder’s fee for the property management company. Some companies charge a percentage of the first month’s rent (50-100%) and others require you to pay the amount before a tenant is placed. This fee is typically a one-time fee per tenant. If your existing tenant moves, you will need to pay again. This fee is generally not refundable once a company has started looking for a tenant, even if you choose to stop listing your property.
The renewal fee is compensation to your property management company for taking time to rework lease paperwork when a tenant wants to renew a lease… Some companies will also charge this fee when they perform a property inspection. Some companies don’t charge this fee and others charge as much as $200 or more.
Some property management companies cover the cost of advertising in their fees while others require the property owner to pay all advertising costs. Some companies split the advertising fees with the property owner. Make sure that you ask your property management company what their policy on advertising fee is before you sign a contract with them. Also talk to your property management company and find out what types of advertising will be used. It may be worth spending a little on advertising to have your property listed on popular rental sites and in the MLS since this will increase the likelihood of your being able to find a tenant quickly and will increase the amount of rent that you collect. Saving money on advertising isn’t really saving if it results in the loss of monthly rent.
Maintenance Mark Up
Another fee associated with a rental property is maintenance. Things will inevitably break down and need replacing. Your property management company is responsible for finding people to complete repairs. Many companies complete maintenance at no additional charge. This means that you will only need to pay the bill from the repair person. Other companies however charge a maintenance mark up. This is a fee that is added onto a repair bill for finding the repair person. It is usually a percentage of the total cost (around 10%). Watch out for this when signing a property management contract since a maintenance markup will really eat into your profits.
Early Cancellation Fee
Many property managers will require you to pay a cancellation fee if you stop using their services before the contract expires. This fee helps them to avoid losing money spent on advertising, showing your rental, etc. Some companies don’t charge this fee and those that do can charge $500 or more. Remember that this fee might be an indication of a company that is not confident in their abilities. After all if you have a great property manager you aren’t likely to find another one. Some companies that charge this fee do deserve it though, so use your judgment.
Fees to Avoid
While each of the previously discussed fees are legitimate and common, you will occasionally encounter fees that companies should not be charging. If you find a property management company that tries to charge these fees, run in the other direction. These fees aren’t warranted and will simply be a waste of your money. Always find out about all fees that you will need to pay before you sign anything. If something doesn’t seem right ask questions.
If your property is vacant you shouldn’t have to pay a rental commission until a tenant moves in. The property management company should only receive a commission when they collect rent. If a tenant won’t pay, neither should you.
Some companies charge any time they come out to the house. For example they might charge you a $25 fee for placing a sign in the front yard or completing some other simple task. Remember you pay your monthly commission for a reason, and simple visits should be included in this fee.
Hiring a property management company is a big job, so don’t take it lightly. Take your time, ask questions and interview multiple companies. Remember that you can and should negotiate terms. Don’t hesitate to call a real estate lawyer for help in understanding and navigating through a property management contract.
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