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How Much Does Professional Property Management Cost?

System - Wednesday, October 10, 2018
Property Management Blog

How much does hiring a professional property manager cost? This is a question we regularly encounter and the answer is, it depends. As a real estate investor, you want to look for a property manager with a transparent and straightforward fee and cost structure. In this post, we cover the five common fees you should expect to pay if you hire a property manager to manage your rental property.

  1. Management fee: This is a fee for the ongoing management of the property. It’s typically either a flat monthly fee or a percentage of the property’s income. A flat fee doesn’t necessarily incentivize the property manager to go above and beyond, but a percentage structure gives them a reason to keep your property tenanted and rent payments coming in on time each month. If their income depends on your income, chances are they will do more to maximize your earnings.
  2. Leasing fee: Leasing includes advertising and placing a tenant in your property. Industry-wide, this ranges from a few hundred dollars all the way up to a full month’s rent. Understand how the property manager will market your property, screen your tenants, and go through the lease application process.
  3. Lease renewal fee: When a tenant is ready to renew, your property manager should be doing an entirely new analysis of current market rental rates, the tenant’s current rent amount and looking at the tenant specifically. How long have they been in the property? What’s their payment history? Are they a difficult tenant? The goal is to keep quality tenants in your property but raise the rent at renewal, especially if your other expenses like insurance or HOA have increased since the previous lease.
  4. Occupied inspection fee: Once the property is tenanted, how often will the property manager be inspecting the property? There should be a detailed inspection at least once a year. Typically, being upfront with the prospective tenant about routine inspections deters bed tenants from renting your property.
  5. Maintenance fee: You need to know the property manager’s timeliness, quality, and cost when it comes to maintenance. They should have a fast response time and be charging competitive rates.

As a rental property owner, you need to also be aware of other “junk” fees, like sign-up fees, 1099 annual preparation fees, admin fees, terminations fees, etc. Read the fine print to ensure you understand the fees before entering into an agreement with a property management firm. And remember, you get what you pay for. A good property manager can save you money down the line, but a bad one can cost you. It’s important to do your diligence early in the vetting process.

QUESTION: My property management company says I have to pay them a fee to cancel my management agreement – is that legal?

ANSWER: Many property management companies insert a termination clause in their property management agreement that will require you to give a very long notice-of-termination and may also charge you an early termination fee. This may be legal, but we believe it is unethical. You should request a straight forward month-to-month term with NO termination penalties or fees. If the real estate management company won’t do that – then keep looking!