Becoming a landlord and entering the world of real estate rentals can be a lucrative venture, but that elated feeling of becoming a property owner can be overshadowed by the multitude of responsibilities that come with it. Understanding rental property management fees and hiring a management company can help ease the stress of property owners. Let’s look into what’s the standard rates.
Standard rates for hiring a rental property management company can include costs associated with property management to oversee your investment as a whole. Typical rates can vary according to location, services offered, and property types, ranging from 8 to 12% of the monthly rental income.
Whether you have just started as a novice landlord or you are a seasoned property owner, understanding how management fees work is vital for the overall probability and efficient management of your investment.
What Is Property Management Fees?
One crucial aspect that landlords often grapple with is understanding and budgeting for rental property management fees.
These fees are associated with hiring a property management company to oversee your investment. Understanding that these fees are an essential part of your budget and knowing what to look for when signing up with a management company to ensure you are covered in the necessary services can make a difference in maintaining a profitable and stress-free rental property.
How Much Do Rental Property Managers Charge?
Rental management fees can vary depending on multiple factors. When enlisting the services of a property manager, it’s essential to understand the various aspects that companies typically use to structure their fees.
While location, property type, and the different services offered by companies all play an important role in determining the management fee for your rental property, it is advisable to reach out to your local property management companies to request a more thorough assessment for your personal needs.
Each company can structure the cost differently. Here are three main structures rental management companies commonly use to charge for their services.
Monthly Percentage Of Rental Value
One of the more common fee structures is using a percentage-based fee of the monthly rental income generated by the property.
The exact rates can also be influenced by various factors such as location, type of property, and the scope of service you as a client requires.
Here is how it works:
- A specific percentage of the monthly rental income of the property is charged and can range from 8% to 12%. This rate is determined by the location, property type, and the services offered by the rental management company.
- When the rent is received at the end of each calendar month, the company will calculate according to the agreed percentage their fee of the rental income. For instance, if the agreed management percentage fee is 10%, and a rental property is $1000, the charge of $100 will be payable for the management of the property.
- This fee structure offers the landlord predictability and an easy way to budget for his management fee.
- It’s vital to read the terms of your contract and ensure the percentage is taken on the rental income received from the tenant versus the total rental income. This performance-linked fee incentivizes property management companies to ensure they collect the total rental amount from the tenant.
Fixed Property Management Fee
Sometimes, a property management company will charge you a flat fee regardless of your rental value.
A fixed property management fee is a predetermined, regular fee that property management companies charge to oversee and manage a rental property. The fixed fee remains constant, regardless of the property’s rental income for a particular month.
Here’s how a fixed property management fee works:
- Predictability lets property owners know exactly how much they will be charged monthly, making budgeting easier.
- Offers a stable income stream where fixed fees are often preferred for properties with consistent and predictable rental income. This could include long-term leases or commercial properties where tenants sign extended contracts.
- Service inclusion: property management companies typically outline the services covered by the fixed fee. These services can include rent collection, routine property inspections, maintenance coordination, and more.
Leasing Fee
A leasing fee, or a tenant placement fee, is a one-time commission that property management companies charge for securing viable tenants that will rent your property.
Often added as a separate charge to ongoing management fees for placing initial tenants into the rental or if there is a high turnover of tenants.
Here are the key aspects of a leasing fee:
- Tenant Procurement: The leasing fee covers the costs associated with finding and securing a suitable tenant for the rental property. This process involves advertising the property, conducting tenant screening, showing the property to potential renters, and handling the necessary paperwork.
- Fee Amount: Leasing fees are generally calculated as a percentage of the property’s total annual rent or as a fixed one-time charge. The amounts can vary depending on the property management company’s policies and the local real estate market. Common percentages range from one-half to a full month’s rent.
- Tenant Quality: Property managers have a vested interest in placing high-quality, reliable tenants in your property because their fees are often contingent on lease signings. This ensures that they thoroughly screen and select tenants to protect your investment.
- Application of leasing fee is typically charged when a new lease is signed where new tenants have successfully been placed in the property.
- Included services in exchange for a leasing fee usually include services where the company will advertise the rental, do a background check on potential tenants, and draw up legally binding lease agreements.
As the property owner, it is essential you carefully review the terms of the leasing fee contract to fully understand when and how the fee will apply. A typical charge can range from a half to a full month’s rent.
How Monthly Management Fees Are Structured
Monthly management fees typically include various services the property management company provides, which can consist of the following services.
- Rent Collection: Property managers handle rent collection, ensuring you receive timely payments.
- Maintenance and Repairs: They coordinate and oversee property maintenance, repairs, and renovations, keeping your property in top condition.
- Tenant Screening: Property managers screen potential tenants, conducting background checks and verifying references to ensure you have reliable renters.
- Property Inspections: Regular inspections are conducted to promptly identify any issues or maintenance needs.
- Marketing and Advertising: Property management companies market your property to attract quality tenants and ensure minimal vacancies.
Are There Benefits To Hiring A Property Management Company?
There are several benefits to hiring the best property management company for novice owners who have started in the real estate world to property moguls with a diverse portfolio.
Time Savings
Your appointed rental company manages the day-to-day tasks of rent collection, maintenance, and tenant communication. This frees up your time to focus on other investments or personal pursuits.
Tenant Quality
Property managers are skilled and have processes for screening potential tenants, conducting background checks, and verifying references. This helps ensure that you have reliable, responsible renters, reducing the risk of problematic tenants.
Property Maintenance
They coordinate and oversee property maintenance, repairs, and renovations. This ensures your property is well-maintained and retains its value over time.
Legal Compliance
They are well-versed in local and federal rental laws. This expertise helps you avoid legal issues like eviction procedures and fair housing regulations.
Marketing And Advertising
They market your property to attract quality tenants and minimize vacancies. Their experience can help optimize rental rates, ensuring you receive competitive income.
Emergency Response
Property managers are on-call to address tenant emergencies, reducing stress and inconvenience for you as the landlord.
Rent Collection
The company handles rent collection, ensuring you receive payments on time. This can be particularly valuable if you have multiple properties or are far from your rental.
Financial Management
They often provide financial services, including budgeting and expense tracking, making it easier to manage the financial aspects of your property.
Minimizing Vacancies
Property managers work to minimize vacancies by finding new tenants quickly, helping you maintain a steady rental income stream.
Local Expertise
They have knowledge of the local real estate market, helping you make informed decisions regarding rental rates, property improvements, and market trends.
Reduced Stress
By delegating property management tasks to professionals, you can reduce the stress and responsibilities associated with being a landlord.
Tenant Retention
Property managers often have strategies in place to foster positive relationships with tenants, which can lead to longer lease durations and fewer turnovers.
Investment Expansion
If you have multiple properties or wish to expand your real estate investment portfolio, property managers can efficiently handle the management of several properties.
Conclusion
Property owners and landlords need to understand the fee structure of rental property management companies. Whether you choose a percentage-based, fixed fee, or leasing fee, ensure the contact structure aligns with your property type and location. The peace of mind you get from knowing professionals handle all the day-to-day nitty gritty is well worth the small fee.