Own a rental property or considering buying one? Over 70% of the rental properties in the US are owned by individuals or small LLC's. If you live nearby your investment property or if it's in a hot area that's sure to rent quickly, it might make sense to self-manage your rental property. But in most other cases, it's worth exploring property management firms.
So, how much do they charge and what percentage do property managers make?
It's important to note that there are two main fee categories charged by most property managers.
1- Initial Leasing/Placement Fee
2- Monthly Management Fee
We'll explore both below:
Initial Leasing Fee (Placement Fee)
Most rental property managers charge a fee for placing a new tenant, which is the fee for leasing the house if it becomes vacant.
This fee could be charged as a percentage or flat fee basis. For example:
- equal to one month’s rent
- equal to 50% or some other % of one month's rent
- equal to a flat fee if the monthly rent is low (e.g. flat fee of $1,000 if the rent is only $800 per month)
If the tenant is evicted for non-payment, some property management firms will provide a full or prorated refund. This tends to promote thorough screening of each prospective tenant.
This is the primary fee that you’ll pay each month. This fee covers the operations required to manage your property and those of other clients.
What does a property manager do? Your fee covers things that the property manager handles on your behalf - such as collecting rent, answering tenant questions/concerns, tackling repairs, and responding to emergency calls if necessary.
The management fee is usually a percentage of the monthly rent, but some property management firms charge a flat fee each month.
Most property management companies charge 8-12% of the monthly rent to manage a property.
Some companies offer a la carte services or single fee that includes all of their services. Your situation may not necessitate a full suite of services, so it's best to shop around and talk to several property managers before deciding which is the best fit.
Other Fees That Some Property Managers May or May Not Charge
As discussed earlier, nearly all property management companies will charge you for finding a tenant (initial leasing fee) plus, they will also charge you an ongoing management fee that is typically a % of the monthly rent or a flat fee.
There are also several less common fees that you may encounter depending on your market and also the style of property. Here is a list of potential fees to look out for:
Marketing Fee: In rare cases, you may be charged a small amount for professional photos or to have your listing displayed on the MLS (multiple listing service).
Setup Fee: This is typically charged for setting up a new property or if you're engaging the property management company for the first time.
Renewal Fee: If an existing tenant renews their lease, you may be charged a small fee for creating the lease renewal paperwork.
Eviction Fee. You may be charged fee if a tenant needs to be evicted due to non-payment. Property managers will need to coordinate with local authorities for serving the eviction notice and may also have to involve attorneys in some cases.
Repair & Maintenance Fee: These will vary based on the scope of the project. Ask if all maintenance tasks are run through you first, or if only jobs over a certain amount require your approval.
How to Choose a Property Management Company
Utilizing a property manager is great way to gain freedom and make your investment "passive." Among other things, two of the main benefits of property managers is 1) securing a tenant 2) tackling repairs. If you don't want to manage these tasks, you should definitely consider a local property management firm.
Keep in mind that some fees may be negotiable. For example, some services may be provided on an a la carte basis if you ask. If you have multiple rental properties, you may be able to obtain lower fees as well.
Ask local Realtors for property manager referrals and also check reviews of local and national property management companies to get the best rates. If your rental is located in a condo building or large neighborhood, there may be existing property managers that are already active in your area. Happy renting!