Property Management Fees
All Landlords ask this question frequently: “how much does property management cost?”
It’s a necessary question of course since they must purchase services and be within their property management budget.
The average revenue for a property management company’s revenue is about 20% profit according to studies. On a total fee of your profit margin is 20 percent, they’re earning $44,000 per month, it leaves them with about $9000 in profit.
Consider inflation rates of 5% and a low contract bid can leave the company vulnerable to failure. It’s always best to pay them well considering how important they are to your success.
If a landlord owners is to pay premium prices for services rendered, they’d want to know more about services provided and what kind of costs property managers themselves must incur to stay in business. They want to know what’s fair and what amount will ensure optimal performance.
Paying Appropriately is Your Cost Optimization Plan
You the landlord must pay enough for them to be able to perform service reliably and without incident to your valued tenants. The value property management companies can deliver to cash flow, cost reduction and asset value is immense if they’re able to manage well.
There is no certain property management service fee or cost. Every city, state and country has its own cost environment. However, most industry people have general formulas to help guide what pricing they’ll charge and too, how they’ll negotiate contracts. There are actually different fees from flat fees per unit to more sophisticated agreements based on performance.
And fees are negotiable and provide an opportunity to ensure you get the level of service you need. Paying well for one services might create a break in another service during contract negotiations.
Cost of Service Packages
The usual formula for monthly general management fee could range from 8% to 12% of the monthly rent for a single-family home portfolio.
8% monthly property management fee on $550,000 total rent per month * 0.08 = $44,000.
And it may be stipulated that it is 8% to 12% of the collected rent, which means the property management company must collect all the rent to get paid. Sounds like a good way to manage both costs and revenue. However, you’ll want to look deeper at how they collect rent, because an aggressive approach could mean tenant complaints and terminated leases. That of course would raise your costs further.
If the property management firms uses an online rent payment solution, it indicates a higher collection rate, fewer late payments, and the automation of late rent fees. That may actually improve your full rent revenue, and cut bookkeeping and accounting costs.
More Property Management Costs: Fees
Here’s a rough, general breakdown of all fees/costs you might be exposed to:
- Setup fee: this one time fee pays for helping onboard you and your properties, setup your account on the property management system, do data entry, inspection, and meeting for you to share info and needs for the project.
- Maintenance fee: normally a 1% of total assessed cost of the property per year. Of course, companies will vary that price based on their experience and costs they’ve encountered with their clients.
- Vacancy fee: may be about one month’s rent to release the unit.
- Lease renewal fee: fee charged annually when annual leases are renewed. This could be a flat rate or a percentage of the lease rent going forward, or a flat rate of one month’s rent.
- Tenant placement fee: this could be a flat fee or a percent of the rent. It may be about half a month’s rent to a full month’s rent paid, and the fee may be refunded if the tenant breaks the lease or is evicted. This fee may also include advertising costs to find a good tenant, tenant screening costs, move-in costs, and time for lease creation.
- Eviction fee: time to handle the eviction, process documents and attend court actions. It may could be $300 per eviction and plus court costs.
- Accounting and payment service fees: if you’d like to outsource bookkeeping, accounting and payments to them, they might charge an hourly fee or per transaction fee via their accounting software.
- Early contract termination fee: this is for breaking an agreement with the property management firm. This fee could range from one month of management fees or might mean forfeiture of fees for the rest of the contract term. Also, other costs, such as work orders, expenses, or invoices that haven’t been accounted for which may be charged as well.
- Fees/revenue share of parking, storage, package handling, maintenance frequency etc. Increasingly, property management firms are getting creative about ways to create revenue as an incentive/profit boost for themselves.
- Special events: planning and arranging parties/occasions throughout the year.
- Energy or fuel surcharge: charged when gasoline and other fuels rise in price in make maintenance fleet vehicles expensive to operate.
- Reserve Fund fee: Covers the everyday management costs per property at an average $300 per property.
- HOA Reserve Funds: a special amount set aside for future capital projects or emergency costs.
Property management costs are also affected by the complexity, condition, and size of the portfolio (e.g., how many buildings or single family homes?). The property may require vehicles, equipment, materials, and special licenses or subcontractors.
See also: Property Management Software | What is Property Management? | Why Hire a Property Manager? | Denver Housing Market | Property Management Companies | Florida Housing Market | California Housing Market | Property Accounting Software | Real Estate Accounting Software | Real Estate Management | Toronto Property Management | Los Angeles Property Management | Hawaii Housing Market | Best Cities to buy Rental Property | How to Use Property Software | Cloud Property Software