Before you hire a property management company it is important to understand what services they offer and how much they actually charge for those services. Keep in mind the property management company you choose to work with will be handling one of your biggest assets and while more expensive does not necessarily mean better – if a fee seems too good to be true it probably is. Some companies charge a flat fee that includes a variety of services while others charge a low management fee but make up for it with expensive back-end charges you might not consider when comparing costs. The following are common services provided by property management companies and the fees associated with them.
Management Fee
The management fee is the base fee charged to manage your property and is typically 5-10% of the monthly rent on long-term residential leases (12 months). This fee can vary based on the number of properties you need managed, the number of units per property, where the properties are located and what services are included in the fee. When shopping around, be sure to clarify exactly what is included in the base fee, especially if it is on the low end since some companies make up for a low management fee by nickel and diming you with back-end charges for common services.
Our Rate: 8% on Collected Rent
Vacancy Fee
Some property management companies charge a vacancy fee when your property is without a tenant. The vacancy fee may be a fixed number such as $75.00 per month or a percentage of the rent even though there is no rental income coming in. If the contract says management fees are to be paid out of “scheduled rent” or “rent due” instead of “rent collected” or “collected rent”, then the company most likely charges a management fee percentage during a vacancy. For this reason it is important to watch out for how a management contract is worded. Our pricing structure is based on “rent collected”, specifically 8% of the collected rent. In other words, we don’t make money until your property is rented.
Our Rate: $0.00
Set-up Fee
This is the fee charged to set up a new account. This fee may be charged per unit or per property and can range from $150 to $300. Honestly, there is no reason you should pay this fee when a management company locates a tenant for your property.
Our Rate: $0.00
New Tenant Placement Fee
A new tenant placement fee is designed to compensate the property manager for his time, effort and cost getting your unit rented. Also called a leasing fee, it ranges from 25% to 100% of month’s rent, with 50% being the norm. Some companies decrease or waive their leasing fee if it takes an unusually long time to find a tenant and many have built-in incentives to place reliable tenants in your property including full or partial refunds if a tenant breaks the lease or is evicted in less than 12 months. Remember that many property management companies require exclusivity in advertising, meaning they are the only ones who can advertise your property. This means that even if you are the one who ends up finding the tenant you still pay the new tenant placement fee.
Our Rate: $0.00 on unfurnished properties
Advertising Fee
Some property management companies charge advertising fees in addition to tenant placement fees so it is important to find out if a company charges this fee. These days there are plenty of ways to generate leads with free online resources such as Craigslist or other online listing services and the better the company is at marketing the less you should have to pay. Regardless, you should never expect to pay over $200 to advertise your property. The link below will show you how we advertise your property.
Learn More: How to Market your San Diego Rental Property
Our Rate: $0.00
Lease renewals
Some management companies charge a fee to do the paperwork required to renew a lease that ranges from $0 to $200. This does not require much work so be cautious if a management company’s lease renewal fee is excessively high. When inquiring about a lease renewal fee, you should also ask if the company requires tenants to renew their leases or if it allows tenants to go month-to-month once the lease is up.
Our Rate: $0.00
Repair Fund Fee
Although not a fee per se, it is important to mention that some property management companies require you to place funds in an account to be used for agreed upon repairs and maintenance of your property. You can expect to carry a reserve of $200-$500 for single-family properties.
Our Reserve: $250. Refunded once agreement expires.
Maintenance Fees
One function of a property management company is to handle maintenance and repairs to your property. Most companies have a policy to notify you if an expense exceeds a certain amount in order to get your approval before initiating a costly repair. However, this pre-authorization policy is usually waived in case of emergencies so be sure to clarify what the company considers an emergency.
Some companies have their own repair crews and sometimes companies that do not have their own crews suggest that having one’s own crew can result in overcharges. Whether a property management company uses its own crew or preferred vendors, it is important to confirm what rate you will be charged. The following are some examples of the differences in cost.
Repair Crew Example: Management company receives a call from a tenant requesting a leak be fixed. Management company sends their maintenance crew to repair the leak and creates an invoice for $180. Once the invoice is created they charge an additional 15% maintenance fee making the final invoice $207. While this is not unethical if disclosed, it can create a conflict when you realize the average plumber would have only charged $140 for the same job.
Preferred Vendor Example: Management company sends a plumber they work with regularly to repair the same leak described above. The plumber fixes the leak and creates an invoice $140. The management company receives the invoice and charges a 15% maintenance fee making the final invoice $161.
Our Rate: $0.00
Eviction Fee
This fee covers serving notices, dealing with attorneys, court appearances and evictions. Property management companies may charge an hourly rate from $25-50 or a flat fee, usually around $500-600 (plus costs). When asking about this fee, also inquire as to whether the property management company usually hires an attorney for evictions and if so, what that attorney’s rate is.
Our Rate: $0.00
Unpaid Invoice Fee
Most property management companies add a small service charge (usually 1.5%) each month for unpaid, past due invoices.
Our Rate: $0.00
Bill Payment Fee
This is a fee charged to handle the payment of owner bills such as the mortgage, insurance, HOA fees, and the like. Not all property management companies charge a fee for this and many don’t even offer this service.
Our Rate: $0.00
Extra Duties Fees
Some companies charge for extra services not included in the contract should an owner ask they be performed. Such extra duties might include overseeing major renovations to your property or listing your property for sale. These fees vary depending on the duty being performed. For instance, Patrize Properties charges 10% to act as project manager and $35 per trip to get bids.
Co-Broker Fee
When a tenant uses an agent to locate a rental, the co-broker makes a fee which is then paid to the agent and typically ranges from $200-500. This situation usually occurs with short-term rentals or rentals of large estates in which the owner is looking for a specific type of tenant. We make this fee completely optional for owners, as we are able to avoid cooperating with other brokers by not placing the rental on the MLS.
Conclusion
The management company you hire will be overseeing the day to day handling of one of your biggest assets so you want to hire the right company for your property. Before hiring a property management company it is important to understand exactly what services they will perform for you and at what cost to you. While more expensive does not always mean better, keep in mind that cheaper management fee do not usually end up costing you less. The bottom line is to be aware of what fees you are going to be charged and what is included in those fees.
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