Understanding Management Fees when Owning an Investment Property
For most rental property owners, deciding whether or not to use a property management company to manage their properties is a big decision. While a lot of investment property owners self-manage, a property management company is a good way to secure rental income without the stress and much less dedicated time. The trade off of course is the payment of management fees.
Property managers collect fees for the services they provide. They handle the stress and worry of screening perspective tenants, leasing properties, dealing with tenants, taking care of repairs, facing evictions, and knowing the legalities of rental properties, all for either a flat fee/cost of services or a percentage of the owner’s rental income. These management fees often break down into the following nine categories.
A leasing fee is charged to owners to cover the cost of advertising a vacant property, showing the rental, reviewing applications, screening tenants, processing lease paperwork, and preparing the property for move-in. These can sometimes be referred to as placement fees.
Monthly Management Fees
A monthly management fee is collected for performing all services associated with handling and processing rent payments, property inspections, managing maintenance requests and emergency maintenance calls. These fees typically range from 6-10% of collected rent on a property.
Some professional property managers charge a fee even if the rental unit is vacant and not making any rental income. These types of fees are usually small flat fees, and not all property managers charge them.
An on-boarding or setup fee can sometimes be charged as a one-time fee used to establish a new partnership with management and to set up a new account. They vary depending on the management company and not are always charged.
When a tenant pays rent late and incurs a late fee, some management companies can choose to collect all or a portion of the late fees charged to your tenants. They can also pass along 100% of late fee charges to the owner instead.
Some property management companies charge a markup for the cost of services when maintenance is needed on a property.
Lease Renewal Fees
Some property managers charge fees when a tenant decides to renew their lease on a property. These can be a flat fee or a full month’s rent. When it is charged it’s usually similar to a leasing fee.
Evictions take up a lot of time and energy, especially when courts get involved. Often management companies will charge fees based on the amount of effort and time it took to remedy or process an eviction. However, dealing with evictions is often the main reason that investment property owners choose to utilize a management company. They are complicated and take a fair degree of legal knowledge.
Other Income Fees
Some management companies choose to keep all, some, or none of the income associated with returned check fees, rental income for pets, lease violations fees, unpaid invoice fees, bill payment fees, or income from laundry or vending machines.
Sometimes property owners may feel that property management fees, regardless of the kind, are unnecessary. However, when a manager is needed to handle tricky, time consuming, or stressful situations, many owners realize how helpful property managers are. Professional property managers like Martin Feinberg can be a vital aspect of keeping an investment property financially viable.