Investing in real estate can be a lucrative venture, but managing properties can be a time-consuming and complex task. This is where property management companies come into play. They handle various responsibilities, allowing property owners to reap the benefits of their investments without getting bogged down by day-to-day operations. One crucial aspect to consider when hiring a property management company is their fee structure.
In this article, we’ll explore the percentages that property management companies usually charge as service fees and what factors can influence these fees.
Types of Property Management Fees
When working with a property management company, a property owner will be expected to pay a selection of fees for the services they receive. Not all of these companies operate in the exact same way, so fee types and schedules may differ significantly from one property manager to another.
Let’s review some of the most common types of property management fees. Some property management companies charge each service fee separately while others include many of the services mentioned below as part of the monthly management fee.
It’s also worth noting that many property managers have their fees set according to percentages of a property’s monthly income, but some companies charge flat fees instead. Some also charge percentage-based fees for most of their major services and flat fees for smaller services.
Monthly Property Management Fee
This fee is the most common and covers the basic services provided by property management companies. Throughout the US, a monthly management fee typically ranges from 8% to 12% of the monthly rental income. The percentage can vary based on factors like location, property type, and the range of services offered.
For example, in the Northern Virginia area, the monthly management fee is typically around 10% on average, but in other areas, that number can be higher or lower depending on the factors mentioned.
Leasing Fee
Also known as a tenant placement fee, this is charged when a new tenant is secured for a property. It usually amounts to one month’s rent or a percentage thereof (usually between 25% and 100%). This fee is essential for finding and screening quality tenants.
Vacancy Fee
Some property management companies charge a fee for each day a property is vacant. This is because a vacant unit needs to be inspected regularly in order to prevent damages and break-ins from occurring.
Maintenance and Repair Fees
These fees cover the cost of repairs and maintenance for the property. They can be charged as a percentage of the maintenance cost or included in the monthly management fee.
Lease Renewal Fee
If a tenant renews their lease, some property management companies charge a fee for handling the paperwork and negotiations. This may cost property owners up to $200, but some property management companies charge less or nothing at all for this service.
Eviction Fee
In unfortunate situations where an eviction is necessary, property management companies may charge a fee to cover legal costs and other associated expenses.
Factors Influencing Property Management Fees
As mentioned above, not all companies set their property management fees the same way. Some charge a percentage of the property’s monthly income and some charge flat fees. Some include most of their services with their monthly management fee, and some charge their service fees separately.
There are several factors that influence what sort of fees a property management company might charge, including location, property type, size of the portfolio being managed, and the market conditions in the property’s area.
Location
Property management fees can vary significantly based on the location of the property. In high-demand areas with expensive properties, management fees tend to be higher, while they’re typically lower in areas with less demand.
Property Type
Managing a single-family home involves different considerations than managing a multi-unit apartment complex. The type of property can impact the fee structure.
Range of Services
Some property management companies offer a comprehensive suite of services, including maintenance, rent collection, and tenant screening, while others may provide only basic services. The extent of services will influence the fees charged.
Size of the Portfolio
Property management companies may offer discounted rates for owners with multiple properties. The more properties an owner has under management, the more negotiating power he or she may have regarding fees.
Market Conditions
Economic conditions and the local real estate market can also influence property management fees. In competitive markets, companies may adjust their fees to attract clients.
Hiring a property management company can be a smart investment for property owners seeking to maximize their returns while minimizing the hands-on work involved. Understanding the various fees associated with property management is crucial for making informed decisions. Remember that the fees can vary widely, so it’s essential to carefully review contracts and ask for clarification on any charges you’re unsure about. By doing so, you’ll be better equipped to choose a property management company that aligns with your investment goals and budget.
