Once you are prepare to rent out your property, you may require to hire a professional property manager to manage it. By hiring a property management company, you can delegate various landlord duties with property and tenant management to expert rental property managers.
The most crucial things to contemplate when determining whether or not to hire a property manager for your residential property are your budget and the value of your time.
What is a Property Manager?
A person or a management company that handles the elements of running a rental property from day to day or month to month is called property manager is a.
These are some of the duties property managers will normally be responsible for:
- Setting up a solid and complete lease contract according to all your terms
- Choosing the right tenants
- Collecting rent
- Helping you set rental prices for your area
- Clearly organizing finances
- Maintenance issues
- Marketing the rental
- Move-outs and evictions
The specific duties of any property manager you hire will vary based on the agreement you have in place. Not every property will require the same management level, and some multi-unit buildings might require even more.
Excellent property managers must have some flexibility in the services they give so you can incorporate and match to get exactly what you require out of their services.
Factors Affecting Property Management Fees
The amount of the property management cost is based on the amount of work the property management company requires to do to maintain your property in good condition and maximize rental income and worth. For instance, a small multifamily building with three or four units is more labor-intensive for a property manager than a single-family rental home.
Factors that influence the property management fee a landlord will pay include:
- Size of property – based on several units, square footage, or several bedrooms in the home.
- Type of property – such as single-family rental vs. a multifamily building vs. a short-term rental property.
- Neighborhood rating – in general, neighborhoods with higher ratings will draw better tenants and fewer issues than areas where the school districts are poor and the amenities are few and far between.
- Full-service vs. a la carte pricing: Some property management companies charge a lower monthly fee for minimal services such as rent collection and handling maintenance requests, then offer landlords a la carte or pay-as-you-go pricing for repair costs and property inspections, and lease renewals.
- Property condition – older properties usually require more repairs and maintenance than newer homes, even if they have thoroughly update.
- Market competition – also affects property management pricing, with property management fees in some smaller markets being higher due to less competition and choices for landlords.
Property Management Fees
A property management company will help property owners manage their rental property for a price. Fees will differ based on factors such as property type and services provided. Here is an analysis of the fees a property manager may charge.
Initial Setup Fee
This is the cost a property management company will charge to set up your initial account with their company. Not all companies charge the exact fee, but it is usually $500 or less if they do. This fee could also include expenses to inspect the condition of your property and costs to inform tenants that they will be handling the property.
Monthly Management Fee
Almost all the property manager will charge you a fee to manage your property every month. The contract you are upon with the property manager will specify how this fee is calculate and what services the cost includes. Some companies charge a higher monthly management fee, but it may be more inclusive, so do not be put off by a higher initial fee until you understand what is include in this fee.
A property manager may charge a flat fee to manage your property or a percentage fee:
- Flat Fee – A flat fee is a specific dollar amount you pay the property manager each month. The exact number is determine base on the size of your property and the services provide. This flat fee may be $100 a month for a single-family home.
- A 5% fee for a property with $50,000 in monthly rent would be $2500, while a 5% fee for a property with $2,000 in monthly rent would only be $100, which would not even be worth the cost of business for the management company. A 10% fee for the property with $2,000 in monthly rent would allow them to collect $200 instead.
- Percentage of Rent – More commonly, a property manager will collect a portion of the monthly rent as a management fee. The rate collected will vary but is traditionally between 8% and 12% of the gross monthly rent. Managers will often charge a lower percentage, between 4% and 7%, for properties with ten units or more or commercial properties and a higher rate, 10% or more, for smaller or residential properties.
- Rent Due vs. Rent Collect – Make sure your contract with the property manager states that the fee is for rent collect rather than rent due. Otherwise, the property manager will be collecting money even if the tenants are not paying their rent.
Tenant Placement Fee
A property manager may charge a different fee for placing tenants in your property. Again, this could be a flat fee or a percentage of the rent. Half a month’s rent to a whole month’s rent is standard.
This fee can include advertising costs to find a tenant, tenant screening, move-in procedures, and preparing the lease agreement. Depending on contract terms, this fee may be refunded to the property manager if the tenant breaks their lease early or is evicted.
Maintenance fees are generally included as part of the monthly management fee. This could involve keeping common areas clean, removing garbage and snow, and removing leaf. If a specific repair must be made, the cost of the repair will be deducted from the reserve repair fund
- Reserve Repair Fund – This is a separate account that the landlord puts money in for necessary repairs at the property.
- The landlord can choose to authorize every repair deduction from the account, choose only to be notified for repairs over a certain dollar amount, or let the property manager use the account at their discretion.
- A minimum amount must be kept in this account, such as the equivalent of one month’s rent.
A property management contract could include a fee for vacancies. This could be a one-time fee of one month’s rent upfront, or it could be a fee per vacant units, such as $50 per unit.
If you want a property manager to handle tenant evictions, you must pay for it. Expect to spend a few hundred dollars for each removal, plus any associated court costs.
Early Termination Fee
If you break the property management contract early, you will often pay an early termination fee. This fee will vary significantly based on the terms of the agreement. You may only be responsible for paying one month of additional management fees, or you could be taken to court for breach of contract.