Hiring a property manager for your rental property can be one of the best decisions you make to protect your real estate investment - but how much do property managers really charge? While property managers typically charge a percentage of received rent as compensation for their services, many new landlords do not realize that property managers may also charge different types of fees in addition to this standard commission. It is important for you as a homeowner searching for a management company to fully understand the property manager’s fee structure to protect your financial bottom line.
Understanding Management Fees: What to Ask
When you’re getting ready to hire a property manager, ask them the following five questions to avoid unexpected and unwelcome costs down the road.
1. What are the up-front costs to work with you as my property manager? Do you require me to put money in an escrow account?
Many property management companies charge initial marketing and administrative costs just for signing a contract with them. These fees go toward on-boarding costs, listing photography, third-party marketing, systems fees, etc.
Additionally, the manager or company could require you to set up an escrow account with a particular amount of money in it. This money would remain yours, though it can be used to cover unexpected maintenance or repair costs that you might otherwise be financially unprepared for.
2. Do you charge a leasing fee?
Once your prospective property manager has found you a tenant, do they charge an extra fee for securing that tenant? In many situations, property managers will take a flat leasing fee on top of their monthly management fee.
3. Do you charge a management agreement renewal fee?
Perhaps the prospective property manager charges a much lower percentage than their competitors. The catch? Just a $1,000 annual fee when your management agreement renews.
Don’t get caught between a rock and a hard place by having to shell out additional money at the end of the year or scramble to find a replacement company.
4. How do you bill for maintenance response and repairs?
Is your property manager’s time to respond to a tenant’s maintenance request included in their monthly management fee? Or will you be billed at an hourly rate every time your tenant calls?
5. Do you mark up third-party contractor bills?
Property managers will often mark up invoices from outside contractors that they have paid on your behalf (such as HVAC bills) to cover the cost of the time they spent facilitating the transaction. If the property manager makes any payment on your behalf as the owner, find out if you’ll be expected to pay a percentage on top of the original invoice.
Stressed about some of the challenges of owning a rental property? Check out this Redfin article (featuring CGP!) with some great tips and solutions.
BONUS QUESTION
6. May I review your management agreement?
The most important question to ask a property manager is this: “May I review your management agreement before making a decision?”
Take the time to read the entire agreement over, making sure you understand how your property will be handled if left in the hands of that particular property manager. If anything seems like an extra fee or expectation that wasn’t previously clear, ask about it. If necessary, have your lawyer review it. You might be able to negotiate in some areas, but remember that contracts are meant to protect both sides - don’t expect a property manager to re-write their management agreement to meet all your requests.
THE BOTTOM LINE
Do your due diligence. Don’t be caught off-guard when you receive your first invoice from a property manager. Just because a property manager has a low management fee up front, they won’t necessarily cost you less in the long run.
Your property goals matter. When deciding which property manager to hire, how you want your property handled and how much involvement you want as an owner are the biggest considerations. If you want to save money, you, as the owner, will need to be more heavily involved with the property yourself. Paying a bit more can give you that peace of mind and hands-free income, but still requires you do all the necessary research to solidify a mutually beneficial agreement.
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For owners who don’t need or aren’t yet ready to hire full-time property management, CGP Real Estate Consulting provides alternative flat-fee landlord coaching and limited management services.
For owners seeking full-time property management in Virginia Beach, Norfolk, or greater Hampton Roads, CGP assists in identifying the right management company for their specific needs. If you are searching for property management or landlord services - we’d love to talk.