One of the biggest challenges that property owners face when hiring a property management company is deciphering their property management fees.
What’s the fair cost of property management? How much should property management cost? How do property managers charge — and how do you know when you’re getting a good deal?
If you’re new to owning property or you’ve never worked with a property management company before, property management fees can feel confusing. What, exactly, are you paying for?
That’s why we decided to put together the complete guide to property management fees. By the end of this guide, you’ll have a clear understanding of what’s reasonable when it comes to property management fees, what’s a total rip-off, and how hiring the right property manager can actually save you money — even after you pay their fees.
Let’s get started!
What, Exactly, Is Full-Service Property Management?
Before you dig into fees and decide what’s fair and what’s not, it’s important to understand exactly what full-service property management means. Property management isn’t a one-size-fits-all service. Some landlords want to pick and choose the services they need; maybe they need help finding tenants, but they can do the day-to-day management on their own. Or maybe they can find their own tenants, but need someone to draft the lease and answer late-night maintenance calls.
On the other end of the spectrum, some landlords want a team to take care of all the facets of management. That’s where a full-service property management company comes in.
Full-Service Property Management Offers Relief From Day-to-Day Property Management Tasks
The main perk of hiring a full-service property manager is that they handle the tedious day-to-day landlord work, like responding to service requests and other resident issues, so you don’t have to. A full-service property management company is the best option if you don’t have the time to manage day-to-day operations at your property (or if you just prefer not to). Some day-to-day tasks full-service property managers handle include:
- Tenant screening
- Utility management
- Repairs and maintenance
- Hiring and managing contractors
- Tenant issues and requests
- Billing, collection, and evictions
- City compliance
- Lease enforcement
- Financial recordkeeping
If you don’t live in close proximity to your rental property, hiring a full-service property manager is a huge value add. Since you can’t be there on a daily basis, it’s important to have someone on the ground who can handle all of these tasks and ensure everything runs smoothly at your property.
In a nutshell, a full-service property management company handles EVERYTHING involved in the process of managing your property.
Understanding Your Involvement in the Property Management Process
It’s also important to understand your involvement in the property management process. Once you hire a property management company, it’s important you give them the space to do their job. If they don’t have the autonomy to make any decisions or manage the day-to-day operations as they see fit, you might as well not hire them.
Instead, you’ll want to give your property management company the autonomy to manage your property using the systems and processes they’ve used to successfully manage other properties. You should obviously make yourself available should they need you for any major decisions, and you can request regular updates if you’d like them, but for the most part, you want a property management company that works independently.
What Are Reasonable Property Management Fees?
As you can see, the value that full-service property management companies bring to the table is huge. But it’s important that you pay a reasonable price for that value.
So what are reasonable property management fees?
Full-service fees range anywhere from 5-10%, depending on what’s included.
Extra Fees Companies Might Add On
With some property management companies, that 5-10% fee might not include everything. Some extra fees to keep a look out for include:
Sometimes property managers include fees for additional visits to the house. That means that any time a client needs someone to stop by the property for a service, there’s an extra charge.
For example, if an alarm went off at your property in the middle of the night and your property manager had to make a visit to shut it off, you would incur an additional trip charge
Tenant Placement Fee
Another extra charge some property management companies slap on their bill is a tenant placement fee —meaning that every time they successfully find and place a tenant at your property, they get paid. If you have a multi-unit building, these fees can quickly get out of control.
No matter how great of a condition your property is in, there will be repairs that need to happen, and they’ll need to happen regularly. Some property management companies charge an extra fee for arranging repairs with outside contractors.
It takes work to get a property ready to go — and a lot of property management companies will add extra fees for that work. Set-up fees can range from about $100 to $300, depending on the condition of the property. If a house is vacant, the fee will usually be less than if it’s tenant-occupied.
The moral of the story is, many property management companies will look for ways to bump up your bill, which is why you want to work with a truly full-service company; a company that’s up front about their fee structure and includes everything in their management fee. A company like LEAP.
Why You Need a Maintenance Fund
One “fee” that pretty much all property management companies will ask for — including LEAP — is a maintenance fund.
A maintenance fund is a sum of cash that your property manager can use at their discretion to pay small bills, like repairs, utilities, and maintenance costs. And it’s definitely something you want to have.
Making a maintenance fund available to your property manager allows them to take care of small financial matters associated with the day-to-day management of your property without having to call you and request funds each time a bill comes up. Not only does this make the property manager’s job easier, but it also makes YOUR job easier; you don’t have to field phone calls or send checks every time something needs to be taken care of at your property. A maintenance fund speeds up owner-approved repairs and saves you the hassle of going back-and-forth with every minor issue at your property.
Think of it like auto-pay; once you’ve approved something with your property manager, they automatically pay it from your maintenance fund rather than you needing to manually approve it each time.
Fees You Should NEVER Pay
Whatever property management company you go with, there are certain fees you should NEVER pay — and if a company asks you to pay them, it’s a red flag they’re trying to rip you off.
Property Sale Commission
The first red-flag fee is a property sale commission. If a property management company requires you to pay them a fee or commission in the event that you sell your home, run in the other direction. Why should you pay a fee to sell a property you own?
The other red-flag property management fee is a termination fee. Many property management companies will write a termination fee into their contact, meaning that if you decide to end the relationship, you need to pay them a fee.
However, most property management relationships end because the property manager isn’t doing an acceptable job in running the property. Why should you have to pay your property manager to end the relationship based on incompetence? Property management relationships should be at will; if they’re doing a good job, you continue to work with them. If and when they stop doing a good job, you should have the right to walk away — without paying a fee.
Obviously, we here at LEAP are committed to providing the highest-quality service to our clients with the fairest fee structure and, as such, we never charge a home sale commission or termination fee.
How Property Management Can Save You Money
Now that you have a better understanding of how property management fees work and what kinds of fees are reasonable, let’s talk about the return on your investment: how property management can actually save you money.
Expert Marketing Reduces Vacancy
The faster you rent your properties, the more money you save. And while it’s easy for landlords to put a sign in the yard or an advertisement in the newspaper to market a rental, it won't get you the kind of marketing traction you need to be effective. Property managers use more effective tactics that lease units faster, find better tenants, and reduce vacancy loss, which saves you money in the long run.
But finding tenants isn’t enough to save you money; as mentioned, your property manager needs to find you better tenants. At LEAP, we have advanced screening tools for local and national background checks as well as credit checks. A tenant’s history is a good indicator of whether they’ll take care of the property, pay on time, and live at your property for a substantial amount of time.
Consistent Inspections Decrease Repair Costs
A huge part of protecting your investment is keeping your property in good condition. A property manager performs regular inspections to make sure your investment is protected and your property remains in good working order.
At LEAP, we inspect the property before a resident moves in to document the original condition. Then we do another inspection six months into the lease term to check in. A final inspection happens once the resident moves out.
Tenants are more vigilant about taking care of the property when they know someone will be around to check. This results in fewer repairs, and if a resident does cause damage, managers document it and charge it back to the resident, saving you money.
The Pros Save You From Legal Costs
Finally, when you hire a manager, you also get their landlord/tenant law expertise. A professional on your side to draft leases and other documents saves you stress and money that comes with legal mishaps.
You can download legal forms from resources like landlord.com, but the forms are basic templates and often exclude terms that someone with experience knows to add. That experience — like knowing not to allow waterbeds, kerosene lamps, or car repair in the front yard — can be of huge benefit to your property. At LEAP, we’ve leveraged our years of experience to create leases that offer the highest protection for you and your property, which will help put money back into your pocket.
Is Property Management Worth It?
We’ve covered the value of full-service property management and how it can save you money. But you might still be wondering, “Is it worth it?” Let’s take an objective look at the worth of hiring a property management company.
It may seem like a better financial decision to manage your own property… until you look at the hourly rate. When you add up the time you spend working for your rental property (especially getting it started), you may be surprised at just how little you’re saving by doing the work yourself. Let’s look at the time investment:
- Setting up utilities (initial set-up and tenant transfer): 1 hour
- Tenant placement: 8+ hours
- Ongoing repairs: 1-4+ hours
- Finding and coordinating contractors: ½ - 1 hour
- Collecting rent and enforcing past-due rent: ½ - 1 hour
- City compliance: 4-8 hours
Total time: 20-25 hours
Let’s add it up. By the time you get a tenant in the property and have one repair, you’ve invested about 20-25 hours. How much is your time worth?
If you make 250K a year, you average about $120/hour. With 25 hours in the rental, you’ve invested another $3K in time on top of what you’ve paid out in expenses.
At LEAP Property Management, our management fees start at $85. And we only get paid if we perform. That means, if your property isn’t collecting rent, you’re not paying.
Is that a good deal? Well, you’re saving around $3,000 and getting more than a full day’s worth of your time back… That seems like a deal you can’t afford to pass up.
Now, obviously you’ll need to get a handle on your cash flow to really understand if you can afford the fees of a full-service property management company. But when you factor in the amount of time and money you’ll save — and the positive impact it will have on your property — investing in property management is a no-brainer.
Are you ready to get started? At LEAP, we bring over 15 years of experience in managing properties in the Dallas-Fort Worth area. With our competitive prices and all-inclusive fee structure, you won’t find a better deal on the market. Get in touch today to learn more about how LEAP can simplify the property management process.