There’s an old saying: “If something sounds too good to be true, it probably is.”
And that definitely applies to low-cost property management companies.
If you see a property management company that advertises it provides every service you need for 5%, you’re not getting the whole story. The reason those companies are able to advertise such low prices?
They will slam you with so many hidden fees, you won’t know what hit you.
Let’s take a look at some of the most common hidden fees you’re likely to face when you hire a low-cost property manager — fees that can cost you thousands of dollars more than you were expecting:
The biggest reason a property management company might offer low-cost services is that they’re betting on making their money elsewhere.
In particular, in sales commission on your rental property.
There are a lot of companies out there that will do anything to get you in the door so they can convince you to sell your property — and make a hefty commission as a result. These companies will work it into their contract that if you sell, you have to sell through them — and then they will do everything in their power to convince you that selling is the right move. The commission they make off the sale of your property (typically 3%) more than makes up for the money they lost on the property management side.
These companies aren’t, at the core, property management companies. They’re real estate sales companies that offer property management as a way to attract new clients.
If you want to avoid being constantly hassled to sell your property (and paying a commission fee to your “property manager”), you need to make sure you’re working with a company whose main business is property management. If they’re offering a 5% management fee and a 25% lease-up fee, they’re not in it to manage your property — all they want is the sale.
Another fee a low-cost property management company might charge you? Cancellation fees.
Most low-cost property managers have a stipulation buried deep within their contract that states you need to work with them for a certain amount of time. If you decide to terminate the relationship prior to the end of that time period, they’ll charge you a hefty cancellation fee.
If a property management company wants to penalize you for terminating the contract, it’s not a company you want to work with.
You hire a property management company to do a specific job. If they do that job well, you pay them. But if they don’t do the job well, if there’s an early termination clause in your contract, you still have to pay them.
That just doesn’t make sense.
If you want to avoid getting slammed with cancellation fees, it’s important to think about a property management company’s motives. If a property management company knows they’re likely to be fired, it makes sense to put a cancellation fee in the contract — that way, when they get let go for subpar work, they still get paid.
Read your contract carefully. If a property management company wants to penalize you for terminating the contract, it’s not a company you want to work with.
Another way low-cost property management companies end up making a killing?
A good property management company will be focused on getting the best possible tenants into your property so they can keep evictions to a minimum.
But if a property management company charges a fee for every eviction, there’s no incentive to get good tenants into your property. In fact, there’s more incentive to evict tenants as often as possible — and charge you the eviction fees in the process.
Think about it: if a property management company charges eviction fees, it’s in their best interest to treat your property like a revolving door. They place a tenant, they get a lease fee. They evict that tenant, they get an eviction fee. Then they need to place a new tenant to replace the evicted one, which results in another lease fee, and so on and so forth. And that’s all in addition to their monthly management fee.
You want to work with a property management company that protects your investment and rents to responsible tenants. But if the company is getting paid eviction fees, that won't happen.
If a property management company wants to charge a fee every time they evict a tenant, it doesn’t matter how low their monthly management fees are — it will cost you far more in the end.
Property management companies that charge little to nothing for their management fees might be tempting. But in the end, the hidden fees you’ll have to deal with will make the relationship significantly more expensive than you anticipated — and chances are, you’ll be dealing with a company whose services you’re not happy with.
Working with a quality property management company that’s up front about their fees is the best way to ensure your property is well managed, your investment is protected, and your costs are steady and predictable.
At LEAP, we’re committed to providing the highest-quality property management services to our clients with fully transparent pricing. There’s no termination fee, no contracts, and everything — from tenant screening to contract preparation to evictions — is included in our competitive monthly management rate. Ready to get started? Get in touch today to find out how LEAP can make the property management process simple and effective with the best property management services in the Dallas-Fort Worth area.