As any real estate owner, investor, or landlord can attest, sometimes what appears as a simple cost on paper can turn out to be a major benefit. In other words, a little red ink can make for a lot of black in return. The term “fees” can seem like a scary term many are reluctant to deal with. However, these small costs of doing business tend to reap enormous returns for owners. It’s important for those owners to know what exactly those fees entail, so that they have appropriate expectations when preparing to work with a management company. Here are some of the most common fees associated with this kind of partnership:
Types of Property Management Fees:
- Management Fee-For most property managers, this fee is most crucial in ensuring sustainable, high- quality service for the owner. Management feeds can range anywhere from 4-12% of the monthly rent charged to a tenant. So, on average, it is reasonable to expect a fee of about 10%. Alternatively, other models may leverage flat fees. Some factors that may cause for fee variance include the diversity and quality of an owner’s portfolio, and the market in which the property exists (i.e. management fees in Anchorage, Alaska will vary from the San Francisco market, therefore changing the expected fee).
- Leasing Fee- Also called “placement fees.” A leasing fee allows the property manager to effectively attract and land quality tenants. It covers the cost of marketing the property and showing it to prospective renters, as well as the time and effort associated with reviewing applications, screening applicants, and processing lease paperwork. It varies from company to company in regards to what they charge for leasing fees, ranging from 50-100% of your tenant’s first month’s rent.
- Vacancy Fee Some firms charge a monthly fee for vacant dwellings. Even without a tenant, it is the responsibility of the manager to make sure an owner’s property is in livable condition and ideal for move-in. These fees can, of course, be prorated once a tenant is landed. Vacancy fees come in different forms; they may be the same amount as the regular management fee or a separate amount. Be sure to review the terms of vacancies with your prospective property manager, and check the language of any vacancy fee clauses: Does it say “rent collected” or “scheduled rent/rent due”?
- Set-up Fee: This is a one-time fee that allows the manager to fully prepare your account with them. This can take time and effort, but if management is leveraging tools like digital technology to streamline communications, the cost can be completely worth it.
- Maintenance Fee: If the management company uses their in-house maintenance crew, this can be a positive thing. It ensures quality control and understanding of expectations from everyone involved in making your property stand out.
Remember, these fees need not be considered a “nickel-and-dime nuisance.” Rather, they help guarantee that the property management company upholds their obligations as defined in your contract. If you pay for quality assurance, your local property manager should be prepared with a variety of assets to take care of business. As an owner, it is your right and responsibility to ask a thorough battery of questions. By thoroughly vetting a qualified local property management company’s fees, your partnership is more likely to grow into one that garners positive results and success for all parties involved.
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