To many landlords, property management services are superfluous, cutting their profit margins to a minimum in exchange for basic services. But the reality is that property managers can make your life extraordinarily easier—and most charge a reasonable enough rate that you can draw a monthly profit from your properties (headache-free).
However, when you’re searching for a property manager to handle your landlord responsibilities, it’s important to note that not all fee structures are the same. If you don’t understand how a manager’s fees work, you won’t be able to compare apples to apples, and you might end up shaving your profit more than necessary if you aren’t prepared for those fees when they come up.
Download Your FREE guide to evicting a tenant!
We hope you never have to evict a tenant, but know it’s always wise to prepare for the worst. Navigating the legal and financial considerations of an eviction can be tricky, even for the most experienced landlords. Lucky for you, the experts at BiggerPockets have put together a FREE Guide to Evicting Tenants so you can protect your property and investments.
9 Fees to Watch For
These are some of the most common “hidden” fees, extra fees, and differences in fee structure to watch for when comparing providers or finalizing a contract:
1. Rent Due and Rent Collected
Many property managers will charge fees as a percentage of rent, but watch how this is worded—there’s a difference between charging as a percentage of rent due and a percentage of rent collected. A percentage of rent due means your company will charge you based on how much money a tenant owes you; a percentage of rent collected means your company will charge you based on how much money a tenant actually pays you—and is generally more favorable. If you’re charged based on rent due, you’ll end up paying for property management even when your property is vacant and you have no money coming in.
2. Early Cancellation
You may also be charged an early cancellation fee should you break the contract with your property manager before the end of its outlined term. For example, if you agree to work with them for a year and you want out after eight months, you might pay an additional few hundred dollars. Be especially wary of this fee with untested property managers.
3. A La Carte Management Fees
“A la carte” management fees refer to a suite of extra fees a property manager may charge you in addition to basic services. Usually, a property manager will either charge a higher price (and no additional fees) or a lower price, with multiple additional fees, somewhat evening out. Accordingly, it pays to know what fees are applicable and what they might run you. The remaining items in this list could all be classified as a la carte management fees.
If a company isn’t charging you the full cost of management while your property is vacant, there may still be an additional vacancy fee. Rather than collecting a percentage of rent due, they may collect a smaller amount from you as a kind of retainer.
When it comes time to seek a new tenant, some property managers may charge you an additional advertising fee. This would cover the cost of creating media (such as taking photos) and placing it on sources like online listings or paper publications.
A leasing fee may apply when you find a new tenant for your property. This covers the cost of drafting and securing a new lease agreement and is generally low in cost. If the cost here is high, it should raise a red flag, especially if your resulting tenant turnover seems to increase.
7. Lease Renewal
Lease renewal is even simpler than initial leasing, but it may still require a fee. You may need to draw up new paperwork or renegotiate terms with a tenant, and that means your property managers will be doing a bit of extra work. Expect minimal fees here as well.
Property management fees should cover basic instances of maintenance and repair, but some companies may charge extra for big jobs, or for an inspection between tenants.
Eviction can be a messy process, and if you ever need to evict, you’ll be grateful you have a property management service in your corner. Most property managers will handle the eviction completely on your behalf, but some will charge you an extra fee for the extra work involved. Expect to pay at least a few hundred dollars for this process.
Apples to Apples
Different companies might charge money in different ways, but if they’re offering similar services, you’ll likely find the bottom-line price of each to be competitive with one another. The big difference here is how you plan on using your property management company; for example, if you’re looking for long-term arrangements, an early cancellation fee shouldn’t factor much into your decision. Try to consider all these factors and all price points when comparing providers and making your decision.
Any other “hidden” fees you’d add to this list?
Leave your comments below!