If a tenant breaks a lease/wants to leave early, do I keep the deposit or does the property management company?
How about late rent fees? Pet fees/rents? Security Deposits if damage is done to the property?
I’m just trying to get a feel for what money goes in the PMs pocket vs mine? Do they strictly get leasing fees, and PM management % fee??
How it usually works is the PM takes a percentage of whatever the GROSS RENT is. Usually it's in a range of 6%-10% of gross rents each month. For example:
Rent - $950.
Extra Income (Pets) - $50
Total Gross Income - $1000.
8% Management Fee - $80
The PM take whatever the total gross rent is each month, no matter where or from what it comes from.
If the tenant breaks the lease, it still works the same. Whatever % your giving your PM company, that's there fee, period. Some PM's will give you a full refund of the fees you paid them if the tenant breaks the lease early, I know a few PM's in Texas the do that.
At the end of the day, it's whatever % the PM is taking each month from gross rent is what your going to pay them. Whether it's a security deposit or something else.
Some PM charge a monthly fee and not a % of gross rent. One Texas PM companies charges $99/mo per unit for full service property management. There's another good PM in Texas that starts at $78/mo for full PM services and goes up depending on the price.
Do you currently have a PM or are you just wondering how it works when you get one? Either one is fine!
Got three properties in the works.
Thanks this was helpful.
So in the case there is property damage, the PM will still take his/her cut % on those funds that were reserved to fix the damage?
@Aaron Moayed , it all varies on the PM. You will need to interview several to find out your regions norms.
It's extremely important to know every way your PM can earn fees! Here are common factors for how property managers can earn a fee:
- Monthly Fee: Flat rate or percentage of rent. If percentage, Gross rent vs. Expected rent. When it's based on Expected, you still pay them even if vacant!
- Leasing: Often this is 100% of first months rent check. Some will do a flat rate of $500+ or even 75%. 100% is most common.
- Lease Renewal: Ranges from 50-100% of monthly rent or a flat rate of $200-500. Although there are some who do it free of charge.
- Maintenance Markup: Your repairs will take time to coordinate and it's important to know how they mark up on vendors.
- Pass Thru: No mark up and they simply pay the total
- Percentage: A percentage of the work. They shouldn't do this but it's also not uncommon for larger repairs or renovations if they take several days or cost more than $1,500
- Flat Rate: A simple flat fee added regardless of size
- Invoice: It's also important to ask if you get to see the contractors invoice or do they hide that and provide it on their own invoice. They might have a 'pass thru' policy but add the markup onto their invoice so it's top line. This really angers landlords if they're unaware!
- Minimum Charges: If they use an internal maintenance time, make sure they define their minimum trip charge, hourly rate and if you pay OT.
Late Fees: This is negotiated but majority of PM's keep 100% of late fees. A decent amount will split. Very few pass it to the landlord.
Security Deposit: Your PM will want to hold onto this in their trust account. Legally they must keep it in their trust account, although landlords are also legally allowed to hold onto it.
You should expect your management fees to be 20% of NOI, which covers some unexpected expenses. It could be higher depending on the quantity of repairs. The best advice: make sure you completely understand every way they can earn revenue! Don't assume, have them go through their Management Agreement and indicate each clause.
1. It depends on what the lease says the termination fee is. You also need to look through the management agreement to see what they would charge a late fee for. What we would do is either transfer the full deposit to you, or keep it on hand to apply to the rehab. The owner would receive anything that's left.
2. Similar to #1. Look through your management agreement or ask them specifically. Different companies charge fees for different things and at various amounts.
Is it normal for a property management company to keep 50% of Pet rent? What about keeping all late fees?