There is not a standard price for property management of investment real estate, so how do you know if you are overpaying as a real estate investor?
As a wholesaler of investment property, we help real estate investors contract with local property management companies. So, the cost of property management is an issue we address all the time.
To help investors learn whether they are paying a fair price for property management, this article overviews the cost of property management, with help from a two-part article by Jordan Muela.
Price Varies Based on Services Provided
There is not a universal price for property management, partly because of competition in the industry, and because management companies offer a variety of services.
Some real estate investors hire a property management company to do everything relating to management of the property, and other investors only have a management company provide a few select services.
Therefore, the most significant variable to the cost of property management is the specific services the management company provides.
Basic Management Fee
While some property management companies charge a flat fee each month for their basic service, many charge a percentage of the monthly rent, which typically runs 8-12%.
Possible Fees That May Be Negotiable
- Vacancy Fee: While not every firm charges a vacancy fee, you can expect this if you begin negotiating with a management firm while your property is vacant. This covers their costs for finding a tenant to occupy the building.
- Tenant Occupied Unit Fee: You may find that some firms only charge when the unit is occupied, and the fee may be reduced or nonexistent if the unit is vacant.
- Leasing Fee: Some companies charge a fee for leasing the property to a new tenant that’s usually equal to 50-100% of one month’s rent.
- Maintenance: Some firms have their own full-time maintenance crew and charge landlords a set hourly rate for maintenance. Clarify the services provided by the property management company, and set a max budget for maintenance. Also, understand your contract with the property management company regarding using third parties for maintenance.
- Evictions: Property management companies typically charge a flat fee of $200-$500 per eviction, in addition to court costs.
- Late Payment Fee: Many firms charge tenants a fee for late payments, and the firm may keep a portion of the fee.
Miscellaneous fees can add up quickly, often coming as a surprise to owners who do not understand the details of their property management contract.
For example, a property management company may charge an advertising fee, annual inspection fee, lease renewal fee, and a fee for paying bills relating to the property,
A property management company may also hold funds in reserve, in order to have cash on hand to pay operating expenses.
Understand the Contract
It is very important to understand the precise language of a property management contract, and well worth having an attorney review the contract.
For example, the difference between “rent due”, “rent collected”, and “scheduled rent” may seem insignificant, but it’s very important. Because, a management company that is paid based on “rent collected”, as opposed to “rent due” or “scheduled rent”, is more incentivized to keep the property leased to paying tenants.
To learn more about the cost of property management, review Jordan Muela article in ManageMyProperty.com.
Graystone Investment Group
Graystone Investment Group is an experienced Investment Group, wholesaling single-family and multifamily investment properties in metro Tampa Bay.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.