Paying property management fees for someone else to manage your rental property can save you time and money. Management fees are typically between 4% and 10% of gross monthly rent, plus fees. Some companies charge a flat monthly rate of $100+. Fees include advertising, screening tenants, handling leases, coordinating repairs, and responding to tenant emergencies.
How Property Management Fees Work
Your monthly baseline fee covers the day-to-day management of your property and includes things like handling rent, paying bills, communicating with tenants, coordinating repairs, conducting inspections, and responding to emergency maintenance calls. The monthly management fee is usually a percentage of the gross collected rent, but you’ll also find rental property managers who charge a monthly flat fee of $100-$300.
Property management fees vary depending on the type of property. Standard property management fees for residential properties typically run between 6%-10% of gross monthly rental income, while commercial and industrial fees are around 4% of gross monthly rental income. If you own multiple rental properties that you would like a property management company to manage for you, they sometimes will offer lower or discounted fees.
Most property management companies deduct their fees before forwarding the proceeds to the landlords. You may wish to handle some items yourself, such as collecting rents and paying bills, while allowing the property management company to handle tenant calls, leasing and evictions, and coordinating repairs and maintenance. If you live far from your property, or don’t have time to manage the day-to-day operations, you may want the property manager to handle everything.
When to Hire a Property Management Company
Hiring a property management company may be right for you if you own a lot of rental properties, want to be less hands-on, feel overwhelmed by many tasks, don’t have the skill set to manage the property, your time is limited, and you can afford it. Hiring a property manager allows you to earn cash flow and build equity in a property or manage rentals from a distance.
Some cases where property management companies can be especially helpful include:
- Managing out-of-state properties: If you don’t live near your property, it can be challenging to manage both the day-to-day operations and other issues as they arise. Hiring a property management company near your property can save you time and money from travel and delayed response time.
- Growing a portfolio: When you’re trying to stabilize and buy more rental properties, a property management company can manage your current properties, freeing up time for you to focus on building your portfolio and increasing profits.
- Maintaining commercial properties: Commercial properties tend to have more complex legal and building code requirements and additional maintenance to common areas. A commercial property management company can handle operating and maintaining your commercial property, including increasing its value.
- Things are slipping, or you encounter tenant problems: If your property becomes unmanageable and you’re slipping on managing it or you encounter tenant problems, it may be a good time to consider hiring a property management company to turn it around.
The best time to consider hiring a property management company is before you buy rental property. By doing so, you can be sure to budget standard property management fees into your cash flow projections. If you already own rental property and are considering hiring a property management company, it’s not too late to review your property financial statements and decide if hiring a property management company makes sense for you.
Types of Standard Property Management Fees
Standard property management fees vary, so you’ll want to compare their services to find which one will best align with your needs and your budget. For example, you may want the property management company to handle all aspects of finding and retaining tenants, but you may want to do routine maintenance yourself. What you pay, how much, and when varies with each company, so do your homework.
Here are some examples of property management fees to include in your budget:
Baseline Management Fee
Property management companies charge 6% to 10% of gross monthly rents. This range varies by location, type, and size of property. They draw this fee each month from collected rent and will pay you the balance, less any outstanding additional fees owed. Baseline fees typically include the day-to-day management of your property, bill paying, collecting rents, conducting inspections, responding to emergency calls, and coordinating repairs.
Leasing fees are typically equal to one month’s rent or a percentage between 25%-75% of gross monthly rent. Example: Property Management Company X secures a tenant for your vacant unit with a monthly rent of $1,500. Company X will charge you from $375 (25%) to $1,500 (one month’s rent). This fee is typically collected from either first or last month’s rent after they collect it from the tenant.
Repair Reserve Fund
Many property managers charge a repair reserve fee — typically about 1.5% of gross monthly rent. Property management companies may require you to advance all or a portion of these reserves upon signing an agreement, which they will use for repairs as needed. Some landlords ask to be notified of repair costs above $100. If a repair costs more than the reserve, you’ll also need to pay those costs, usually upon receipt of the bill.
Not all property management companies charge lease renewal fees, but you can expect to pay up to $200 per unit if this fee is charged. The lease renewal fee includes doing a rental market analysis to ensure tenants pay current updated market rental rates, create new leases and documents, and acquire tenant signatures. Lease renewal fees are collected from the first month’s rent of the new lease or billed after a new tenant is secured.
Sometimes this fee is included in the leasing fee, so be sure to ask. You can expect to pay $100-$200 if the property management company has an effective marketing strategy. Property managers will advertise your property in the local paper, on their website, and may list with online apartment sites such as Craigslist, Apartments.com, Facebook and Zillow.
To budget standard property management fees, it’s important to ask property management companies to review their fee structure including all the various types of fees they charge, how these fees are collected, and when they are due. Before entering into a property management agreement, you want to be clear what your upfront costs are and any additional costs you may incur during the year.
Property Management Contracts
When searching for a property management company, be sure to ask each one if you can review their property management contract in advance. Make sure you understand what both the manager and landlord responsibilities are and how the landlord is protected if the manager does not fulfill their contractual obligations. You also want to clearly understand what is and is not negotiable, so you can make sure it will fit your budget and your needs.
Landlord and Property Manager Responsibilities
The property management contract should specify which services landlords will receive and how those services will be performed. Typically, the management company will be responsible for things like finding, screening and retaining tenants, marketing your property, setting and collecting rent, managing tenant and landlord funds, bill paying, inspections and maintenance, and responding to emergency calls.
The contract also specifies what the landlord will be responsible for. Most contracts state that you will carry the right amount and type of insurance. It will include your financial obligations regarding fees, maintenance reserves, and that you will ensure the funds never drop below a certain amount. You likely will be prevented from placing your own tenants. This protects the management company from having to manage a tenant that may not fit their guidelines.
Lastly, property management contracts should also outline which services are not included. Services not included may be available at a different billing rate. For example, processing tenant evictions may not be included in the contract but could possibly be negotiated. Rehabilitating or remodeling units and common areas, or restoration from flood or fire are other examples of what would not be included in the management contract.
Property Management Fees & Costs
Some items included in the contract may be negotiable. However, it’s not in your best interest to nit-pick the contract. For example, if the management company forbids landlords from selecting their own tenants, you can ask if you can refer tenants to them for screening at a reduced fee since they did not have to acquire that tenant.
Here are some other items you may be able to negotiate:
- Multiple Properties: If you are going to hire a management company to manage multiple rental properties you may be able to negotiate a reduced fee.
- Percentage of Rent Due: This fee means the property management company gets paid whether you have vacancies or not. Negotiate this to a flat monthly fee or percentage of monthly rent collected, which is more common.
- Leasing Fees: A leasing fee is paid when the property manager rents your apartment and is typically equal to one month’s rent. You can negotiate the amount or ask to receive a full or partial refund if the tenant breaks the lease.
- Length of Contract: A property management contract can be month-to-month, several months, or a year or more, depending on the type of property. You may be able to negotiate the terms.
- Advertising Fee: Know upfront where property managers advertise and how much they spend. If you’re being charged both a leasing fee and an advertising fee, see if the advertising fee can be dropped. Ask if they include free advertising on sites like Craigslist, Facebook Marketplace, and on their website.
- Lease Renewal Fees: Negotiate to have this fee dropped or at least made nominal.
- Setup or Onboarding Fees: Some companies charge a one-time fee to set-up your account. These fees can be up to $300. Ask if it can be waived.
- Reserve Funds for Repairs: Most contracts will include a clause where you can elect to be notified before the property management company schedules repairs and unplanned maintenance, and you can specify a dollar threshold at which you want to be contacted.
There are potentially many other fees and areas of the contract that can be negotiated, but don’t hire solely on price or based on who is willing to negotiate or drop the most fees. If you find a good property management company that carries higher fees it may save you more time and money in the long run by them using their proven systems.
Which Property Management Fees to Negotiate
With so many different services and fees, you may be wondering which you should negotiate. Earlier, we discussed creating a budget that includes property management fees, so you should have a good idea of what you can afford. You’ll have to get clear on what you need from a property management company and see that it fits within your projected budget.
Determine which services are “must-haves” and which you can do without. Also look to your projections and see if there is a way to increase revenue and/or decrease expenses to cover the standard property management fees. For example, has it been a while since you increased rent? Could you add coin-operated or vending machines or paid storage? Are there ongoing expenses you may be able to negotiate for reduced fees or drop all together?
If you approach negotiating the property management agreement with a set budget amount in mind and let the property manager know what you can afford to spend, you may be able to work together to negotiate what works for both of you.
Pros & Cons of Hiring a Property Management Company
While there are many pros to hiring a property management company such as freeing up your time, saving money, avoiding the dreaded middle-of-the-night calls, and having someone else handle evictions, there are also cons. Property management fees cut into profit margins, take away some control of your rentals, and turn it over to someone who doesn’t care as much about your property as you do.
Pros of Property Management
Here are a few pros to consider when hiring a property management company:
- Saves time, and maybe money: Having someone else manage your rental property saves you time, and can also save you money with fewer vacancies. Property managers have an established pool of vendors and contractors for maintenance and repairs, and a well-managed and maintained property is typically higher in value.
- No emergency repair calls: Every landlord has a story about the middle of the night phone calls from tenants with leaking or frozen pipes to bats flying around inside the unit. The property management company or their call service will respond to these calls, leaving you to a good night’s sleep!
- Handling evictions: Good property management companies screen tenants reducing the need for evictions. When a tenant needs to be evicted, property management companies have a systematic approach and know the legal procedures that need to be followed.
Cons of Property Management
In addition to the advantages, some cons of hiring a property manager include:
- Fees can cut into profits: Property management fees can cut into your profits. If you include property management fees into your cash flow projections before buying rental property, you can budget for these costs and ensure they align with your goals.
- Give up a lot of control: if you are the type of landlord that needs to be involved in the daily operations of your property, you may want to reconsider hiring a property management company. Some management firms allow landlords to choose certain management duties and turn the rest over to the management company.
- No one cares about your property like you do: While a reputable property management company will do a good job of managing your rental property, no one will ever care about it as much as you do.
Cost of a Property Management Company vs Property Management Software
Many landlords who want to work with a property manager hire small local companies to collect rent and coordinate maintenance. However, in addition to traditional property managers, there are also online property management companies designed to help both landlords and traditional property managers.
DIY landlords, or landlords who don’t have a budget to hire a property management company may prefer online property management software, because it is typically more affordable. Keep in mind, however, the money you save by using online software will be paid for in the time and effort that will be required.
Property Management Alternatives
Hiring a property management company may not be right for you if you’re looking to be completely hands-off with managing your rental property, since it will still require you to review and sign documents and make decisions about your tenants and the property. If you prefer a more hands-off approach you may consider investing in real estate through crowdfunding or REITs (Real Estate Investment Trusts).
Real estate crowdfunding pools small amounts of money from multiple investors to finance a property or portfolio of properties. Funds are invested in either debt or equity in return for a portion of the project, and investors are paid in monthly dividends. In some cases, an investment can be as low as $500, which minimizes the risks of investors losing money.
Real estate investment trusts (REITs) are corporations that own or finance investment properties. REITs pay 90% of their annual profits in dividends to their investors and have a low tax rate. Profits typically come from rental income and/or interest income. Real estate investment trusts can be either publicly-traded or privately held. REITs give you greater liquidity than owning physical property, and like crowdfunding, have a very low risk investment threshold.
Property Management Fees Frequently Asked Questions (FAQs)
Below, we’re going to answer some of the most frequently asked questions on property management companies and fees. If you have additional questions or would like to comment on the subject, visit the Fit Small Business forum.
What’s included in the monthly standard property management fees?
Property management fees may be a flat fee of $200 – $300 or 6% to 10% of gross monthly rental income. Monthly base fees may include the day-to-day management of your property, bill paying, collecting rents, conducting inspections, responding to emergency maintenance calls, and coordinating repairs. There are other fees for additional services.
Who handles calls in the middle of the night?
Property management companies handle middle-of-the-night calls, so you don’t have to. Typically, they are on-call 24-hours a day, seven days a week, and likely have a call service to field incoming calls. They will assess the situation and determine if emergency measures are needed, and either resolve it or contact you first.
How do property inspections work?
Property management companies will perform inspections at the beginning, midway through a tenant’s lease term, and when a tenant moves out. They also may do inspections at other times per owner request. Periodic inspections of the rented units are highly recommended for preventative maintenance and to see if there are any tenant damages.
Understanding standard property management fees is important for real estate investors who want to own rentals. Property management fees vary significantly based on the type of company and services you use. Hiring a property management company, if done right, can help you save time and money.