Property Management Fees Explained

Property Management Fees Explained

You are on the precipice about to take a leap of faith by putting one of your highest value assets into the hands of a property management company. While it is essential to know what their fees cover, you first want to make sure that you have chosen your property management company wisely. Hopefully you will have done your homework and not just chosen the company offering the lowest fees. 

Understanding Property Management Costs

Companies offering the cheapest deals might be doing so because they do not offer all of the standard services, or in the worst case scenario they might be wanting to undercut all of the competition. This could mean that they are going to be working on a tiny profit margin and might end up delivering a lower quality service. You don’t want companies looking after your property to be overloading their managers in order to make a buck. You might end up getting what you paid for…an extremely low standard of customer satisfaction. 

Don’t forget that all fees are negotiable so choose your best option for the job, and see how they can assist you with a rate that works for all concerned. 

Here is a list of the fees you could incur. When investigating whether a property management company is the right fit for you, ask them about the following fees…

1. Management fee:

  • Between 4-12% of the monthly rent
  • The percentage will change with the number of properties and units you want managed.
  • The location and condition of your property will also play a role in the final percentage agreed upon.
  • Fees vary between different neighborhoods and cities.
  • Ask the company if you will receive a bill or if the fees will be deducted directly from your account

2. Vacancy fee:

  • This is not usually required. If this fee is charged make sure you understand the intricacies of it.
  • A company can charge a monthly vacancy fee ($50). Some management companies might charge their full fee even though there are no tenants and so no rental received. 
  • The contract should ideally state that management fees are only to be paid from “rent collected” instead of “rent due”. This protects you in the event of a tenant who stops paying their rent.

3. On-boarding Fee:

  • This fee is charged to set up your new account with the property management company. ($0 -$300).
  • Ensure you find out if the fee is charged per unit or per property.

4. Leasing fee:

  • This amount is paid for the costs and time spent by the manager on procuring your new tenant. This could be anywhere from 25% to 100% of the first months rent. (50% is standard)
  • Some owners insist on the fee coming out of the management fee so that there is incentive for the manager to find long term tenants. 
  • You know you have found a great property management company when the management fee and not the leasing fee are their primary profit generators. 
  • Look for a policy where a leasing fee will only be charged once per 12 months per unit.

5. Advertising fee:

  • Sometimes a fee of $100 -$200 could be charged in addition to the leasing fee for specific marketing initiatives. Make sure you find out if this fee is charged at the property management company.  

6. Lease renewals:

  • When property management companies draw up the paperwork to renew a tenants lease they could charge up to $200.
  • This should not be a big administrative job so be wary of companies who charge a huge fee for this service.

7. Maintenance fees

  • Make sure you set up a policy where the property manager must contact you if the maintenance is going to cost more than $500 –or whatever figure you are comfortable with paying. 
  • In case of an “emergency’ and they have to go ahead with the expense, ensure that they have clearly defined what constitutes an emergency maintenance procedure. 

8. Eviction fee:

  • These fees come into play for serving eviction notices, dealing with attorneys and court appearances.
  • These fees are generally charged at an hourly rate of $25 -$50.
  • A flat fee for the eviction process could be between $500 -$600 excluding court costs. 

9. Unpaid invoice fee:

  • A service charge of around 1.5% can be added monthly for any unpaid invoices that are past their due date.

10. Sales commission:

Find out if the property management company is earning additional income from your property like pet deposits, lease violation fees, returned checks, interest on security deposits, income from vending machines. 

The Best Protection for Your Investment

This is a long list of possible fees that you could end up having to pay. Make sure you understand how your chosen property management company charges for each of them so you don’t get any nasty surprises down the line. A property management offers a great layer of protection for your property investment and handles the hassles of the day to day running of your unit/s. They can take away the stress of dealing with tenants and handle all maintenance issues with ease. Take the time to invest in an outstanding property management company in Colorado Springs that will look after your asset responsibly. 

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