Property Management Fees

Binoculars Searching for a Property Manager
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This is the first part in our series titled What to Look for in a Property Manager.  It's fitting that the first part is about property management fees because that tends to be the first question we are asked when prospective clients ask us at GoldenWest Management about our fees.

Property Management Fees

To answer that question, let's first discuss the various ways that property management companies charge their clients.

The Property Management Up-front Fee

Many property managers will charge a portion of the first month's rent as a “down payment”of sorts for their services.  Basically that money is used to pay leasing or marketing fees. For example, we oftentimes see companies take 1/2 of the first month's rent in addition to other recurring fees. Other companies charge a one time “set-up” which is usually considerably less than a leasing or marketing fee, but is due at the time the management contract is signed.

The Property Management Recurring Fee

The most common form of recurring property management payment is a percentage of the rent collected and is often referred to as the “monthly management fee.”  This is typically around 8%, but can range a few points around that figure depending on the type of property, and the service involved. For example apartment complexes can be managed for as low as 5-6% but often bill for marketing, etc… and have a much large monthly gross rent from which to cover expenses and make a profit from.

Property Management Fees for Services

Some property managers will charge for specific fees.  These include the following:

  • Set-up fee
  • Renewal fee
  • Move-out fee
  • Maintenance oversight fee
  • Inspection fee
  • Printing and Postage fee
  • Court appearance
  • Advertising (Letters, Flyers, Mailers, etc.)
  • Direct-Deposit Fees

Other Fees from Property Managers

Monopoly Money
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Some property managers also make a small profit from the Tenants. Tenant admin fees, late and notice fees, in addition to other administrative costs. Sometimes these fees are split with the owner, but the ability for a Property Management firm to profit in other ways only helps limit the amount they need to charge their clients…YOU THE OWNER!

The Bottom Line

Read the Fine Print

Trying to compare property management companies and their fees is often times like comparing apples to oranges:  Not all fees are alike.  For example, Company A may charge 10% in monthly management fees, versus Company B that may only charge 7.5%.  At first glance, Company B seems like a less expensive option.  However, read the fine print in the property management contract and you discover that Company A splits the late fees and fines collected from the Tenant with the owner and Company B does not. Some property management companies have a tendency to “nickel and dime” their clients. Company B, may only charge 7.5% to manage their clients' properties, but will also charge their clients for letters, flyers, direct deposits, and keep all fines and fees, inspections, etc.

Ask about Set up fees, annual fees, and renewal fees – these are important because some companies like to “hide them” and then when they are deducted from your gross rent you feel blindsided.

Lastly, ask about termination fees. If a company charges a leasing fee, they usually don’t have high termination fees, because they earned commission up front for finding you the Tenant. But companies who don’t charge many upfront fees have to include a guarantee that they can keep all the prospective management fees that will come with leasing the property (most leases are for a year so think 12 months of management fees). Cancellation fees can range from a few months to as draconian as a whole lease term in management fees…again just make sure you read the fine print and know what you will owe should you decide to take your property elsewhere.

Work with a Manager you can Trust

The bottom line is that all property managers get paid for their services.  They have employees to pay, overhead costs to cover, and families to feed.  Some charge a leasing fee and some do not. Some collect in the form of a set up fee, "Admin Fee," or an annual fee.  But the true difference is in the integrity of the company, and the way they conduct their business.  Look for the companies that are up front with their Fees;  Look for companies where you know that if you need to get the Broker on the phone, it won’t be like pulling teeth, Look for a company that prides itself with good communication; Look for a company like GoldenWest Management.

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