Taking care of investment properties requires a lot of work. Finding tenants, tracking down late payments, attending to maintenance and repairs, and evicting tenants if necessary all take time and effort. For many property investors, hiring a property manager is well worth the property management fees charged. It’s efficient to pay someone else who specializes in this work to take care of everything.
What Does a Property Manager Do, Exactly?
The responsibilities of a property manager can be thought of in two general categories. They take care of tenant-related matters, and building-related issues.
On the tenant side, property managers are responsible for everything from move-in to move-out. Managers list and market available units, screen applicants, show properties, and conduct move-in inspections. They also collect rent, track down late payments and non-payments, and conduct move-out inspections. Evictions also fall to property managers if they’re ever needed, although additional fees might be charged for the extra work that removing a tenant requires.
On the property side, managers schedule any routine maintenance, handle maintenance requests from tenants, schedule repairs and upgrades, and communicate maintenance schedules to tenants. The middle-of-the-night calls over clogged pipes and roof leaks are also answered by managers.
In short, property managers attend to most or all of the work involved in running a rental property.
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How Much Does It Cost to Use a Property Manager?
As a broad guideline, budget 8 to 12 percent of monthly rents for property management costs. Additional fees will be charged on top of this, but most additional fees are expenses that you’d have to pay regardless of whether you hire a property manager. Per-item fees will likely be charged for repairs, landscaping, upgrades, etc.
Exactly how much a property manager’s fees are can vary some. The average cost of a property manager tends to be 8 to 12 percent, though. Some managers may have minimum monthly fees if your rents are low.
Types of Property Management Fees
The cost of a property manager is itemized into distinct fees. There are multiple fees that property managers may charge. The following are some of the most common ones:
- Setup Fee: A one-time contract setup fee covers the cost of putting your accounts and processes in place. The fee can include creating a bank account (if needed), creating a bookkeeping account, applying for required licenses, an initial property inspection, and other initial items.If you have most of these items in place and substantial monthly rents, you might be able to negotiate a property manager’s setup fee.
- Management Fee: The management fee is the 8-12% fee that’s charged on received rents. This fee typically covers the daily work of tenant communications, rent collection, maintenance, and other routine tasks.
- Repairs and Maintenance Fee: Maintenance and repairs might be attended to by a property manager’s own crew, or the manager might call a contractor. In either case, the materials and labor required will be passed on as a repairs and maintenance fee. A property manager shouldn’t be profiting from this fee unless their crew does the work. Even if the work is outsourced, though, they’ll have to pass on the costs that the contractor charges.
As a general rule, budget 1 to 1.5 months of rent for annual maintenance and repair costs, regardless of whether you or a property manager take care of finding someone to do the work.
- Vacancy Fee: A vacancy fee is often charged each time that a unit must be released. The fee covers creating a listing, advertising the property, screening tenant applications, and signing on a new tenant. The fee might be a percent of a month’s rent, or a full month’s rent in more expensive cases.
- Eviction Fee: If a property manager must ever evict a tenant, an eviction fee will likely be charged. The fee is usually a few hundred dollars for the work involved, plus any court costs that have to be paid.
- Termination Fee: Property managers are contracted for an agreed-upon period, which is normally stated in a contract. An early termination fee may be assessed if you end the contract early. The amount of such a termination fee will be stated in the property manager’s contract, and it won’t be assessed if you switch managers only when the current contract ends.
- Late Payment Fee: A late payment fee may be assessed when a property manager must collect late rent from a tenant. The fee is typically 20 to 50 percent of the tenant’s late fee, and paid out of the tenant’s fee. It’s in recognition of the effort that collecting late rent can require.
- Other fees: Property managers may charge a miscellany of other fees, which can include a(n) inspection fee, vacant unit fee, lease renewal fee and others. These miscellaneous fees tend to be smaller and more negotiable than the others listed.
6 Factors That Affect the Cost of Property Management
Property manager costs vary among management firms, but they also vary across properties. Several aspects of a property can impact the cost of property management:
Type of Property
Different fees may be charged for single-family rentals, duplexes to four-plexes, multifamily buildings, vacation cottages, and other property types.
Type of Lease
Rates may be different for short-term rentals (e.g. from an online platform) and long-term leases. The cutoff for long-term is often 6 months.
The physical size of a property affects how much time is required to care for the property. Thus, larger buildings tend to have higher fees than smaller buildings of the same type.
The general area that a property is in can impact fees, as can the general area that the property management company serves. Fees might be higher in expensive cities or exclusive vacation communities.
Market Rental Rates
The average rent for the area can impact what percent property managers charge for their management fee. High rents may allow managers to charge lower percentages, and vice-versa.
The actual services that a property manager provides directly affect how much they charge, but a simple comparison of fees doesn’t necessarily show the cost-to-services ratio. Some property managers have full-service pricing, where one fee includes a lot of different services. Other managers charge a la carte, where you pay for each additional service offered. A la carte services must be added up if they’re going to be accurately compared with a full-service pricing model.
How Property Management Fees Are Calculated
Property management fees are tabulated from many distinct fees, but most of the fees can be categorized into three groups. The total cost of a property manager includes:
- The property management fee that’s 8-12% of monthly rents. This is the largest fee and is ongoing.
- Costs associated with maintaining a property. These would have to be paid regardless, and they’re directly passed onto the property owner. The property manager typically doesn’t make anything on these.
- Occurrence fees are costs that arise due to specific circumstances. Late payment fees, early termination fees, and eviction fees fall into this category. They’re normally not charged, but could be if the manager has to address an issue.
These three groups comprise the majority of what a property manager would charge.
Is Getting a Property Manager Worth It?
Whether getting a property manager is worthwhile depends on what you’re looking for from an investment property, and how good you are at managing the property yourself.
Consider whether you want to manage properties yourself. You clearly should hire a property manager if you don’t have the time or inclination to self-manage.
If you want to self-manage properties, next consider how well you do the job. If you don’t manage properties well, a property manager could likely increase rents received and net profits. You can gauge your abilities by checking your rents received and vacancy rates.
Your rents should be average or above-average. Your vacancy rates should be minimal. If either of these isn’t true, talk with a property manager to see how they might improve your investment’s returns.
If you enjoy and are good at managing properties, then feel free to manage them yourself. If either of these isn’t true, though, hiring a property manager will be a good investment.
A property manager often will pay for themselves, unless you’re an experienced investor who has been doing this for a long time. (In that case, you may well have more properties than you can manage yourself anyway.)
Wrapping Things Up
Property managers charge many fees, but they also do a lot of work. If you have a successful investment property — and especially if you have multiple properties — a property’s manager value will probably far exceed what they charge.