Property Management Fees, What does Property Management Cost

Property Management Fees: How Much Does Property Management Really Cost?

It’s 3 A.M. and your tenant is calling you again.

This time, you’ve had it.

You’re going to hire a property management company and make sure that this is the last time you are ever roused from your slumber by a tenant.

You’re happy, and you should be. Frankly, most rental owners would benefit from a property management company. It frees up your time and allows you to live a life free of day-to-day management responsibilities. This enables you to spend more time with family or seek out new real estate deals.

Then the fear sets in.

What if you make the wrong decision?

What if your new property management company cuts into your profits with hidden fees and marked-up maintenance?

Let that fear go, you’ve come to the right place. Here, we will outline all of the fees that are regularly charged by property management companies.

Our goal is to make life easy for you. We know property management agreements (PMA) are difficult to read. They are mostly written in legalese.

Not only that, but the content is dry and it is tiring to sift through them. Trust us, we know, we read over 20 while researching to write this article.

Never fear, we soldiered on and with 3 pots of coffee in our veins we made it through with the knowledge you need to protect yourself from overpriced fees.

One quick note: as you read, remember that fees are only good or bad relative to the whole management package. A high lease renewal fee might seem suspicious, but if all their other fees are very low (or nonexistent), the company might be a great partner. So look at the whole package when evaluating a PMA and keep the following fees in mind.

1) Monthly Property Management Fee

So it probably goes without saying that you will have to pay a monthly management fee. What doesn’t go without saying, however, is that all monthly management fees are different.

At surface level this seems obvious. Some companies charge a portion of monthly rates and others will charge a flat fee. So, for example, your choice might seem clear when you compare company A, who charges 10% of collected rents with company B that charges $75 a month.

If you charge 1,200 a month in rent, that means company A is charging you $120 per month for management. Easy choice right?

Maybe. But keep in mind that company A might offer a wide variety of services for their price, while company B might only offer a narrow range of services. So the key is to look at everything that is included with the monthly management fee and factor in the cost of additional services beyond their primary scope of service.

Not only that, but companies that charge a flat rate may collect that money even when the property is vacant. This brings us to…

2) Vacancy Fees

This is the fee when there is no tenant in your property. In our opinion, property managers shouldn’t be charging you a vacancy fee. This is why our pricing model is based on “rents collected.” Specifically, our standard plan is 7.9% of the rents collected – we don’t make money unless you do, and that is how it should be.

On the contrary, there are a lot of companies that will promote a low rate like $50 or $75 a month. What they don't mention is that this price is regardless of tenants in the property. This hardly makes that property manager motivated to fill vacancies.

The worst, however, are property managers who will charge a percentage of “scheduled rents.” That is, they will charge you a percentage, usually greater than a flat rate, regardless of whether or not there is tenant in the property. Keep a close eye on this wording in the PMA.

3) Set-Up Fee

This will cover the administrative costs of setting up a new account with a property management company. Realistically, you shouldn’t have to pay this fee. You are going to be paying them a leasing fee and a monthly management fee, an extra fee to set up your account isn’t necessary.

4) Leasing Fee

This is the fee paid for finding a new tenant. This takes time and includes tasks like marketing and showing the property. It also includes vetting the tenant to make sure that they are eligible for the property. Since this takes time, it is normal to have a fee.

This fee can vary greatly. We have seen it as a flat-fee of $800, a percentage of a month’s rent, and a full months rent. At Active Renter we charge 5% of the total lease value.

So, when examining this fee, keep in mind that your unit’s rent will typically determine what is best for you. 50% of a $1,000 rent beats a flat rate of $800, but 50% of a $2,000 rent loses to a flat rate of $800 rent. Take the time to do this quick math when looking at your costs.

Also keep in mind that leasing is one of the most crucial parts of managing a rental because it helps you ensure you are getting a good tenant. Thus, if the cost is super low, $100 for example, it is likely that your property manager just wants to rush through the leasing process – not good for your bottom line.

5) Lease Renewal

If you have a tenant in the property currently and they want to renew the lease, this will require some work on behalf of your property manager. Obviously, they should be compensated for this work, but they definitely shouldn’t be charging the same amount that they did when they set up the first lease.

We have seen anywhere between $100 and $300 for a lease renewal. We personally charge $199. Definitely keep your eyes out for someone who wants to charge you substantially more, they are not someone you should trust to have your best interests in mind.

6) Advertising/Marketing Fee

Marketing fees are not uncommon, but they aren’t charged by all property managers either. We have seen these charges applied in a couple different ways.

First, we have seen a weekly charge of $8 to $10 while the property is vacant. While this doesn’t sound like a lot, it could add up.

Second, we have seen it set up based on a cap limit. For example, if expenses exceeded $100 then the future costs would be charged to the property owner.

Third, as we previously mentioned, some property managers will charge vacancy fees and part of their “justification” is that it costs money to market a property when it is vacant.

Ultimately, we don't think that property managers should pay an additional fee for marketing. The fact of the matter is this, it is relatively inexpensive to market a rental property these days. If you’re like us, you use technology to automate the process and find tenants online. We have used our technology to keep our marketing costs almost non-existent and our average vacancy length around 2 weeks. We pass on those savings to our owners by not charging a marketing fee.

7) Reserve/Maintenance Fund

So this isn’t really a fee or cost, it’s simply a fund holding your money. However, you may want to factor it in when selecting a property manager.

A normal reserve will range from $200 to $500. We have also seen it set up with a per property amount. For example, “$400 per property with a maximum of $800 per owner.” Our fee falls about in the middle at $350.

So do you want a small or large fund? That depends. We have an average sized reserve fund because it allows us to make repairs when needed without having to bother the property owner. Lots of our owners like this.

However, you might be uncomfortable letting someone have control of a large reserve and this is a reasonable concern. Ultimately, you need to determine your level of comfort when it comes to your reserve.

8) Maintenance Fees

This isn’t a fee that you will see in any PMA, but it is certainly worth asking about during your hiring process.

Here’s the thing, some property managers try to make an extra income off of marking up maintenance. This is definitely not something that they are going to put into writing.

For example, they might have to make a repair that costs $100, but then they charge you $150 or more. Over time this really adds up.

It actually gets worse. Some property managers will not only markup the maintenance, but they will take a commission from contractors. This isn’t inherently bad, but it can create a conflict of interest.

For example, let’s imagine a company called Pete’s plumbing. Pete’s plumbing is willing to make a given repair for $200. However, your property manager might have a deal with Plumbing Pro’s across town. Unfortunately, Plumbing Pros charges $300. Although it would be better for you if your property manager worked with Pete’s Plumbing, they might choose Plumbing Pro’s because of the commission it will earn them. Not exactly what you want right?

In fact, in some cases it has been shown that property managers have charged as much as 6 times the price for simple tasks. The lesson here is to make sure that you do your due diligence, research the company beforehand, and talk with the owner about how they manage their maintenance.

9) Eviction Fees

If you find the right tenant, you may never have to worry about this fee. However, it is always good to be prepared for the worst, and knowing what your property manager might charge is quite important.

As with other fees, we have seen a range for eviction costs. For example, we have seen companies that charge flat fees of up to $500 plus all court costs. We also saw hourly rates between $50 and $150 an hour.

Personally, we include eviction processing in our standard management plan. We also offer a tenant guarantee for 6-months and an eviction protection plan of $15 per month. This warranty covers up to $800 worth of costs. Although evictions are rare, they can be costly when they occur, so we always advise this warranty.

10) Unpaid Invoice Fee

This is an additional charge for not paying your invoices on time. You will usually only really see this charge with flat rate companies or property managers that charge a vacancy fee. This fee would rarely be necessary otherwise. To illustrate, because we take our management fee as a percentage of collected rents, we never have to chase owners for money. On the flip side, owners never have to worry about making payments, they only pay when the property is making them money.

11) Commission for the Sale of the Property

The commission will vary depending on the property manager. Typically it is 6 or 7 percent. We personally charge 6% of the gross sales price (3% goes to us, 3% goes to the buyer’s agent), not only that, but if one of our owners sells with us, we refund the management fees for the last year. In our minds that is a win-win.

One important issue to keep in mind is whether or not it is required that you sell with a property manager. We strongly believe that no one should be required to sell with their property manager, so if you see that in your PMA, do what you can to get it removed (or find someone else).

12) Commission for the Sale of the Property to a Current Tenant

This can vary a bit more between property managers. We have seen the range go between 3% and 6%. We have even seen a situation where this commission would still be charged if the home was sold to the tenant in the 6 months following the end of the lease term. Our commission is 6% (3% goes to us, 3% goes to the buyer’s agent) of the gross sales price and, again, we will refund the management fees for the last year.

13) Early Cancellation Fees

Some property management companies will lock you into a long-term contract because they are just too good at their job for you to leave them. Others, well, they would rather lock you in with extensive fees for breaking the agreement.

The worst we have seen was a company that charged 6 months worth of fees for breaking the agreement. That could be anywhere between $500 and $1,000 depending on their management fee. At Active Renter Property Management, we don’t charge anything. Give us 30 days notice and we will let you move on. This is the same courtesy we think that all property managers should be giving their investors.

14) Administrative Fee

Administrative fees typically come along with in-depth maintenance projects. We have seen it as a percentage of the cost of the work and as a flat rate. Either way, make sure to factor this cost in when figuring out the overall cost of a particular property manager.

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15) Supervisory Fee

If you need your property manager to do work beyond the scope of the original PMA, it should come as no surprised that they want to be compensated for their time.

For example, we have had several owners ask us to overlook the installation of a new pool at their property. At that point, we are no longer looking at property management, but project management instead. It is truly beyond the scope of regular property management. For this sort of large-scale project we will typically charge around $150 an hour. Of course, this wouldn’t prevent our owner from finding his or her own project manager or general contractor for this work.

16) Fee for Specialized Services

Like a supervisory fee, there are times when owners ask us to take on additional services. We classify this as an “unusual work” fee and it includes tasks like real estate consulting and presenting petitions to zoning or planning committees. We don’t do this work often, but if it is needed then we typically charge $75 an hour.

17) Mailing Fee

Some property managers will actually charge you to mail you paperwork. It is usually only $2 to $5, but is so unnecessary that we would be concerned about such a nitpicky charge.

18) Printing Fee

If you want to have your check printed, some property managers will tack on a charge. We have seen fees as high as $25 for this service. This is totally unnecessary and should be seen as a red flag.

19) Research Fee

What if you wanted to see your statement from 3 months ago to double-check some of your numbers? Some property managers would charge you a “research fee” of $50 an hour to go back and find it. If this seems like a silly charge, it’s because it is.

We bypass any need for this charge by providing statements to our owners online 24/7. This way they can always see their statements and we don’t have to work to make this happen. Everyone wins.

20) Tenant Payment Credit Card Processing Fee

Imagine your tenant decided to pay with a credit card and the property manager implemented a processing fee. Except you are the one paying the fee.

Seriously, some property managers will charge this. Although it is more common with vacation rentals, keep an eye out for this charge and make sure that your property manager eliminates it for you.

21) Home Owners Association (HOA) Management Fee

Back when the market crashed there were a ton of investors who bought up hundreds, and sometimes thousands, of properties in Phoenix. Many of them were from the east coast and couldn’t pass up the properties because they were “too good of a deal.”

What they didn’t realize was that many of these properties were in an HOA, which comes with a variety of fees just from the HOA alone.

Right now we handle almost all of the HOA management with our standard plan. We don’t charge anything to the owner for this service beyond the monthly management fee.

There are some property managers that will charge a fee for this service. This can run anywhere between $25 and $50 every time that they have to file paperwork. Now, add that to the cost of the HOA, which includes tenant registration fees and annual assessment costs and you can see how the charges would add up.

The lesson here is that owners should be careful and make sure that their property manager isn’t going to excessively charge them for services related to the HOA.

22) Fee for Miles Driven

The importance of this fee will be different for every owner. For example, if your property is right down the street from your manager then you have nothing to worry about, but if you are quite a ways from your manager then this fee can add up.

This is especially important in a place like Maricopa County because your property manager might be in Phoenix, but your property might be in Buckeye. Not exactly close.

We have seen fees between 35 and 50 cents per mile. We don’t charge any fee at all. When you are looking for a manager, this is definitely something to take into account because it could accumulate into quite the cost over time.

23) Mediation Costs

In some PMAs you will see verbiage regarding mediation. Most often this cost is split between owner and property manager. At Active Renter we have never had to worry about this cost because we don’t have long-term contracts (and we offer great service, which doesn’t require mediation!)

However, you should still look for this language in your contract because your property manager could try to stick you with this cost.

24) Cleaning Fees

First and foremost, remember that vendors hired by the property manager charge cleaning fees, not the property manager themselves. Usually this cost is around $250 dollars.

We work in a well-developed relationship with our vendors and are able to reduce costs due to volume discounts. That is, because the vendor knows we will bring them a lot of business, they are willing to drop the cost of the cleaning. This usually helps us keep it about $50 cheaper than it would be for a single owner.

25) Re-key Fees

Like cleaning, re-key fees are charged by a vendor, not the property manager. Based on our research, this usually costs anywhere between $100 and $200 for a full re-key. Just like cleaning fees, we are able to reduce these costs for our owners via our volume discount we receive from vendors.

26) Rental Taxes and Licensing Fees

This fee is for paying the city sales tax and processing monthly tax returns for the owner. Often there will be a charge of about $25 to $50 per property.

At Active Renter, we don’t charge anything beyond the management fee to process these payments. Essentially, we do it at no cost.

27) Equal Housing Opportunity Fee

This was a unique charge that we found in our research. Essentially, the property management company reserved the right to charge a fee to an owner who requested that the property manager ignore equal housing laws. That charge was around $500 and was also accompanied by a termination of the contract.

28) Home Warranty Processing Fee

Home warranties can be very difficult to work with as a property manager. Therefore, many property managers reserve the right to charge an additional fee for overseeing the use of the home warranty. Some charge an hourly fee of $25 - $50. We simply charge a flat fee of $45 per order.

29) Annual Fee

We saw this fee twice. Once for $125 and another time for $200. There was no specified reason for this fee, it was simply stated that it was an annual fee. For obvious reasons, we would be wary of any property manager who wanted to charge this fee.

30) Foreclosure/Short Sale Fee

If an owner goes into foreclosure or needs to short sale their home, most managers will apply this fee. Typically it is around $350. Our policy is that if the home goes into foreclosure we terminate the agreement immediately. If a short sale takes place, we charge a one-time fee of $350.

31) Utilities Fee

This fee covers the costs to get the utilities turned on when a tenant moves in to the property. It is normal for a utilities fee to hover around $50.

32) Co-Broke Fee for Leaser’s Agent

When a tenant finds the property using an agent, there will be a co-broke fee paid to that agent. We always keep this optional for the owner, and we actually market the property in such a way that we avoid most real estate agents. Thus, saving you money.

But again, this is a decision left to the owner. If they want a certain tenant that has an agent, they can choose to pay the fee. Typically it is around $300.

33) Rental Registration Fee

We see it all the time. Someone has been self-managing for a year or so and has decided they want to get a property manager. Unfortunately, they haven’t had the rental property registered with the county.

This is one of the first tasks that we take care of as their property manager. It is our job to make sure our owners are doing everything legally, and not registering the property correctly would violate that responsibility.

For this service we charge a one-time $50 fee. Some property managers will charge this fee every year, so make sure that you look for this fee in the PMA to check and see if it is annual or only charged once.

34) Returned Check/Insufficient Funds Fee

When a check bounces this typically results in a fee. We have seen anywhere between $25 and $75. Ours falls right in the middle at $50.

35) Annual A/C Inspection Fee

One of the biggest charges we see owners incur is a broke down A/C unit. For this reason, we offer an annual inspection service. We are the only company we have found that offers this service. We charge $125 for this service and it is totally optional. However, we highly recommend it for owners. According to an article by Yahoo! Finance, typical inspections cost around $200 to $300, so ours ends up being a great deal and can prevent the major costs associated with a total unit breakdown.

So How Much Does Property Management Cost?

Like most things in life, it depends. As we’ve demonstrated here, there are 35 possible fees you could pay. In fact, there could be more that we didn’t find in our research. Ultimately, the cost of your property management will vary depending on the total number of fees you are charged and the amount for each of those individual fees.

The moral of the story here is that you need to do your homework before signing a PMA. As a final illustration, we have seen a company that charged a 5% management fee. Sounds great right? After factoring in a $200 admin fee, a $300 marketing fee for each vacancy, and a $250 lease renewal fee we calculated a property management fee just over 9% and that doesn’t even include other possible fees. As you can see, the devil is in the details.

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