Owning rental property means constantly keeping an eye on expenses so they don’t eat up too much profit. After all, landlords are running a business, so ROI (return on investment) is important. This is a big reason why many landlords choose to manage their apartments and rental homes themselves, if they can.
When there are too many properties to take care of properly, the owner lives far away, or the work is simply becoming too much, it is time to consider a property management company. But what about the cost of bringing on a property manager? Let’s take a look at how property management fees are calculated and what they include.
The most common way that companies charge property management costs is with a monthly fee based on a percentage of rent. Typically, this is between 8% and 12%. Consider a small apartment building with four units, each charging $1,000 per month. A management company charging 10% would cost $400 each month ($1,000 x 4 = $4,000, 10% of $4,000 = $400).
The exact percentage charged varies from company to company. So do the services landlords will receive for the fee. In most cases, they can count on basic maintenance and repairs, dealing with tenants, collecting rent, and taking care of the bookkeeping. Many property managers also include advertising and showing apartments, tenant background checks, and other administrative duties.
At Select Leasing & Management, our basic package includes all of this and more. We prepare homes for the rental market, do detailed inspections, and provide a marketing plan to attract the very best tenants.
When researching the cost to bring on a property manager, finding the base rate and what it covers tells the landlord a lot. A full-service company offering a lot of services gives an owner a fairly straightforward idea of what to expect each month. On the other hand, some companies provide minimal services for the base rate, and other things cost extra. This can make budgeting difficult as the costs—and ROI—fluctuate from month to month.
One note about fees as a percentage of rent: There is a difference between rent collected and rent due. If a tenant has not paid their rent in several months and the fee is based on rent due, the landlord must still pay the fee. Basing the fee on rent collected works in the landlord’s favor if renters are behind.
It is also important to understand the company’s policy for vacant apartments. Some will charge a reduced percentage for months when the unit is empty.
Everything about the property management services and costs should be clearly outlined in the contract. The document should list exactly what is included in the base rate, along with additional services and their fees.
Some things will always be more—for example, a large repair project or eviction proceedings. These fall outside what would be considered “normal operations,” so coverage by a base rate would be extremely rare.
But some companies will charge extra for things that another company considers routine. An example is tenant placement fees that cover tenant screening, drawing up a lease, and doing a move-in inspection. For a large apartment complex, these fees will add up fast if they are charged “a la carte.” Even things like snow removal, online rent payment, or financial reporting could potentially cost extra.
Go over the contract thoroughly and ask about anything that is not specifically mentioned. Then do the math. Add the base rate plus the extra charges for things that typically happen during a month. And imagine a “worst-case” month, where several things go wrong, to see if it is affordable compared to a DIY approach.
There is typically a setup fee to start working with a property management company or switching to a new one. This is usually only about $300 for doing all of the paperwork involved and setting up the necessary accounts and banking connections.
When switching property management companies, there could also be a contract termination charge, if the landlord leaves before the contract is up. Again, the details of fees like this should be listed in the contract.
If the cost to bring on a property manager sounds high, consider the value that the right company can provide. A reputable company with a lot of experience running rental properties can not only protect a landlord’s investment but enhance it. They do things that will keep renters happy and save money in the long run:
Running a rental property is a lot of work, especially for an independent landlord trying to do it all. To decide if the cost to bring on a property manager is worth the investment, the owner must consider how much time, energy, and stress is spent taking care of the building (or buildings) and the tenants’ needs. Obviously, the more properties that are owned, the more time-consuming, stressful, and physically demanding it will be. Add in a full-time job or living out of the area, and it is nearly impossible.
When it is time to consider property management benefits with a professional, contact Select Leasing & Management to see how we can help.
12851 Manchester Rd., Ste 110
St. Louis, MO, 63131
