I’ve been in the real estate business for over a decade, and it’s no surprise that one of the most common questions I get from clients is how much property managers charge.
It’s a valid question, as property managers can help alleviate some of the stress associated with managing an investment property.
In this article, I’ll discuss how much property managers typically charge and how to decide if a property manager is worth the investment for you.
What is Rental Property Management?
Rental property management is a service that helps landlords and property owners manage their rental properties.
A property manager can handle all the day-to-day tasks associated with renting out your property, including the following:
- Collecting rent
- Handling repairs and maintenance
- Advertising vacancies
- Screening tenants
- Enforcing lease agreements
Property Management Fees & Costs
Property managers usually charge a flat fee or a percentage of the monthly rent collected. The average cost of property management in 2023 ranges from 8-10% of the monthly rental income.
This means that for a $1,000/month rental unit, you can expect to pay between $80-100 each month for property management services.
That being said, the cost of property management can vary depending on how many units you’re renting out and how much work is involved with managing them.
For example, if you have several rental properties in a single complex, the property manager can offer a discounted rate for managing all of them at once.
Here are some other standard fees associated with property management services:
- Setup costs
- Percentage of rent
- Maintenance costs
- Vacancy costs
- Lease renewal costs
- Eviction costs
- Contract setup costs
- Leasing costs
- Late payment charges
- Repair fees
- Inspection fees
Setup Costs
Property managers may also charge setup fees when you hire them to manage your property.
These fees can vary depending on the services they offer and how much work is involved in setting up the account.
For example, a property manager may charge a one-time fee for creating an online portal where tenants can pay rent or submit maintenance requests.
They may also charge an additional fee for conducting a credit and background check on potential tenants.
Percentage of Rent
The majority of property managers charge a percentage of the monthly rent collected.
This fee typically ranges from 8-10% and can be higher for properties with more units or in high rental demand areas.
Maintenance Costs
Property managers may also charge a fee when they arrange for repairs and maintenance on the rental property.
This fee covers the cost of the following:
- Materials
- Labor
- Other costs associated with the repair
Here are some cost-effective tips to reduce maintenance costs and how to properly manage them:
- Regularly inspect your property to help spot minor issues before they become more expensive problems
- Develop a system for quickly responding to maintenance requests from tenants
- Perform regular preventative maintenance on all units, such as changing out HVAC filters and replacing worn appliances
Vacancy Costs
Vacancy costs can be among the most significant expenses incurred by property managers. While some vacancies are unavoidable and occur due to tenant turnover or other circumstances, a property manager needs to minimize such costs.
Vacancy costs may include the following:
- Advertising fees
- Lost rental income
- Transaction costs for new tenants
- Legal costs associated with eviction proceedings
- The cost of cleaning and repairs between tenants
Lease Renewal Costs
Lease renewal costs represent a significant cost associated with property management. For landlords, this involves the potential for increased rental rates over time as well as potentially higher legal fees to review and modify lease agreements.
For tenants, lease renewal can bring an opportunity to negotiate new terms or amenities, such as the following:
- Rent discounts
- Additional parking spaces
- Flexible payment arrangements
In some cases, landlords may offer incentives such as free rent or other perks in exchange for renewing a tenant’s lease agreement early.
When negotiating a lease renewal, both parties should be familiar with local rent control laws and ensure that the terms of the agreement are fair and reasonable.
Additionally, because lease renewals typically require the landlord to pay various taxes and fees, they must also factor in this expense when considering any modifications to the existing agreement.
Eviction Costs
Eviction costs can be one of the most expensive fees associated with property management.
Landlords are responsible for the following:
- Court fees
- Legal fees
- The cost of relocating a tenant
- The cost of paying a process server to serve an eviction notice to tenants
In addition to these direct costs, landlords must factor in any lost rental income and the cost of cleaning, repairing, and advertising for a new tenant.
By having clear policies in place from the outset and enforcing them consistently, landlords can help minimize the chances of having to evict a tenant.
New landlords should also consider hiring a property management company to help them navigate the complexities of the eviction process.
Contract Setup Costs
The setup costs associated with signing a new contract can vary depending on how long and detailed the agreement is.
In general, landlords should expect to pay for the following:
- Drafting a contract
- Legal fees
- Administrative costs
These costs may also vary depending on the complexity of the lease agreement and how many parties are involved in the transaction.
By working with an experienced property management firm, landlords can minimize or avoid these setup costs altogether. This helps landlords save money and time while reducing the risk of potential disputes.
Leasing Costs
Leasing costs are one of property management’s most common and essential fees.
This includes the following:
- Advertising rental units
- Conducting showings
- Performing credit checks on potential tenants
These costs can vary depending on how many units a landlord has to manage or how much demand there is for rental properties in a given area.
Late Payment Charges
Late payment charges are penalties that landlords may levy against tenants who fail to pay rent on time.
The amount of these fees may vary by city, state, or even county, so landlords must familiarize themselves with the applicable laws in their area.
Repair Fees
Repairs and maintenance are an inevitable part of property management, and landlords must factor in the associated costs when setting their rental rates.
These fees may include the following:
- The cost of materials for repairs or upgrades
- Labor costs for skilled tradespeople
- The cost of hiring contractors to complete larger projects
By keeping up to date on regular maintenance and repairs, landlords can help minimize the cost of unexpected repairs down the road.
Inspection Fees
Inspection fees cover the cost of hiring an independent inspector to assess the condition and safety of a rental unit.
These inspections are typically required by law for all types of rental units, so landlords must factor in this expense when setting their rates.
Factors that Determine the Cost of Property Management
The cost of property management varies depending on many factors.
Some of these include the following:
- The market you’re in
- The property type
- The competition
- The condition of the property
- The size of the property
- How many services you choose
The Market You’re In
The market you’re in is an essential factor that will determine the cost of property management.
Factors such as local demand, the strength of the economy, and real estate market trends are all indicators of what sort of pricing you can expect to pay for property management services in your area.
In areas with a strong economy, high demand, and increasing housing prices, you can expect to pay more for property management services due to increased competition.
Property Type
Property type is one of the primary factors that determine the cost of property management.
For residential properties, the number of units, their size and condition, whether they are furnished or not, and the location are all elements that will affect the financial outlay required to manage such a building.
Commercial buildings can be equally complex in terms of management costs: larger units with multiple tenants require extra staffing and resources to ensure compliance with regulations.
Smaller units may require more intensive marketing campaigns to attract tenants to maintain occupancy rates.
The presence of tenant amenities such as pools or gyms or services such as on-site maintenance staff will also increase the cost of managing a property.
Depending on the maturity of a given property’s market, higher fees may be charged for properties located within an area with high rental demand.
The Competiton
The level of competition in a given market will also affect how much property managers charge.
Competitive markets usually attract more experienced and knowledgeable professionals, which can drive up the cost of their services.
On the other hand, less competitive markets may offer lower fees as local management companies compete for tenants and landlords.
The Condition of the Property
The condition of the property is another factor that influences how much a property manager will charge.
Properties in disrepair may require more work and resources to bring them up to code, which can lead to higher fees for landlords.
On the other hand, well-maintained properties may be easier to manage and have fewer costs associated with them.
The Size of the Property
The size of the property is another factor that will affect how much a property manager will charge.
Larger properties require more time and resources to manage, so landlords should be prepared to pay higher fees for larger units than they would for smaller ones.
How Many Services You Choose
The number of services you choose to include in your property management package will also determine how much a property manager will charge.
For instance, if you opt for a full-service package that includes rent collection, tenant screening, maintenance and repairs, legal advice, and other services, you can expect higher fees than if you took on some of these tasks yourself.
How To Find a Great Property Management Company
Finding a great property management company can be tricky, but with the proper research and due diligence, it’s possible to find one that meets your needs.
You’ll want to do the following:
- Get Referrals
- Go to Google
- Visit Properties
- Interview Several Comapnies
- Understand all the Terms
Get Referrals
Ask around to see if any of your friends or family members have had success with a property management company in your area.
You can also check review websites and forums to get an idea of how other landlords have fared with different companies.
Go to Google
When it comes to finding a great property management company, searching online is one of the most efficient ways to begin the process.
Through Google, you can access reviews and ratings that will help you gain insight into how reliable and effective a prospective company may be.
It is also important to look for companies that have experience in the field and specialize in property management services, as this will ensure they are up-to-date with all relevant laws, regulations, and best practices.
Visit Properties
Visiting properties managed by prospective companies is one of the best ways to get an understanding of how they run their business.
By taking a close look at how they manage and maintain the buildings, you can make sure they are providing satisfactory services in the areas that matter most to you.
Interview Several Comapnies
When searching for a property management company, it is vital to interview several companies before making a final decision.
During the interviews, ask questions that help determine how well they understand the local market and how experienced they are in managing properties.
Understand all the Terms
Before signing any contracts, it’s essential to understand how the company operates and how much they charge for its services.
Be sure to get all the terms and conditions of the agreement in writing and make sure that you are aware of how much any additional services will cost.
Conclusion
Finding the right property management company can be a daunting task, but with the proper research and due diligence, it is possible to find one that meets your needs.
By understanding how much property managers charge, how the condition of the property affects fees, how size influences charges, how many services you should choose, and how to find a great property management company, you can be sure to make the best decision for your portfolio.
Do you have any questions? Let us know in the comments below!