So you are considering hiring property management. Awesome! The first task is talking to property managers about their property management fee structure. The second task is understanding the different fee structures.
Property Management Fees
Monthly management fees are the first question landlords want to know about. However, a simple rate does not tell the full story! Every company selects a fee structure to help their business.
There are a variety of fees and services to create revenue for property management. Knowing the different fee variables is key when hiring property management. Often the common saying holds true – “You get what you pay for.”
Over several blogs, we will define and review elements. Every investor should understand these when comparing proposals. This will cover:
Late Fees / Miscellaneous Fees
How do I calculate monthly management fees?
Monthly management fees are the most common and easiest fees to understand. There are several variations that management firms might want to take. Depending on your needs, there are positives and negatives for each structure.
They base on “rent collected” or “rent expected.” The difference is when management can charge you these fees. Every management will charge at least some type of monthly free.
When can a firm charge a fee?
Rent Collected. Management only earns a fee when rent is actually paid. Meaning vacancies and late rent prevent the management firm from earning a fee. This benefits landlord whose property requires more effort to collect rent.
Rent Expected. Management earns a fee whether rent is paid or not. Said differently, they earn a fee when the property sits vacant or rent is late. Although this sounds unfair to landlords, there are benefits. It is typical for competitive rates to be below the market average.
How much can a property manager charge?
Flat Rate. Regardless of the rent amount, management will earn the same dollar value each month. Real estate investors benefit from a flat rate when rents are high. Higher the rent, the lower percentage of AGI your management takes.
Percentage Rate. More common are percentage rates of the monthly rent. These percentages are ‘fixed’ rates. However, the actual dollar amounts will vary depending on rent. This creates an incentive for management to get higher rents. This way, you both earn more income as a result. If you own a multi-family property and repositioning by increasing rents, having management tied to a percentage is best. This will motivate them to increase your rent roll faster.
Why management fees are not the only item to consider
Buy 1, get 1 free! 40% off, everything must go!
Got your attention, right? Those sales banners get you inside the store and are often misleading. That is the same as looking only for cheap management fees. They get you in the door, but what is the actual cost?
Management firms are competitive and cheap with their monthly fees. Yet there are plenty of ways to nickel-and-dime the owner with miscellaneous fees. Landlords need to understand the entire compensation package. Or else you could end up paying more overall! The sales pitch of their property management fee structure might focus on management fees but there is much more to know.
Does that mean higher fees are a better choice?
You need to review all the elements of the Property Management Agreement. There are management firms that charge more monthly fees but no additional fees. Other companies have a combination of lower fees with additional fees. Or they exclude services.
How to avoid hidden fees
You can avoid hidden fees by knowing the elements and fee structures. Learn the different ways management firms earn their fees. Avoid companies that refuse to provide any details of their fee structure. That is an immediate indication they are not transparent.
The best property managers have nothing to hide. They are happy to share their Property Management Agreement. A good company will, and can, explain their fees. More importantly, when it is a complicated fee structure.
Is your property manager performing well?
If you are currently in a situation with your manager not performing to your expectation, we suggest these two blogs.
Where to get property management proposals?
We’ll flat out say it. Burbz is landlord-friendly property management! Our entire platform was built by landlords to help protect and serve other landlords.
If you’re tired of no transparency with your manager, not being informed of the status of your rental unit, or want your rent money quicker then Burbz is the place to be. Although Burbz itself is not a property management company, we introduce landlords to property managers who share our belief in landlord-friendly management. Request proposals from property managers that use Burbz property management software so both parties are protected. Unlike a traditional management firm, property managers in Burbz never touch or hold your money! Allowing faster and safer rent collections that benefit you, the landlord.
As well, to save you time during the property manager interview process, our Request For Proposal system allows you to create one request and receive multiple proposals. Stop calling and chasing down bad managers who never return calls. Instead, meet those managers who want your business!
The best part: if you decide to terminate the property manager, you still have access to all of your data! Your properties, your data.