×
Generic filters
Exact matches only
Generic filters
Exact matches only
Understanding Property Management Fees for Rental Real Estate

Having spent nearly two decades in the rental real estate industry, I’ve seen firsthand how not utilizing a property manager so that you can save some money can put an investment at risk. That said, know that when researching information on property management fees, it shouldn’t just be about finding a company with the lowest rates, but also about realizing the value and safeguards that a property manager (PM) brings to the table for a certain fee.

I do realize that fees should be reasonable, and understanding what you’re being charged for is the first step in determining if the fees are worth it or not. Taking that into consideration, I’ll break down the most common fees you’ll most likely encounter so you’ll have a better understanding of what you might be paying for.

Types of Property Management Fees

Rental property management fees come in various forms, but I’ve found that there are three main charges that I generally see, and those are monthly management fees, leasing fees, and maintenance markups, which I’ll discuss below:

Monthly Management Fees

Monthly management fees are the most consistent charge you’ll encounter from a property management company. This type of charge represents payment for their ongoing services in managing your rental property. The property management company fees are typically charged as a percentage of the monthly rent your tenants are paying. The percentage normally ranges between 8% and 12%, but it can vary from company to company.

What is the Cost of Property Management for a Rental Property

For instance, let’s say your property rents for $1,500 per month, with a 10% management fee, you’d pay $150 monthly. This fee pays for the management company to take on tasks like collecting the rent, answering tenant calls, paying bills on behalf of the landlord, meeting with and calling on maintenance, making sure the property is compliant with local and state laws, and more.

What’s included in the monthly service charge can also vary, with some companies bundling additional services like regular property inspections, financial reporting, eviction handling, or even after-hours emergency services into this fee.

Leasing Fees

A leasing fee may occur when a PM finds a new tenant for your investment property. The fees are designed to cover the property management costs associated with the leasing process, which includes advertising the rental, showing it to possible tenants, screening applicants, and preparing the lease agreement. When it comes to screening tenants, it’s all about protecting your property, and you can read more about this in my article – Safeguarding Your Investment: Understanding Tenant Background Checks.

You’ll find that leasing fees are charged in one of two ways: either as a flat fee or as a percentage of the annual rent. A flat fee may be in the range of $200 to $800, depending on how the rental market is doing, as well as other factors. In contrast, when the fee is calculated as a percentage, the charge may be somewhere between 50% to 100% of one month’s rent. For instance, if you’re charging a monthly rent of $1,000, the leasing fee may be $500 to $1,000.

The drafting of a lease requires a thorough understanding of the law to protect both landlord and tenant rights. From my own experience, I can say that this task is not something you’d want to take on yourself because mistakes can be costly. On that note, here’s a post you can read if you need some convincing information– Five Reasons a Property Management Company is a Better Landlord Than You.

Maintenance Markup Fee

There can also be a maintenance markup fee, which is a percentage added to the cost of repair services to compensate the property manager for the time spent managing these tasks. Like other fees PMs charge, this one is well worth it. In my humble beginnings, I took on the task of managing a property and would receive calls in the middle of the night (2 AM) with a frantic tenant explaining that their water heater was gushing out water, or their heater broke in the dead of winter. With that in mind, passing this responsibility on to a property manager is certainly worth the fees charged.

When looking into a company, you may want to ask if they have an in-house vs. subcontracted maintenance person that they work with. Why is this worth asking? Because some property management companies have in-house maintenance teams, and the markup might reflect the cost of employing these teams, which might be higher, as opposed to them contracting someone for the job itself. Either way, as I mentioned, the markup isn’t just the cost of the repairs; it also covers the property manager’s time, effort, and resources in coordinating the maintenance. This may include calling contractors, scheduling visits, overseeing work, and ensuring everything is done properly.

Commonly, if a property manager subcontracts a repair person, their markup may be a percentage of the total cost of the repair. This percentage is typically between 10% to 20%. For instance, if a plumber charges $100 for a job, with a 15% markup, you’d pay $115.

Additional Property Management Company Fees

Aside from the monthly management, leasing, and maintenance markup fees, you might find that the property management company you’re considering charges a handful of various separate fees for specific services. Below, I’ll detail some of these common additional fees:

Rental Property Management Fees 101

1. Vacancy Fees

Some property managers might charge for caring for the property during periods of vacancy. This could simply cover overseeing and safeguarding the property while it’s unoccupied, with the tasks associated with filling the rental being charged separately as a leasing fee. A vacancy fee can be structured as a flat rate per vacancy period or a daily fee.

2. Eviction Fees

If a renter needs to be evicted, a PM will typically charge for handling this process, with fees covering the costs of legal notices, court appearances, and coordination with legal professionals. Since evictions can be complex and time-consuming, this fee can be significant, often charged at a flat rate or based on the hours spent on the eviction process. No landlord should handle this on their own because it’s a process where much experience is needed.

It’s worth mentioning that if your rental is in a landlord-friendly state, the eviction process runs much smoother and quicker. I personally would never buy a rental property in a non-landlord-friendly state because it can end up reducing my profits. If you’d like to see some examples of why it’s a bad idea to own a rental in a non-landlord-friendly state, dive into my article – California Rental Laws Set to Place More Restrictions on Landlords. If you’re interested in reading more about landlord-friendly states, I suggest heading over to these two posts that cover the topic in detail:

3. Inspection Fees

While some companies include property inspections in the monthly management fee, others might charge separately, especially for detailed inspections like move-in/move-out assessments or annual property condition reviews. These fees ensure the property is maintained to standard and can help in documenting the condition for legal or deposit purposes. If you’d like to learn more about inspections, here’s an article you’ll want to read – Streamlining Rental Property Inspections.

4. Accounting or Reporting Fees

Beyond basic financial management, if you require detailed financial reports, tax preparation help, or specific accounting services, there might be an additional fee. This could be for quarterly reports, annual statements, or customized financial analyses. Depending on what’s needed and the expertise involved, the fees can vary. It’s helpful to have a PM take care of the paperwork and reporting for you, so it’s off your plate.

5. Emergency Service Fees

For unexpected services outside of normal business hours, most companies will charge an emergency response fee. This could be for urgent repairs, tenant lockouts, or other immediate needs that require after-hours attention. Some items may be simply charged as a maintenance fee, but it all depends on the type of emergency that arises.

6. Legal and Compliance Fees

Rental property management fees might include additional services related to legal compliance. For example, ensuring your property meets new regulations, coordinating with local authorities for permits, or handling disputes beyond the standard eviction procedures. I know from experience that it’s certainly worth the additional charge to make sure your property is in line with local laws. If your rental is not compliant, it could end up costing you much more in city fines.

After viewing the various fees, it may seem like a lot, but believe me, you’ll come out on top in the end. You should read my article to understand why I’m making this point – Financial Advantages of Using a Property Management Company.

Rental Property Management Fees – How They Can Vary by Company and Region

Property management costs can vary based on several factors, such as the specific company and its location. For example, the size of a company may play a part in what they charge their clients because it may impact their resources and capability. Also, a rental management company’s reputation can certainly determine charges – if they have consistent bad reviews, they will struggle to sign on new clients, and may lower their price to accomplish this. It’s worth mentioning that if a property management company has less than stellar reviews, you should stay clear no matter how affordable they are.

The location of the property management company may also be key. This is the case because in high demand markets like New York City or San Francisco, rental property management fees might be more due to a high demand for rentals, as well as a high cost of living and operational expenses. On the other hand, a busy city with a high demand may also bring on market competition with several property management companies sporting competitive prices to win over clients.

Negotiating Fees with Property Management Companies

When it comes to negotiating charges, start with researching average property management company fees where your rental is located to arm yourself with knowledge. Or, you might be able to negotiate lower fees by offering a larger portfolio that includes several rental properties – this is something I’ve done often and was able to receive a discount in the process. You can also try talking to a potential property manager about setting up fees based on performance where the cost might adjust based on how well the property performs when it comes to occupancy or how well the property is kept.

Keep in mind the cheapest option may not always be the most cost-effective. You really should prioritize value over price because a company offering exceptional management services might justify higher fees because they are capable of preventing costly mistakes, reducing tenant turnover, and keeping the landlord’s ROI on track. To sum this up, I’ve learned the hard way that a lower price is not always beneficial if the performance is not there.

 

Why the Cost of Property Management is Well Worth the Money Spent

I mentioned that you should worry more about value over price. To be more specific, what I meant by this is that you can always find a property management company that charges lower fees, but what you should be really looking for is a company that can do a professional and quality job caring for your rentals. You see, a good property manager will provide services that can actually protect your cash flow and your investment, so it’s worth the money spent.

Property Management Fees Should be Viewed as an Investment

I’ve come to realize over the years that property management is more of an investment rather than an expense because of all the benefits it provides. For instance, property management companies bring expertise in tenant relations, which is crucial for maintaining high occupancy rates and ensuring a stable rental income. This can reduce vacancy rates, which helps keep profits stable. Here’s an article I wrote that you’ll want to bookmark for future reading so you understand the dynamics of vacancies – Do Vacancy Rates Matter in Real Estate Investing?

As I touched on before, they handle everything from screening tenants to managing lease agreements, and also know the local housing market well enough to keep rental rates up to speed, which reduces financial risks for the landlord.

They Protect Your Property Which Keeps Profits Up

I briefly discussed their job of handling repairs, but I’d like to drive home the fact that paying property management costs to have them handle maintenance and emergency response services protects the value of the property. You see, regular maintenance checks, timely repairs, and great handling of urgent issues like plumbing leaks can stop small problems from turning into costly ones that could run into the thousands.

Also, the full-time care and management of a rental extends the life of your property and keeps it attractive to current and prospective tenants, potentially allowing you to charge higher rents due to better property conditions. Additionally, property managers often have established networks for cost-effective maintenance solutions, which can lead to savings compared to a landlord paying a higher one-time fee to a random repair company.

Power Resources for Real Estate Investors

Before I wrap things up here, if you’d like to increase your investment and financial IQ, then be sure to bookmark our power resources below. You’ll gain an extensive amount of knowledge in the process and up your game when it comes to investing in rental real estate.

Also, here are a few more articles that you’ll find helpful:

The True Value of Property Management Justifies the Cost

When I began my real estate journey, understanding property management fees was a bit overwhelming and I underestimated just how important the service actually was. However, with more experience in the industry, I’ve learned the value a good PM brings to the table. From the monthly management fees that ensure my property is well-handled day-to-day to the leasing fees that guarantee I get the best tenants, and even the maintenance markups that keep my investments in top shape, each cost is a piece of a larger strategy that’s designed to safeguard and grow my investment.

The bottom line is that the peace of mind that comes from knowing experts are managing these aspects far outweighs the cost, especially when I see my properties consistently occupied by quality tenants.

Those who would like to invest in a new construction rental property, where a professional property manager is placed for you, as well as a tenant, and all the details are taken care of, feel free to schedule a call with our team. Morris Invest is a fully-done-for-you real estate investment company that can easily place a cash flowing rental in your portfolio. Don’t hesitate to reach out to us if you have any questions or would simply like to discuss your investing goals – we’re here to help you along the way.

Schedule a consultation

Chat with us