How do property management companies price their services?
You should be able to assess price versus value when you’re hiring your next property manager. Today, we’re talking about how much you can expect to spend on professional property management, and what you should look for when you’re measuring service and value.
Understanding the Property Management Fee
The largest fee that everyone looks at when evaluating property management services is the monthly management fee, which is almost always a percentage of rent a property management company collects from the tenant and charges the owner. Property owners are required to pay this fee every month, which makes it the largest chunk of the overall property management cost.
Typically, the property management fee varies between 6% and 12%, depending on where in the country you are located and what types of services you’re choosing and receiving. When a property management company collects your monthly rent, they will deduct the percentage that you owe to them in a management fee before forwarding the balance of the rent onto you.
One of the challenges that owners like you might face when pricing services and evaluating management companies is that most property managers don’t publish their price on their website. This has always been a mystery to us. Why wouldn’t they list their price for you to see? If you’re a consumer who is looking for a product or a service to buy, you want to know the price of that product or service. You wouldn’t buy something without knowing how much it costs.
So, look for pricing information when you’re searching for property management companies. If you’re searching for information on local companies and you come across a business that’s not afraid to list its prices on the website or some other platform, you’ve found yourself a good starting point.
Property owners and investors want to be informed on how to make the best choice. If the pricing isn’t published already, you have to spend valuable time asking about prices instead of talking about services.
Leasing and Lease Renewal Fees: What to Expect
There are some other important fees that you’ll need to consider in addition to the monthly property management fee. There’s the leasing fee, which is something you can expect to pay one time, at the beginning of a tenancy. The leasing fee is typically between 50 percent and 100 percent of your first month’s rent. Some companies may charge a flat leasing fee. This covers the cost of a property manager to advertise your home, market the property, manage applications, screen tenants, and then negotiate and execute the lease and move those tenants into your property.
The next largest fee for property owners to expect is the lease renewal fee. When the lease term is about to end, your property manager will work with the tenant on either renewing the lease or moving the tenant out. There may be a rental increase to negotiate or some other change in terms. Some property management companies will charge as much as $300 for a lease renewal, maybe even more depending on your market.
Other property managers will charge as little as $150 or even less. Some companies charge nothing – they don’t have a lease renewal fee. There is no single right way to do it; just make sure you understand how much you’ll be charged, and when. This is one of the fees you should always evaluate when you’re looking at property managers and measuring the complete cost of professional management.
Paying for Repair and Maintenance Mark-Ups
Another big cost for many property owners, depending on the management company they choose, is rental property repair and maintenance mark-ups. Not every company charges this fee, but some will charge an average of 10 percent to oversee any maintenance or repairs your property may undergo during the lease period. That means if a tenant calls to report a leak and a plumber goes out to your property and fixes the leak for $400, your property management company may assess a 10 percent mark-up on that invoice. On a $400 bill, that would be $40, so your complete maintenance invoice would be $440.
Make sure you’re aware of this cost before you sign a management agreement. You don’t want to be surprised by it when you receive an accounting statement or an expense report. A good property manager will let you know that this practice is part of their fee schedule.
Understanding the Complete Cost of Professional Property Management
In addition to the popular fees that we have already mentioned, you can find a parade of other fees and charges. You might come across a management company that just charges one fee that includes everything. Or, you’ll find companies that charge you separately for every service. You might find administrative fees, technology fees, accounting fees, tax preparation fees, and on and on. Make sure you understand that not only are you paying six or 12 percent in a management fee; you’re also getting other things that aren’t initially included in the pricing table. You want to understand the entire cost of management with a company so you can make the best decision.
Property Management Discounts and Guarantees
Maybe you’d like to get a discount?
Many property management companies will offer discounts to owners who have more than one property that needs managing. If you own an entire portfolio or several units in a multi-unit building, then you really have some buying power. Discuss the reduced rate for your two, three or even six or 10 properties. You can easily negotiate a better deal for yourself.
In addition to discounts, you should also talk to any potential property management company about the guarantees they may provide. Lately, the property management industry as a whole has been discussing the importance of alignment between our customers – who are the landlords and the tenants – and our services. Many companies have started offering guarantees.
When you look at guarantees, make sure you’re carefully reading the fine print. A rent guarantee could just be a discount on the management fee while your property is being re-leased. That may be called a rent guarantee, but they aren’t actually guaranteeing your rent. Instead, they’re guaranteeing you won’t be charged their normal management fee while leasing the property to new tenants.
That’s something, but there’s not a lot of value in such a guarantee. If you come across a company that offers a real rent guarantee, it should mean that you’re getting rental income every month, whether your property is vacant or your tenants aren’t paying rent or you’re waiting for a new tenant to move in. Study the guarantees that are being offered and make sure they fit what you need and want.
As you can see and have probably realized by now, there are many different ways that property management companies will price their services. It largely depends on the market you’re in and the services you require. Some companies will have single fixed price. It might be on the lower end; like six or eight percent, but then they will add a lot of extra fees. Other companies will have more transparency.
We like to see a three-tier table for pricing. You can choose Tier One, Tier Two, or Tier Three. It gives the property owner a lot more flexibility. You can migrate through different plans as your needs change. So, you might go for the lowest plan now, but when you move out of the county or add more properties to your portfolio, you might want to graduate from the least expensive plan to the most expensive one so you don’t have to worry about your property at all. You can evaluate your choices based on that.
Three Final Tips on Pricing Evaluations
Now that you know what to expect in terms of property management pricing, we have three final tips for you to consider before you decide who to hire:
- Why the secrecy? Be careful of the property managers who don’t want to publish their prices online. If a company doesn’t tell you ahead of time what they charge, you should ask why. Maybe they’re too expensive, and they don’t want to scare you off. Or, perhaps they charge whatever they want to whoever they want and there’s no consistency.
- Calculate the total cost of management. Remember that a company charging a six percent management fee isn’t necessarily cheaper than the company charging a 10 percent management fee. The leasing fee might be a full month’s rent or there could be a huge maintenance mark-up. Maybe there aren’t any guarantees.
- Finally, look for clear and flexible options. You should have the choice of service levels, and you should be able to easily understand the differences between Tier One and Tier Three.
And for the Bonus Tip – make sure a company’s guarantees align with your interests. Understand what each guarantee actually means.At Mynd, we think like investors.If you have any questions, please contact us at Mynd Property Management. We are growing fast, and it’s possible we’re servicing your market.