Becoming a landlord is stressful enough without getting nickeled and dimed by property managers.
When you hire a property manager, you delegate the labor of advertising vacant rentals, screening tenants, signing lease agreements, and collecting rent to them. For the cost of property management fees.
Are typical property management fees worth it? It depends on your priorities — and the average property management fees you can negotiate.
Property Management Fees: Key Takeaways
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- Property managers charge both ongoing monthly fees and one-off fees for specific tasks, such as placing a new tenant in a rental unit.
- Some property managers nickel and dime landlords with many incidental fees, which are often buried in legalese in the property management contract.
- Look for a property manager who offers simple, transparent pricing.
How Do Property Management Fees Work?
Property management companies charge two types of fees: ongoing monthly fees and one-time fees for specific actions or tasks.
Monthly property management fees can in turn take two different forms: a percentage of income collected or a fixed monthly fee.
Percentage of Collected Income
Monthly management fees, sometimes referred to as rent collection fees, come as a percentage of rent collected. The average property management fee ranges from 8-12% of collected rent, or in some cases of the total income collected (including late fees, utilities, and so forth). For example, if the tenant pays $1,500 in rent plus $100 in back late fees for a total of $1,600, the property manager might charge you $160 as a 10% management fee.
This fee covers activities such as communication with existing tenants, collecting rent and late rent fees, and usually housing inspections and coordinating maintenance and emergency repairs.
During vacancies, many property managers charge a fixed monthly vacant unit fee.
Fixed Monthly Fees
Alternatively, some property management companies charge fixed monthly fees for each unit.
For instance, say you own an apartment building with a mix of studio, one-bedroom, and two-bedroom apartments. These range in rent from $800 – $1,400. The property manager could charge you a flat fee of $100 per unit per month, for the building as a whole.
This model may seem like a bargain at first glance, but bear in mind that it doesn’t incentivize property managers to fill vacancies quickly, maximize rents, or pursue rent collection as aggressively as possible.
Other Property Management Fees
While property management companies can make your life easier, they charge accordingly. Keep an eye out for these typical property management fees as you evaluate prospective managers.
The fee structure for property management often depends on the type of properties under management. For single-family homes and small (2-4 unit) multifamily properties, managers typically charge only the monthly management fee and a new tenant placement fee. Owners of apartment buildings may pay additional fees however.
Landlords hiring a management company should expect to pay all or a combination of the following fees.
New Tenant Leasing Fee
All property managers charge a leasing fee, to advertise and fill a vacant unit with a new tenant. Property managers typically charge between half a month and one month’s rent to sign a new lease agreement with a renter. It should include the cost of screening tenants.
Rental unit turnovers are where 90% of the work of managing rentals lie. Between coordinating the old tenant’s move-out, cleaning up the unit, advertising, soliciting, screening tenants, and signing a new lease agreement, most of the work involved in managing rentals comes from turnovers. So, property managers typically charge one-half or a full month’s rent to place new renters.
Lease Renewal Fees
Turnovers and filling vacant units require plenty of time-consuming work.
But some property management companies also charge a fee simply to renew an existing lease agreement. As renewing an existing rental agreement requires virtually no work on the part of the property manager, you should negotiate to eliminate this fee.
Specify in the property management contract that they only charge this leasing fee when placing new tenants, not when the manager simply renews a lease agreement with an existing tenant.
If you don’t mind managing your property while occupied, but don’t want to hassle with filling vacant units, consider simply hiring a leasing agent to advertise and fill vacancies only.
Onboarding Fee/Setup Fee
Some property managers charge an onboarding fee, also known as a setup fee. This is a one-time fee, usually around $300, that covers the cost of paperwork, initial inspections, and reviewing your portfolio’s books.
Like everything else in real estate investing, it’s negotiable. Aim to eliminate this fee entirely.
Maintenance Fees
Some property managers also charge whenever they have to oversee maintenance of your property such as property inspections, repairs, cleaning, and so forth.
In other words, they try to charge for something that’s already part of their job. Don’t allow it.
Also, watch out for contractor kickback fees to property managers. Unscrupulous property managers sometimes take kickbacks from contractors when they send them out to work on your rentals — and you know the contractors aren’t coming out of their own pockets for those fees. They’re passing them on to you in the form of higher invoices.
Insist that your property manager collect at least three quotes for every significant repair, and build your own network of contractors to have them sent out to your rental units. Consider negotiating prices with contractors yourself for the best possible deal.
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Eviction Fees
No landlord or property manager wants to file an eviction. It’s expensive, time-consuming, and leads to a tenant turnover, not to mention the stress and risks of managing resentful tenants.
Some property managers charge landlords a set fee when they initiate the eviction process, sometimes as much as $200-$300 per evicted tenant plus court costs and filing fees. Aim to negotiate these fees away as well.
That said, all landlords should understand the eviction process and how to properly serve eviction notices.
Inspection or Property Visit Fees
It bothers me that some property managers charge a separate fee just to visit the property they manage. Visiting rental properties is part and parcel of managing them. It’s literally their job.
Don’t put up with these.
Hidden & Other Fees
Some unscrupulous property managers find ways to bury fees in their contracts to nickel and dime clients.
For example, some charge a fee every time they visit the property. Or they may charge a fee every time they send a contractor out to the property to make a repair.
In extreme cases, they even take kickbacks from contractors.
When hiring a property manager, insist on only two types of fees: new tenant placement fees and ongoing management fees as a percentage of the rent collected.
Factors that Impact Property Management Costs
Several factors can impact property management fees for rentals. Some examples include:
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- Type of Property: It’s more efficient to manage 20 units in a single building than 20 single-family homes spread out over an entire city. Landlords can often negotiate lower average property management fees for multifamily properties than a portfolio of individual houses, each of which requires separate maintenance.
- Size of Property: Similarly, a 20-unit apartment building is more efficient than a 4-unit building.
- Location of Property: While it may seem counterintuitive, many property managers charge higher average property management fees for lower-end neighborhoods and Section 8 rental properties. They tend to come with far more work, with higher rent default rates, eviction rates, maintenance, and other property management headaches.
- Condition of Property: Expect property managers to charge more to manage a crumbling or outdated rental property than a pristine unit. It will inevitably require more work on their part to manage and maintain, and it will attract lower-quality renters (perhaps even professional tenants).
That said, you can and should attempt to negotiate lower monthly management fees before signing a property management contract.
How to Find a Property Manager
The decision to hire a property manager is just the first step in a process that can make or break your investment. The right manager should make your life easier, not harder. Take the following steps to find the best manager for you and your property.
1. Identify Potential Candidates
Seek recommendations and references of property managers from real estate owners in the area where the property is situated. Companies like Roofstock vet and certify local property managers – start there.
2. Research Each Candidate’s Credentials
In addition to the local Better Business Bureau and Chamber of Commerce, some states require a Realtor or Real Estate Broker license or a Property Management License to offer property management services. Many are members of the National Association of Residential Property Managers or the Institute of Real Estate Managers, both of which operate with a Code of Ethics and Standards of Professionalism.
3. Interview Prospective Property Managers
Knowing who will work with your property and having good relations is critical to communications and trust. During the meeting, you should detail your expectations for the property and your relationship. The interview is your opportunity to ask questions about their service, such as:
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- “How will you screen applicants?”
- “How quickly do you respond to a tenant complaint?”
- “How, how often, and what information will you provide me?”
Some owners suggest making out a list of questions to ask a property manager before the interview to be sure you do not miss anything.
4. Review Property Management & Lease Contracts
Remember, a property manager represents you to the public and tenants for better or worse. Be sure you are comfortable with any materials that will be available to the public. Before you sign an agreement to hire a property, invest in a lawyer’s time to be sure you understand the details, even the small print.
If you follow this process, you should avoid a disaster and wind up with a competent manager who will meet your needs.
FAQs About Property Management Services & Fees
Property owners have plenty of questions before they hand over assets worth hundreds of thousands of dollars. Here a few common questions about property management fees and services.
What’s the role and responsibility of property managers?
As in most things, one size does not fit all. The roles and responsibilities of a project manager includes a variety of services, relating to:
Tenancy. A property manager makes recommendations on rental rates and policies (pets, smoking, guests), identifies ideal tenant characteristics compatible with laws and regulations, and markets the property through the optimum media. They also advertise units and collect rental applications, screen tenants, sign lease agreements on behalf of the owner, collect rent, and handle evictions.
Physical Property. A property manager maintains the property to the owner’s specifications, handles repairs and remodeling as necessary, contracts with essential service providers (utilities, trash pickup, and television and internet providers), and performs regular physical inspections. They may provide security services as well, in the case of larger multifamily properties.
Administration. Receipt and disbursements of cash, recurring accounting, financial reporting, retention of critical legal papers (lease agreements, contracts, eviction notices and other documents for the eviction process), property tax filings, and relations with local and state government authorities.
How do you calculate management fees?
If the property management company charges a flat fee, there’s no calculation involved. If they charge a percentage, it depends on whether they only charge based on rent, or whether they include all revenue collected from renters.
For example, if they charge a 10% management fee on all income collected, and they collect $1,000 in rent, $50 in late fees, and $100 in utility reimbursements ($1,150 total), they’ll charge you $115 for that month’s fee.
How much are short-term rental property management fees?
Vacation rental managers charge more than long-term rental managers. Expect to pay between 20-40% of rent collected?
Why? Because it requires far more work to manage short-term rentals, between cleaning and constantly turning over the unit with new guests.
What is the average property management fee for rental properties?
For long-term rental properties, the most common fee structure is 10% of income collected, plus one month’s rent as a new tenant placement fee. But landlords with multifamily properties or several properties clustered close together can often negotiate a lower fee, such as 8% of rent collected.
Are Property Management Companies Worth the cost?
A property management company takes care of all the headaches associated with being a landlord.
If this is a part-time job, do you have time to stay in constant communication with your tenants? Hire the plumber they need when the toilet isn’t flushing? If not, a property management company might be necessary in order to keep your tenants happy.
Ultimately, you want happy tenants who renew their lease agreements repeatedly. But new landlords should consider managing their own properties for the first few, as it will make them better landlords and real estate investors. Once you have five or ten units under your belt, consider outsourcing work to a property manager if you don’t enjoy managing your rentals.
Or you could simply retire young with real estate and manage the units yourself to keep you busy in retirement.♦
Have you had positive experiences hiring a property manager? What kind of property management fee structure have you paid in the past?
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About the Author
Emma Dudley is a data marketer by day and financial writer by night, early on her journey to financial independence. She lives in Cape Coral but loves international travel, and enjoys the challenge of cutting-edge fashion on a cut-down budget.
OMG! There are so many fees associated with property management. I had no idea so many property managers snuck in fees like this.
Yeah you definitely have to be careful when hiring a property manager Lia!
Well, if you want to be in the Property business you gotta know about the management fees. There is a fee for everything!
True enough Mane!
There are some items in this article that I don’t think you got quite right. Onboarding takes a lot of work, especially if owners do not have paperwork in order. It is fair and reasonable for a PM to charge for this, and as a PM, I would never waive or discount this fee because I am not going to waive or discount my service.
It is also not usually the case that renewals take very little work. There is often much negotiation back and forth between the PM and the resident. A good PM will be looking at your complete portfolio, the timing of the expirations and the type of market your are in and making renewal decisions based on that. If you want to motivate your PM, offer them higher incentive to renew your leases and keep residents in place. You will save more in the long run because turning a unit takes time and money.
I 100% disagree that you should try to negotiate for lower PM fees. You should find the very best PM you can and hire them. Taking proper care of your asset and protecting your investment is what matters and Property Management can be difficult, time consuming and high touch. You want the best you can find and afford. The payoff in a well-run cash flowing property that will sell at top dollar is worth so much more than a few dollars you will save discounting management fees or sending in your own contractor.
I hear you Amy, and I appreciate the perspective of a property manager among the comments!
The property manager needs to know the costs involved. If they don’t know they shouldn’t be managers in the first place.
True Fati, although not all landlords know what to expect for typical property management fees.
I’ve had a great experience with property management companies! While the cost might seem like an extra expense, the peace of mind they bring is priceless. They handle everything from tenant screening to maintenance issues, saving me time and stress. Plus, their expertise often leads to better tenant retention and well-maintained properties. For me, the convenience and professionalism definitely make them worth the investment.
Very glad to hear it Funky Jerry!
Been mulling hiring a property management company. I appreciate the overview.
Glad to hear it was helpful Chelsea!
Really helpful to learn about potential hidden and other fees. It’s these details that can truly impact how we manage property costs.
Yeah there are plenty of bad actors in property management, and of course plenty of good property managers too. Keep an eye out for hidden fees!