Today we are going to be talking about how much do property managers charge for their services and how to watch out for hidden fees.
A property manager is basically like our quarterback — the number one player on our team.
Every time they score, they make us money.
We are going to find good property managers and what they charge, because if you’re not careful, you will find that there are loads and loads of extra, secret fees that are in the fine print.
Now, when you are selecting a property manager, I have a few articles that will help you to select the right one for your real estate business.
- 22 Vital Questions to Ask Your Property Manager
- What to Look for in a Property Manager
- 4 Steps to Finding a Good Property Manager
How Much Do Property Managers Charge?
Property managers will charge you, the landlord, in either one of three ways:
- A percentage of the rent collected every (8% to 12%)
- Flat monthly management fee (i.e. $95)
- Combination of the two (i.e. $50 a month not rented or 10% when rented)
BUT Watch Out For The Hidden Fees!!!
There are so many hidden fees that they will try to charge you. The smart investor will watch for these charges and negotiate their way out of these useless fees.
Let’s go through all the useless fees that they will try to charge you.
Property Manager Fees
I want you to get started investing in real estate rental properties and it is why I have this podcast. Today I want to talk to you about property managers and how much they charge for their services.
As I said earlier, your property manager is your quarterback. They are the ones that run your business. On previous podcasts, I’ve talked about property managers, but today we are going to talk about the fees they charge.
I have seen so many different contracts from property managers and they list so many fees. You need to be careful, because you don’t want to be stuck with any sneaky fees.
Read every single contract before signing. Even if you believe they are on your side, you need to read every single contract from property managers before you sign.
The contract will outline what, and how much, they are going to charge. As you are looking through the contract, watch for these things:
Make sure the property manager does not charge you to look at your properties before you buy them. This is vital to your business.
You want to make sure your property manager looks at the property, is okay with the property, and gives you adequate rehab costs, but you don’t want them to charge you to do that.
Make sure all of the rehab is accounted for. They need to calculate the rehab costs and manage the logistics of the rehab, by making sure the contractors are there when you need them and things are getting done.
You will find that property managers will either do this for free, or as part of their job, but some property managers will tack on a five or ten percent charge on top of every little bit of rehab cost you have.
I don’t like paying for that, because I would be paying double. This should be included in their fee and is part of what they do. They manage rehab and contractors.
More than likely you will get this charge, but sometimes it is much more than it should be. I’ve seen it as high as one month’s rent, just to find tenant. If you have a property that rents for $1,800, that is coming out of your pocket!
They do have to market the property and show it to potential tenants, but one month’s rent is way to high. I would say to do it for a flat fee of $300 or $500.
Negotiate this fee!
Some property managers will charge you for them to collect the rent. If they need to actually go and collect the rent, I’ve seen where they charge a $25 or $50 a month. No way! You do not want this one.
Any time anyone does maintenance on your property, the property manager may charge you a five or ten percent fee.
Why are you being charged the property management fee, if they are going to nickel and dime you? Strike this one out.
If, once a year, you want the property manager to go by the property and make sure the tenant is not destroying it, that should be a part of the monthly fee they charge.
You do not want them to charge you extra to do this task.
Field Maintenance Calls
This is basically a 24-hour a day service for calling for maintenance. This should be wrapped into your monthly management fee.
You do not want to be charged extra for every single maintenance call your property manager receives from the tenant.
If your property manager needs to evict a tenant from your property, they may say it is a $500 fee to remove them, which does not include the lawyer itself.
Strike that out.
Your property manager may want to charge you to make your property rent-ready for the next tenant. They may charge you 10 percent to get contractors in the property to paint it and clean it up.
Do not agree to this charge!
These nine fees should be covered in the property manager’s monthly rent collection, which is usually between 10 and 12 percent of the monthly rent amount.
How Much Do Property Managers Charge? Flat Fee or Percentage
When looking at what a property manager will charge on a monthly basis, it comes down to whether the property manager will charge a percentage of the monthly rent or whether they will charge a flat fee.
There may be something else where it is a combination of the two, but usually it is one or the other. Usually it is a percentage of the rent, but the norm could vary by city or state.
Property managers need to compete for the price of your business. The flat fee could be as little as $50 a month, but that is pretty low.
I had a property renting for $1,800 a month and was charged a $95 property manager fee and that was a great deal.
I would rather not have a flat fee, if the percentage is less. For example, I have some properties in Ohio that rent for $550 a month.
A $95 monthly charge is almost 20 percent. A 10 percent charge would only be $55, which is almost half.
Negotiate everything! Usually an 8 percent fee is very good and very low, and 12 percent is pretty high. A flat fee is better at times.
If a property manager wants to charge you 12 percent, start negotiating at 8 percent to get your fee down to 10 percent.
PRO TIP: Everything in this business is negotiable. You must negotiate with contractors, title companies, tenants, everyone!
Sneaky Fees Property Managers Charge Their Landlords
Here is a list of fees the property manager will want to charge:
- Set up fee
Property managers may charge you $300 to set up your company. It doesn’t cost money to do that!
If that is something they must have, and they are a good property manager, you may have to deal with that fee, but try to negotiate it down.
- Monthly management fee
This is usually between 8 and 12 percent of the monthly rent or a flat fee.
- Leasing fee/tenant placing fee
This is something property managers will charge you, because it is a lot of work to place a tenant.
- Lease renewal fee
If somebody signs a one-year lease, and you pay the property manager one month’s rent as a fee, they may want that fee the next year to renew the lease with the same tenant.
Why would you pay for that? All they did was sign another contract.
PRO TIP: Negotiate this down to a low, flat fee of $100 or $200, instead of one month of rent.
- Vacancy fee
If the property is not rented, the property manager may want to charge you money.
If they are not making you money by getting a good tenant in there, why should you pay them?
Cross this out or find a new property manager. Do not pay them to not do their job.
- Rent-due fee
If you normally get $1,000 from rent and the tenant didn’t pay that month, the property manager may charge you a fee, because they have expenses they need to pay.
If they don’t make you money, you should not need to pay them.
- Advertising fee
Property managers may charge you a flat fee of $100. This fee is different than the leasing fee, as it is for marketing the property.
Make sure you are not paying twice for the same work. If you pay a leasing fee, it should include advertising.
- Late fee
Property managers may charge your tenants a $25 late fee that they pocket.
This is ridiculous, because that is your money.
They may have to work to get the rent, but they should give you at least half of that.
- Eviction fee
If property managers are charging you on top of the lawyer fees for the administration of an eviction, scratch that out.
This is a part of the monthly management fee.
- Pet fee
If you get any pets in your property, you should be charging an extra amount for that pet, because it is another tenant that could destroy the property.
If the fee is $25 a month, that should go into your pocket, not the property manager’s.
That will be used to clean the property when the tenant moves out.
- Return check fee
This should be solely charged to the tenant, and you shouldn’t make any money off of this, if you don’t need to pay the bank fee.
You should also not be charged for this.
- Paying utility bills
In some areas of the country, it is wise to have the property manager pay the utility bills, instead of putting the utilities in the tenant’s name.
If the utility bill is tied to the property instead of the tenant, you could be stuck with it.
PRO TIP: Find out if the utility bills are tied to the property. If they are, make sure the property manager is paying them every month and have them bill the tenant.
This has saved me thousands of dollars and was worth a 10 percent fee.
- Inspection/visitation of the property
Make sure you do not pay for this! They are already being paid for monthly rents so the should be able to visit the property when needed without paying more.
- Reserve repair fund
This is money that is set aside that your property manager uses to handle any repairs or maintenance calls in the middle of the month.
They need money in an account they can dip into.
- Early termination fee
If your property manager isn’t doing well, or you want to move on to another property manager, and there is still time left on your agreement with them, beware of the early termination fee.
Cross this out!
Do not give them the satisfaction of giving them money, when they are not doing a good job.
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