Managing rental properties is not for everyone. When you make the decision to hire a property management company to manage yours, the information can be overwhelming and confusing. This article will help to “untangle” the sometimes convoluted fee structures property managers use.
When you bought your rental property, more than likely, you did your homework to try and figure out whether or not it was the right deal for you. Similarly, when we bought our property management company, we did a lot of due diligence also and learned that there are two basic types of property management fee structures out there: 1.) Low Base Fee and 2.) The All-Inclusive Fee. Which one you choose has a lot to do with what services you may need.
The Low Base Fee is just as the name implies . . . it is a low fee for minimal services. This fee structure provides for collecting rents, screening Tenants, writing leases and paying you, the owner, any funds left over at the end of the month. The range of rates charged for this type of a property manager is between 4% and 6% of the monthly rent. For a property Renting for $2,000 per month, assuming a rate of 5%, the fee adds up to $1,200 annually ($2,000 per month X 12 months X .05).
The thing to watch out for with Low Base fee structure is the “Lease Up Fee” or “Leasing Commission” as many refer to it. Most Low Base Fee property managers do NOT include this cost in their fees and they can double your property management fees right off! If you figure a 5% leasing commission (which is common), that is another $1,200 per year just for the lease up fee! Another thing to watch out for is that some of the Low Base Fee property managers may also charge a fee for any payments they make on your behalf; mortgage, property taxes, HOA dues, so do your homework!
The all-inclusive fee structure on the other hand, pretty much includes all of these fees in it’s single fee. Now, don’t misunderstand me, at 8% to 12%, the all-inclusive fee structure usually will be higher than the low-base fees structure at first glance. But when you add up all of the extras and compare them most times the all inclusive fee structure will work out to be less money.
One other thing to consider when assessing property management companies and their fee structures: the all-inclusive property manager typically pays the lease commission out of their pocket… up front. So, they have a vested interest in finding you a good renter who will stay in your property for more than a year.
On the other hand, the property manager who charges extra for a lease-up fee or leasing commission each time they rent your property, has a vested interest in the other direction… to have you pay them the commission every year. This could translate into more of a cavalier attitude about finding you a long-term renter.
In summary: If you will be performing some of the property manager functions like leasing your own property, paying your mortgage, insurance and property taxes then, the low-base fee structure may be best for you. Conversely, if you don’t plan on having anything to do with managing your property, for instance if you will be living out of the area for a while; the all inclusive fee structure may be better suited for your needs.
If you found this article interesting, you can view a short video at: http://bit.ly/eWcFid
After selling their property management business in 2009, Pat and his wife founded and developed “Manage To Make Money” which is a resource for property managers providing Books, Documents and Forms, Live Seminars, E-Books, Free Webinars, Tips and Private Consulting. The website is: http://www.ManageToMakeMoney.com