Now that we have explored the property management business and pursuing a career change there, it is time to look into the ownership/business side of managing properties for others. In this chapter we will explore what services you may want to offer your clients and what the prevailing fee structures are out there.
The scope of services that you may offer for your Owners may vary quite a lot. Below is a list of the services that we provided for our Owners. You may see what suits you and/or your marketplace the best and add or subtract from this list as you see necessary:
- Preparing the property for putting on the market for lease
- Marketing the property for lease
- Screening potential Tenants
- Preparing and executing all lease documents
- Maintaining the property – including 24 hour emergency response
- Dealing with Home Owners Associations
- Collecting Rents
- Evicting Tenants for non-compliance with Lease (either non-payment of rent or non-compliance with other terms and conditions of the Lease Agreement).
- Paying expenses for the Owner:
- Paying mortgage(s)
- Paying Home Owner Association Dues
- Paying maintenance and legal bills
- Paying property taxes
- Providing a monthly operating statement for the Owner
- Depositing any excess earnings into the Owners bank account
Fees
How do your know what to charge your Owners? What philosophy do you employ? When we did our research as part of our due diligence before we purchased our property management firm these were questions at the forefront of our minds. We called every property management company we could find and quizzed them about their fees so we could start to get a good idea as to what our competition was like. The exercise also gave us an idea of what our marketplace was comfortable with what it would pay as well as what it would not accept.
One thing that we found was that there were several questions that we needed to answer regarding our fee structure.
We were faced with two predominant pricing philosophies: should we start with a low base fee for minimal services and add on fees for services beyond the base, or have a set fee or percentage and include all services? These were tough questions that we had to figure out and they will require some market research on your part in your particular locale. In this chapter I am going to explore both fee structures we considered and compare them for you. I will also share with you what our research in Southern California showed us and what fee structure we ended up with.
Low Base Fee Structure:
Most property management fees are based on a percentage of rent collected each month. As an example: a 10 percent fee for a property that rents for $2,000.00 per month would be $200.00 per month.
The low base fee structure is just what the name implies; it offers a very minimal scope of standard services in return for a low percentage fee. Because the base scope of services is so minimal then the Owner can expect to pay extra as they add services they wish the property manager to perform for them.
This is a very good structure for Owners who want to be more involved in their property management activities and don’t mind paying their own mortgage or HOA dues or leasing their own property. As an example: the base fee in this case will typically be between 4 percent and 6 percent of the monthly rents collected.
All-Inclusive Fee Structure
Again, just as the name implies, with the all-inclusive fee structure there are virtually no extra fees, and the scope of services is much more broad. This is an ideal structure for the Owner who has been transferred out of the country and/or doesn’t necessarily want to be involved with any aspect of managing the property or keeping track of the extra charges. Fees for the all-inclusive structure are, as you have probably already surmised, higher than the low base fee structure. You will find that the all-inclusive fees will range from 8 percent to 12 percent of the monthly rent collected. Following is a comparison of these two fee structures for your consideration:
Example based on $2,000.00 per month rent:
Low Base Fee All Inclusive Fee
| Basic Property Management Scope of services offered: |
Fee |
Owner’s Cost per Year |
Fee |
Owner’s Cost per Year |
Base Fee
|
5% |
$1,200.00 |
10% |
$2,400.00 |
| Additional Services | ||||
|
Cost + 10% |
Cost + 0% |
$0.00 |
|
|
6%/year |
$1,440.00 |
Incl. |
$0.00 |
|
$50.00/month | $600.00 | Incl. | $0.00 |
|
$50.00/month |
$600.00 |
Incl. |
$0.00 |
|
$50.00 | $100.00 | Incl. | $0.00 |
| Evicting Tenants for non-compliance with Lease (either non-payment of rent or non-compliance with other terms and conditions of the Lease Agreement). |
Hourly Rate |
Hourly Rate |
||
|
Total Yearly Cost to Owner for all Services |
$3,900.00 |
$2,400.00 |
As you can see from the above examples, each of these structures has its place, depending on your needs. If an Owner is going to be somewhat involved in the management of the property, such as leasing the property, or paying the mortgage or other expenses, then perhaps the Low-Base Fee structure is best for them. On the other hand, if they plan on being minimally involved or not at all involved in the management of their property and will need the full scope of property management services, then the All-Inclusive Fee structure may be the most economically feasible.
Click here to view a short video on Understanding Property Management Fees
Thank you for Reading!
Pat and Kris Larkin
If this information has been helpful to you, you may want to visit our website to see the other helpful property management resources we offer: www.ManageToMakeMoney.com
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