This is part 3 of a 4 part series where we have outlined important questions to ask a property management company before hiring them.
Series 1 Company Credentials
Series 2 Property Management Services
Series 3 Property Management Fees
Series 4 Tenant Screening Process
Rental management companies come in all sizes, capabilities and expertise. Just because one works for one investor does not necessarily mean they will work for you. You need to know some important questions to ask a company during your initial interview process regarding fees they charge for their services. The answers to these questions will give you a good grasp of the total management costs you will incur in exchange for the managing of your rental property. By knowing the answer to these questions before hiring them could prevent future misunderstandings and unforeseen expenses.
Series 3 - Property Management Fees
Unlike a real estate sales commission, there is no standard commission that is charged for rental management services. Usually you will see commissions ranging from 4-15% of the gross monthly rental income. In addition to a commission fee you could be looking at any or all of the following fees:
Lease-up or set-up fee
Lease renewal fee
Advertising fees
Mark up charges on repair work
Early cancellation fee
Service call fees..etc
Do yourself a favor and get familiar with asking the questions below when interviewing a property management company. After you are under contract with a management company is not the time too find out how much your expenses will be. And some of these fees can be negotiated to meet your needs.
Commission
How much do you charge as a monthly commission? Do you charge this if my property is vacant or only when occupied?
Lease-Up or Setup Fee
Do you charge an initial set-up fee, and when do I need to pay this? If I cancel prior to you placing a tenant in my property is this fee refundable?
Lease Renewal Fee
Do you charge me a fee when you renew a tenants annual lease that is soon to expire?
Advertising Costs
Who pays for advertising costs? If the property manager does, ask where they will advertise. If it means placing your listing on their own web site and other free online classified sites you may not be getting your monies worth. There are many good online rental or tenant resources that will bring in qualified tenants for a reasonable fee and you will want to consider these. Nothing is worst than having your property vacant, bringing in no money only because you or your property manager skimped on advertising.
Maintenance Mark-up Charges
Do you charge a "mark-up" or percentage over the actual costs of any repair work, service calls etc?
Just one of those things to be aware of, as these all eat into your profits.
Early Cancellation Fee
Is there a cancellation fee if I decide to cancel my contract with your company if after 3 months no tenant?
Note: If the management company has invested advertising dollars and lots of time and effort in searching for a tenant, they may well deserve to be reimbursed for their out-of-pocket expense.
All of the above are the most common fees to be charged for property management services. Asking these questions will make your job a lot easier when it comes down to hiring a company to manage your rental property.