It’s important to understand how property management fee structures go. Most property management companies operate under three different departments, and your fees cover all the expertise that’s provided by those departments.
Property Management Departments
The administrative department handles day to day functions like paying bills, processing leases, scheduling inspections and repairs, collecting rent, and preparing monthly financial statements for owners. Then there is the leasing department, which is responsible for creating the marketing, going out on the leasing appointments to determine if the tenant is right for your property and to help show them the benefits and features of the property. Leasing agents will help the tenant decide to move in. The leasing department is also responsible for the process of keeping the tenants happy and likely to renew their lease. The third department is the maintenance department, which handles the daily service requests and turnovers so when a tenant moves out the property can quickly be brought into marketable condition. Maintenance teams also handle capital improvements or replacements, like roofs, water heaters, windows, siding, and concrete.
There are some individuals who could handle every single duty in a property management company, but most of us excel in one area or another. So, you want your bookkeeper to be analytical and focused. That person is probably not the right person to use creativity and sales to sell the tenant on renting your unit. The creativity and marketing and sales ability that a leasing person has is probably not going to provide the proper technical skills to review an estimate and choose a contractor for your project.
Property Management Fees
There are management fees that you may or may not see, depending on the company you choose. Some property managers will include some of these or as many as they possibly can. When you call a property manager and ask about fees, don’t stop at the management fee.
The monthly management fee is typically a percentage of the rent or a flat fee. Percentage can mean lots of different things. It may be a percentage of the rent collected or the rent billed. You’ll need to know if there is a minimum charge and if you pay even when the property is vacant. One client wanted to go with a company that offered a six percent management fee, but they had a minimum so she ended up paying 12 percent.
There are other fees for owners and tenants. You might come across a marketing fee, a technology fee, a new tenant placement or lease up fee, an inspection fee, a contractor quality control fee, a bill pay fee, unpaid invoice fees, notice fees, eviction fees, lease renewal fees, and the list can go on and on and on. In addition, there are tenant fees like application fees, renewal fees, and charges if the tenant loses the lease and needs another copy. There may be a lock out fee, housekeeping inspection fees, or pet fees that the tenants are responsible for.
It’s important to understand the structure your property manager is using so you know your real payments. Sometimes a six percent management fee can cost you more than a 12 percent fee.