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The Cost of Hiring a Property Manager

Hiring someone to manage your property for you is a big decision. A competent property manager with integrity can add significant value to your investment, but a mediocre manager who overcharges could cost you thousands in lost income. Some property owners don't need a property manager, while others can't afford to not have one. To ensure you know where you fit in this dilemma and that you're not taken advantage of, it's vital you understand the services a property management company provides and the costs involved.

Key Points

  • 1 Basic services of property managers include managing rent, tenants, maintenance, repairs, staff, budgets and records.
  • 2 The primary cost of hiring a property manager is a monthly management fee, which can be a flat rate per unit or a percentage of the gross rent.
  • 3 Not hiring a property manager can cost you time, money and freedom from stress.
  • 4 Hiring a property manager is a good investment for property owners with numerous rentals who don’t want to deal with all the responsibilities and/or don’t live nearby.

Basics of the Services Property Management Companies Provide

You may hire a property manager for one primary task, such as rent collection or property maintenance. On the flip side, you can hire a property manager to handle every aspect of your rental property operation. The specific duties a PM company performs is clearly outlined in a contract, but there are basic services most companies provide.

Managing Rent

A property management company almost always takes on the responsibility of rent collection. Property managers examine the market and analyze comparable properties in your area to select a rent rate that attracts tenants. They also adjust rent rates based on state and/or municipal laws with increases being the norm. Above all, property managers collect rent from tenants on set due dates to ensure optimal cash flow. When a tenant pays late, they strictly enforce late fees.

Managing Tenants

Tenant management is another core responsibility with several duties. Primarily, they find and screen prospective tenants to fill vacancies, so your property stays rented. Other duties include:

  • Advertise rental properties to attract tenants.
  • Run credit and background checks to select tenants more likely to pay rent on time, cause fewer problems and stay longer to decrease tenant turnover.
  • Complete leases with set terms and security deposit requirements.
  • Deal with complaints, maintenance requirements and emergency situations.
  • Handle move-outs, including unit inspections, turning over units and security deposit returns.
  • Handle evictions when tenants don’t pay rent or breach the terms of their lease.

Managing Maintenance and Repairs

Keeping the property safe and habitable is another vital role, which requires doing preventative maintenance, making repairs and completing janitorial and landscaping tasks. Property managers may complete these jobs themselves, use in-house staff or hire outside contractors. For large repair or renovation projects, property managers may also request multiple bids before hiring the ideal vendor. A property manager will likely also monitor a 24-hour emergency repair hotline or oversee staff or a service that handles this task.

Knowledge of Landlord-Tenant Laws

Professional property managers have in-depth knowledge of local landlord-tenant laws. They use this knowledge to ensure leases, disputes, evictions and all other tasks are performed according to these laws. They also know the legal processes required for screening tenants, handling security deposits and complying with safety standards. Property managers also enforce all policies outlined in lease contracts and confront potential violators in a lawful manner.

Managing Staff

The property manager is often in charge of any other employees related to your property, which could include maintenance and repair, security, janitorial and office personnel. Supervising on-site staff may include interviewing, hiring, performance reviews, setting and adjusting salaries and benefits, addressing concerns, training, firing and writing recommendations.

Managing Budgets and Maintaining Records

Budget management involves setting and adjusting an operational budget. Tracking budget expenditures, income, maintenance requests, inspections and repairs are all part of records management. They also keep detailed up-to-date records on leases, rent collection, insurance costs and all other financial and managerial documents that provide a comprehensive record of your rental property investment.

Cost Estimates and Ranges

There aren’t any set costs for property management, but you can get a general idea by researching what local management companies currently charge. Keep in mind, fees vary based on the types and number of properties you need managed, the types and number of services you require, the location of your properties and other factors.

The primary cost of property management is a monthly management fee. This fee may be all-inclusive or it may only cover certain services with separate fees for tasks outside the scope of these services. A property manager with a lower monthly management fee may have expensive back-end charges that make them more expensive than their competitors.

Property managers may charge a flat monthly management fee. Flat fees are a specific dollar amount per single-family home or per unit within multifamily properties. Basing the monthly management fee on a set percentage of the gross monthly rent is the more common method. This percentage varies, but it’s usually between 4% and 10% with significant differences based on several factors.

  • Commercial properties typically have much lower demands, so fees are usually less than those for residential properties.
  • Small apartment complexes with fewer than 10 units typically have higher fees than larger complexes.
  • Properties in poor condition that will likely require extra maintenance and repair usually have a higher fee than properties in good repair.
  • The location of your property plays a big role, with properties managed in Los Angeles often incurring a monthly fee of 8% to 12%, while properties managed in Tulsa may only be 7% to 10% on the fee scale.

When paying a percentage of rent fees, make sure the property management company only charges for rent collected and not rent due. Otherwise, you’re paying the property manager for a unit you’re not earning any money on. Other potential fees in a property manager contract include:

  • Initial setup fee for setting up your account, which is usually less than $500.
  • Tenant placement fee, usually a half to a full month’s rent, to cover the costs of advertising, tenant screening, lease preparation and other move-in procedures required to fill your vacant properties.
  • Vacancy fees, which may be charged when you hire a property management company for a vacant property to cover the cost of finding a renter for the property.
  • Maintenance fees, which may be broken down by specific tasks, hourly rates, monthly percentages or flat rates per person or per unit but usually only when maintenance isn’t included in the monthly management fee.
  • Eviction fees, typically between $200 and $500 per tenant eviction plus any associated court costs.
  • Early termination fees, which may be charged if you terminate your property management contract early.

Your contact may also require you to place money in a reserve repair fund, which is kept in a separate account and used to make necessary repairs. This fund usually requires a set minimum, and you must replace funds as deductions are made to cover repair costs. Sometimes property management fees are negotiable, so it never hurts to ask.

The Cost of Not Getting a Property Management Company

New landlords may not fully grasp how much one troublesome tenant can potentially cost in time, money and legal headaches. A competent property manager can protect your investment by ensuring repairs are done effectively, rents are collected in a timely manner and late payments are dealt with swiftly. Your success as a landlord could hinge on hiring a property management company that saves you in more ways than one.

Increased Vacancies

Vacant properties cost you money. Having a property manager doesn’t guarantee you’ll lease properties quicker, but your odds are significantly increased. Experienced property managers understand the rental market and have the marketing knowledge to get your property in front of the right audience to potentially get it rented sooner than you could on your own.

Lower Quality Tenants

An extensive knowledge of the tenant screening process often results in finding reliable tenants likely to pay their rent and not damage the property. A knowledgeable property manager recognizes the warning signs of a trouble tenant and can help protect you from discrimination lawsuits due to inconsistent screening processes.

Frequent Tenant Turnovers

Tenant turnovers are time-consuming and add up financially with costs from cleaning, lock changes, painting, small repairs, new flooring, marketing the vacancy, tenant screening and new lease signing. Property managers prevent turnovers by keeping tenants happy by ensuring the property is well-maintained and complaints are quickly addressed.

Higher Maintenance Costs

Profits go up when maintenance costs go down, and a good property manager helps mitigate maintenance costs. Property management companies may have their own maintenance staff, which is usually cheaper than hiring outside contractors. When a property management company does hire an outside contractor, they typically already work with licensed, bonded and insured contractors who offer bulk discounts. Plus, they’ve vetted these contractors and know they offer quality work at good prices.

Loss of Investment Protection

Property managers preserve the value of your investment with preventative maintenance programs that catch small issues before they grow into costly repairs. Written maintenance programs also keep inspections and documentation on track, and lets property managers know which upgrades or modifications would best increase the value of your property and/or lower your liability insurance premiums.

Owning rental property comes with many hidden liability and legal issues, and mistakes can result in costly legal fees. From leases to evictions, a property manager understands local landlord-tenant laws, stays current on changes in these laws and ensures you’re not vulnerable to a lawsuit. Avoiding a single lawsuit can more than make up for the cost of a property manager.

Missing Out on Personal Benefits

Hiring a property manager means more time for you, which is often the biggest benefit of all. Your time may be more profitably spent on other ventures, such as collecting more investment properties, or just doing the things you enjoy. Using a property management company also gives you the freedom of investing in properties too far away for you to effectively manage on your own. Best of all, you avoid the stress of late-night emergencies, chasing down overdue rent payments, evictions, troublesome tenants and reams of paperwork.

Is Property Management a Good Investment?

Not every rental property owner needs a property manager. Sometimes it’s more profitable to manage your property yourself, but in other cases, the cost of hiring a property manager is outweighed by the increased income and savings they bring you.

When Should You Hire a Property Management Company?

You should hire a property management company when you have too many properties to manage them alone, you don’t live near your properties or you don’t have enough time to tackle all the daily management responsibilities. Even if you don’t suffer from any of these issues, maybe you’re simply not interested in being a landlord. Dealing with tenants, handling the numerous financial and legal responsibilities and protecting your investment is hard work. If you’re willing to make a little less money, then hiring someone else relieves you of the burdens that come with rental property ownership. In many cases, hiring the right property manager lowers your overall management costs, so it actually doesn’t cost you anything to pay a professional to manage your property for you.

When You Shouldn’t Hire a Property Management Company

If you only own a few local properties, such as less than three located near your home, it may be more feasible to manage them yourself. This is especially true if you really enjoy being a landlord and dealing with your tenants directly. However, even with these factors in your favor, you must also have enough time to manage the properties effectively and the knowledge to do so in a legal fashion, or it might still pay to hire a professional.