Perhaps you are a seasoned landlord or looking to expand your portfolio with your first investment property. In either case, you may be familiar with rental property management services. Your realtor may have already mentioned a company they recommend, but what fees do these companies charge to take care of your investment? Join the team at RTI Properties – a reputable property management agency in LA – in an in-depth discussion about property management fees and common questions about them.
Table of Contents
- A Guide to Property Management Fees
- Typical Property Management Fee Agreement
- Additional Property Management Fees
- Miscellaneous Fees
- Is Hiring a Property Manager Worth the Cost?
- What is the Most Challenging Part of Self-Managing a Property?
- What Property Management Fee Should You Expect for Apartment Management?
- How Much Does Rental Property Management Cost?
- How Will you be Billed for Commercial Property Management?
- Factors Affecting Property Management Fees
- Property Management Fees FAQs
A Guide to Property Management Fees
Often, the total cost of property management services will depend on the scope of the engagement. But the question is, how much work do you want to outsource to a property management company?
Some landlords delegate all tasks to a property manager. However, others choose to remain hands-on in some areas while the manager handles the rest. Whichever is your case, read on to discover the specific fees property managers charge.
Typical Property Management Fee Agreement
Most property managers charge between 8% and 12% of rent collected each month. So, say your property brings in a total of $8,000 in rent per month. In this case, you will pay between $960 and $1,200 monthly for apartment management services.
Some management firms charge a fixed fee based on the services provided and the property type and square footage. A fixed fee structure may seem like an attractive arrangement, but the management agency will likely not be as dedicated to maximizing your rental income.
Additional Property Management Fees
Because rental property management fees do not cover all the expenses, you may need to pay additional costs, including:
» Overseeing Vacant Property
A vacant rental may demand more involvement from a property manager, considering the potential problems. The property manager will need to regularly check for vandalism, burned security lights, and plumbing issues.
Note that vacant units come with extra financial implications, including payment for utilities. That’s why you should work with your property manager to build a strategic plan to safeguard long-term interests and minimize associated financial burdens.
» Contract Setup Fee
The setup fee, also known as the onboarding fee, is the first charge you might hear during the initial consultation with a property management company.
Contract setup may involve:
- Creating your account for record-keeping purposes
- Assistance with business or tax license registration
- Initial property inspection
- Opening a bank account if necessary
The contract setup fee is a one-time expense typically averaging between $250 and $500.
» Leasing Vacant Property
Whereas you may list your rental property on free listing websites like Rentals.com and Zillow, you may need an extra hand when it comes to showing your units to prospective tenants. This is especially applicable if you are a remote investor or have little time to handle such tasks.
Most property managers charge between 50-100% of a month’s rent to lease vacant property. Some management firms do not charge a dime.
Regarding lease renewals, some property management companies conduct the procedure at no charge, while others charge a small flat fee or percentage of the rent.
» Tenant Occupied Unit
Some property managers only charge for occupied properties. The fees cover the day-to-day management of your apartment, including rent collection, responding to emergency calls, coordinating repairs, and communicating with residents.
» New Tenant Placement
A property manager may charge to place tenants in your rental (s). It can be a flat fee or a percentage of the month’s rent and may cover things like advertising, tenant screening, lease agreement drafting, and move-in facilitation.
» Late Payment Service Charges
If a tenant fails to pay the entire rent on time, it’s generally recommendable to charge them a late fee. This fee compensates you for financial inconveniences and back-and-forth communication, as well as discouraging recurring rent delays. Some landlords offer a grace period of three to five days before they can legally charge late fees.
When a rental property management company takes over the responsibility of collecting unpaid rent, you can expect to pay between 25% and 60% of the late fee collected.
» Routine Inspection Fees
Thorough inspections are critical for residential rental properties every 3-6 months. They help catch minor issues before they escalate into costly damages while ensuring that residents keep their units in good condition.
Some property managers conduct biannual inspections free of charge. Others require payment for each property inspection in exchange for a lower monthly fee.
» Evictions and Collections
Often, things may not work as expected, and you may need to evict a renter for irresponsibility, nuisance, or non-payment of rent.
Your property management company may conduct evictions themselves or outsource to a law firm specializing in this line of work. Whichever the case, expect to pay between $500-$1000 per eviction. The charges compensate the management for the tedious work and cover any applicable legal fees.
If you decide to pursue collections to court, the attorney and debt recovery firm will typically charge around 50% of the amount collected.
» Repairs and Maintenance
An established property management company will have an in-house maintenance team or solid relationships with trusted vendors.
You will want to know what services the in-house staff offer and whether they are available for emergencies. Be sure to ask about their billing rate and whether they vary based on the project scope or intensity.
We recommend asking your property manager to provide an itemized estimate of the repair expenses and a comprehensive statement after repairs. Your manager can negotiate with vendors to give you more cost savings.
If you appoint the property manager to supervise major upgrade/remodeling projects, expect them to charge about 10% of each project’s cost.
In some cases, mainly when your property manager charges low monthly rates, you may see some expenses passed on to you. Such costs may include an advertising fee or an annual inspection fee. The management company may also require some financial cushion to take care of unexpected but urgent issues.
Note that the way you split up pet deposits collected, bad checks, and income from coin-operated machines, especially if they are sizable sums of money, can have a considerable impact on your bottom line. So, you want to be careful when doing the math.
Is Hiring a Property Manager Worth the Cost?
Now that you know the expenses to expect from a property management service, you may wonder if hiring one is necessary. In truth, so much goes into acing apartment management. As such, having a trusted and experienced professional take over some of your responsibilities could mean an incredible difference for your peace of mind and financial goals. Below are few reasons you should hire a property manager:
- Quality Tenants: You can take advantage of a property manager’s experience to screen potential tenants and ensure you deal only with individuals who pay rent on time, co-exist with other residents, and cause fewer problems.
- Few legal issues: Leveraging comprehensive tenant screening, legally binding agreements, and routine inspections, a property manager will notice and rectify loopholes that can set you up for legal and financial issues.
- Streamlined rent collection: An established rental property management company has solid experience handling tenants and rent collection and will go a mile further to ensure a smooth flow of your rental income.
- Short vacancy cycles: A property manager can leverage cost-efficient advertising methods and their networks to fill your vacant units fast, saving you from intense financial losses.
- Lower maintenance costs: Rather than you hiring external contractors (which can be a costlier move), a property management company can provide an in-house team to handle repairs and maintenance in your rentals- that is a cheaper alternative. Even if the agency hires external contractors, they are already familiar with reputable professionals who offer discounted yet quality services.
- More time and peace of mind: With a reliable property manager by your side, you do not have to worry about troublesome tenants, tons of paperwork, chasing down late rent payments, or emergency calls. The professional takes care of all that. Plus, you get more time to focus on personal matters and other investments.
What is the Most Challenging Part of Self-Managing a Property?
You might be rolling your eyes at the thought of hiring a property manager. We get it. Self-managing a property means zero management fees and total control over your investment. However, this path has its share of challenges.
Among the primary challenges is marketing your rental and finding good tenants. It takes money, effort, and time to market a rental property. You will also be required to actively engage with prospective tenants, conduct showings, and screen candidates.
Secondly, there is an extensive, detailed set of landlord-tenant rules and regulations. Sure, you can access and familiarize yourself with this information. However, it is tricky staying on top of the updates and the more granular local laws that may be quite different from the Federal or state laws. It becomes difficult to know whether you are operating in compliance with the law and may indeed land in serious legal trouble.
Let’s Be Precise
What Property Management Fee Should You Expect for Apartment Management?
Below is a rundown of the specific apartment management fees to expect:
- Management fees- averages 10% of the monthly rental income
- Account setup fee- usually below $500
- Tenant placement fee- usually 50-100% of the month’s rent
- Maintenance fees- may be based on specific tasks, hourly wages, flat rate per person/unit, or monthly percentages
- Eviction fees- typically ranges between $200-$500 per eviction plus legal costs
- Early termination fees- can vary from a flat fee to one month of lost income to the management firm.
How Much Does Rental Property Management Cost?
The truth is that there is no universally acceptable figure for property management costs. The rates vary incredibly depending on several variables, including the property location and type and a management company’s pricing policy.
The primary part of professional apartment management service is the management fees, which can average 10% of your monthly rental income.
When vetting a property manager, make sure to ask about their additional fees. These costs vary from one management company to another, but you want to ensure they are reasonable enough to guarantee the cost-effectiveness aspect of the service.
The management fee is the commonest and known way rental property management companies make profits. So, you certainly do not want to engage with a property manager who makes additional fees their profit-generation avenue. As such, do not hold from asking a lot of questions!
How Will you be Billed for Commercial Property Management?
While hiring a property management company is not necessarily cheap, it is a smart move to increase the long-term profitability of any commercial property you own. But how much will the service cost you?
Typically, commercial property management fees range average 8%. The figures may go as high as 15% and as low as 3%. In some cases, one flat monthly fee may apply. Also available is a hybrid pricing structure where a management agency charges a flat fee and a lower percentage of the commercial property’s monthly rental income.
The company can charge additional costs to cover marketing and advertising, lease-up, lease renewal, maintenance, etc. All in all, stay informed of all expenses to prevent future surprises.
Factors Affecting Property Management Fees
Property management fees vary depending on the following factors:
- Property type: You expect a multifamily property with 4-5 units to be more labor-labor intensive and therefore costlier to manage than a single-family home.
- Property size: Managing a larger rental property (in terms of units count, square footage, or the number of bedrooms) requires more work than managing a smaller property, so expect to pay more.
- Condition of property: Property managers will charge less for newer or newly renovated rentals because they have fewer repair and maintenance requirements than older properties.
- Property location: Property managers often charge more to manage rental properties in areas with higher rents. Consider also that higher-rated neighborhoods attract better tenants and fewer problems than poor-rated areas (with poor school ratings and far/few amenities).
Property Management Fees FAQs
» Are Property Management Fees Negotiable?
Yes. You can negotiate property management fees and decide the mix of services to buy from a management agency. But note that most companies have some minimum services packages. You can also haggle a reduction in per-unit costs and associated fees if you have multiple properties.
» How Much Do Property Managers Charge Upfront?
With most property managers, the typical upfront expense is the account setup, which involves setting up the administrative processes and tools required to manage your rental properties.
» What is the Typical Property Management Fee in Los Angeles?
A stated earlier, typical property management fees in Los Angeles range between 8% and 12% of the property’s rental income. Circumstances where LA property managers charge a flat fee include:
- When rental income is on the lower end
- When they take over a group of properties or a multi-unit property
Be sure to ask about additional fees during the initial consultation with a property management firm.
» Do Property Managers Keep Late Fees?
This will depend on your contract with your property manager. Some landlords keep all the late fees collected, while others split the fees with the property manager. Some property managers use late fees as compensation for chasing after rent.
» What are the Duties of Property Managers?
The responsibilities of a property manager will depend on the property management agreement and may include:
- Rent collection
- Addressing maintenance or repair requests
- Marketing the rental
- Screening tenants
- Coordinating move-outs
- Conducting evictions
» Property Management Fee Vs. Leasing Fee? What is the Difference?
- Property management fees: fees that a property management company charges to manage your residential or commercial property
- Lease fees: Fees a property manager charges to bring in new tenants
» Are Property Management Fees Tax Deductible?
The IRS requires all landlords to keep business records and file business taxes. That means you must pay taxes on all gains.
However, most property-related expenses, such as property management fees, are tax-deductible.
But you cannot immediately deduct taxes on capital improvements- upgrades geared to prolong a property’s useful life (think new plumbing, flooring, roof, etc.). Instead, such updates are depreciated over some time.
RTI Properties provides property management services in Los Angeles County and Orange County for small apartment buildings, single-family, and large apartment complexes primarily in the Long Beach area. Our services encompass renovation, maintenance, repairs, leasing, rent collection, and more! Call us today at 310-532-9122 and learn how our services can help transform your property investment growth.