A property management company alleviates much if not all matters between landlords and tenants.
This includes finding and screening prospective tenants, having the chosen tenant enter into a legal agreement, collecting rent on time, handling maintenance requirements, plus a number of other matters present in a landlord/tenant relationship.
Often landlords, particularly first-time landlords, overlook the intricacies of a healthy landlord/tenant relationship and come to realize that their investment is not quite as passive as they imagined.
This is where a property management company plays an important role that benefits both sides, and a segue into this article.
Naturally such a service comes at a price, but how much?
Because different property management companies offer different services and have different fee structures, we’ve outlined ranges based on extensive first-hand experience and industry research.
A small percentage of property management companies require a setup fee. This fee is considered an administrative fee to set the client up in their database.
It may also represent other services including but not limited to tenant placement.
The cost of this service, when charged, is typically a fixed amount and can range from a nominal amount up to the equivalent of 50% of a month’s rent.
Tenant Placement Fees
A tenant placement fee is the amount a property management company will charge to find, screen, and select a qualified tenant.
The industry standard is the equivalent of one month’s rent.
Although this fee can vary from the industry standard, all the way down to free, it is often compensated for in other fees such as a setup fee, increased monthly fees, or sometimes fees not so evident upon signing.
Circumventing this fee is not a sustainable business model and can potentially expose landlords to unqualified tenants.
Monthly Management Fees
The monthly management fee compensates the property management company for collecting and processing rent, dealing with general tenant matters, and often other responsibilities such as serving notices and preparing accounting reports.
This again can be a fixed amount but more often a percentage of the monthly rent, ranging from 5% to 12% depending on the company and their application of other fees.
Depending on the company, property inspections can occur during move-in and move-out, or on a per requirement basis.
A percentage of property management companies will charge the landlord for these inspections, typically a small fixed amount, but of course highly dependant on the type of inspection.
Aside from property inspections, a landlord may be asked to pay miscellaneous third-party inspection fees for such things as fire alarm testing by an accredited organization.
Generally not expensive or frequent, but important in a properly managed investment property.
Maintenance fees may be charged by the management company for arranging and overseeing property maintenance.
Such maintenance may include repairs, upgrades, and seasonal maintenance such as lawn care and snow removal.
Typically, these fees do not exceed 10% of the maintenance costs, keeping in mind not all management companies charge for their role in such services.
Renewal fees are often a point of confusion, even contention, therefore let us explain the different scenarios to help simplify this.
There are three common scenarios where a renewal fee may apply.
- When a tenant has successfully completed their tenancy and is leaving, the management company must find a suitable replacement. The fee in this scenario is similar to the tenant placement fee mentioned above, and understandably the same basic process.
- When a tenant has completed their initial lease term (typically one year), and the landlord and tenant mutually agree to renew the lease versus transitioning to a monthly commitment. In this scenario, it is rare and for the most part, not permitted to charge the tenant a renewal fee.
- When a tenant can no longer meet their obligations and the property management company must find a suitable replacement. Depending on the individual circumstances, the fee can range from 50% to 100% of the tenant placement mentioned above.
There are rare occasions when a property management company may need to exercise legal rights to handle a non-paying or non-abiding tenant.
A large percentage of management companies can handle these situations in-house, but there are infrequent times when professional advice or legal representation is prudent.
It is difficult to put a number on this simply because each case is unique, and because paralegal fees differ from one provider to another.
Although it is uncommon for tenant matters to escalate to this point, tenants are people and unforeseen things can happen to them just as unforeseen things can happen to landlords, or any one of us.
On a positive note, many of these matters are preventable if the property management company is building rapport with both landlord and tenant during the tenancy.
Quite often, smaller companies have less complicated contracts and therefore a more transparent fee schedule. Further, a conscientious management company will take the time to highlight all areas of the contract that relates to fees.
No one likes hidden fees and because an experienced management company strives to find and place long term tenants, it is important the landlord/manager relationship is open from the first meeting, and respectful of each other’s time and money throughout the entire relationship.
Most seasoned landlords will attest to the importance of property management, it is a professional and generally affordable service that provides a virtually hands-off experience.
In most scenarios, a landlord can expect to pay a tenant placement fee followed by an affordable monthly fee. The amount of fees above this will highly depend on the company chosen.