Some property investors rely on average property management fees as a benchmark for deciding whether to invest in these services. Not yet sold on enlisting the help of professionals for this? You can also use this information to decide how it will impact your bottom line.
Property management entails several services, each influencing overall costs and operational efficiency. Factors such as location and property type also play big parts in this.
This article will take a deep dive into these factors and what investors need to know to make the best decisions for their own properties.
What Are Property Management Fees?
Property management fees are the costs of hiring a property management company to handle a residential or commercial property’s day-to-day operations.
These operations include things like:
- Tenant screening
- Lease management
- Rent collection
- Maintenance
- Compliance with housing laws
The structure and amount of these fees depend on characteristics like property type, location, and the level of service required.
Typical fee models include a percentage of the monthly rent—often ranging from 8% to 12%—or a fixed property management fee that offers predictable monthly costs.
Property managers might also charge landlords additional property management fees for leasing, maintenance markups, and inspections.
6 Benefits of Hiring a Property Manager
Working with a professional property manager can substantially enhance the entire ownership experience for landlords.
Beyond day-to-day convenience, these professionals bring expertise directly impacting tenant satisfaction and property profitability.
1. Time Savings and Reduced Stress
It doesn’t take long for property management to become time-intensive, particularly for landlords juggling several properties and other commitments.
Property managers handle tenant inquiries, rent collection, and lease renewals. With these tasks covered, landlords have more time to focus on other priorities.
For landlords who don’t live near their properties, this also minimizes the logistical efforts of hands-on management.
2. Improved Tenant Retention
Tenant turnover can lead to lost rental income and increased expenses. In 2023, Zego published a report that found the average resident turnover cost is $3,872.
Fortunately, satisfied tenants are more likely to renew leases, reducing the costs associated with vacancies.
Property managers proactively maintain positive tenant relationships through responsive communication and regular property upkeep.
3. Legal and Regulatory Compliance
Property managers bring expertise in local housing laws, tenant rights, and safety regulations.
They ensure leases comply with legal standards and that eviction procedures, if necessary, are conducted within the bounds of the law. This reduces the risk of costly legal disputes and fines.
4. Maintenance Oversight and Cost Control
Without routine maintenance and prompt repairs, preserving the value of a rental property will be nearly impossible. Property managers often have access to a network of contractors and can negotiate better service rates than property owners on their own.
They also conduct inspections and can quickly respond to tenant repair requests, which can minimize long-term maintenance costs.
5. Maximized Rental Income
Attracting great tenants and optimizing returns require setting the rental price appropriately.
To help landlords get consistent revenue without overpricing or underpricing their properties, property managers examine local market trends to establish competitive prices.
6. Tax Benefits and Financial Planning
In the United States, most expenses related to property management, including advertising, repairs, and management fees, are tax deductible.
Better financial planning and easier tax preparation are made possible with the help of thorough records of revenue and expenses a property management business will give you.
Common Property Management Fee Structures
Investors need to understand the fee structures property managers offer before they choose one service over another.
Along with some additional fees, the two most common structures are percentage-based or a flat monthly rate:
- Percentage of Monthly Rent: This structure charges a percentage (typically 8% to 12%) of the collected rent. Consider a property generating $1,500 in monthly rent. It would incur a $150 fee at a 10% rate. Vacant properties may also have associated fees.
- Fixed Monthly Fee: Some landlords prefer a predictable monthly cost. For instance, managing a residential property like a single-family home might cost $100 per month regardless of rental income.
- Other Property Management Fees:
These may include:
- Leasing Fees: Often equivalent to 50% to 100% of one month’s rent for new tenant placement.
- Maintenance Markups: A common practice with a 10% fee added to contractor charges.
- Routine Inspections: Fees typically range from $100 to $200 per inspection.
- Eviction Costs: According to data from Azibo, it can cost between $500 to $10,000 to evict a tenant in the United States.
Challenges to Consider When Hiring a Property Manager
Hiring a property manager has benefits, but landlords should also consider the potential challenges:
High Costs
Property management expenses can add up quickly, especially when you factor in additional charges like vacancy management or early termination fees. These charges may reduce the profit margin for smaller properties or those with restricted cash flow.
Loss of Control
Delegating tasks results in landlords having less direct involvement in property-related decisions. Although this can be liberating, it can also be frustrating if the property manager’s decisions don’t correspond with the landlord’s preferences.
The property management contract must include explicit provisions and open communication to address this issue.
Finding the Right Property Manager
Choosing a qualified property management company necessitates comprehensive screening. Referrals, online reviews, and platforms such as NARPM can help locate trustworthy applicants, but the process can be time-consuming.
Before signing a property management contract, verifying transparency in fee structures and services is crucial.
Property Type and Location Factors
Whether or not hiring a property manager makes financial sense depends on many factors, including where and what kind of property it is.
Smaller, single-family homes in less competitive markets may not justify the cost, whereas multi-family units or properties in high-demand locations often benefit from professional management.
Step-by-Step Guide to Hiring Property Management Services
Step 1 | Go over your books |
Step 2 | Decide which services you need |
Step 3 | Do your research |
Step 4 | Compare proposals |
Step 5 | Interview property managers |
Step 6 | Review contracts |
Step 7 | Onboard new property management team |
Step 8 | Monitor their performance |
There are certain steps most investors should follow when deciding to utilize property management services.
Here are seven of them:
- Evaluate Your Finances: Analyze your financial situation to see how much you can reasonably commit to property management expenses without overextending yourself. Remember to factor in mortgage payments, taxes, insurance, and repair expenditures. Create a cash cushion to cover vacancies or unforeseen expenses.
- Specify Your Needs: Decide what services you want the property manager to deliver. For example, some landlords only need help finding tenants, whilst others require management, maintenance, and legal aid.
- Research: Gather a list of prospective companies with the help of referrals, online reviews, and tools like NARPM. Note companies that have managed properties similar to yours in type and location.
- Compare Proposals: Contact the shortlisted companies and request detailed proposals. These should describe the services they offer, their fee structures, and any additional costs. Compare proposals side by side to get the greatest match for your requirements.
- Hold Interviews: Arrange for the property managers to be interviewed to learn more about their communication style, approach, and experience. Inquire about their maintenance procedures, tenant screening procedures, and dispute or emergency resolution procedures.
- Transition Property Management: Once you’ve made your decision, present your selected property manager with all of the necessary papers, including leases, maintenance logs, and tenant information. Schedule an onboarding meeting to discuss your expectations and develop a communication strategy.
- Monitor Performance: Establish a mechanism to evaluate the property manager’s work. This involves monitoring financial reporting, maintenance quality, and tenant satisfaction. Periodic assessments help you make sure the management firm lives up to your expectations and delivers value.
Case Studies: Property Management Fee Structures
Here are two possible property management fee structures: fixed and percentage-based, along with their potential outcomes.
Example # 1: A Percentage-Based Multi-Family Apartment Complex
Simon is the property manager for an apartment complex with 20 apartments, each renting for an average of $1,200 per month.
Simon’s property management company charges an 8% fee depending on the total monthly rent collected. For this property, the total is $24,000.
Based on the 8% fee and Simon’s monthly rental income, Simon owes $1,920 per month for property management services. In return for this cost, tenant placement, rent collection, routine maintenance, and responding to tenant inquiries are all taken care of for Simon.
The property manager resolved tenant issues considerably more quickly than Simon could on his own. As a result, tenant turnover rates and Simon’s vacancy-related expenses fall.
The manager also negotiates bulk maintenance contracts to lower repair costs and increase the property’s profitability.
Example #2: A Flat-Fee Structure Commercial Retail Property
Sarah is a property owner who hires a property manager to handle her commercial retail space. Each month, the company charges Sarah a fixed fee of $1,000 for these services.
In return, the property management company takes care of things like:
- Enforcing leases
- Coordinating repairs
- Addressing tenant requests and issues
- Complying with local regulations
Since it’s a fixed cost, Sarah can budget efficiently. Knowing exactly what this service will cost her each month eliminates any property management fee surprises.
The manager was also able to renegotiate leases to encourage long-term tenancy. This further bolstered Sarah’s cash flow and lowered the risk of vacancies.
For properties with stable tenants and little maintenance, flat fees can be more cost-effective than percentage-based structures.
Last Words: Average Property Management Fees
With a better idea of average property management fees and the services they come with, landlords can evaluate whether hiring a professional property manager is the way to go for their investment strategy.
Although location and type of property will naturally affect prices, the advantages—time savings, tenant retention, and legal compliance—exceed the expenses for many investors.