If you want to scale your real estate business beyond just a few rentals, then it makes sense to work with a property management company.
Hiring a property management company will give you more time to find deals, secure funding, and grow your real estate empire to a size that can support you and your family over the long term.
But how much are property management fees?
And ultimately, is the cost of hiring a property management company worth the benefit?
Here’s a complete breakdown.
By the way, are you trying to grow your real estate investing business? Call Porter can answer the phone for you! Our U.S.-based reps are trained to speak with motivated sellers and they can schedule follow-up calls with you or your acquisitions manager. Never miss out on a deal because you let a call go to voicemail again.
Average Property Management Fees — The TL;DR
Average property management fees hover between 8% and 12% of the monthly rental income, not including additional expenses. On a property that generates $1,500 per month in rent, that amounts to between $120 and $180 per month. If your mortgage is $1,000, you’d still clear $300 or more per month in profit (and you wouldn’t have to manage the property).
Factors That Impact Property Management Fees
Obviously, not every arrangement is going to be as cookie-cutter as the TL;DR example we outlined above.
There are multiple factors that determine the cost of property management fees — including rental property size, type of property, property condition, location, services provided, and amenities.
Rental Property Size
The size of the rental property will have a “sizeable” (ha!) impact on property management fees. The bigger the property, the more maintenance required… and the more a property management company is going to charge per month.
Type of Property
Property management companies are capable of managing many different types of properties — residential, commercial, single-family or multi-family, and even vacant. The type of property that you need managed will change how much you spend on property management fees every month.
Property Condition
Part of a property management company’s job is to keep up with maintenance. This means that older homes with more problems will likely cost you more money than newer homes with few problems. This might not be factored into the flat monthly fee, but it’ll be tacked on when repairs need to be made.
Location
Property management companies want to make as much money as possible. And so they’ll likely charge property owners more money to manage homes in areas that command a higher rental income… but they might also charge less to manage homes in areas that command lower rental income.
Services Provided
What services does the property management provide? The more complete their set of services, the more expensive it’s going to be — but also, the less you’ll have to worry about managing your own properties. So it’s a trade-off.
Amenities
For commercial properties, amenities — which will be managed by the property management company — will often increase the monthly management fees. Fortunately, amenities also typically increase how much you can charge for rent, so it often ends up being a wash.
Complete Breakdown of Property Management Fees
Now let’s walk through a complete breakdown of property management fees. We’ve put ballpark figures next to each fee to allow you to scan this section, but keep in mind that these are estimates based on a simple residential property and the actual cost will fluctuate depending on the factors mentioned above.
Setup Fee – $500
Most property management companies charge some sort of setup or onboarding fee if you’re a new client. This fee will typically pay for them to come and check out your properties, notify tenants that they’re the new managers, and create an account for you in their systems. This is just a one-time fee.
Monthly Management Fee – 10% of Rental Income
The monthly management fee is the primary fee you’ll have to worry about when you’re working with a property management company. You’ll have to pay about 10% of your rental income every month. This pays for them to deal with the ongoing maintenance of your property — whatever that looks like.
This fee is usually a percentage of your monthly rental income, but not always. It can also be a flat monthly fee. In that case, beware of the fact that you’ll still have to pay the flat fee when the property is vacant or when tenants aren’t paying their rent on time.
It’s also important to understand the difference between Rent Due and Rent Collected in your contract with the property management company. If the monthly management fee is for rent due, then you’ll have to pay regardless of if your tenants pay. If it’s for rent collected (this is preferrable), then you only have to pay once rent is collected from the tenants.
Leasing Fee / Tenant Placement Fee – $700
This is sometimes called the leasing fee or the tenant placement fee. This is a one-time fee that pays for the property management company to find tenants for the property. It includes marketing and advertising the property, vetting applicants, and getting tenants moved in as seamlessly as possible.
As a side-note, it’s worth hiring a property management company that’s a bit picky about choosing tenants — that’ll save you money down the road and ensure your property stays in tip-top shape.
Lease Renewal Fee – $200
Some property managers also charge a lease renewal fee — this is to pay for their work in working with your tenants to renew their leases. This is less expensive, however, than the tenant placement fee and some property managers don’t charge for this at all.
Vacancy Fee – $50
If a property is vacant — and assuming that the property managers are charging you a percentage of your monthly rental income — many property managers will charge a vacancy fee of $50 or more per month per unit that’s vacant.
Maintenance Fee – Included in Monthly Management Fee (Sort Of)
Basic ongoing maintenance (trash collection, lawncare, etc) is included in your monthly management fee, but unexpected repairs are not (water damage, fire damage, broken HVAC systems, etc). So it’s important that you maintain a reserve repair fund with a few thousand dollars or more to cover those random additional costs. You’ll also want to make sure that the property management company has access to this fund so they can access it and solve problems without you being a bottleneck.
Eviction Fee – $300
Eviction can be messy. And so it makes sense that most property management companies charge upwards of $300 or more to evict bad tenants. $300 is a ballpark number — but it’s usually at least a few hundred dollars.
Early Termination Fee – $500
To work with a property management company, you’ll need to sign a contract that lasts a certain period of time. If you break that contract, then they probably will charge you an early termination fee of $500 or more — or worst-case scenario, they’ll take you to court.
Late Payment Fee – $150
If you pay your property management company late, they will likely tack on an additional late payment fee. The amount will vary but it’s usually 25% to 50% of what you owe. So it’s worth making sure you pay your property management company on time.
Miscellaneous Fees – $50
Every property management company is different. And so you might see some fees added that we haven’t covered above. Those might include advertising fees, annual inspections, or something else. It’s worth asking the property management company a lot of questions before you work with them to better understand how much it’ll cost to work with them.
Total Cost of Hiring a Property Management Company (With Example)
Okay – so what’s the total cost of hiring a property management company?
Assuming a single-family residential property, upfront you can expect to spend between $500 and $1,500 to get things moving (for onboarding and tenant placement). Let’s further assume that your property generates $1,500 per month in rental income. For a 10% monthly management fee, that’d be $150 per month (that will include the ongoing maintenance of your home). If your mortgage is $1,000 per month, you’ll still be able to clear $350 per month in profit.
However, it’s important to save some of that money (say, $100 per month) for unexpected repairs, evictions, lease renewals, or tenant placements. Now you’re making $250 per month in profit and you don’t have to manage the property.
Not bad, eh?
Are Property Management Fees Tax Deductible?
Yes! Property management fees are 100% tax-deductible. You only have to pay taxes on your rental profits and any capital improvements you make to the property — unnecessary improvements like a new roof, new flooring, or new plumbing.
How To Negotiate Property Management Fees
Naturally, you don’t need to accept the first offer you receive from a property management company. Do your research and compare at least three different companies to see which you like the best. We recommend asking the following questions…
- What services do you provide?
- Can I get a complete breakdown of your fees?
- Do I pay for unexpected repairs?
- What am I still expected to do for managing the property?
- How many properties do you currently manage?
- How long have you been in business?
- What’s the average cost to have you manage a rental property?
- What is your process for vetting tenants?
And remember, you can always try to negotiate property management fees. If you’re bringing the company a lot of properties to manage or if the properties are quite new and will require very little maintenance then you might be able to negotiate lower fees.
Final Thoughts: Are Property Management Companies Worth It?
If you only have a couple of properties and you don’t mind managing them yourself, then hiring a property management company probably isn’t worth it.
But if you are trying to scale your real estate empire, then it’s definitely worth it — it allows you to spend less time managing your properties and more time finding and funding new properties.
And now that you understand the costs of hiring a property management company… you can make that decision for yourself.
So…
Is it worth it?
By the way, are you trying to grow your real estate investing business? Call Porter can answer the phone for you! Our U.S.-based reps are trained to speak with motivated sellers and they can schedule follow-up calls with you or your acquisitions manager. Never miss out on a deal because you let a call go to voicemail again.