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Rental property management fees are paid when a landlord decides to hire a property management company to manage his or her properties. After some great discussion this week with landlords, I learned a lot about the ups and downs most landlords face when working with rental management companies, including real estate agents.
As one landlord so bluntly told another after making a comment about feeling bad for a tenant’s financial situation, the wrong mindset will secure your failure as a landlords. And while tenant sympathy might make you feel like you’re a good person, at whose expense does it come?
The answer: The landlords.
Know Your Strengths & Weaknesses as a Landlord
Let’s face it, not everybody is cut out to be a landlord. That doesn’t make you a failure as an investor or a bad person by any means, but some just don’t have the temperament and skills to pull off what it takes to effectively manage a rental property.
I once heard the great Nick Sidoti say that “the kiss of death in real estate investing is managing properties”. Considering some of the conversations I’ve had with landlords when they were at the end of their ropes, I’d say Nick’s experience speaks well.
So the key to success for some investors is outsourcing the elements of weakness and focus on their strengths. This often means hiring a rental management company to manage tenants and the properties, which often incurs some costs such as property management fees.
The Fine Print of Your Average Property Management Fees & Costs
Every company and their property management fees are obviously different in some ways, but this quick guide should make you aware of what the standards are. Most importantly, as learned by one landlord’s story, be sure to read and agree to all of the rental property management fees and terms. Be sure to look for the small add-on fees and costs that tend to compound like paying for rental signs and advertising material for showing the unit.
The set-up fee fee covers showing the rental property for you and/or placing tenants. In most cases this fee is paid upfront and can vary from percentage based to equaling the first month’s rent.
Free Rental Advertising? Not Always
Of course Craigslist is free, but remember you’re paying for the experience, expertise and convenience of the property management company. I’ve seen some deals that offer to cover these expenses with the set-up fee and others that share the expense. Some of the best deals I’ve seen has this expense included free. If nothing else it can be a great negotiating opportunity.
Property Maintenance Fees
Routine maintenance costs are to be expected. If you have an electrical emergency for example, you’ll need to hire an electrician and pay for their service. However there are some pros and cons to working with a property management company with this respect.
The pro is that they typically have “go to” people that they deal with often and trust. This can save you if they are getting discounts for volume business with these types of contractors.
The con is that you’ll likely pay a mark-up on the service costs that can range from 5-15%. So in the end, the discounted service may end up being a wash after the additional fee.
Be Prepared to Pay Property Management Fees if You Want to Renew
The renewal fee is what sparked an entire article on real estate agents charging renewal fees after a landlord was blindsided by the charge. So first and foremost, look for the fine print that explains what the terms and condition for this fee are. For property management companies, they often justify this fee by performing an annual inspection of the property prior to, or post renewal. The fees range, but remember that you’re trusting the company to look for your best interest.
If the fee is worth the peace of mind that comes with keeping a good tenant or removing a bad one, then be prepared to pay when the time comes.
Early Cancellation Fees
The cancellation fee ultimately comes down to trust. If you are not getting good communication or reasonable explanations as to why your rental unit is still vacant you’ll likely feel that the property management company is not doing their job. This leads landlords to start looking for a better company and abandoning their contract. However, keep in mind that in most cases the property management company has put the time and effort into getting your unit rented, so they’ll be looking for some sort of compensation.
The cancellation fees range so be sure that they are clear and precise in the event you need an exit strategy.
Knowing You Made the Right Decision
When it comes to paying rental property management fees (money out of your pocket), the warm and fuzzy really comes down to performance. I’m a numbers geek so I want to see reports and verify the work that’s being provided. The best property management companies understand the value of accountability and will gladly take a transparent approach to their management. As one smart landlord once told me, “There is no secret sauce to success, just proof that the work is getting done properly”.
Feel free to leave comments below and share any experiences you have had with rental management companies and the property management fees you may have had to pay throughout the process.