Once you have made the decision to give up control of your rentals or investment property you need to hire a professional to manage it for you. The costs or fees of property management are sometimes believed to be excessive or exorbitant until one understands all the tasks and time associated with properly managing a property. Property management fees from a qualified, competent, diligent company are worth their weight in gold. Comparing the scope of services, the quality of those services, and the quality of the personnel delivering the services is a very good idea before hiring a property management firm. The company or individual you end up hiring will be marshalling one of your biggest assets in your personal portfolio and you would like to have a competent person doing that – at least that is the conventional wisdom.
Property management is not a commodity. The lowest price management firm is not the best value. A company with the lowest price may have recognized that they don’t provide quality service so they needed to undercut the competition. Although market share may be gained the profit margins will eventually lead to poor service – that is just standard business 101. It also begs the question: What good do low fees do for an owner if the property manager is causing increased costs due to poor service, mistakes, or worse, lawsuits.
Any firm you are considering should be quality, should have personal and professional experience, and should be able to answer simple questions about their service, their personal experience, and their professional background.
Management Fees Are Typical But Each Company Is Different
The most common property management fees are a percentage based fee based on monthly rents. For example, a well-maintained single-family home in a nice neighborhood should range from 6%-10% of the monthly rents (i.e., $3,500/month rent at 8% would equate to $280 monthly fee for the property manager). A multi-family property with deferred maintenance in a tougher neighborhood would probably be in the 8%-12% range.
Another common approach is to have a flat fee based on the type and location of the property. Fees also vary based on the market so Southern California is different than Northern California, etc.
If a property management company is requiring a set-up fee you should either seek another company or negotiate to not pay one. The company will earn its money when they begin to manage the property. The administrative cost to setup a file is insignificant.
Vacancy Fees Are Usually Negotiable
Unless the property is a vacation or seasonal property the majority of time it will be occupied by a tenant. If the unit is vacant for sometime some companies charge monthly vacancy fees. If this is the case it begs the question: What is the property manager doing to rent the unit? Ask your property manager to modify your property management agreement such that the only fees an owner pays are based on “collected rents” or “scheduled rents” and this fee can be hopefully eliminated. Moreover, if a company insists on a vacancy fee you can look another direction or attempt to negotiate it away.
Property managers in most states are required to be licensed real estate brokers. Finding a tenant, writing a lease, and coordinating the execution of the transaction takes time, effort, administration, and resources. The fees for leasing vary from company to company but each and every lease-up of a tenant is work and should be compensated somehow. A typical lease-up fee is 50%-100% of the first month’s rent. A property manager is directed to find good, solid long-term tenants who will prevent the owner from having to pay lease-up fees every 12 months. Some companies also offer incentives for new owners by offering the first tenant leased-up as a free service – with subsequent tenants being at the normal lease-up rates.
Advertising Fees Are No Longer Typical In Most Markets
Because of the internet and its propensity to service the real estate marketplace print advertising has virtually been eliminated from most markets. Craiglist, Postlets, PadMapper, Trulia, and Zillow are all services which market rental properties for no cost. Thus any attempts by a property management firm to charge advertising fees should be met with complete resistance.
Should the unfortunate occasion of a necessary eviction take place the owner should only have to pay the actual cost of the service being performed and not a marked-up fee by the property manager.
Maintenance/Reserve Funds Should Be Transparent And Low
A typical dollar amount that a property manager holds in the operating account for maintenance on a property is $250 to $1,000. Additionally, if the cost of a repair is greater than a set amount, let’s say $250, then the manager is required to notify the owner before the expense made. Make sure these safeguards are in place before you execute a property management agreement.
Sale Of An Investment Property Is Subject To Typical Sales Commission Schedule
It is very common for property owners to sell or exchange their investment properties and at the same time it is natural for the property manager to be the listing agent (property managers are required to be licensed real estate brokers). It is also common for some property managers to look for exclusive arrangements to be the listing brokers in the event of a sale. This type of language is troubling and should be negotiated. Everyone should have freedom of contract and to be required to use one service is not always the equitable nor correct path of action. If the client would like to use another service, agent, or broker they should have that choice.
Property Management Agreements Can Bind Owners For Many Months
Read the property management agreement carefully. Some agreements have automatic renewals for 12 month periods with escalation clauses – which would require the owner to pay the entire fees for 12 months if the owner were to terminate the agreement early.
Pay Attention To Any Other Fees In The Property Management Agreements
There are other fees which are not always talked about including late fees, returned check fees, lease violation fees, pet fees, etc. Each agreement is different so make sure that your agreement has addressed each of these fees individually and you are comfortable with them.
It is important to understand the fees associated with the management and marshalling of your investment asset. It is also paramount to understand the educational and professional background of the people who will be caring for your property. If you are fortunate enough to find a property manager who personally owns their own portfolio of properties, who has experienced the real life situations and ups and downs of owning rental property then you are fortunate. Additionally if you find a property management company with trained legal staff, like a real estate attorney for example, that can provide you with even more protection, more risk avoidance strategies, and more personal comfort knowing that the company has more value to their service than most all of the others – then you will be on the right track.
Have questions or in need of property management?
Contact Silicon Valley Property Management Group to discuss any property management questions or investment property strategies in the Silicon Valley area. We’re uniquely qualified to provide you with the best possible return on investment.
David currently is the broker/owner of Silicon Valley Property Management Group (SVPMG) which manages 150+ client properties on the San Francisco Peninsula.Trust, transparency, and performance guarantees are the foundation of SVPMG. David challenges anyone to find a PM company that offers services similar to the extensive education, customer service, and performance guarantees provided by SVPMG.
David also provides consulting for his clients on property development feasibility, construction, and complex real estate transactions.
David has authored a published law review article, two real estate books, and over 120 real estate blog articles.
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