Far too often, landlords seeking professional property management help are asking one question for the initial vetting of the service. “What is your management rate?” Unfortunately, sometimes this is the only question they are concerned with.
Imagine that you are shopping for a new car. You arrive to a dealership and find a salesperson. On the showroom floor, there are 5 gigantic boxes that are wrapped, each with a different car inside. You have the option to choose one of these 5 boxes. After pointing to Box #3, you ask the salesperson, “How much does the car inside of that box cost?” The salesman explains the cost, but it’s more than you want to spend. You decide not to ask any additional questions and move on.
Turns out that Box #3 cost more than the others, but had incredible gas mileage, extended warranties, a reputable brand, and looked great! Since you didn’t ask, you chose Box #1, which had a lower purchase price, but had none of the above mentioned traits. Over time, which is the better investment and will provide a better return?
Management Rates
Management rate is certainly important, but it is just the tip of the iceberg when searching for a professional property manager. The management rate is the amount of money that the property manager is going to collect each month to compensate them for their services. This is usually considered a base fee, or the standard amount per month plus any fees for additional services completed. In the Richmond, VA area, it is typically to find professional property managers charge anywhere from 6% to 10% of the monthly rent. So, if your rental is renting for $1000 per month, a management company at a 10% management rate, or base fee, will be $100 per month.
Maintenance Fees
Some professional property managers will charge administrative fees to both an owner and/or tenants when coordinating maintenance or repairs. This fee can be as high as 20% or 30% of the maintenance repair cost. With the right questions, a landlord seeking property management help might conclude that a property manager charging 6% management rate and 30% maintenance administrative costs will be more expensive than a 10% management company with 0% maintenance costs. Some property managers will have agreements with subcontractors to mark up the repair 20% and get an incentive or “kickback” of 20% by the subcontractor. Be aware!
Accounting Fees
Having accurate and detailed financial statements are critical for a successful business. Many property managers will offer monthly owner statements, detailing money in and money out. Some property managers will offer year end business health reports which will likely save your CPA time preparing taxes, saving you money. There are services that you can pay more for, or that may be included. You might not get any financial reports with a 6% company, and with a 10% company you might receive all you need to steer your business.
Leasing Fees
Simply put, professional property management companies will charge a leasing fee when they place a tenant in your property. This accounts for marketing, showings, inspections, turn labor, and more. While this likely only happens one time a year, this fee could make a big impact on your profit. A 6% company may charge one month’s rent for a leasing fee. A 10% company might charge a flat rate, such as $400 or $500 for leasing. At the end of the year, one month’s worth of rent going toward a leasing fee could spike your management costs to 10% or higher!
Optional Fees
Want the peace of mind to have options? Maintenance packages, eviction assurances, tenant engagement packages, benefit packages, inspection packages, and more. Look for a company that offers these options rather than forces them into the agreement or doesn’t offer them at all.
In the end, the management rate should be considered, but only as a part of the larger picture. When searching for management help, landlords should look at the overall, all in cost of property management including the management rate. If a manager seems hesitant to share additional information, walk away quickly! Look for a management company that is proud of their rates and fees and works in the landlord’s best interest.
