Here Are the Average Property Management Costs to Expect

Starting the journey of hiring property management can be daunting for new real estate investors. However, hiring a good company will help streamline your business, allowing you to refocus your energy on other opportunities. Landlords find that property managers save them time and implement important processes that improve the operation of the rental property.

To understand how to budget for property management, you need to understand the factors that affect average property management costs in 2020.

Property Location

Property management costs in high priced rental markets such as New York City and San Francisco are generally more expensive than similar services in a smaller, lower-priced market such as Indianapolis.

Property Type

Multi-family homes will cost more to manage than single-family homes. Property managers can also provide quotes to manage multi-unit dwellings, commercial properties, and vacant properties.

Property Size

Larger buildings with hundreds of tenants will require much more work and effort than a two-unit property. As such, property managers will charge higher fees to compensate for their time.

Scope of Work

Property managers are capable of taking on a variety of roles within your operation. Everything from screening tenants to collecting rent and organizing financial records can be handled by the right management company. The more tasks you outsource to your property manager, the more you can expect to pay for their services.

Initial Setup Fee

This fee entails exactly what it sounds like – a fee at the beginning of your engagement to cover onboarding. Property management companies will utilize this fee to inspect your property and determine its condition and identify any recurring maintenance that must be completed. They will also take this time to introduce themselves to tenants and inform them of the changes, if any, that will take place as a result of this transfer of management.

Recurring Management Fee

This is a fee you'll pay every month for the ongoing management of your property. Management companies will charge this fee to handle your operation daily, allowing you the peace of mind to engage in other responsibilities. Some property management companies will charge a higher monthly fee that may be more inclusive. The terms of this arrangement will be laid out in the contract agreement between the owner and property manager. Monthly rental property management costs are charged as a percentage of the gross rent or a flat fee.

A flat fee is a predefined monthly rate that property managers charge based on the factors specified above. However, collecting a percentage of rent is the most common invoicing method for companies. This fee will vary greatly, but industry standards are between 5% and 12% of the gross monthly rent. Most management companies will charge higher fees for single or double family homes, while gradually lowering the percentage collected as the number of units under management rises. When negotiating with property managers be sure to ask whether or not their percentage fee is based on the rent due or rent collected.  

Maintenance Fees

Many property management companies field their own maintenance and repair teams, which allow them to roll this cost into your total monthly management fee. However, several firms require the owner to pay these fees every time they arise. This could be anything from snow removes, cleaning common areas, or garbage removal. Owners are also expected to pay for any repairs that must take place on the property as well.

Tenant Placement Fee

Rental property management costs often include a fee for every tenant placed in your property. This usually covers advertising, tenant screening, lease agreement preparations, and move-in assistance. Depending on contract terms, this fee could be charged as a percentage of rent or a single, flat fee. Be aware, property managers should never charge you a recurring fee for tenant placement.

Late Payment Fee

If your property manager is looking to charge you for a late payment that you (the owner) has made, do not be alarmed. Late payment fees are a common property management cost and should be charged as agreed upon in your contract agreement. However, if a firm attempts to charge you for late payments made by your tenants, you should be prepared to walk away immediately.

Eviction Fee

Evictions are a messy process more often than not. Your chosen property management company will be more than happy to handle this for you, as long as you’re willing to pay the fee. The amount will vary greatly based on the structure of your contract; however, you can expect to pay upwards of $500 in court costs and other associated fees to have a property manager evict a delinquent tenant.

Early Termination Fee

Terminating the terms of your property management agreement comes with the consequences of ending any formal contract. Similar to a broken lease agreement, you will likely be required to pay certain fees to abruptly end your relationship with a property manager. However, the exact action your property manager takes will depend solely on the terms of your contract. Some companies will charge a flat or monthly fee for each remaining month in the agreement, while others would prefer to settle the matter in court.

Vacancy Fee

Owners will run into this fee when trying to engage a management company while their property has several vacancies. Property management companies generally charge vacancy fees to the tune of 1 month's rent upfront per vacant unit. This gives them resources to commission a real estate agent to start generating interest around your property.

Property management costs can vary greatly by location and property type, amongst a variety of other factors. However, we’ve laid out the common categories of expenses usually incurred by owners who solicit the services of a property management firm. Before deciding on your next property manager, be sure to refer to this list of common property management costs to ensure you're getting a fair deal.