Owning a rental property involves a lot of responsibility. Property owners who decide to go it alone on management may find themselves drowning in paperwork, obligations, tenant problems and expenses.
Rental property management companies help property owners by overseeing all aspects of managing residential and commercial real estate. But how much do property managers charge, and are they worth it?
What Is the Average Property Management Fee for Rental Properties?
There are two ways rental property managers set their rental property fees: as a percentage of collected rent or as a fixed rate.
Percentage of Monthly Rents
Most charge between 8% and 12% of the property’s rental income. If you own a 10-unit multifamily residential complex that brings in $20,000 of rent every month, the property management company would charge between $1,600 (8%) and $2,400 (12%). When rents go up, fees go up.
Fixed Management Fees
Although less prevalent than the percentage model, some management companies charge a fixed rate for their services regardless of how much rent is collected. Owners might employ the fixed-rate model to keep it simple, but it doesn’t motivate them to be more active managers as the rent percentage system.
Typical Property Management Fees
On top of monthly service charges, rental property managers charge for extra services or circumstances. Here are a few of the most common fees managers may charge.
Initial Setup Fee
Managers typically charge between $300 and $500 for new accounts. The fee covers initial administrative costs and one-off tasks like onboarding and renter transition, if applicable.
Leasing Fee
A leasing fee covers finding new tenants and placing them in a rental unit. It also pays for background checks, eviction histories, prospective tenant vetting and any actions necessary to prepare the unit for occupation.
Vacant Property Fee
Property managers charge a fee for a unit that’s vacant and therefore not generating rental income. The fee takes care of the costs of maintaining the empty unit, keeping utilities intact and making up revenue lost in the vacancy. It may also cover inspections, open houses and lease preparation.
Late Payment Fee
When a tenant misses their monthly payments, the property manager may charge a penalty. The late payment fee is either a fixed rate or a percentage of the rent bill, usually between 5% and 10%.
Maintenance and Repairs Fee
This fee covers emergency repairs and maintenance on the rental property. Maintenance fees may be charged on a per-ticket basis or as part of the monthly base fee the company charges. Managers might mark up the cost of repairs to cover labor and materials for a certain job.
Inspection Fee
This fee encompasses the costs of routine property inspections. Some inspections are routine, while others happen around tenant move-ins and move-outs. Tenant complaints or regulatory compliance needs can also trigger inspections.
Eviction Fee
Property managers may be forced to evict certain tenants for nonpayment, property damage or other lease agreement violations. In most cases, tenants have a chance to resolve the issue.
If they don't, owners serve notice and file an eviction complaint. The eviction is completed in a court hearing. If a tenant doesn’t vacate in time, the property manager is free to authorize physical removal of the tenant and their property.
This triggers the imposition of eviction fees that cover:
- Legal representation
- Court-related costs
- Serving notice
- Keeping documentation
Eviction fees also involve costs related to cooperation with law enforcement.
Contract Termination Fee
A property owner can be charged a fee for exiting the contract early. Early termination may happen if the owner is dissatisfied with the service. Some of the most common reasons for this include:
- Bad communication
- Fund mismanagement
- Property damage
- Personality clashes
- Changes
- Discontent
Termination fees cover administrative costs, lost income, service transition, staff training and material costs. Legal issues may arise when an owner ends a management contract, so it’s not a step to be taken lightly.
Miscellaneous Fees
Other costs may be part of a rental property management contract, including fees related to:
- Contract renewal
- Utility account activation and transfer
- Homeowners association (HOA) compliance
- Key replacement
A company may charge additional fees for property-specific expenses. Review your contract thoroughly to discover incidental or hidden charges.
Factors Affecting Property Management Costs
Property management charges hinge on several factors specific to the property and ownership involved. Here are some of the most common.
Property Type
Single-family homes have different needs than multifamily homes, and commercial rental properties have an entirely different set of demands from either. Managers may charge more to accommodate the property’s specific needs.
Property Size
Management companies may charge more for properties with bigger square footage or more units. Such cases could require more administrative jobs and maintenance as well as more finessed tenant relations.
Property Age and Condition
An older property may need more extensive repairs or renovations than a newer one. Depending on the workload and manpower involved, managers might charge owners more to ease upkeep costs.
Location
Properties in neighborhoods where incomes and demand are higher may incur higher management fees. Property taxes and utility expenses also differ by area, so that also may play a part in pricing.
Competition
Some markets for rental property management are more competitive than others. Managers may price their services at a discount to attract more clients. On the flip side, management companies in less competitive areas have more room to raise their fees.
Level of Service
Property management companies can offer a broad range of services: rent collection, tenant screening, maintenance, accounting and leasing, just to name a few. Other companies may have more limited offerings.
Rent Due vs. Rent Collected
Rental property management cost structures spin from one of two different concepts: rent due and rent collected. Although the difference may be obvious, its impact on management fees is profound.
Rent due refers to the total amount a property’s tenants owe as outlined in their lease agreements. It’s the aggregate of how much the owners expect to receive by a specific date. Rent due states the total amount owed to the owner, regardless of whether tenants pay their rent on time.
In contrast, rent collected refers to how much the property owner has earned from tenants before the deadline. It only considers the money that’s been received.
Owners and property managers should address which model they want to use in their contracts. In theory, the rent-collected model is more beneficial to owners because it incentivizes property managers to be diligent and consistent about collecting rent. Although the rent-due model may be more predictable, it’s also riskier.
Is Outside Property Management Worth It?
Property management companies relieve many of the burdens that owners must deal with. The more complicated or complex your rental property needs are, the more valuable those managers can be.
The relief an owner feels from delegating everyday property tasks may justify the fees the company charges. Take time to compare management firms that will give you the best service for a reasonable price.
Frequently Asked Questions
How much does a property management firm charge in the U.S.?
Generally, property managers charge owners between 8% and 12% of the property’s monthly collected rent.
What do management fees include?
Fees cover expenses arising from collecting rent, property maintenance, financial management, paperwork, inspections, legal compliance, emergency responses and other property issues.
What is a high property management fee?
The industry standard is between 8% and 12% of collected rent, so any amount more than 12% would be considered expensive.
