If you own rental property or are thinking about purchasing one then you’ve probably thought of hiring a property management company in the past. If so, then most likely, one of the first things that you would want to know is how much does it cost. I wondered that too when we were developing our pricing structure for this business so I did some research.
So how much does it cost to hire a Property Manager? On average, you can expect to pay between 7 and 12% of monthly rents for residential property management services, however, each company has their own pricing and service options. Also, there may be extra charges for services such as placing tenants, repairs, and maintenance.
Many property owners seek the lowest priced option when it comes to selecting a property manager. There are many different factors which affect the costs and features of managing your rentals and choosing the lowest price may not always be the best plan. Read on as we delve deeper into the following topics:
- Day-to-day Management Fees
- Maintenance and Repair Fees
- New Tenant Placement
- The Cost of Evictions
- Miscellaneous Fees
Day-to-day Management Fees
There truly is a wide range of fees offered here. For instance, I’ve heard of some management companies charging as low as 5% of monthly rents and I’ve heard some charging as high as 15%. But it seems that the usual residential Property Management fees are between 7 and 12% of monthly rents, plus expenses and taxes.
Another method that some companies use, with varying degrees of success, is flat rates. An example would be a flat charge of $125 per month to manage a 2-bedroom apartment. Sometimes the fees go up or down depending on the size of the rental unit and the number of bedrooms. This might be a good option for you, however, it depends on your circumstances and their service offerings.
Typically, you will find that the most common method is a percentage fee of rents, which, as mentioned above, usually equals from about 7-12% + taxes. In our neck of the woods, Ontario, Canada, those taxes are called the Harmonized Sales Tax (HST) and it is 13%. For example, if you owned a single family home that is collecting $2000 in rent per month and the management company is charging you 10%, then your fee will be $200 + HST = $226.00 per month.
So how is that fee collected? Well, it depends. Most management companies are free to structure their payment system in any way that best suits them, however, it’s most common to see this type of set up: The Property Management company collects the rent from the Tenant, takes their fees (plus taxes), then deposits the balance in to your bank account directly.
How does the manager determine their fees? That depends on if the contract declares that you will be charged out of ‘rent collected’ or ‘rent due’. There are big differences between these options and you should know how it works.
This is where the property manager only collects their fees after the rent has been collected from the tenant.
This is where they collect their fee from you on the same day of the month, regardless if the tenant has paid, or whether your property is vacant.
What else affects management fees? Some other factors that affect the management fees are: the type of property to be managed (e.g., single family home, duplex, condominium), the age of the building, the condition of the property, and the location of the property.
Maintenance and Repair Fees
Like any property, your rental unit is going to need to be maintained and repaired from time to time. Some management companies may have their own maintenance crews on staff or they may hire contractors to do the majority of the work.
Typically if the management company is hiring contractors or other companies to do the work, they’ll have to still be fairly involved in the process. They will need to ensure that the contractor is properly qualified, then they’ll be in charge of scheduling the maintenance and repairs, then they’ll need to ensure the work is completed properly, and finally they’ll be taking care of the invoicing for you. You can expect to see a charge for this service, it’s not uncommon for management companies to add a percentage of the invoice total to you, the property owner, for their part in the work being done. An example of this may be a $100 invoice for a plumbing issue that would receive an additional $15 surcharge from the management company.
Does the property manager need to get approval before allowing any work to be done? Typically, property managers want to have some autonomy when it comes to getting things done around your place, as you could imagine, it would be quite hard to get anything done if they had to wait for written confirmation on every last dollar spent. That’s not necessarily a bad idea, who wants to be emailed or called on their vacations or during holidays? If the manager is experienced and has a good reputation, it should be fine to authorize them to spend up to $500 + HST for any single occurrence. So you should be prepared to allow the management company to automatically authorize up to a certain amount for repairs and maintenance without consulting you first, however, all of that should be outlined in the contract and you can go over the details of that with the management company before signing.
New Tenant Placement
Typically, when you purchase a rental property it is vacant. Even if it had tenants, eventually they will move out for one reason or another. There’s quite a lot of work that a property management company performs in order to find a place a qualified tenant for your rental and it’s quite common to be charged for that work. Again, you will find a wide range of fees here, ranging from a flat fee (e.g., $500, $850, etc.) or you could be charged a percentage of one month’s rent (e.g., 50%, 100%). The fees should reflect the amount of work they do. Read the contract and ask questions to determine what is involved in their Tenant selection process. Selecting tenants who are a good-fit can be very difficult, and the managers who can consistently find good-fit tenants should be compensated. Finding the right tenant is critical to the long-term success of your rental property business and will be ultimately end up saving you money, time, and stress in the future!
The Cost of Evictions
As a property owner, you want to make sure that the absolute best quality tenant is selected to lease your premises. However, a disappointing side-effect of renting to tenants is that they may go through a life-altering experience (e.g., a job loss, relationship breakup, health issue) that may not make them a good-fit anymore and so, unfortunately, you may have to start the process of ending their tenancy.
It can be very stressful and painful to force people out of their homes, so always make sure that your property manager treats any tenant with respect and understanding at all times. I’m speaking from experience when I say that it is a manager’s duty to evict any tenant carefully, humbly, and fairly. Although I have my own moral and religious reasons for this perspective, I must say, that treating your tenants well during the eviction process is definitely good for business.
If the eviction is handled carefully, you are more likely to see less resistance and negativity from your tenant. You may also find that there will be less damages to repair and less cleaning to do which equates to a quicker, cheaper turn-around time to get a new tenant in your rental.
Most likely your management company will charge you a fee to help facilitate the tedious process of evicting a tenant and that is typically around $200-$500 per eviction, plus any applicable court costs. Some jurisdictions only allow lawyers or paralegals to perform certain tasks, so be sure to find out what services you are getting if this is needed.
One tip that may save a lot of time and money is to have the property manager negotiate a deal with the tenant. For example, you may agree to offer the tenant $500 cash to move out by the end of the month. I believe it is always best to work with the tenant as much as possible first to try to ensure a safe, quick, and easy move-out. Sometimes, the outcome of these negotiations may cost you some money, however, any deal you could make with a tenant should be a lot less money and hassle than going through your Landlord and Tenant Board (LTB) or small claims court.
Depending on the details of the contract, you may be responsible to pay some other costs and fees. You could be paying for: inspection fees, cleaning fees, or lock box fees. You are also likely to be required to set up a reserve-fund with the property manager. You’ll need to know what these other charges are.
The management company will set up a regular property inspection schedule for your property. During their inspection, they’ll look for repairs and maintenance needs, they’ll test your smoke detectors and carbon monoxide alarm, they’ll probably change your furnace filter, and they’ll probably inspect your fire extinguishers. Your regional laws will have their own expectations and minimum inspection requirements for your tenant’s safety, however, most companies do inspections 2 to 4 times per year. They may charge you a flat fee for this, such as $100 + tax per inspection, or they may charge by the hour. Usually, you will pay a flat fee plus any expenses incurred, such as a new furnace filter.
Before any new tenant moves in, it is customary to have your rental unit thoroughly cleaned up so as to start off the tenancy on the right foot and to let your tenant know and understand how you expect them to take care of your place. You will also show them that you are interested in giving them a positive experience in renting from you and that you care about the condition of your investment property. Typical cleaning fees can range from $50 – $200, and this depends on many factors, such as the size and condition of your rental.
Lock Box Fee
Your property manager will have the keys to your rental. Sometimes, they’ll put the keys in a small key lock box and leave it outside your property. Usually some place discrete or concealed so as not to draw attention. These boxes may cost around $40 – $50. You may be required to reimburse the manager for this item.
As mentioned earlier, most management companies will expect a certain amount of autonomy when it comes to scheduling, and paying, for work done to your property, on your behalf. Typically this requires a reserve fund in order to be accomplished. In essence, what happens is, you will forward a certain amount of money (example: $500) to the property manager, and they will hold these funds, in trust, until a repair or maintenance job needs to be paid for. It will be your responsibility to replenish, or allow to be replenished, this fund account back to its proper amount once you’ve been notified that it has been used. You may also be asked to provide the details of a major credit card to the management company too, for these same reasons.
How Can I Protect Myself When Selecting A Property Manager? The wording of any contract is very important. Look for transparency and comprehension; Are they trying to provide understanding or are they trying to confuse you? Make sure that the management company can adequately answer your questions and explain their services clearly. Beware of any contract that doesn’t clearly define what they are willing to do, how much their services will cost you, and who is responsible for the things that inevitably go wrong. Ambiguity is your worst enemy when it comes to these matters and hiring a property manager who is a bad-fit can be just as expensive, or worse, than having a tenant who is a bad-fit. I highly recommend that you take the contract to a lawyer who specializes in contract law and has experience in the property management industry. Even if it costs you $300 in lawyer’s fees, it is immensely cheaper and easier for you to find out that a management company is not a good-fit for you before you enter in to any type of agreement with them.
How Do I Keep Track Of My Rental Property’s Expenses? Every property manager should provide a record of the financial transactions, and keep good records. You should expect this service to be included in their management fees. There are few standard reports that are important and should be provided to you:
- Monthly Bank Statement
- Monthly Income Statement
- Tenant’s Payment History
- Accounts Payable
- The Balance Sheet
- General Ledger
Monthly Bank Statement
This is pretty self-explanatory. If the property manager has access to your bank account then they should ensure that you receive a copy of the bank statement each month. You’ll want to make sure that the line items reconcile with the other reports you receive.
Monthly Income Statement
Here’s where you find out if you’re making a profit at the end of the year, or not. If you see any numbers that don’t seem to add up correctly, you need to be able to get a detailed breakdown of all your income and expenses from your manager.
Tenant’s Payment History
You need to be able to find out which tenants have paid on time, which tenants have paid late, who still owes any money, and so on. If you see a lot of late payments from tenants, this should be a red flag and you need to find out what your property manager’s plans are in reducing this problem.
This deals with all the expenses of your property. You’ll find any management fees, repair and maintenance fees, and any other expense related to your rental property here. Make sure your manager retains and can provide you with copies of all the invoices.
The Balance Sheet
The balance sheet contains information regarding your assets and liabilities. This is the first thing people look to when finding out their net worth. Here’s where you’ll see your reserve funds, security deposits, and last month’s rents associated with your property.
The general ledger gives details of each transaction that you’ll discover on your monthly bank statement. Here’s where you’ll want to see great transparency and openness from your property manager. Unclear or vague details are a red flag, so ask your manager questions and make sure they are being honest.
If you are planning on investing in real estate for the long term, it makes sense to hire the best property managers you can find. If that means you end up paying a little bit more, then consider it a wise investment. You will be paying a management company to take care of your property and this is just a cost of running a business. If it’s done right, you should have great tenants with less turnover, less repair bills, higher property values, and most importantly, less time spent and stress created on your part!
On the other hand, there is a lot of expenses related to hiring a property management company for your rental properties. This isn’t a decision to take lightly and after reading this, you may decide to manage the properties yourself. I wouldn’t blame you, my wife and I have our own rental properties and we decided to self-manage them too. Yes, there was a huge learning curve, and yes, at times, it can be quite stressful, but with any decision, there are pros and cons. What’s most important is that you do what’s best for you.
Disclaimer: The information provided in this website is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, provincial, or federal legal authorities.