If you’ve considered hiring a property manager to manage property, there are a number of questions you should consider asking before entering into an agreement. It’s easy to get lost in all the legal jargon when evaluating management agreements, but often times, you can get a pretty good idea about the quality of the management firm with a simple phone call. For obvious reasons, an investor’s relationship with a management firm is a very important one, especially when the property is located out of state. We’ve made a few dozen calls to management firms across the nation over the past year, and discovered a number similarities across a handful of management firms.
Management firms typically charge anywhere between 6% and 12% of collected monthly rent. The rates vary from firm to firm, but are about the same after hidden costs of the “cheaper” firms are factored in. At 6%, for example, expect to pay anywhere between $100 - $500 in advertising costs, a few hundred in startup costs. At 10% on the other hand, advertising might be free with no startup cost. Other costs to watch out for when evaluating management firms include renewal fees, listing fees, and management reserves. Some firms have the audacity to charge “vacancy fees”, fees collected from an investor if the home becomes “un-rentable”. Avoid firms that charge vacancy fees, these types of fees give management firms less of an incentive to find quality tenants in a timely manner.
Fees vary from firm to firm, but ultimately, the decision often comes down to the level of professionalism and communication of the firm’s management and maintenance staff. Communication is especially important if investors own property in outside their home state. A property management’s firm’s ability to handle issues in a professional and timely manner will usually mean less headaches for the investor in the long run.