Understanding Property Management Agreements_ Management Fees

So you are considering hiring property management. Awesome! The first task is talking to property managers about their fees. The second task is understanding their fees.

Property Management Fees

Monthly management fees are the first question landlords want to know about. However, a simple rate does not tell the full story! Every company selects a fee structure to help their business.

There are a variety of fees and services to create revenue for property management. Knowing the different fee variables is key when hiring property management. Often the common saying holds true – “You get what you pay for.”

Over several blogs, we will define and review elements. Every investor should understand these when comparing proposals. This will cover:

How do I calculate monthly management fees?

Monthly management fees are the most common and easiest fees to understand. There are several variations that management firms might want to take. Depending on your needs, there are positives and negatives for each structure.

They base on “rent collected” or “rent expected.” The difference is when management can charge you these fees. Every management will charge at least some type of monthly free.

When can a firm charge a fee?

Rent Collected. Management only earns a fee when rent is actually paid. Meaning vacancies and late rent prevents the management firm from earning a fee. This benefits landlords whose property requires more effort to collect rent.

Rent Expected. Management earns a fee whether rent is paid or not. Said differently, they earn a fee when the property sits vacant or rent is late. Although this sounds unfair to landlords, there are benefits. It is typical for competitive rates to be below the market average.

How much can a property manager charge?

Flat Rate. Regardless of rent amount, management will earn the same dollar value each month. Real estate investors benefit from a flat rate when rents are high. Higher the rent, the lower percentage of AGI your management takes.

Percentage Rate. More common are percentage rates of the monthly rent. These percentages are ‘fixed’ rates. However, the actual dollar amounts will vary depending on rent. This creates an incentive for management to get higher rents. This way, you both earn more income as a result. If you own a multi-family property and repositioning by increasing rents, having management tied to a percentage is best. This will motivate them to increase your rent roll faster.


Why management fees are not the only item to consider

Buy 1, get 1 free! 40% off, everything must go!

Got your attention, right? Those sales banners get you inside the store and are often misleading. That is the same as looking only for cheap management fees. They get you in the door, but what is the actual cost?

Management firms are competitive and cheap with their monthly fees. Yet there are plenty of ways to nickel-and-dime the owner with miscellaneous fees. Landlords need to understand the entire compensation package. Or else you could end up paying more overall!

Does that mean higher fees are a better choice?

Not necessarily.

You need to review all the elements of the Property Management Agreement. There are management firms who charge more monthly fees but no additional fees. Other companies have a combination of lower fees with additional fees. Or they exclude services.

How to avoid hidden fees

You can avoid hidden fees by knowing the elements and fee structures. Learn the different ways’ management firms earn their fees. Avoid companies that refuse to provide any details of their fee structure. That is an immediate indication they are not transparent.

The best property managers have nothing to hide. They are happy to share their Property Management Agreement. A good company will, and can, explain their fees. More importantly, when it is a complicated fee structure.

Where to get property management proposals?

Burbz marketplace requires property managers to submit their full fee structure. We believe any successful business starts with transparency. That starts with the proposal for fees. You are paying them for a service. Therefore, it is crucial you know everything you are paying for. As well as which services.

Are you seeking property management proposals? Burbz gets proposals from different management companies. Proposals that are easy to understand.

Check out Burbz, click here. Get free proposals for your property today!

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