This blog is part of our series for How to Understand your Property Management Agreement. Thus far we have discussed monthly Management Fees and Leasing / Lease Renewal Fees. Click on the respective blog names for links.
Understanding Property Management Fees
When you are consider hiring property management, the first task is talking to property managers about their fees. The second task is always understanding their fees. Landlords often focus on the two primary fees: monthly and leasing. Yet, there are other expenses which property managers earn a fee. These are detailed in their Property Management Agreement.
Before we dig into the details, here are the topics for the next several blogs. We will define and review elements that every investor should understand. This will cover:
Maintenance Coordination Fees
Late Fees / Miscellaneous Fees
Your property is alive.
Well, it is not exactly a living and breathing creature. That said, your property ages and moves. Buildings are constantly expanding and contracting in size. This is mostly due to the contrast in weather as well as loads put on the structures whether wind, snow, or even furniture.
Similar to your own body, a building that experiences these slight movements or deteriorating effects will eventually pay the price. Always on cue, at the worst possible time!
Damages can be wear-and-tear by tenants or life expectancy for materials and products. However, not every thing is caused by your tenants out of neglect.
How does your property stay young?
If your property is a living creature, then perhaps there is a way for it to remain youthful! While there are methods you can take, nobody stays young forever.
Consider preventative maintenance on your heavily used devices. This could include your HVAC, heaters, water heaters, and pool equipment. All of these have a shelf life. You can extend their lifespan with proper treatment.
By scheduling professional vendors to perform semi-annual inspections, you will be assured that filters, gears, bands, etc. are all properly cleaned and adjusted. Think of the oil you change in your car that helps extend the life of your vehicle. Your major mechanical devices are no different!
Don’t be cheap today because you’ll pay more tomorrow.
A new HVAC unit can easily cost $7,000-10,000 and have a life expectancy of 8 years. That’s $1,000 per year of expectancy. However, if you paid $150 for proper preventative maintenance, you can get 12-15 years out of your HVAC. Even on the low side, you can save $150-$300 per year in Capital Expenditures. Some units can last even longer with proper upkeep!
- Understand how your property manager charges for maintenance
MAINTENANCE COORDINATION FEES
How much to manage renovations?
Every property management firm will validate this differently. It is common practice for management to create a general invoice to indicate the vendor cost. They well also add their fees for coordinating the maintenance. You should receive a copy of the vendors invoice as well for backup documentation. It is important to have them clearly indicate the clauses in their Property Management Agreement that detail this.
There are 3 common fee structures:
No Mark-up: Property manager passes all the direct cost to you, with absolutely zero percent mark-up. This service and estimated time is already included in their monthly management fee.
Management companies with internal maintenance commonly have zero mark-up. Their time could be included in the billable hours on maintenance invoice.
Percentage: Property managers add their mark-up percentage to the invoice and pass it along directly to you. Fees they are invoicing are considered additional to their time already covered by the monthly management fee.
The downside is when you have a large item that does not require as much coordination. HVAC replacements, for example. It is relatively easy to coordinate this repair or replacement but comes at a hefty cost. You could do this yourself and avoid the mark-up. Be sure to ask about your firm’s mark-up terms.
Flat Rate: Property managers have a flat fee added to any maintenance work. A flat rate adds a distinct separation between their time and the cost of work performed. Flat rates protect the owner in that management does not make more money simply based on the cost of a repair.
How much can my management spend without my permission?
A responsible property manager will have clear guidelines in their Property Management Agreement. It will state their max limit for the amount of money they can spend without your permission. When you hire a property manager, you are expecting them to manage your property! Crazy concept, I know. Therefore, let them do their job.
A big responsibility for property management is coordinating any upkeep and maintenance issues so the tenants can continue living in the unit. These are commonly plumbing, electrical, or mechanical issues that will need to be addressed quickly. Other items can wait until tenant turnover.
Most common limitations range from $250 to $500. These amounts allow firms to handle smaller issues that can be a nuisance for the tenant.
So, my management can never spend more than their limit without my permission?
If there is an emergency that is life-threatening, the manager will need to make accommodations immediately. This is often a legal requirement. In the event this occurs, you should be notified. However, it is best to let them handle the situation and not micro-manage.
This could be the HVAC going out during an Arizona summer, heater going out during the Polar Vortex, or major flooding that can cause more damage to the unit or other units as well!
They should at least get 3 proposals then. Right?
If time allows, absolutely they should. They should want to get you the highest quality at an affordable price.
But that isn’t always the case. Have you slept in 102 degrees overnight without AC? Or when it’s literally freezing inside? These cases can be life-threatening.
Time is of the essence, so often you take the first vendor who can complete the task.
Your other option is paying for a hotel since the unit is non-livable while you get your 3 proposals.
What if I have a major renovation, will they manage that?
Every property management firm is different. You should definitely ask about their construction management services. Note that construction management is entirely different than property management! A Construction Agreement should be a separate document than your Property Management Agreement.
Larger firms often have a maintenance manager. They offer their time as an additional service.
This is a different service than maintenance, their rates might be different. You will need to define what their renovation management rates are and what the minimum dollar amount is. If they manage on a percent, their fees should be smaller on higher dollar projects because of economy of scale – in theory.
Internal or external maintenance teams. Which one is better?
They each have their benefit.
Internal: They either have an individual or team of individuals who are skilled in certain trades. The positive with internal are typical faster response times. The negative occurs when their maintenance individual does not get a full 40 hours per week.
Here are the important questions to ask with any internal maintenance team.
- What is the billable hourly rate?
- What is the billable half day vs full day rate?
- Is there any trip charge?
- What are the minimum hours per call?
- What scope/trades they do and do not perform?
External: Firms might be too small for a full-time maintenance member. Perhaps they do not want the responsibility/risk associated with them. A positive about external teams is they are typically less expensive since they can shop quotes. While a negative is they have slower response times since they have more clients to serve than just your property manager.
Here are questions to consider with external maintenance teams:
- How many general maintenance vendors do you work with?
- Who are your primary vendors for mechanical, electrical, plumbing, general?
- How many vendors do you request for every call?
- Do they have any minimum trip charges?
- Do you know their rates?
Why maintenance is so important
When you are interviewing property managers, it is important to recognize management is more than finding tenants and collecting rent. Your property will fall apart and require maintenance. Just like your car!
Maintenance should always be budgeted annually. While every firm’s management fee structures is different, understanding the potential fees associated with maintenance is important. They can quickly add up.
The best quality management firms are not trying to take advantage of you. You will need to trust their process and team to properly perform the job you hired them for. If there are constant concerns, make sure to bring issues to their attention but also be understanding of the situation. In life-threatening situations, priority is not the cost. Saving your property and minimizing damage is the top priority.
Where to get property management proposals?
Burbz marketplace requires all property managers to submit their full fee structures. We believe any successful business starts with transparency, and that often starts with the proposal for fees. You are paying them for a service; it is important you understand everything you are paying for and which services are included.
If you are seeking property management proposals, Burbz provides a free and easy way to compare proposals fro management firms.
Check out Burbz at www.theburbz.com and get free proposals for your property.