What Is The True Cost Of Managing Properties?

Rental property investing is a great source of passive income, but managing properties is time-consuming, labor-intensive, and requires experience. Most larger landlords opt to outsource the daily operations to property management companies, but how much does property management cost? Understanding the fees and services provided will help you determine whether it is the correct financial decision for your rental business.

This article breaks down what property managers cost, explains associated fee arrangements, and analyzes affordable options like property management software.

How Much Do Property Managers Charge?

Fees for property management vary based on where the properties are located, how many are being managed, and how many services they provide. Overall, how much do property management companies charge? Most charge a fee in one of two ways:

1. Percentage of Monthly Rent: The most common pricing structure, where managers earn a percentage of the revenue earned, typically 8% to 12% monthly.

2. Flat Monthly Fee: Other managers charge a flat property management fee per month, usually depending on the size of each unit they manage.

For a monthly rent of $2,000 for a single unit, an 8% fee would be $160 a month, and a 12% fee would be $240 a month. Those fees can escalate quickly as your portfolio scales, eating into your net rental income.

Breakdown of Property Management Fees

In addition to the base pay, many property managers charge additional fees for various services – and there of course is an associated fee for each. Let’s break down these fees in more detail.

1. Monthly Management Fee

As mentioned earlier, most property managers charge a percentage fee or a flat monthly fee to oversee daily operations like:

• Rent collection
• Scheduling maintenance and repairs
• Tenant communication
• Legal compliance and evictions

The monthly property management fee is the primary ongoing expense for landlords.

2. Tenant Placement Fee

Many property management companies charge a separate tenant placement fee to find and screen tenants. This one-time fee typically covers marketing, screening of applicants, and move-in processing.

For example, if your monthly rent is $2,000 and the placement fee is 75% of one month’s rent, you’ll pay $1,500 just to fill a vacancy. A flat leasing fee might fall between $200 and $500 per lease renewal

3. Lease Renewal Fee

Some companies charge a fee of $200 to $500 to renew a tenant’s lease, even if no significant changes are made. If you have tenants that renew their leases for many years, this fee can add up.

4. Maintenance and Repair Fees

Property managers arrange maintenance calls and repairs and usually markup contractor work by 10% to 20%. For example, if a plumbing repair costs $500, a15% markup will cost you $575 in total.

5. Eviction and Legal Fees

If there is a need to evict a tenant, expect to spend legal and administrative fees, excluding court costs and attorney’s fees. Some property managers also charge additional fees for handling legal compliance issues, ranging from $200-$500 per eviction.

6. Vacancy Fee

This is less frequent, though some property managers also assess a vacancy fee (monthly fee during vacancy). This could range from $50 to one month’s rent, depending on the policy of the company.

Understanding these potential fees allows you to make a more informed decision about whether or not a full-service property manager is worth the expenses and answers the question, “How much do property management companies charge?”

How Much Does Property Management Cost for Different Rental Types?

Not all rental properties require the same level of management. Fees vary by property type and location:

• Single-Family Homes:

Single-family home property management typically ranges from 8% to 12% of the rent received. Since each home requires special care, management companies charge higher than for multi-unit properties.

• Multi-Family Properties:

For landlords with multiple rental units in one location, discounted prices are offered by some property managers, lowering the per-unit cost from standard pricing. This bulk rate option can be less expensive for property management, enabling landlords to save money while still benefiting from professional management services.

• Short-Term Rentals (Airbnb, VRBO, etc.):

Vacation rental property management is much more expensive due to the high turnover and intense services.

Understanding the fee structure for different kinds of properties answers the question, “How much does property management cost?” and helps you determine whether it is economically viable to employ a property manager.

Is Hiring a Property Manager Worth It?

Deciding on the potential employment of a property manager is decided on factors like:

• Time Commitment: If you do not have the time to deal with tenant issues, maintenance, and rent collection, a property manager can be helpful.
• Property Location: If you reside far from your rental properties, it logically makes sense to hire a manager.
• Portfolio Size: For landlords with multiple units, a property manager can streamline operations and reduce headaches.

However, the true cost of property management can cut far into your profits, especially for small-scale landlords. If you’re comfortable handling tenant relations and basic maintenance coordination, self-managing may be the better option.

How to Reduce Property Management Costs

Full-service property management is expensive, but there are some cost savings landlords can achieve through the use of modern tools and strategic outsourcing.

1. Leverage Property Management & Accounting Software

Accounting software allows landlords to streamline rental collection, track spending, and manage tenant applications without a full-time property manager and at a fraction of the cost.

2. Outsource Leasing Instead of Full Management

If tenant placement is your primary concern, the employment of a leasing agent rather than a full-service manager will be cost saving. Leasing agents receive a one-time fee, while property managers receive an ongoing rent percentage.

3. Employ Contractors Directly for Maintenance

Avoid the markup of the property manager by dealing directly with reliable contractors for repairs and maintenance, which will lower maintenance costs.

4. Embrace a Hybrid Management Model

You can also self-manage your rentals and outsource only those essential services like legal compliance, tenant screening, and rent collection to cut costs without giving up professional services.

Using accounting software like Ledgre and smart outsourcing can help landlords save costs while still being in control of their rental enterprise.

Balancing the Costs and Benefits of Property Management

Landlords weighing whether professional management is worth the cost should understand how much do property managers charge. While cost of property management per month varies by services and location, fees typically range from 8% to 12% of gross rent collected, or even higher for vacation rentals. For cutting costs, landlord self-management using property management software or independent contracting can provide the cost-conscious solution. No matter which choice is made between full-service or do-it-yourself methods, knowing how much property management costs will allow you to make informed budgetary decisions that are best aligned for achieving your rental business goals.