Owning rental properties is a way to generate recurring, consistent income in the form of rent. And, in most areas, the market value of real estate consistently rises. However, as solid an investment as rental real estate is, it is not a passive investment.
From single-family homes to apartment buildings with hundreds of units, every rental property requires management. Owners who manage a property themselves might find that it can be like a part-time job. Hiring a property management company makes it a passive investment for the owner, but it comes with a cost.
The costs for property management services will vary by region, the property management company you choose, and the services they provide. If you own a rental property in Santa Clara, for example, the services of a local Santa Clara property management company will typically cost more due to the higher costs of living in the Bay Area. Some costs will be based on the percentage of rental income, while others may be a flat fee. You’ll need to review the services provided to understand all the costs. So, what fees do property managers charge?
Overall Management Fee
The primary cost for property management is the monthly management fee, a percentage of the monthly gross rent paid to the property manager. This cost can vary depending on the type of property under management and the market in which the property is located. A property management company typically charges between 6% and 10% of the monthly rent. The percentage cost will be higher for managing a single-family home than for a multi-family building.
For most property management companies, the monthly management fee generates most of their income and covers most services. When choosing a property manager, you should make sure that the contract states that the percentage charged is from “rent collected” and not “rent due” so that you’re not paying a management fee when a unit is vacant.
Management companies with vacancy fees might not be as incentivized to attract and retain quality tenants because they’re earning fees from you even when you’re not earning rental income.
Most property managers charge a leasing fee to cover the costs of finding a new tenant and signing a new lease. A cost to the owner of 50% of the first month’s rent is standard, but some companies will ask for the entire first month’s rent, and others charge a flat fee.
Leasing Renewal Fees
Renewing a lease involves paperwork, and some management companies will charge a fee for the time spent. Many companies that charge a leasing renewal fee keep it around $200. If it’s more, you should ask why. Valley Management Group does not charge a lease renewal fee since this is included in the overall management fee.
Tenant Selection Fees
Fees that property management companies charge for reviewing rental applicants and selecting tenants for rental properties will vary. Some charge a flat fee, while others charge half of the month’s rent or may include this in their leasing fee. The property management company you use should do a good job qualifying prospective tenants since this is important for having a profitable rental. Valley Management Group charges half the first month’s rent, not to exceed $1000.
If you are considering a property management company that charges a fee to set up new accounts, make sure to find out if the fee – which can be from $50 to $300 – is per property or per unit. Setup fees can add up quickly. Valley Management Group does not charge new or existing clients any setup fees.
Fees for advertising rental properties can vary, often depending on the expertise of the management company. A property management company that understands the local real estate market should have an advertising program with a proven track record. There might be a fee to cover some expenses, but it should be, at most, $100.
Some management companies, including Valley Management Group, don’t charge any advertising fees and use free sites for marketing your property, such as Craigslist. Others may list your property on their own site or use another third-party site that lists rentals. The cost – and effectiveness – of advertising depends on the experience of the company and the strategy used.
Unexpected expenses associated with a property are often paid out of a reserve fund, which helps ensure timely payments. The amount held in a reserve fund is usually determined by the type of property type and its condition. It’s vital to confirm whether a reserve fund is refundable upon the end of a lease or termination of the management agreement.
Use an Experienced Property Management Company
Valley Management Group provides trustworthy and affordable property management services in Santa Clara, San Jose, and throughout Santa Clara Valley. They have over 40 years of experience managing rental properties with many high reviews from owners and tenants. Contact Valley Management Group for a free property management quote and one free month of services when you sign up for services.