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What are the costs associated with hiring a property manager?
Have you ever thought of hiring a property manager? For some property owners, being the managers and caretakers of their property is one of the attractions of being a landlord. However, many others prefer to focus on other aspects of their businesses and leave the day-to-day operations to commercial property management services.
While this saves property owners time, it can be challenging to find the right person for the job. This is complicated by the various feeds property managers will charge for their services, most of which are perfectly reasonable, but some of which can be confusing to first-time owners. Some fees go by various names, others overlap, and a few carry important legal connotations you should be aware of.
Percentage-based fees are more common than flat rates.
To start, most property managers charge a fee based on a percentage of the monthly rent. The rate varies depending on the included services. With a lower monthly percentage, you should expect other charges to be billed separately.
Some property managers work off a flat rate fee. While this can sometimes seem like a good deal, it will depend on which costs and fees are included in that rate.
Rent value, rent due, or rent collected?
Speaking of fees, pay attention to the wording of the commercial real estate property management fee. Some property managers charge based on the rental value, meaning they will send you a bill even if the property is vacant. On the other hand, rent due means their fee stays the same, even if a tenant is behind on their rent payments.
For property owners, rent collected is usually the most favorable option. If the property managers only get paid when you get paid, they have stronger incentives to fill vacancies and collect rent. However, if some of those tasks are not their responsibility, it’s perfectly reasonable for them to discuss different terms.
Vacancy fee or new tenant bonus?
Finding tenants for new properties is part of the property manager’s job, but doing so takes time, and there are often costs involved. Furthermore, a property manager may have certain responsibilities to handle for the property, even if it is vacant. In these cases, Ann Arbor property management often charges a small fee to cover the time they spend managing the vacant property.
Similarly, property managers may charge a fee for landing a new tenant—anywhere from a quarter to a full month’s rent. It’s more typical to see this fee instead of a vacancy fee, and the size of the signing bonus often depends on how marketing and advertising costs are handled.
Marketing and advertising costs.
Finding good tenants takes time. An excellent property manager will devote some of that time to vetting tenants and ensuring that the people who move in are reliable, will keep the property in good order, and will pay their bills on time. But attracting these tenants also means paying for marketing and advertising of the property, and you will need to decide who is responsible for handling these costs.
If you’re already paying a new tenant bonus, marketing and ad costs may be covered by that fee. On the other hand, if you’re offering a smaller new tenant bonus and no vacancy fee, you should expect to cover the cost of marketing and advertising.
Routine maintenance and repairs.
Maintenance and upkeep of property are usually a property manager’s key responsibilities, especially if the owner is out of town. These services can include yard care, plumbing, electrical, and HVAC work, or other emergency repairs.
Again, the more work the commercial real estate property management companies takes on, the higher their monthly service fee. A high monthly fee should cover routine services. However, a contract might stipulate a limit to the repair costs a property manager will cover. For instance, while they may manage emergency repairs, you will probably be responsible for major building renovations.
Late payment fee.
Tenants sometimes fall behind on their rent payments, in which cases the landlord will charge a late payment fee. This sometimes goes directly to the owner, but contracts sometimes stipulate that this fee goes to the Ann Arbor property management instead. Property managers are more likely to ask for this fee in their contracts if they expect to spend a considerable amount of effort in collecting overdue rent. Without a late payment fee, they may have greater incentives to vet tenants.
When a tenant relationship goes south, an eviction may become necessary. Evictions can be costly, especially if there are any legal implications, so this fee is often based on overall processing expenses.
Laundry, vending machines, and other services.
Depending on your property, you may have other small sources of revenue for your property management Ann Arbor companies to handle. Vending machines and coin laundry services are the most common. These income streams can be split between the owner and the manager, or the full sum can go to either.
Property management Ann Arbor costs depend on what you’re willing to negotiate.
Most of your commercial real estate property management costs will depend on whether you want to handle them a la carte or full-service. You can negotiate a lower percentage of the monthly rent or a lower tenant bonus if you’re willing to cover other costs—or handle some of the work—yourself. But, the more you take a hands-off approach, the more you should expect to pay your property managers for their services.
How you split duties is up to you. However, you should go over the terms of your agreement with your lawyer to ensure that the language is clear and the terms are acceptable.