Understanding Property Management Costs: An Investor’s Guide
As an investor, you’re always looking to get the most bang for your buck. Efficiency! Especially as a real estate investor, it’s important to figure out how you can make the most out of any costs you sink into the property. Having a property management company oversee property can be a great investment to navigate those waters, but of course, even with that, you want to know what the property management costs and fees mean.
As one of the premiere property management companies in Boston, we understand the need to optimize your investments and spend money wisely. We know you want to know what the fees are and what property management is doing to better your investment over time. So here we will break down a number of key elements to help you understand property management costs.
- Most Common Property Management Costs – Let’s break down the costs you usually see with any property management
- Making Property Profitability – With these costs in mind, we will dive into ideas and tips for making your property the most profitable it can be.
- FAQ – We will go over a few of the most common questions that people have regarding property management costs./li>
- Hire a Property Manager That Creates Efficiencies – Finally, we will break down how property management can make your investment more efficient despite the costs associated with it.
Most Common Property Management Costs
At the end of the day property management services are services. And so costs and fees are expected. What is key is that the costs of those services end up making you more money, because it creates efficiencies and value to the properties. And they do. However, it can be helpful to understand the specific fees that property management companies pass on to you and what you get from those fees.
Fixed vs. Percentage Property Management Fee
While some property management companies offer a fixed fee structure, others collect a fee based on the percentage of a month’s rent. Normally the fixed fee is based on the property type, square footage, and the property management services provided.
So while we will break down some other costs involved with property management, it is useful to understand that these two ways that property management might charge property owners and investors result in a number of variances in how their pricing is structured.
Contract Setup Fee
Most property management companies will charge a one-time setup fee. Like many similar services, this is understandable since it covers a number of things that are involved with that initial contract stage of the relationship, such as:
- creating your account for bookkeeping purposes,
- assisting with applying for any required business and tax licenses, and
- initial property inspection.
Overseeing Vacant Property
Many times managing a vacant property can be more labor-intensive than when your home is occupied by a tenant because there are more potential problems that could arise. That affects the property management costs that may be needed.
Because utilities need to be left on for showings, water leaks could unexpectedly occur or security lights could burn out. The longer the rental property sits vacant, the more risk is involved with such things as having it broken into or vandalized. To minimize these risks, the property manager likely will need to visit the property regularly.
Repairs and Maintenance
One of the major benefits of property management companies is that they will have an established network of trusted vendors or an in-house, full-time maintenance crew. Because most vendors offer management companies preferred pricing in exchange for the manager’s business, repair and maintenance costs should be lower than what you could find on your own. But along with that, some management companies may pass on fees for certain types of repair costs. It is important to know and understand these property management costs, what is included, and what results in additional fees.
Inspection Fees
As a general rule of thumb, a residential rental property should be inspected inside and out every three to six months. Routinely inspecting the home helps to catch and fix little problems before they become big and expensive, and to ensure that the tenant is not damaging the property. Some property management companies will conduct a semi-annual inspection at no charge, while others may ask you to pay for every inspection.
Making Property Profitability
While a relationship with a property management company inevitably results in costs and fees, it ultimately results in the cost-savings analysis that any real estate investment comes with. What you want is for it to be profitable. So what are some ways to make rental property positive on the pocketbook?
Study the Competition
Taking a careful look at your competition’s offerings and the needs of the market is important. With these insights, you know where you stand and can provide the quality and value that gets your company noticed. Market research will show you what companies you’re competing with and help you identify and narrow down your target market. There may be opportunities for you to offer something your competitors don’t have or find a particular niche within the market to give you an edge.
Review Your Cost/Fee Structure
If you haven’t re-evaluated your costs in a while, it might be time to do that. It is common for rates to go up over time, even if the increases are small. You might not be generating enough revenue if you aren’t keeping your prices in line with your competitors and the market averages. Additionally, you may be able to reduce operating costs in some areas to spend less on the services you provide. Other times, you can spend less on some things and more on others in order to get more in line with the expectations of renters and the market.
Evaluate For Efficiency
Take a careful look at your metrics and see if your company is handling things efficiently. If your processes and team are inefficient, you could lose revenue. Oftentimes this means streamlining your operations and processes, creating automation through technology, and divesting in some things while investing in others.
FAQ
It can be helpful to go over some general frequently asked questions that investors, landlords, and property owners have when it comes to hiring and forming a relationship with property managers. Here are a few of the top ones.
What Are the Factors that Influence Property Management Fees?
The fees a property management company charges should reflect their operational reality, and can vary depending on a range of factors. These included property location (different areas require higher operational expenses), property condition, property size (this directly influences the workload of the property manager), and scope of services. Basic services like rent collection can expect lower fees, while comprehensive management services covering rent collection, vacancy filling, repairs, evictions, and financial record-keeping for taxes entail higher costs.
How Do Fees Help Property Managers Add Value and Create a Positive Resident Experience?
The additional fees generated by delivering new and higher service levels are a reflection of a positive experience, both for property owners and the residents. Such additional services are exactly what can set professionals apart from amateurs.
How Can I Use Fees to Generate Ancillary Income?
In the end, you might think of fees as a burden that will drive away investors, but the truth is the exact opposite. Fees help you drive more premium value for both your investors and your residents – and support your business and employees at the same time.
Hire a Property Manager Who Creates Efficiencies
Hiring a property manager can alleviate all kinds of headaches and stresses. We know all about it. But it is essential to hire the right fit for your goals. The right experience, customer service, and fair property management company fee structure all contribute to how comfortable you will be with your choice.
So, carefully consider the criteria above in your search, and if you want a property management expert in your area, look no further than Bay Property Management Group. We offer property management services in Boston, Washington, Maryland, Pennsylvania, and elsewhere. Our quality service help increase your ROI by maximizing rental rates while reducing costs with low management fees and no hidden costs!
