Self-managing a South Florida rental property can be time-consuming. In the process of increasing the value of their investments, real estate investors tend to overlook the value of what they can’t recover: time.
At some point, you may have considered outsourcing property management services. Hiring a property management company can free you from the headaches of rent collection, tenant screening, and more. However, considering that some companies charge around 12% of the monthly rent, you may be concerned about how this cost can impact your cash flow.
Below, you will find a breakdown of property management fees, which will answer the question, “Is paying for property management fees worth it?”
What fees do you have to pay your property management firm?
There’s no straightforward answer to, “How much do property management companies charge?” as companies typically don’t have the same rates. The amount also depends on the type of the property (i.e. single-family home, condominium, etc.) and the type of services included in the property management plan.
As a real estate investor, your main concern should be providing your property with value. That’s why it’s important to look into the services that come with your property management package. In general, these are the fees that property management firms charge their clients:
The leasing fee or “placement fee” covers the cost of advertising the rental property, screening prospective tenants, processing leases, and overseeing the move-in of tenants into the unit. Simply put, it is a fee collected by the property management firm for placing tenants into the property. The leasing fee is usually 50% to 100% of the first month’s rent.
Monthly Management Fee
The monthly management fee is calculated as a percentage of the rent collected from the tenant. It covers the cost of maintenance, repairs, inspections, and other routine operations. Property management companies charge around 7% to 10% of the collected rent, however, they can charge higher for multi-family properties.
Other Management Fees
Besides the property management fees mentioned above, there may be other fees included in the property management plan. These include:
- Vacancy Fee. Some companies collect a fee even though the investment property is vacant. This is either a flat fee or the monthly management fee.
- Onboarding Fee. Also called a “setup fee”, this one-time fee covers the effort of setting up your account with the property management company.
- Late Fee. A portion of the late fee that tenants pay for late rent payments can be collected by the property management company.
- Lease Renewal Fee. Similar to a leasing fee, it is charged when a tenant wants to renew their lease.
- Eviction Fee. Evictions can be tedious and time-consuming. Hence, property management companies often collect this fee for their effort in handling the eviction. In the event that the eviction is settled in court, the property management company can charge a higher amount.
When choosing a property management company, ask about the services that are included in their packages. Evaluate whether or not the company can provide you value. If there are certain services that you want to include, you can attempt to negotiate the terms of the agreement. There’s no harm in trying.
How can you ensure that hiring a property manager won’t hurt your cash flow?
As a real estate investor, you should strive to maximize rental income and minimize expenses. Here are three ways to ensure that the property management company you choose doesn’t end up hurting your cash flow.
Assess the property management company
You shouldn’t hire the first property management firm that pops up on the search engine. Contact multiple companies so you can have a pool of prospects to choose from. Carefully assess their expertise and experience, and read reviews from other property investors. This should give you a general idea of what it’s like to work with them.
Ask about their property management services
Don’t sign the contract until you’ve thoroughly read through the terms of the agreement! You should be aware of what services you’ll be getting. It’s a red flag when a company’s website doesn’t list down its rates. You should also stay away from companies that charge hidden fees. Trust your gut and go for the company with complete transparency.
Calculate the rate of return
Can you afford the property management fees? If you aren’t careful, you could end up losing money — something that no property owner wants! To ensure that you continue to earn, determine the rate of return on your rental property. Include the cost of property management services in the calculation to find out if you’ll still be profiting off of your property.
When should you hire a property management company?
Understandably, you may have your reservations about hiring a property management company. After all, it is an extra expense. Consider the following factors to find out if outsourcing property management services is for you:
- You have multiple properties. Self-managing multiple properties at once can be a challenge. To ensure that all of your properties receive proper care, enlist the services of a property management company.
- You reside far from the rental property. If you live far from where your rental property is located, it can be hard to handle certain issues such as emergency repairs.
- You have very little time. If you won’t be able to devote your time to your unit, you won’t be able to attend to its day-to-day demands. Eventually, you’ll end up with long overdue renovations.
- You don’t want to employ people. If you hire employees to manage your property, you’ll become an employer. That means you’ll have to acquaint yourself with the legal requirements. You’ll also have to handle their payroll and file form after form when it’s tax time.
What’s the best property management company?
If you’ve decided to hire a property management company, choose Luxury Property Care. What sets us apart is that our services can be customized according to your South Florida property’s needs. We can guarantee that you’ll get the most value for your investment property. Whether you have a single-family home or a shopping center, you can count on us. As your full-service property management company, we provide a wide variety of services at reasonable rates.