Managing a multi-family property is a full-time job, and for large enough properties it‘s even a job for a team. But if done right, hiring a property manager can give you great peace of mind, steady profits, and maintain the value of the building or even increase it. As a property owner, you got into real estate investing seeking passive income and appreciation, so it’s vital that you hire the right person, company, or team to manage your property.
Let’s talk about the usual costs of multi-family property management, the various fees that may come as extra, and what should be included in your contract.
The industry standard for long term rental management is usually a percentage instead of a fixed monthly management fee. Property management fees (or rates) usually range between 8-12% of either monthly rental value or rent collected.
There is a VERY big difference between those, and you should try to negotiate to pay a percentage of the collected rent, since it motivates the property manager to keep units tenanted to increase their earnings (and yours!).
If you agree to pay a percentage of the rental value, you will continue to pay the same even if one or several units are vacant, so your manager won’t be as motivated to find new tenants.
Companies may charge other fees additional or independent from the main percentage or agreed management fee. These are some of the most common ones:
A few property management companies still charge a setup fee to onboard you as a customer. If they do, make sure to find out how much and if there is any value for you in it.
If you engage a property manager to look over a property that’s still partially or fully vacant, they may charge up to a month’s rent upfront, or a different version of a leasing fee. Basically they need these funds to pay for marketing, showing, screening tenants, and preparing the paperwork for renting the unit.
Tenant Occupied Unit
If you hire a manager to handle maintenance and tenant relationships only, then your property manager may charge you a reduced fee or no fee for vacant units. However, it will be your job to find new tenants and screen them.
The best property management companies have a trusted team of tradespeople and maintenance crews, which may be part of the company or a long-term partnership. Get a written, detailed statement of what routine maintenance will be included with your monthly payment, and what counts as extras. Also, establish clear limits for extras, so your bill does not get over-inflated.
Even the best-screened tenants may turn out to be a nightmare, and sometimes eviction is the only solution. Your property manager should be qualified to carry out an eviction process, and management companies charge usually $200-500 per eviction plus any court costs that may apply.
From all-inclusive to “a la carte”, property management costs come in all shapes and sizes, depending on how hands-on you want to be with your property and tenants. Some usual components of an investment property management cost structure will probably include several of the following:
Most property managers already have several marketing channels to get properties seen and rented, and they know the market and what will work best. Instead of having to figure it out from scratch, you can hire an expert who already has a social media presence, newspaper advertising, deals with local radio and the like, and who knows the right mix that will work best to rent your specific kind of property.
You may have a good educated guess of how much rent you can get for your property, but a property management company has years on the field and knowledge of the area, trends, and even future developments, so they can help you set the best price. In many cases, property owners undervalue their rent potential by 10% or more – this alone could justify the expense of hiring a property manager!
Renter screening and showings
Finding quality renters is vital to your cash flow, property value, and the general experience of everyone living in your multifamily property. Every applicant must be vetted carefully, and property managers have access to the right systems to conduct reference and credit checks to weed out potentially problematic renters. Additionally, the manager will stage the property for showing, and spend time showing it to applicants and negotiating until it’s time for them to draft a contract and get the tenants on board.
It would be ideal if every renter paid in full and on time, never had complaints, and got along with their neighbors. But life is seldom like that, and a good property manager will take care of all of this for you: collecting rent, tracking down late payments, enforcing the rules and regulations, and handling complaints and repair quickly and efficiently.
Good tenant relationships result in longer tenancy periods and good reviews, which will, in turn, increase the property value and attract more good renters, and even lease renewals (fees for this may be included in your contract or not). And you need someone with a firm hand who can handle rowdy tenants or chronic late payers, and be able to carry out an eviction process if it ever becomes necessary.
Maintenance and repairs
A good, experienced property manager with a good maintenance plan will effectively save you money by giving your property scheduled preventative maintenance. This will extend the life of your building and systems, and significantly decrease the frequency and severity of breakdowns and repairs.
Property management companies also have trusted tradespeople and experts, which will result in better, consisten service at a better price for you.
You should expect detailed financials from your property manager: how much rent was collected, how much was paid in maintenance and repairs, and they will often also take care of all other bills for you (utilities, taxes, insurance) and give you monthly reports.