property management fees property management guideThe property management fees you incur can be very illusive, often just left as a rough benchmark of, say, 10% of something, or a one of cost of something else. As the nature of property management is both long-term and involving other bolt-on services, then it’s important to get right to the bottom of what the actual property management charges and costs will be for you. You can then go in correctly budgeted and being able to compare with other like-for-like proposals.
 
These tend to be charged by management companies or property managing agents, as the intermediary who manages property for clients. Individual property managers may work independently, but make sure you establish who the official entity is who carries out the service and understand the need to charge fair property management rates. 
 
Even if a property owner or landlord is managing the property themselves, they may still be able to charge through, say, their leases to tenants, or other co-owners if they are silent partners. 
 
Property wise, this covers all kinds of residential and commercial properties, all with similar principles although the nature and amount of these can vary.

How Much are Property Management Fees for Rental Property?

Property management is mainly focused on looking after tenants within a property, particularly collecting the rent as the main rewards for the landlord owning the property. Fees are therefore often geared around this rental element, although good property management does involve other issues both directly with tenants and also any vacant or even owner-occupied property as well.
 
You therefore need to look at the best overall property management fee, and look at the standard rate that needs to be applied. This might end up being an average level, taking into account the ups of easy tasks that earn a good fee, against those nasty ones that take time and resources for little return.
 
It’s important therefore to think long term and full-picture and what it all adds up to in total. In order to do this, here’s our top 7 aspects of property management fees and rates that you need to take into account. They may not all be applicable to your situation, but this is a helpful check-list of what to look out for to determine the end fee level:

1. One Off Fees 

Nice and simple, particularly if it’s along the lines of no fee if no let or results. These tend to work best though when you’re letting out the property, or doing a one off task like helping to set up systems, or reconcile a service charge, whereas with true property management it’s long term and often an ongoing fee. Check if these are applicable though, and watch out for the true property management costs kicking in after any initial let and letting fee.

2. Percentage of Rents   

This is more like it, often between around 10 to 15%, but this of course varies. It needs to reflect actual work involved, and then over a certain period of time. 
 
So a short term property management contract of 6 months to help sort out a difficult property will deserve a higher rate than one simple and well behaved tenant over a 3 year contract.
 
You then have to make sure you’re clear what the actual ‘rent’ is that this depends upon, for example the total rents charged or monies actually received. Also, the service charge fee will be based upon expenditure levels and workload rather than the rent collection aspect, and paid through separate service charge monies from tenants (and landlords sometimes), whereas rent collection from landlord monies are direct.
 
Finally confirm how this will be paid, often in arrears and every month or quarter period. If there’s initial lettings and set-up works, then these can be deducted from any initial rent monies collected from tenants, otherwise the owner may need to pay direct or allow to be deducted from rent monies collected.

3. Disbursements

Those little extras might need adding in, for example mileage and travel, and any stationery and processing costs like applications and reference checks. Often they’re small, but can add up and be a pain to individually pay and resolve.

4.  The Little Extra Services

This is where things can heat up, all the additional services that add up. They range from taking an Inventory or Schedule of Condition, to dealing with any lease renewals in future. If the property becomes vacant there may be a charge, and if the landlord sells the property to a tenant.
 
Application charges can also exist, maybe direct from a landlord or managing agent dealing with a tenant’s request to, say, assign the lease or carry out alteration. With residential property a lot of agents charge a vetting and setting up fee to potential tenants, which although may be their cost this can deter interest in the property.

5.  Setting up Tenants 

This verges more on the lettings side, but this can involve property managers as well. A lot of initial vetting and then setting up of tenants, and even contractors, may be required and need remuneration.

6. Property Management Boundaries 

As you bumble along with a property management service, just clarify the remit of the property manager and how this can affect costs. So they may have an automatic spend limit for emergencies, and call-out charges or administration fees for handling.
 
There can also be hidden costs as well, for example a fee for arranging building insurance, or even instructing themselves as a contractor and earning from this additional service.  

7.  Long term Changes

Check for any charges over time, typically every year or two. There may be an uplift in line with say RPI increases in the economy, or based upon performance. 
 
Also clarify how things are charged at the end of the service, including return of any overpaid monies.   

Totalling the True Property Management Fee 

In short, look at all possible scenarios and services involved, and then carefully quantify this over time. This will then help you agree whatever basic one-off or ongoing percentage level in order to make sure it’s fair for both the property management company and the client.
 
Although these levels can appear high at first sight, do still consider as the value and service can be more beneficial than some seemingly too good to be true cheaper offer. There’s a lot that will go on behind the scenes with good property management, and the focus is to get all this correctly identified and then costed. 

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