You hire a property management company to look after your income properties and take care of your tenants and oversee the maintenance of these properties. However, in order to ensure that you are getting value for your money, you need a clear understanding of the fee structure and the services provided for the fees. Understand that there is no guideline or laid down standards for the charging of these fees and that they vary from one company to another. You may be offered a package of services for a particular fee or a range of services each with its own fee. Here is a sampling of the fees that property management companies generally charge and the associated service:
Commission on rent: all property companies generally levy this charge. It can well be a percentage of the monthly rent that varies from 3% to 15% or a monthly flat fee. The charge is remuneration for the property management company for undertaking the responsibility of overseeing the property.
Up front or setup fee: this fee compensates the property management company for making all the initial arrangements and the costs associated with finding a tenant. In other words, this is the reward for finding a tenant. Some companies require this fee paid upfront before they start work. Once again, the basis of this charge varies but can be as much as one month’s rent.
Advertising costs: these could be borne by the owner or the property management company or split according to an agreed percentage. If he property management company bears the expense (because they are charging a setup fee) make sure that you are happy with whatever they are proposing. There is little point in letting your property lie vacant she because somebody tried to cut corners on advertising.
Markup on maintenance: you should check whether the contract calls for markup on maintenance initiated by the property management company. This is normally a percentage on the bill and charged whether the company uses outside vendors or handles it in house. For instance if an electrician charges $500 for a particular repair and the agreed markup is 10%, you would be charged $550 with a property management company pocketing the difference.
Lease renewal fee: every time the lease for a tenant is renewed, a property management company normally charges a flat fee for their efforts and to cover documentation and communication costs.
As you can see, property management companies many widely in their methods of charging fees and you therefore need to be clear on the details. They will naturally try and charge what the traffic can bear and it is up to you to read the fine print in the contract to make sure that you know exactly what it is going to cost you. At the end of the day it is up to you to decide what is suitable for you but remember that in trying to save a little money, you may end up with a totally unsuitable property management company.
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