When you purchase real estate for investment purposes, you may choose to rely on a property management firm to handle the day-to-day details of your property. However, these important services don’t come free. In fact, there are many different expenses associated with property management companies. To know what to expect prior to hiring a property management firm, here are four expenses you should expect to encounter along the way.
While not every property management firm charges this fee to property owners, most do. If the company you select does, expect the fee to be around %500. As for what you get for your money, it often includes costs incurred by the property management company to inspect the property, as well as any costs it incurs to make tenants aware it will be in charge of day-to-day operations.
Once you have paid the initial setup fee, the next expense you’ll likely encounter will be the property management company’s monthly management fee. But before you sign the contract, always make sure you fully understand what is involved with this fee, particularly how it will be structured. For example, one company may simply charge a flat fee each month, while others may choose to base the fee on a percentage of the rent. Since this can make the fee vary tremendously from one company to another, shop around and ask plenty of questions.
Though many property management companies include potential maintenance and repair fees, it typically only covers basic maintenance such as replacing vent filters or replacing light bulbs and fire alarm batteries. When it comes to maintenance and repairs of your property, you may receive plumbing damage, leaky roofs, or even appliance failure. For these types of repairs, property managers may pass the hard cost to you with an added percentage of that cost. This is typically outlined in the contract but it may be a good idea to ask the property management company and other management companies in the area how often and how expensive that fee typically is. They may even give you an estimate based on the age of your property and appliances.
To place tenants in your property, the property managers will usually charge you a fee that’s equivalent to one month’s rent. Included in this fee will be such things as advertising costs, preparing the lease agreement, screening tenants, move-in procedures, and other related costs. Also, should a tenant be evicted or break their lease early, the contract may specify this fee is to be refunded to your property manager. Some property management companies also recommend a welcoming package that may include a special gift, welcome or moving assistance for tenants. These packages will likely be based on the number of rooms or the number of tenants moving in and the cost of these packages will likely be passed onto you.
Finally, if you decide you are not satisfied with the property management company you chose and sever ties with them, your contract may have you paying an early termination fee. While in some cases you may only be required to pay one month of management fees, other situations may allow the property management company to sue you for breach of contract.
Since you want your real estate investment to pay off as much as possible, carefully examine any and all expenses associated with hiring a property management company. By doing so, you may save yourself thousands of dollars and plenty of legal headaches in the long run.