If you are just started thinking about investing in real estate properties, you still have many things to prepare and to consider. The first thing you need to consider is your readiness involve in property investment. And, of course, your knowledge about property investment and mind-set.
If you think you are not yet ready, then just do not do it yet in a rush until you educate yourself about what you are about to embark on. If you feel you are not confident, that may even be a sign that this business is not yet suited for you. Not to forget, real estate is expensive, and if you do it wrong things can go haywire.
Investing in real estate does not go to stop after you purchase one investment property. Another thing to consider is the money involved in the costs and fees of your rental property management, which of course is a different amount from the needed money in buying the property.
These considerable things in managing property rentals may include, but not limited to the fee for a property manager, insurance for your property, maintenance and many much more. We will be discussing them one by one in this article so that you will have an idea of how much to prepare for the management of your property.
The costs and fees may differ from one property manager (rental managers) to another, but I will give you the things that may affect these costs.
However, let us first discuss what these things are so that you can have an idea of the things you need to pay for.
Tip: This article explores why it is not a good idea to manage tenants in your rental property by yourself.
Rental Property Management Fees
The fee that property managers collect is affected by many factors. These factors dictate the fee that every property rental manager will ask you. Some of those fees and factors are the following:
1. Monthly Management Fee
Unlike you are planning to manage the property alone by yourself, if you are planning to hire a property management company, you have to prepare for the monthly fee, which is commonly known as ‘management fee’. Some property management companies may even ask you for an initial fee before the work starts. Not all company asks for this initial payment though.
The fee that property managers collect is affected by many factors. These factors dictate the fee that every property manager will ask you.
Some of those factors are the following:
- The size of your rental property.
Of course, the bigger the property to manage and its complexity, the bigger the rate for the property manager because there is more work for them.
- The type of property to manage.
There are many types of properties. There is an apartment, a condominium, a commercial space or office space and many more to name a few of them.
For those properties that would be easier to manage, the fee that the property manager collects would be less than those who will manage the bigger and harder to manage. As a rule of thumb, property managers charge more for managing commercial space.
- Location of the property.
You would find paying property manager less amount of fee if you will hire a property manager that also lives within the area of your property. For example, your property will be located in a sub-rural area yet you will hire someone that is from the city or based in another area; therefore, you need to pay him more for any other allowances like transportation allowance or even his food allowance.
- The condition of the property to manage.
The better the condition; the easier it is to manage. This will also give you a less payment rate for a property manager that you will hire.
- Additional services offered by a property manager.
To be a property manager does not only mean that they are just responsible for collecting fees for those who are renting. They can do many more rather than that. They can offer you additional work for an additional fee. For example, organizing property maintenance or attending tribunal hearings…etc.
Some property managers will ask for a commission or additional fee for finding a tenant for the property and if that tenant decided to renew their tenancy agreement annually for a few years. However, both sides must agree on it before the work is given to the property manager.
2. Maintenance Fee
To assure that your property will have tenants, it should be in good condition. To do this, you need to have someone who will maintain its condition. In most of the cases, it’s become Rental Managers duty to coordinate ‘tradies’ and contractors for maintenance calls, make sure if you have not already agreed for such service your rental manager can charge extra for organizing and attending to those maintenance issues.
The things that you need to pay for the maintenance as follows:
- Repairing Fee.
Every property undergoes some repair when there is a part of the property that has been damaged and needs to be fixed. You might need a carpenter, a plumber, an electrician, a painter or any other tradesman that will repair your investment property. The payment will vary from one worker to another.
Except for the fee for the workers, you might also need to prepare for the materials that are to be used for the repair.
- Fee for someone who can maintain the cleanliness of the surrounding.
Hiring someone who can maintain the cleanliness of the property as well as assuring that there is no unwanted mess around the property is important too. They may include cleaners, janitor or a janitress, garbage collector, hard rubbish collectors, gardeners, lawnmowers, and someone who can remove leaves and snow.
3. Insurance Fee.
Anyone who has property wanted to ensure that his or her property is insured.
In this case, whatever happens, the property owner will have peace of mind that he still has something to be left for him. However, not all policies are the same. One of the best insurance that you can get is property owner insurance, which is also known as Landlord Insurance. It covers not only the damage to the property but also the contents of the building and any damage to it by the tenant, including rental losses. It may cost you more money, but you can have a sound sleep at night thinking that everything would be fine.
4. Advertising/ Marketing Fee.
In managing a rental property, one of the most common challenges is finding tenants. You can make some things that will make your property known to the public through advertising. This can be in the form of flyer, signage or tarpaulins. If you have a few rental properties to be rented, then you might consider advertising on radios and televisions. They have a larger number of followers that can hear and know your property.
However, our experience to date suggests there is nothing effective that online internet-based advertising rental properties. Strange enough, some residential properties are quickly tenanted through Facebook advertising too.
5. Vacant Unit Fee.
When you are hiring a property manager to manage vacant units, then you have to pay them a specific amount based on the agreed amount, even the property has no tenant. Some property management may charge you a little or even not when the unit is vacant, while some charge regardless if the property is vacant is not.
Tip: our recommendation is for you to make sure that property manager can not charge you monthly fee for the period where the property is vacant, while they go through the advertising and tenant selection process.
6. Tenant Replacement Fee (Tenancy renewal fee or reletting fee).
Not all things stay. Same with tenants, they may come and go, and sometimes more regularly. Once they go, they need to be replaced so that you can sustain and the property will keep bringing you income. Some property management company asks for a fee or commission once they found a replacement of the tenants. This is called letting fee.
When the same tenant decided to renew their tenancy agreement by another year, then a re-letting or tenancy renewal fee is charged by most rental managers.
Usually, the reletting fee is lower than the letting fee because there is no advertising effort involved in that case.
7. Fee for Evicting Tenants.
There are times that you will find some tenants that are hard to work with. They have different reasons and excuses. Some are valid, and some are just giving reasons just not to pay their responsibilities. Some even could steal from you and damage your property. Not to forget there are many incidences of using your property for illegal missions. For example, for prostitution or growing illicit drugs.
To get rid of them is nothing more than important; however, the process would be very long and hard. The property manager is the best person who can attend Tribunal or Court hearing as the first person interacted with such tenants.
However, the downside is that the Rental Manager may ask for a fee for them to evict these kinds of tenants. Plus, for attending court hearings.
8. Collecting Late Payments Fee.
Some tenants can’t pay at the exact date of their payments but don’t worry because property managers are on your back, but sometimes you need to pay them (property manager) by every late payment that they have collected.
9. Miscellaneous Fee.
Some things may come unexpectedly. Some property management companies pay for it in advance and reimbursed it to the investor after a while. These may include an unexpected inspection fee, emergency kits or any other important things to be considered for your property. Some rental managers even charge for photocopies and postage costs under this category.
Tip: we have covered Characteristics of Successful Real Estate Developers and Property Investors too.
How rental property managers charge?
Not all property management fees are charged by property management that you have hired. It depends on if all the property management is included in the scope of work of the property management company. To know it, ask your property manager to give you a breakdown or complete lists of the things that they can do and how much they charged for every service.
There are three ways that rental managers get their payment; the commission-based payment, the flat-rate pay and the flat-rate pay plus commission fee.
1. Commission-Based Pay.
This is the most common way of charging the fee for property management. This is charged based on the weekly or monthly gross income of property rental. As I have said, not all property management is included in the package given to you by the property management company that you hired. Most often than not, they are asking for a lower commission rate if they have lesser work to do.
If you think you can do some of the work of property managers, maybe you can consider doing to lessen the fee that you are going to pay for a property manager.
2. Flat-Rate Pay.
This is what another property manager asks for property investors. For them, it more profitable if there is a fixed rate, especially if the property to manage this not a big or complex one.
3. Flat-Rate Pay plus Commission.
There is some arrangement of investors and property managers that the manager will be paid at a fixed rate and will be given a bonus, which is a commission for every successful tenant that they will get for the property.
Real Estate Management Tips for Investors to Save on Property Management Fees
To ensure that your investment will be successful, you need to build the best team. Of course, you will act as a leader. Paying for property management fees will weigh a little bit heavy if you will allow all the work in your property manager. More work means more fees to pay.
I have gathered here some of the tips that you can do in order to lessen a little more your expenses for property management. Please be remembered that these are just tips. It still depends on you if you are going to try it or not. And of course, they will also depend on the type of rental properties you own.
1. Plan ahead of time.
Planning is the best way to foresee future problems or future progress of your investment. You can do the planning and only guide the manager of the things that he needed to manage.
2. Do your part.
There are many property management things that I am sure you can do. If you are just starting, why not try doing it for yourself. In that way, you can be on hand of your property as well as you will know how managing the property works. For example, you can take care of the gardening, if you enjoy doing it and save that cost. Also, you can independently take care of property maintenance side of things and negotiations with the tradesmen.
Tip: Do you know How To Set Up Your Own Website For Free?
3. Be a good decision-maker.
There are things that you need to make decisions. You have to weigh choices. Through this, you will easily know which the best choice to choose is. You can use this characteristic in managing your property. You can choose to manage yourself, or you can choose to hire a property manager. If you want to manage it alone, then you need to be a good decision-maker. However, we do not recommend managing your tenants by yourself.
4. Choose the best-rated property management company who offers reasonable charge.
Top-rated Management Company may cost a little higher than the individual property manager ‘experts’ may, but since they have good ratings, then you may conclude that they can give your investment a good result.
The starting rate might shock you a bit, but the result they can bring may prove the value they bring to the table. It is like buying an original shirt vs buying something ‘cheap’ which eventually shade-off and end up in the bin within a few weeks. It may be more expensive than the ‘cheap’ one, but you have the assurance that it has better quality and it will last longer.
5. Have good communication with your property manager.
Having open communication and a good working relationship with your manager will be of great help. When you have regular communication, you can talk about the property’s problems that needed to be solved. In this case, you can prevent the problems that may arise between you and the tenants, as well as with the rental manager. Through timely honest communication with the property manager, you can be sure of the quality service you/property manager can offer to your tenants to keep them content as well.
Is It Worth to Pay for A Property Manager?
Not all investors are hiring a property manager, especially if they have only a small unit to manage. In that case, they prefer to manage it themselves rather than hiring someone that they need to pay. Through this, they think that they can save on their expenses but what they did not know is that they cannot save hiring a property manager, but they can earn more through their help. And, of course, have a better mental peace, by maintaining a reasonable ‘distance’ from the tenant.
Hiring a good property manager cannot just lessen your work, but they give you more profit in your investment. However, of course, deciding and looking for the best candidate will not be that easy. There will be times that you cannot see the best one in the first time, you look for him but eventually when you are knowledgeable in the field, you will know who the best candidate is.
For this, I must say that hiring a property manager is worth it when you found the perfect fit for you. As I have mentioned earlier, you have to pay first before you gain from their expertise. You have to treat them as good as possible because they can be the key to you being one of the most successful real estate property investor.
So, How Much a Property Management Process Costs?
Again, the answer to this question is “It depends”.
It depends on what? It depends on many factors. These factors may include the following:
Things that May Affect the Costs and Fees of Property Management
It may cover up the following things:
- Size of the property
- Location of the property to be rented
- Type of Your Property (residential, commercial, warehouse, land…etc)
- Targeted market (under average vs average vs luxury high-end)
- Condition of the Property (heritage-listed, old, reasonably new vs brand-new)
- Commission on the Income of the property
- The Extent of Service Provided by the Manager.
How Are These Fees Charged?
Does commission pay it, or you have to pay your property manager or property Management Company in a flat rate
These are just some of those factors that I can give to you, but sure, there are lots more than these are. They can dictate the fees that you should pay for the property manager. Nevertheless, we have to keep in mind that whatever the price that we need to pay for a property manager, the best part of it is that we can make sure that our property is properly managed and there is someone in our back who can support us when it comes in managing our investments.
These things can prove that hiring a good property manager is one of the best strategies for growing your investments. Yes, we will pay them, and it means that we need to give another bunch of money from our pockets but who knows how much more of this money can they give back to us? For real estate investors, putting up your hard-earned money into this investment is a big risk the same as hiring a property manager, but I have many says that to be a good investor, you have to be a great risk-taker.
Whatever your decision will be, the success and the failure of your investment depend on you. That is why, as mentioned, every investor needs to be knowledgeable and a good decision-maker. No one is ever responsible for your success rather than you. If you are hiring a property manager, he will be just one of the key factors of your success.