Real estate investors who want to enjoy the financial benefits of owning a rental property but don’t have the time to manage it can consider hiring professional property management services. This gives investors the chance to delegate nearly all the tasks and challenges associated with rental property management. On the flip side, the investors must pay property management fees to ensure that the property manager keeps the property in good condition for your tenants.
So if you’re thinking of putting your rental property in the hands of a third party (property manager), one of the most important things to consider is whether the property management fees are worth it. It’s equally important to evaluate the overall impact of the expected property management fees on your real estate venture’s cash flow. This is more than just choosing the company charging the lowest property management fees. You must take into account the long-term benefits as well.
Who is a property manager?
A property manager manages all aspects of your property, including maintenance, repairs, tenant screening, leasing, accounting, marketing, etc. The term can be used interchangeably with property owners who are not necessarily licensed professionals.
A property manager may have an office where they work full-time while others manage their homes part-time. Some managers even hire employees to help them run their business. Remember, different property managers charge different property management fees.
Common property management fees
How much do property management companies charge? This is a common question among many landlords in Canada. The property management fees depend on many factors such as location, size of the property, property type, the number of rental properties to be managed, the condition of the property, and the scope of the property management services provided. Here are some of the property management fees you should know
1. Management fee
This type of property management fee is charged monthly and calculated as a percentage of the gross rental income collected from your tenants. The management fee is usually the most significant portion of the gross property management fees an investor is asked to pay the property manager.
2. Leasing fee
This is the fee charged at the beginning of tenancy for placing new, qualified tenants on your property. The property leasing fee often ranges between 50 percent and 100 percent of the 1st month’s rent. The fee covers the cost of advertising the rental property, tenant screening, executing the lease, and moving the new tenants into the property.
3. Lease renewal fee
Once a lease term ends, the property management company can renew the lease with tenants or move them out. At times, the may be a specific increase in the rental price or various changes in terms of the lease. The lease renewal fee is an important component of the property management fees you must evaluate before hiring a property manager.
4. Property maintenance fee.
Generally, a property maintenance fee is charged whenever repairs and routine maintenance are done on your property.
Other fees
In addition to the four common property management fees mentioned, other types of fees you must consider include.
- Administration fee
- Account setup fee
- Property inspection fee
- Advertising fee
- Accounting fee
- Annual statement fee
- Tribunal fee
- Eviction fee
Is hiring a property management company worth it?
If you find that you simply cannot handle the day-to-day responsibilities of running your investment portfolio, it might make sense to let someone else take over this task so that you can concentrate on finding new ways to grow your business. After all, no one said owning a real estate property had anything to do with having fun! The benefits of hiring a property manager include:
Reduced stress: When you don’t have to worry about managing all aspects of renting an apartment yourself, you can focus on growing your business instead.
Increased profits: A good property manager knows how to maximize rents while minimizing maintenance fees. They know which areas require extra attention and when to spend money on repairs versus marketing efforts.
Get high-quality tenants: Tenant screening and placement is a complex process. If you have no experience in tenant placement and rental property management, you may want to let a professional property manager handle such tasks.
Less legal problems: You probably know that one bad tenant can cause a great deal of legal and financial headaches. Outsourcing the rental property management process to a reputable company can protect you from legal vulnerabilities and potential lawsuits.
Short periods of vacancy: A vacant rental property isn’t going to give you money. Fortunately, a professional property manager can help prepare your properties for rent, calculate the optimal rent rate, and advertise your property correctly to ensure that it doesn’t stay vacant.
Efficient rent collection: Addressing rent collection and late fees issues is an essential aspect of rental property management. Sure, property management fees can be high, but having a professional who can ensure rent is collected on time is more important.
Low property maintenance costs: Your tenants will be happy if they can access excellent property maintenance services, not to mention that timely repairs and routine maintenance will preserve the value of your property. Most reliable property maintenance companies have access to highly professional, licensed, bonded, and insured contractors.
Now that you understand the critical components of property management fees and the benefits of hiring a property manager, are these services worth it? It’s important to mention that being a landlord comes with numerous responsibilities and can sometimes be time-consuming. For instance, you must ensure timely repairs, find qualified tenants, collect rent on time, deal with tenant issues, perform timely inspections, evict bad tenants, and more. Hiring a property manager can relieve you of these duties and allow you to focus on other aspects of your property.
On the flip side, property management fees will affect your rental property cash flow. However, you still find a company that charges reasonable property management fees and still helps you meet your real estate venture’s income goals.
It’s up to you
Having a reliable property manager can help free you of property management duties and maximize your investment’s overall returns. Unfortunately, if you hire the wrong property manager, there is a good chance you will hurt your venture’s cash flow. For this reason, it is recommended to assess the service provider’s reputation, determine the scope of the property management services you need, and conduct cash flow analysis regularly. This way, you can determine the optimal property management fees to optimize your investment’s returns.
If you are new to the concept of real estate investing and have no clue of how much you should pay for property management, contact Kean Real Estate Group. We offer real estate coaching, real estate consulting, and property management services. We can help you optimize your property’s ROI even when you’re paying property maintenance fees. The choice is yours. But if you ever need help, do not hesitate to contact us.
