Investing » Real Estate » 7 Things I Wish I Knew About Property Management Hidden Fees
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7 Things I Wish I Knew About Property Management Hidden Fees

Beware of these hidden property management fees or suffer the financial consequences.
Author: Jack Wickens
Jack Wickens

Writer, Contributor

Experience

Jack is a personal finance writer who has been writing for more than a decade. His passion for educating consumers and helping everyday families earn more and live better. He is most knowledgeable with years of experience covering topics such as savings, budgeting, and responsible credit use and always happy to share his expertise with readers.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Jack Wickens
Jack Wickens

Writer, Contributor

Experience

Jack is a personal finance writer who has been writing for more than a decade. His passion for educating consumers and helping everyday families earn more and live better. He is most knowledgeable with years of experience covering topics such as savings, budgeting, and responsible credit use and always happy to share his expertise with readers.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

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Table of Content

If you own properties to let and have no experience managing them, hiring a property manager can help you secure regular rental income without the stress. However, there is a tradeoff you may not be aware of.

Hidden property management fees can reduce that amount by quite a bit unless you have an adequate inflow of cash to break-even.

Here are some of the fees you should be aware of:

1. Leasing Fees

This is one of the first fees you will be asked to pay if you want the property manager to locate, screen, and place tenants in your apartments or rental properties. This is usually 70% of the first month’s rent, but some management companies charge a flat amount of up to $500.

Why do they ask for that much money? The leasing fee covers several services that property managers offer to help you get the tenants. These include the following:

  • Advertizing your rentals whether they are vacant or about to be vacated via email marketing, online ads, and other mediums.
  • Maintaining contact with you during the leasing period.
  • Scheduling showings at your property to potential tenants.
  • Conducting comprehensive screening of potential tenants, including background checks, credit checks, past rental history, and income verification.
  • Explaining, negotiating, and signing the lease agreement to tenants.

This is far from an exhaustive list though and it may vary across different property management companies. For instance, some may hire professional photographers to take pictures of your rentals for marketing purposes and add the amount in the leasing fee without telling you.

These charges have to be paid either after a tenant is placed successfully or when the first month’s rent is due.

2. Late Fees

This is a property management fee for rentals that most management companies keep to themselves to the detriment of their clients (i.e. property owners). Late fee is a percentage of the monthly rent (5 to 10%) or a flat fee. In some states, property managers cannot charge the fee unless it is already mentioned in the lease agreement, while others may send it to their client’s account and keep nothing.

In other words, a late fee is a negotiable item depending on company policies, state laws, and the owner’s needs. However, a property management company may charge a flat fee for handling the late payment on your behalf even if it doesn’t keep the late fee in its entirety.

The best thing you can do is to tell the property managers that you will keep half of the late fee that is collected and give them the other half. This way, you will ensure you get something out of the delayed rental payments!

3. Renewal Fees

Picture this. One of your tenants informs you that they would like to stay for one more year on your property. Since everything is the same and there is nothing in the lease that says they cannot do this, you give your consent. However, when you inform the property manager about it, you are slapped with a lease renewal fee!

There is nothing you can do about it but pay up if you want the company to manage your properties indefinitely. Many property owners treat the renewal fee as a lease fee so that it will either be a percentage of the rent or a flat fee. On average, you may have to pay $200 per unit if it is charged.

That’s because, besides lease renewal, the property management company has to:

  • Conduct a marketing analysis to determine if the tenant can pay the current rental rates.
  • Create new documentation for the new lease.
  • Acquire the tenant’s signature.

The fee is usually collected from the first month’s rent as per the new lease or after a new tenant is secured.

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4. Maintenance Fees

Property management fees for apartment rentals and other properties may also include maintenance charges that are borne by the property owner. For instance, if there is a plumbing issue in a property and the property management company dispatches a plumber who asks charges $500 for repairs, you may have to pay a percentage of the amount as the owner.

This can be either 5% or 10% of the total cost of repairs which you can negotiate. Some companies have maintenance crews on hand to handle routine issues such that a portion of the labor charges per crew member and cost of material may also be included in the fee.

To make sure you are not blindsided, set a limit for a reasonable amount they can charge. This way, you may still have some money left at the end of the day.

5. Project Fees

The fees may seem unfair but not if you break down the reasons for it. Let’s assume that there is a water leak in one of your rentals which destroys all of the kitchen cabinets. As a result, you ask the property manager to hire a repairman and have the cabinets replaced with new ones.

However, in their estimation, the job is ‘project’ management rather than property management because it is not part of the agreement you signed with them. As such, you will have to pay them a percentage (usually 10%) of the total cost of the installation as well as a small commission for their service. So, if the project costs $3,000, the company will take $300 as their fee.

This is understandable because of the work involved. The company will have to supervise the handyman to ensure they do their job right and you get what you pay for.

6. Funds for the Trust Account

Every property management company keeps a specific amount of funds in a special trust account. These funds are the property of the owner, i.e. their client. This money is necessary to take care of large unexpected expenses that may crop up in any of the properties they manage for you.

Let’s say that this amount is $250 and it is kept in a bank account that is separate from the ones the company deposits the monthly rents in. If an unexpected expense crops up, the manager can simply take that amount and use it to pay for it as long as it does not exceed $250. If the work requires more money, you may have to put another $250 into the trust before work can commence.

7. Early Cancellation Fees

The worst thing you can do for your profit margin is to retain a property management company that is not doing a good job. This can be anything from failure in fulfilling contractual terms or failure in maintaining the quality standards you are paying them for. In that case, you have the right to terminate the contract but you may have to bear an early cancellation fee as well.

This can be anywhere from a few hundred dollars or as much as the management fee that is owed for the remaining month depending on your contractual agreements with the company. However, if they owe you funds you should give them prior notice so they have time to calculate how much they have to pay and arrange the amount. Some of these unpaid funds can include:

  • Leftover funds left in the trust fund.
  • The monthly rent.
  • Miscellaneous income such as revenue from a billboard or other ads.

Additionally, if mentioned in the contract, make sure that the property management company transfers all of the tenant security deposits to you or their replacement. These should be deposited in a proper bank account as per your state laws. Plus, make sure that you collect essential documents and items before you cut ties with them.

In Conclusion

This list is not meant to put you off property management companies as much as it is to give you a transparent view of costs you may have to pay indefinitely. Not every company asks for each one either. Some may waive maintenance costs while others may instill confidence in their clients by eliminating the early cancellation fee.

The bottom line is that as the owner of the properties, you may not have the experience, skills, manpower, and resources that a property management company already has. You can’t be everywhere at once nor can you take care of every maintenance issue no matter how skilled you are as a handyman.

You may end up paying more for repairs, damages, and other issues. By outsourcing these tasks to a company that specializes in managing properties on a large scale, you can enjoy financial independence without the stress. The cost will end up paying for itself in the long-term.

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