Picking a property manager is kind of like picking a resort for your next vacation. Pricing runs a spectrum, from the all-inclusive, where you can kick back and relax without having to worry about whether that dinner is putting you over your budget, to a hotel where food, drinks, and everything else is paid for separately.

One isn’t inherently better or worse than the other. However, understanding which is being offered as you interview property management companies is critical. The last thing you want is to think it’s an all-inclusive, only to find a list of ancillary fees when you look at your owner statement.

With an all-inclusive, the management company will wrap all its services into one or two fees. Usually, a management fee and a lease fee. The services they provide are covered by this simple fee structure.

On the other side of the spectrum is the low-cost model where you’re charged a lower management fee then ancillary fees for additional services. Then there’s a hybrid of the two where pricing falls somewhere in the middle and there’s a few extra fees.

Understanding which option you’re signing up for will help reduce frustrations down the road when you have fee expenses deducted from your rent income.

All-Inclusive

We’ll start with the simplest – the all-inclusive. With this model, you’re likely getting charged one or two fees – the management fee likely a lease fee.

The Management Fee is usually a percentage of rent or flat fee that goes to the management company to cover monthly management activities like collecting rent, managing expenses and interacting with tenants.

The Lease Fee, sometimes called a Tenant Placement Fee, can be a percentage of rent or flat fee that goes to the management company each time they lease your property. It covers expenses like marketing, showings, screening, lease preparation and move-in walkthroughs.

Some companies may not charge a lease fee at all. In this case it’s important to understand that the management fee is covering all the activities around leasing the home.

Say the management fee is $200/month. All the hours required to market, show the home, screen applicants and document the condition of your home is provided for $200. When you start considering the price per hour, you’re either paying very little per hour or there’s very few hours being put towards leasing. It’s important to align expectations and understand the level of service you’ll receive is likely proportionate with what you’re paying.

Lower Monthly Cost + Ancillary Fees

Next, we’ll jump into the other side of the spectrum. The lower cost management fee that uses ancillary fees to cover services outside of the minimum monthly activity, like rent collection.

Here’s some examples fees that may be charged.

Owner Paid Fees:

• Management Fee
  The cost to collect rent, interact with tenants and potentially some other services.
  Typical Cost: 5%-10% of gross rent.
• Lease Fee
  The cost to find, screen and place a tenant.Typical Cost: 25%-100% of one month’s rent.
• Onboarding or Set Up Fee
  This is usually a flat rate charged to get you set up in the company’s system. Typical Cost: $100-$300
• Marketing or Advertising Fee
  Some management companies will charge a marketing or advertising fee or pass through advertising costs directly to you. Others incorporate marketing expenses into the lease fee (like we do). Typical Cost: $100-$200
• Maintenance Fee
  The maintenance fee is usually coined as a ‘maintenance markup’. For example, if it’s $500 for a plumber to come out, the management company tacks on a maintenance markup, so your final bill is $550. They do this because they’re charging less for the management fee, so coordinating maintenance is essential viewed as an additional service. Typical Cost: 10% markup of all vendor invoices
• Vacancy Fee
  Some management companies will charge a fee when the home is vacant or apply management fees even when there’s no one paying rent.
• Lease Renewal Fee
  If a tenant’s lease is going to expire, and that same tenant wants to extend the lease for another term, companies will often charge a Lease Renewal Fee, to extend the lease for another term. Typical Cost: 10%-25% of one month’s rent.
• Bill Payment Fee
  Some management companies will have a fee charged for recurring bills that are paid through them, like utilities or HOA. Other’s may not offer these services. Typical Cost: Flat Fee
• Inspection Fee
  A property management company may charge you to do inspections of the property. This inspection fee is not to be confused with the kind of inspection you’d get when you sell your home. This is a walkthrough, typically by a manager or maintenance person, to identify obvious maintenance issues. Of all the ancillary fees, this one makes the most sense because they’re expending additional time to schedule, drive to the property and inspect it. Typical Cost: Around $100
• Other contractual fees
  Late payment fees, NSF fees, and early termination fees are a few that fall into this bucket that may be applied. Cost Varies

Tenant Paid Fees

There is a whole other list of fees that tenants may pay. As a property owner, you may be thinking “Great! It’s not coming out of my pocket”, but it’s important to know what fees the tenant is getting charged since their budget likely includes all fees and rent.  If they have a budget of $2,000/month but there’s fees of $100/month, then that can cut into the rent they can afford to pay you.

• Application Fee
  This is a very standard fee that property managers charge to Applicants to process the application. This covers the cost to buy credit, background and other reports as well as the time needed to verify items like employment and rental history. In some cities, like Boise, the application fee is capped. In Boise, applicants cannot be charged over $30 for an application fee.
• Administration Fee
  This is usually a flat fee of a few hundred dollars to cover the administrative costs of the lease process. A manager may reduce the required security deposit by the amount of the administration fee. So, if the home is renting for $2,000, it would be common to collect a $2,000 security deposit. However, with this structure a management company may say that there’s a $300 Administrative Fee (non-refundable) that goes to the management company and a $1700 security deposit. It’s not a big deal to the tenant because their out-of-pocket cost is the same. However, it’s relevant for the owner to know because you’ll have less security deposit dollars to utilize to cover damages. It’s also important to understand if the administrative fee is getting charged in addition to a lease fee which is paid by the owners.
• Pet Fees
  This is a fee that’s paid by the tenant for the ability to have a pet in the home.
• Lease Preparation Fee
  If an applicant chooses to move forward with a lease, they may be charged a lease preparation fee to cover the time it takes to write the lease.
• Resident Benefit Package
  Also called the RBP, this isn’t a fee but we’re including it in the list as it’s an additional tenant cost that may be required by the management company. This is usually a flat price that a tenant pays monthly in addition to rent. In exchange they’ll receive benefits like HVAC filters sent to them quarterly, on-time rent payment reporting to the credit agencies, and identity protection.
• Lease Renewal Fee
  Some companies may charge tenants to renew a lease instead of or in addition to an owner lease renewal fee.
• Contract Violation or Adjustment Fees
  Companies may charge tenants a variety of different fees if they violate the lease or want to make adjustments to it. They may charge the tenant a fee for late rent payments, returned checks, or HOA violations. They also may charge tenants for changes to the lease, like adding or removing a roommate or cosigner. These fees cover the additional administrative efforts required to manage or resolve the issue.

So… which is best?

One of our favorite quotes about property management pricing come from Grace Property Management in Denver.

“The most expensive mistake a real estate investor can make is a cheap property manager.”

As you look for a management company do your due diligence. What property managers do is very similar company to company. They’ll lease and manage your home. What varies is how they do it.

If you want a hands-on manager that’s going to put more time towards managing your home, you’ll likely be looking at a company on the mid to higher side of the pricing scale. If you’re fine with more automation (like self-showings where interested parties let themselves into the home to tour it), then a lower cost company may meet your expectations while saving you money.

Ultimately, it’s up to you as the property owner to determine which rout is best for your personal preferences and situation. When interviewing property managers, be sure to ask what other costs or you’re you may incur when working with them. Doing your due diligence when interviewing property managers can help you understand which pricing model you’re getting and reduce future frustrations.