Typically, the property manager is paid for tenant placement, ongoing management, or both. Tenant placement is generally a one-time fee ranging from 1/3 to a full month’s rent. Ongoing management is paid every month and is normally 5 to 10% of the rent charged. However, sometimes there are hidden fees or other junk fees that the admin can charge.
Profit from repairs
Property management companies may have their own internal repair and maintenance division or a sister company. Your primary business may not be property management, but repair work. They can charge outrageously high hourly rates for repair and maintenance. They can also mark the materials without giving you other options to choose from.
Often times, you may not be allowed to use another contractor. Worse yet, they find unnecessary items to repair or replace for a huge profit at their expense. Be sure to negotiate these services and make sure they are included in the property management contract. If not, skip this company and look elsewhere.
Additional charges when vacating the property
There are property managers who are not paid unless the property is rented. It gives them an incentive to rent your property as soon as possible. Some companies charge you even when the property is vacant. Some charge the same rate as when the property is rented, while others charge reduced rates.
On top of that, they charge you a fee to find a tenant. Even if the property manager claims there is no charge during the vacancy, there may still be a problem. A new tenant of a friend of mine moved in on October 1 and the house was vacant in September. However, your property manager still charged you the full commission for September. The reason he gave was because the lease was signed in September.
Late Payment Fee Policy
Some property managers charge the full late fee or the insufficient funds fee. They argue that collecting late payments requires additional work. It is true up to a point; but it doesn’t make sense for them to benefit from it. This is especially true if those fees are set at a fairly high amount in the lease.
You may be wondering if the manager is trying to make an easy profit by charging such fees. Also, they are the ones who recruited the tenant in the first place! Splitting fees between the owner and the property manager, or limiting what the manager can keep to a certain amount in a given year, seems more reasonable and fair.
