How Much Does Property Management Cost?

How much does property management cost? If you plan to use real estate as an investment tool, you should know that property management typically costs about 8 to 10 percent of monthly rent, plus leasing fees.

Gary Knippa, owner of Knippa Properties in Austin, TX says that "Property management typically runs 8 to 10 percent of the gross monthly rent, and there is a leasing fee that typically runs 80 to100 percent of one month's rent to get the new tenant in a property." This 8-10 percent covers all of the services that the property manager will be providing (advertising, screening tenants, filing evictions, procuring vendors and contractors, enforcing lease agreements, etc.) Every month, the monthly fee will be deducted from the rent revenue that you have received that month. The property management company will pay you the difference, usually no later than the 15th of the month.

Along with your rent check(s) you will receive an itemized report stating all revenue, deductions, and expenditures incurred during that month. If repairs were done on any units during the month, the repair costs will be deducted from your allotment as well and you will typically receive a copy of the invoice showing the actual work that was done and the costs of that work. At the end of the year, the property management company will also provide to you an end of the year statement and 1099 form to use for your tax purposes.

As stated earlier, the landlord is responsible for paying all maintenance costs in addition to the monthly fee that the property management company charges. In order to keep these costs down, many property management companies use independent contractors, hire multiple companies for work assignments and negotiate for lower prices. In addition, they will typically contact the owner when the cost of a repair bill is going to exceed a certain amount of money before they proceed with the work. In some cases, the property manager may require you to make a deposit ranging from approximately 500-1000 dollars, which will be placed into an escrow account and only used in the event that an expensive emergency repair needs to be made. This deposit is usually refunded if no such emergency occurs or if the landlord cancels the property management agreement with the company. The landlord only pays for the amount that the actual work costs, and not any other additional "repair" fees.

The monthly surcharge that the property management companys charge is a very small price to pay for the added convenience, marketing, and profitability. By securing a property manager, landlords can pursue other endeavors and business interests, instead of having to be on call for their tenants 24/7. In addition, property management companies can often leverage their size and bargaining power to get such services as maintenance, extermination and advertising at a much lower price than what you could get on your own, thus saving you a great deal of money.

Furthermore, most professional property managers are very experienced in finding and screening applicants and tenants, so your available apartments spend less time vacant-which saves you money. By reducing vacancy and turnover, negotiating for better prices and taking care of many legal and administrative matters, hiring a property management company can save you a great deal of time and money in the long run.

© High Speed Ventures 2011