Can I afford a property manager to manage my rental, how much is this going to cost me?
One of the first questions most landlords ask when they are tried of dealing with tenants, or thinking of making changes to their rental property is…. “How much would it cost me to hire a property management company in Columbia?” The answer is, it depends! There are a number of things that factor into how much a property manager costs, but two major variables are service and how much the property rents for.
Not all Columbia property management companies are equal. The level of service and experience between property management companies differ greatly. Asking how much a property management company costs is much like asking how much a car costs. There are such a vast number of different sizes, makes, models, uses, and amenities to choose from that make that question difficult to answer. Perhaps a better question to start may be, what services am I looking for in a property manager?
As with the example used of different kinds of cars, property management companies provide different levels of services and even service a variety of different needs. Some companies provide only tenant placement and then turn over the day-to-day management, rent collection, and maintenance to the property owner. Others provide what is known as full service management where the property management company provides all services related to the property, freeing the property investor of any day-to-day duties. However, even within full service property management there are drastic and important differences in the level of service, care, and communication experienced between companies. Investors must ask themselves what level of service, time and personal involvement they expect and are comfortable with for their investment property.
Attached at the end of this article is a simple worksheet to help you determine what services are most important to you. Using this worksheet will greatly assist you in choosing a property management company that best fits your personal needs and situation.
There is really no replacement for experience when it comes to choosing a property management company. Companies that have been in business longer are more stable and are generally able to respond to the ever-fluctuating needs and varying situations for each property. A frequent sign of less experienced management companies often discounted service fees. Two major challenges often exist with these companies: 1.) They lack the staffing, tools and resources necessary to provide the level of service that should be expected from a full service property management provider and 2.) Because discounted pricing models have historically been proven over and over again to be unsustainable, these discount providers are often short lived in the industry.
Standard Industry Cost in Columbia
There are as many different pricing structures and there are property management companies in Columbia. However, here are a couple of different general pricing structures and the standard fees that could be expected.
Performance based – This is Real Property Management’s preferred pricing structure, when you only pay when your property manager has actually done what they said they would do. Our fees, for example consist of the following:
- Tenant placement/leasing fee = 50% of the first months rent. This fee is charged once, anytime a new tenant is found for the property. There is generally no out of pocket expense to you the home owner, as this fee is simply taken from the money collected from the tenant. This fee pays for all of the advertising of the property, showings, dedicated leasing agent, applicant screening, lease signing and move-in of the tenant.
- Management fee = 8%-10% of the rent collected. This fee is charged monthly based on the rent that the tenant pays. If the property is vacant or the tenant fails to pay their rent, this fee is not charged.
- Lease renewal fee = $100. This fee is charged only when the tenant in the property renews their lease agreement.
Flat fee – This model is often used by many discount property management providers. Set prices are offered for services provided. These fees are often charged whether rent is collected or not. Because this fee structure is not based on performance, there is little to no incentive to reduce tenant turnover (an investors #1 expense), rent the property quickly, at the highest price possible, to good tenants who pay their rent on time, take care of the property, and stay a long time. Fees that can be expected differ per company and could include and variety of the following:
- Set-up fee = $250-$500 when you first choose to use their services. This fee sometimes replaces the leasing fee and is charged whether they find a tenant or not. If the company fails to perform they have been paid up front.
- Tenant Placement/leasing fee = $500-$1000 each time a new tenant is found.
- Management fee = $75-$125 per month. This fee is often charge whether rent is received on the property or not.
- Lease renewal fees = $50-$150 each time a lease is renewed.
- Annual fees = $50-$150 each year at the time your agreement renews with the company. This fee is again another example of fees that are charged unattached to your success as an investor or their performance as your property manager.
Hidden charge model – This is another tactic used by many “discount” property management companies. These charges are often labeled as “expenses.” This is generally used to allow a low service fee to be advertised and pitched to potential clients in order to hide the true cost of management. Companies charging their clients in this way should always be avoided. These fees could include:
- Advertising expenses = $200-$300 charged any time the property is marketed for rent. This “expense” is often charged to make up for the perceived discount on the leasing fee.
- Application screening expense = $25-$50 anytime an application is processed to fill a vacant property.
- Maintenance coordinating expense = $25-$50 anytime maintenance on the property needs to be coordinated.
- Property turnover expense = $200-$500 charged each time a tenant moves from the property. This is often charged whether the management company finds a new tenant or not.
It is crucial to understand all potential expenses, hidden fees, and how the property management companies charge you for managing your largest and most crucial investment. Take time to interview them, and ask the right questions to gain understanding on the full cost of what you are getting yourself into!!
You can never ask too many questions when you are considering having someone care for your investment!