You’ve committed to purchase a rental property or rent your house. Congratulations! Panic and a looming question follow your short moment of elation.
“How will I manage my new rental?”
Correctly managing your property will take 40+ hours of your time every year, and that’s just one property. Do you know how much your time is worth? If you are one of many investors who hold more than one rental, the hours can quickly add up with the time it requires to promote your properties, find tenants, and manage the day-to-day maintenance and communication, not to mention counseling the tenants about their personal problems. Hiring a property manager can be an efficient way to both protect your time and maintain your property.
What will it cost to hire a property management company?
When you hire a property manager, you are paying for direct labor, marketing, and administrative services. Direct labor is your property management company’s most significant expense. It covers the people part of your business that responds to tenant inquiries, handles maintenance, and answers your requests as an owner. Shopping by price alone cost could mean fewer staff hours to look after your property and tenants.
Property managers fall into two monthly fee categories.
Flat-Rate Management Fees
In the flat-rate fee scenario, you pay a flat monthly fee. While this is a mass-marketed option, many times the actual property managers are located in an office out of state. When offering lower than market fees, the only way this type fee structure can remain profitable is to eliminate the local property managers. Management from afar will translate into a lower level of service, higher comprehensive costs due to a lack of local knowledge and availability and may turn into more work for you. The last thing you want is to go with the cheapest option, and then find out that the property managers have never actually seen your property in person, have not been responding to tenant’s requests or keeping up with the maintenance. It can cost you tens of thousands of dollars on the back-end to repair what should have been noted in person.
Flat-Rate Fee at-a-glance:
- Less expensive monthly rate
- Higher leasing and renewal fees
- Save money on the front-end
- Typically round numbers for marketing purposes only
- Less collaboration and personalized service
- Property managers are typically out-of-state
- Plan to have a more hands-on approach to ensure preventative maintenance is done
Percentage-Based Management Fees
In the percentage-based fee scenario, you pay your property manager a percentage of your rental rate. The rate will depend on factors such as how competitive your local market is. A typical rate for Austin is 8 – 10%. While this can appear more expensive than a flat-rate fee, you are working in tandem with your property manager. Like the adage, “a rising tide lifts all boats,” the more you make, the more they make. A percentage-based fee enables a more collaborative relationship and overall better service. Local boots on the ground will give you peace of mind that they are managing your property well, from Austin.
Percentage-Based Fee at-a-glance
- Could be a bigger monthly investment
- Typically less expensive leasing and renewal fees
- Collaborative approach raises the level of service for tenants and owners
- Local property managers oversee the day-to-day management
- The more you make, the more they make
- Typical monthly rate for Austin is 8-10%
Which type of property manager is right for you?
Making the best decision on which type of property management company to hire, involves figuring out what level of service you need from your property manager. Be sure to look at all the details, not just the surface.
Owning investment properties should be an enjoyable, money-making venture! Enlisting a property manager is an excellent first step in ensuring you get a good ROI on your property investment.