The quoted percentage management fee is rarely the only fee charged by property management companies. To calculate the fees you will pay over a year, or compare management companies to find the best deal, read the contracts carefully to understand which charges are included in the basic fee and which are extras. A property management company usually deducts its fees from rents collected and then forwards the balance to you. This can make it more difficult to dispute charges after the event. To compare fees from several companies, calculate the effective management fee of each company.
- Skill level:
- Moderately Easy
Calculate the annual fees. Companies may charge a one-time set-up fee, or an annual fee, sometimes called a maintenance fee, for each client or property. The one-time charge is likely to be higher than the first annual fee, but if you stay with the same company for several years, can work out cheaper overall. Divide a one-time fee by the number of years you expect to stay with the company to obtain the fee for each year. Multiply an annual fee by the number of properties, if the charge is per property, to obtain the total fees.
Compute lease renewal fees. The company may charge a lease renewal fee each year for each tenant, as a flat rate or a percentage of the annual rent. Total the rents and multiply this figure by the percentage quoted, or multiply a flat-rate fee by the number of tenants, to calculate the total renewal fees.
Estimate the lease-up fee. When a new lease begins, the management contract may allow for a flat-rate lease-up fee. Estimate the number of new leases for the year and multiply this number by the flat-rate fee.
Calculate other occasional fees. A management company should inspect all your properties at regular intervals, for example every three months, and may charge an additional inspection fee for this service. Multiply the number of properties you own by the number of inspections each year and then multiply that number by the inspection fee. Some companies charge a freshen-up fee to air out a vacant property every few weeks; to calculate this, assume that each property will require one freshen-up per year. Multiply the number of properties by the freshen-up fee.
Compute marketing fees, which are intended to cover the cost of advertising a vacant property. Some companies include a minimum marketing fee in the annual contract, even if the property has been fully occupied during the year. In this case, multiply the fee by the number of properties you own. If the company charges marketing fees at actual cost, ask them to provide the average cost per property and multiply this amount by the number of properties.
Calculate rental collection fees, usually quoted as a percentage of rent collected. Estimate costs by assuming your property will be occupied for 11 months of the year. Multiply the monthly rent by 11 and then by the percentage management fee. Be aware that some companies continue to charge a rental fee when the property is vacant, in which case multiply the monthly rent by 12.
Calculate the effective management fee to compare charges from several companies. Total the costs from Steps 1 through 6 for each company. Total the estimated rental income for the year from all properties. Divide the total rental income by the total fees and multiply by 100 to obtain the effective management fee.
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