Hiring a good property manager is more of an asset than an expense for successful real estate investors.
The best property management companies help you keep your rental property occupied year after year, increase your return on investment (ROI), and free up your valuable time.
How Property Management Charges Work
Typically, property management charges are structured in one of three ways:
1. Percentage of Monthly Rent
Usually, property management companies charge a monthly fee ranging from 8% to 12% of the monthly rent collected. For example, if your monthly rent is ₹12,000, the property management fee would be ₹1200 based on a 10% average fee.
When a vacant property is leased to a new tenant, management companies typically charge a fixed fee or a fee equal to the anticipated monthly rent. Vacant properties may require additional management work, such as weekly inspections for potential break-ins or the presence of trespassers.
2. Fixed Property Management Fee
Some property managers charge a flat fee rather than a percentage of the monthly rent. Usually, the fixed property management charges depend on the property type, square footage, and property management services provided.
The fixed property management charges will vary by market. While a flat fee structure may seem a good deal at first glance, management companies that collect a fixed fee may not be as motivated to maximize your property's rental income.
3. Sublet/Guaranteed Rent Model
In this model, the property management company will lease the property from you, and then sublease it to another tenant. The advantage is that you will get rent for your property even if your property is vacant.
While this may seem like an ideal arrangement, it comes with several disadvantages.
The Property Management Company will ideally ask you to sign a sublease agreement with them where they will acquire the power to sub-let your property to preferred tenants. Here you will lose control over your property. You would get lower rent than the market value, as clearly the management company would need to earn a profit, even after taking a hit of the vacancy loss.
It is difficult to ensure monthly payments when your property is vacant, hence the chances of default are very high, as we have seen with almost all companies offering this model, during the pandemic.
Additional Property Management Fees
Property management charges are not always all-inclusive. A management company may charge for additional services besides the monthly fee collected:
Contract Setup Fee
Most property management firms will charge a one-time setup fee for the following costs:
Because there are more potential problems, managing a vacant property can be more labour-intensive for a property management company than managing a tenanted property.
Because utilities must be left on for showings, security lights could burn out, or water leaks could unexpectedly occur. Even in the best neighbourhoods, the longer a rental property sits vacant, the greater the risk of it being broken into or vandalised. Therefore, the property manager will need to visit the property at least once a week to help minimise these risks.
Premium marketing charges
There are plenty of rental listing websites where you can list a vacant rental property and reach out to millions of potential tenants each month. Some of these charge a premium fee for a more prominent listing.
While some property management companies do not charge this fee back to a customer, some others do. At PropertyAngel, we completely absorb this cost. It is not charged to the customer.
Repairs and Maintenance | property management charges
The best property management companies will have a well-established network of reliable vendors. Maintenance and repair costs should be lower than what you could find on your own because most vendors offer a property management company's preferred pricing in exchange for the business. Thus, when interviewing prospective property management companies, make sure to ask about any labour and supply cost markups. For example, at PropertyAngel we have standardised most maintenance costs and this is shared with the customers at the outset.
Routine Inspection Fees
Generally, a residential rental property should be inspected every three to six months. Routine inspections help to catch and fix minor issues before they become big and expensive, as well as to ensure that the tenant is not causing damage to the property.
Like PropertyAngel, some property management companies will conduct a semi-annual inspection at no charge. Others may request that you pay for each inspection for a lower monthly property management fee.
Although it doesn't happen often, there may come a time when you must evict a tenant for nonpayment of rent, causing repeated disruption in the neighbourhood, or destroying your rental property. Big property management companies may have the expertise to handle evictions on their own, whereas others will hire a local law firm that specialises in residential evictions to handle the work, which leads to eviction fees.
Contract Termination Fee | property management charges
Unless the landlord breaches the property management contract "for cause," such as the manager failing to perform as agreed, breaking the property management agreement early will usually result in an early contract termination fee.
Termination fees can differ greatly and can range from one month's lost income to a landlord being sued for breach of contract.
PropertyAngel, a leading O2O (online-to-offline) property management company, headquartered in Bangalore, and founded to serve landlords with the best property management services. To make your real estate portfolio work for you, fill out our Inquiry Form or call us at (91-80-47095974) or (91-7406484455).
Do visit our blog page for more property management updates.
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