Dr. Danielle Babb: Determining a Fair Management Fee
Sneak Peek!The following is an excerpt of Dani Babb's not yet released new book, "The Accidental Landlord"!
How to Determine a Fair Management FeeBy Dr. Danielle Babb
If you’ve decided not to rent out a house for yourself, one question you may be asking is, “is the management fee fair?” Remember in many cases you’re going to get what you pay for. You may ask for a multi-property discount if it applies to you. I always ask potential property managers for this; some will give it to you and others won’t. Expect to pay between 6% and 10% of each month’s rent collected, and expect to pay between 50% of one months’ rent to a full months’ rent to find tenants. This usually covers advertising costs, but be sure to ask if you’re footing the bill for those costs on top of the fees. If you are, you might want to consider going elsewhere. Find out how much they charge for finding a tenant, and what their monthly management fee is. Find out if they require you list your property with them if you decide to sell (if they do, I recommend eliminating them from your list).
Find out what the management fee includes. How can tenants deposit funds to them? Do they require a mail-in payment? How quickly do they follow up with late tenants? Will they pay you via direct deposit or do you have to wait for a mailed check? My property manager in Austin not only directly deposits rental payments but also emails out statements in PDF format! Talk about convenient! If you travel a lot look for this option.
Your cash flow statement will look a little different; primarily your property manager will take generally two “cuts” of your income. The first is in the form of a finders-fee which can vary from $0 to only advertising costs to a full month’s rent. This is generally negotiable if you have more than one property you are renting out but not so much if you are only renting one with the property manager. The second is in the form of a monthly payment, which is generally a percent of rent collected. The property manager will also hang onto the tenants’ deposit as a credit in your account and is responsible for taking repairs out of the deposit and based on state rules, giving the tenant their deposit back within the allotted period of time.
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