At DeDe’s Rentals, we get phone calls, almost on a daily basis, from property owners who want to know about our services and how we can help them. The total value of our services is that we create cash flow, limit liability, and simplify your life. But that’s not necessarily the leading question that we get asked. The initial question is usually, “how much do your services cost?” Whether you’re talking to us or to another property management company, that one question is a consistent inquiry.
There are a variety of costs that may or may not be part of any management company’s structure. Some costs would be paid – directly or indirectly – by the property owner, and some revenue streams might generate from other sources, including vendors and tenants. In today’s blog, we’re going to focus specifically on the two primary costs that you’d pay as a property owner: management fees and placement fees.
The management fee is typically calculated in one of two ways. Some companies calculate that fee as a flat rate. For example, the management fee might be $300 per month whether your property rents for $900 or $2,900. Alternately, some companies charge a percentage of the rent received. So if the commission is ten percent and you have a $900 property, you’ll pay $90 per month, whereas someone with a $2,900 property would pay $290 every month. Of course, if that is based on “rent received,” when the tenant doesn’t pay the rent or the property is unoccupied, if there’s no rent, there’s no commission.
There are companies that might assess a minimum charge, whether the property is occupied or not, and whether tenant has paid rent or not. The theory behind that presumption is even a vacant property requires maintenance and oversight, so there’s a cost and overhead associated. If the tenant isn’t paying rent, there is even more effort involved and that time should be compensated. So, in your conversations with any agency, ask how the property management fee is structured and ask if there are minimums.
Tenant Placement Services
Most agencies offer tenant placement as a service directly associated with their normal property management services, and some offer tenant placement as a stand-alone service. If it’s part of the ongoing management services, some managers will build the cost of this service into their ongoing management commission. For example, if you are charged twelve percent each month and it includes tenant placement, that’s what you pay regardless of whether the agency places tenants four times in a year or once in ten years. You wouldn’t pay on a per-instance basis. Other companies might charge per transaction. So if you don’t have a vacancy over the course of ten years, you have no additional expense, but it you had three vacancies in that time, you’d incur three transaction charges.
If the tenant placement fee is assessed on a “per transaction” basis, there are various pricing structures, just as there are with management fees. Some agencies will charge for tenant placement as a percentage of the nominal rent, ie fifty percent of a full month’s rent. Alternately, this might also be a flat charge – for example, $500 for the service, regardless of the actual rent amount.
Advertising and marketing costs are typically billed separately from placement commissions. Ask what that cost is, and how it’s calculated. You’ll also want to ask a property manager about the marketing effectiveness. There are so many marketing options – newspaper, signage, Craigslist, agency websites, Rentals.com, other websites – the options are only as limited as the creativity of the agency. However, some have very effective results, and some – like the newspaper classified section, for example – are not the best investment of your advertising dollars. Find out where your marketing dollars would be going, and what the expected results would be.
We’ll talk about other income sources, including ancillary services, income via vendors and maintenance, and revenue from tenants, in other blogs. If you have any questions about this subject, contact us at DeDe’s Rentals. Property management can be complicated, we’re here to simplify it.